Haystacks

Sales
Michael Vernon Guerrero Mendiola 2003 Shared under Creative Commons AttributionNonCommercial-ShareAlike 3.0 Philippines license.

Some Rights Reserved.

Table of Contents
Acap vs. CA [GR 118114, 7 December 1995] …......... 1 Adalin vs. CA [GR 120191, 10 October 1997] …......... 3 Addison vs. Felix [GR 12342, 3 August 1918] …......... 6 Adelfa Properties vs. CA [GR 111238, 25 January 1995] …......... 9 Agricultural and Home Extension Development Group vs. CA [GR 92310, 3 September 1992] …......... 15 Almendra vs. IAC [GR 75111, 21 November 1991] …......... 17 Ang Yu Asuncion, et.al, vs. CA [GR 109125, 2 December 1994] …......... 20 Angeles vs. Calasanz [GR L-42283, 18 March 1985] …......... 24 Azcona vs. Reyes [GR 39590, 6 February 1934] …......... 27 Aznar vs. Yapdiangco [GR L-18536, 31 March 1965] …......... 29 Babasa vs. CA [GR 124045, 21 May 1998] …......... 31 Bagnas vs. CA [GR 38498, 10 August 1989] …......... 34 Balatbat vs. CA [GR 109410, 28 August 1996] …......... 37 Calimlim-Canullas vs. Fortun [GR 57499, 22 June 1984] …......... 40 Carbonell vs. CA [GR L-29972, 26 January 1976] …......... 42 Carumba vs. CA [GR L-27587, 18 February 1970] …......... 49 Celestino Co vs. Collector of Internal Revenue [GR L-8506, 31 August 1956] …......... 50 Cheng vs. Genato [GR 129760, 29 December 1998] …......... 52 CIR vs. Engineering Equipment and Supply [GR L-27044, 30 June 1975] …......... 58 Coronel vs. CA [GR 103577, 7 October 1996] …......... 62 Coronel vs. Ona [GR 10280, 7 February 1916] …......... 68 Cruz vs. Cabana [GR 56232, 22 June 1984] …......... 71 Cruz vs. Filipinas Investment [GR L-24772, 27 May 1968] …......... 73 Cuyugan vs. Santos …......... [unavailable] Dagupan Trading vs. Macam [GR L-18497, 31 May 1965] …......... 76 Dalion vs. CA [GR 78903, 28 February 1990] …......... 77 Daguilan vs. IAC [GR L-69970, 28 November 1988] …......... 79 De la Cavada vs. Diaz [GR L-11668, 1 April 1918] …......... 82 Delta Motors Sales vs. Niu Kim Duan [GR 61043, 2 September 1992] …......... 86 Dignos vs. Lumungsod [GR L-59266, 29 February 1988] …......... 87 Dizon vs. CA, 302 SCRA 288 …......... [unavailable] Doromal vs. CA [GR L-36083, 5 September 1975] …......... 90 Dy vs. CA [GR 92989, 8 July 1991] …......... 93 EDCA Publishing vs. Santos [GR 80298, 26 April 1990] …......... 96 Elisco Tool Manufacturing vs. CA, 308 SCRA 731 (1999) …......... [unavailable] Engineering and Machinery Corp. vs. CA [GR 52267, 24 January 1996] …......... 99 Equatorial Realty vs. Mayfair Theater [GR 106063, 21 November 1996] …......... 102 Intestate Estate of Emilio Camon; Ereneta vs. Bezore [GR L-29746, 26 November 1973] …......... 109 Heirs of Escanlar, et.al, vs. CA [GR 119777, 23 October 1997] …......... 110 Espiritu vs. Valerio [GR L-18018, 26 December 1963] …......... 116 Estoque vs. Pajimula [GR L-24419, 15 July 1968] …......... 117 Filinvest Credit vs. CA [GR 82508, 29 September 1989] …......... 118 Filipinas Investment vs. Ridad [GR L-27645, 28 November 1969] …......... 121 First Philippine International Bank vs. CA, 252 SCRA (1996) …......... [unavailable] Froilan vs. Pan-Oriental Shipping Co., 12 SCRA 276 (1964) …......... [unavailable] Fule vs. CA [GR 112212, 2 March 1998] …......... 124 Gaite vs. Fonacier [GR L-11827, 31 July 1961] …......... 128 Goldenrod Inc, vs. CA [GR 126812, 24 November 1998] …......... 131 Guiang vs. CA [GR 125172, 26 June 1998] …......... 133 J, Schuback & Sons vs. CA [GR 105387, 11 November 1993] …......... 135

Spouses Ladanga vs. CA [GR L-55999, 24 August 1984] …......... 137 Legarda Hermanos vs. Saldana [GR L-26578, 28 January 1974] …......... 138 Levy Hermanos vs. Gervacio [GR 46306, 27 October 1939] …......... 140 Lim vs. CA, 263 SCRA 569 (1996) …......... [unavailable] Limketkai Sons Milling vs. CA [GR 118509, 1 December 1995] …......... 141 Loyola vs. CA [GR 115734, 23 February 2000] …......... 147 Luzon Brokerage vs. Maritime, 86 SCRA 305 (1978) …......... [unavailable] Macondray vs. Eustaquio [GR 43683, 16 July 1937] …......... 150 Manila Racing Club vs. Manila Jockey Club [GR L-46533, 28 October 1939] …......... 154 Mapalo vs. Mapalo [GR L-21489 and L-21628, 19 May 1966] …......... 155 Mate vs. CA [G.R, Nos, 120724-25, 21 May 1998] …......... 158 Mclaughin vs. CA, 144 SCRA 693 (1986) …......... [unavailable] Medina vs. Collector of Internal Revenue [GR L-15113, 28 January 1961] …......... 160 Melliza vs. Iloilo City [GR L-24732, 30 April 1968] …......... 161 Mendoza vs. Kalaw [GR 16420, 12 October 1921] …......... 163 Mindanao Academy vs. Yap [GR L-17681, 26 February 1965] …......... 165 Montilla vs. CA [GR L-47968, 9 May 1988] …......... 168 National Grains Authority vs. IAC [GR 74470, 8 March 1989] …......... 170 Navera vs. CA [GR L-56838, 26 April 1990] …......... 171 Nietes vs. CA, 46 SCRA 654 …......... [unavailable] Noel vs. CA [GR 59550, 11 January 1995] …......... 176 Spouses Nonato vs. IAC [GR L-67181, 22 November 1985] …......... 179 Nool vs. CA [GR 116635, 24 July 1997] …......... 180 Northern Motors vs. Sapinoso [GR L-28074, 29 May 1970] …......... 184 Odyssey Park Inc, vs. CA, 280 SCRA 253 (1997) …......... [unavailable] Ong vs. CA [GR 97347, 6 July 1999] …......... 186 Ong vs. Ong [GR L-67888, 8 October 1985] …......... 189 Pangilinan vs. CA, 279 SCRA 590 (1997) …......... [unavailable] Pasagui vs. Villablanca [GR L-21998, 10 November 1975] …......... 190 Paulmitan vs. CA [GR 61584, 25 November 1992] …......... 191 Philippine Trust Company vs. PNB [GR 16483, 7 December 1921] …......... 194 Philippine Trust Co. vs. Roldan [GR L-8477, 31 May 1956] …......... 198 Pichel vs. Alonzo [GR L-36902, 30 January 1982] …......... 199 PNB vs. CA, 262 SCRA 464 (1995) …......... [unavailable] Power Commercial and Industrial Corp. vs. CA [GR 119745, 20 June 1997] …......... 203 Puyat & Sons vs. Arco Amusement [GR 47538, 20 June 1941] …......... 206 Quijada vs. CA [GR 126444, 4 December 1998] …......... 208 Quimson vs. Rosete [GR L-2397, 9 August 1950] …......... 211 Quiroga vs. Parsons Hardware [GR 11491, 23 August 1918] …......... 213 Radiowealth Finance vs. Palileo [GR 83432, 20 May 1991] …......... 215 Republic vs. Philippine Development Corp. [GR L-10141, 31 January 1958] …......... 216 Ridad vs. Filipinas Investment [GR L-39806, 27 January 1983] …......... 219 Rillo vs. CA [GR 125347, 19 June 1997] …......... 221 Romero vs. CA [GR 103577, 7 October 1996] …......... 223 Roque vs. Lapuz, 96 SCRA 741 (1980) …......... [unavailable] Rubias vs. Batiller [GR L-35702, 29 May 1973] …......... 226 Sanchez vs. Rigos [GR L-25494, 14 June 1972] …......... 229 Siy Cong Bieng and Co. vs. Hongkong and Shanghai Banking Corp. [GR 34655, 5 March 1932] …......... 232 Soriano, et al. vs. Bautista, et al. [GR L-15752, 29 December 1962] …......... 234 Sta. Ana vs. Hernandez [GR L-16394, 17 December 1966] …......... 236

Suria vs. IAC, 151 SCRA 661(1987) …......... [unavailable] Tagatac vs. Jimenez, 53 OG 3792 (1957) …......... [unavailable] Tajanlangit vs. Southern Motors [GR L-10789, 28 May 1957] …......... 239 Tanedo vs. CA [GR 104482, 22 January 1996] …......... 241 Torres vs. CA [GR 134559, 9 December 1999] …......... 243 Toyota Shaw vs. CA [GR 116650, 23 May 1995] …......... 246 Universal Food Corp. vs. CA, 33 SCRA 1 (1970) …......... [unavailable] Uy vs. CA [GR 120465, 9 September 1999] …......... 249 Vallarta vs. CA [GR L-40195, 29 May 1987] …......... 253 Vasquez vs. CA [GR 83759, 12 July 1991] …......... 256 Vda, De Gordon vs. CA [GR L-37831, 23 November 1981] …......... 258 Vda, De Jomoc vs. CA [GR 92871, 2 August 1991] …......... 260 Vda, De Quiambao vs. Manila Motor Company [GR L-17384, 31 October 1961] …......... 262 Velasco vs. CA [GR L-31018, 29 June 1973] …......... 264 Villaflor vs. CA [GR 95694, 9 October 1997] …......... 268 Villamor vs. CA [GR 97332, 10 October 1991] …......... 274 Villonco Realty vs. Bormaheco Inc, [GR L-26872, 25 July 1975] …......... 277 Yao Ka Sin Trading vs. CA, 209 SCRA 763 …......... [unavailable] Yu Tek vs. Gonzales [GR 9935, 1 February 1915] …......... 283 Yuviengco vs. Dacuycuy, 104 SCRA 668 (1981) …......... [unavailable] Zayas vs. Luneta Motor Company [GR L-30583, 23 October 1982] …......... 285

This collection contains one hundred three (103) out of one hundred twenty one (121) assigned cases summarized in this format by Michael Vernon M. Guerrero (as a sophomore law student) during the First Semester, school year 2003-2004 in the Sales class under Atty. Amado Paolo Dimayuga at the Arellano University School of Law (AUSL). Compiled as PDF, July 2011. Berne Guerrero entered AUSL in June 2002 and eventually graduated from AUSL in 2006. He passed the Philippine bar examinations immediately after (April 2007).

www.berneguerrero.com

Haystacks (Berne Guerrero)

[1] Acap v. CA [G.R. No. 118114. December 7, 1995.] First Division, Padilla (J): 4 concurring Facts: The title to Lot 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT R-12179. The lot has an area of 13,720 sq. m. The title was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document entitled “Declaration of Heirship and Deed of Absolute Sale” in favor of Cosme Pido. Since 1960, Teodoro Acap had been the tenant of a portion of the said land, covering an area of 9,500 sq. m. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon Pido’s death, to his widow Laurenciana. The controversy began when Pido died interstate and on 27 November 1981, his surviving heirs executed a notarized document denominated as “Declaration of Heirship and Waiver of Rights of Lot 1130 Hinigaran Cadastre,” wherein they declared to have adjudicated upon themselves the parcel of land in equal share, and that they waive, quitclaim all right, interests and participation over the parcel of land in favor of Edy de los Reyes. The document was signed by all of Pido’s heirs. Edy de los Reyes did not sign said document. It will be noted that at the time of Cosme Pido’s death, title to the property continued to be registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, de los Reyes filed the same with the Registry of Deeds as part of a notice of an adverse claim against the original certificate of title. Thereafter, delos Reyes sought for Acap to personally inform him that he had become the new owner of the land and that the lease rentals thereon should be paid to him. Delos Reyes alleged that he and Acap entered into an oral lease agreement wherein Acap agreed to pay 10 cavans of palay per annum as lease rental. In 1982, Acap allegedly complied with said obligation. In 1983, however, Acap refused to pay any further lease rentals on the land, prompting delos Reyes to seek the assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited Acap, who sent his wife, to a conference scheduled on 13 October 1983. The wife stated that the she and her husband did not recognize delos Reyes’s claim of ownership over the land. On 28 April 1988, after the lapse of four (4) years, delos Reys field a complaint for recovery of possession and damages against Acap, alleging that as his leasehold tenant, Acap refused and failed to pay the agreed annual rental of 10 cavans of palay despite repeated demands. On 20 August 1991, the lower court rendered a decision in favor of delos Reyes, ordering the forfeiture of Acap’s preferred right of a Certificae of Land Transfer under PD 27 and his farmholdings, the return of the farmland in Acap’s possession to delos Reyes, and Acap to pay P5,000.00 as attorney’s fees, the sum of P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual damages. Aggrieved, petitioner appealed to the Court of Appeals. Subsequently, the CA affirmed the lower court’s decision, holding that de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled “Declaration of Heirship and Waiver of Rights”, and ordering the dispossession of Acap as leasehold tenant of the land for failure to pay rentals. Hence, the petition for review on certiorari. The Supreme Court granted the petition, set aside the decision of the RTC Negros Occidental, dismissed the complaint for recovery of possession and damages against Acap for failure to properly state a cause of action, without prejudice to private respondent taking the proper legal steps to establish the legal mode by which he claims to have acquired ownership of the land in question. 1. Asserted right or claim to ownership not sufficient per se to give rise to ownership over the res An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must be
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completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition transfer of ownership over a thing in question. 2. Classes of modes of acquiring ownership Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two (2) classes, namely, the original mode (i.e, through occupation, acquisitive prescription, law or intellectual creation) and the derivative mode (i.e., through succession mortis causa or tradition as a result of certain contracts, such as sale, barter, donation, assignment or mutuum). 3. Contract of Sale; “Declaration of Heirship and Waiver of Rights” an extrajudicial settlement between heirs under Rule 74 of the Rules of Court In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. On the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. In the present case, the trial court erred in equating the nature and effect of the Declaration of Heirship and Waiver of Rights the same with a contract (deed) of sale. 4. Sale of hereditary rights and waiver of hereditary rights distinguished There is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. In the present case, de los Reyes, being then a stranger to the succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document which neither recites the elements of either a sale, or a donation, or any other derivative mode of acquiring ownership. 5. sale Summon of Ministry of Agrarian Reform does not conclude actuality of sale nor notice of such

The conclusion, made by the trial and appellate courts, that a “sale” transpired between Cosme Pido’s heirs and de los Reyes and that Acap acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss de los Reyes’ claim over the lot in question, has no basis both in fact and in law. 6. A notice of adverse claim does not prove ownership over the lot; Adverse claim not sufficient to cancel the certificate of tile and for another to be issued in his name A notice of adverse claim, by its nature, does not however prove private respondent’s ownership over the tenanted lot. “A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity of which is yet to be established in court at some future date, and is no better than a notice of lis pendens which is a notice of a case already pending in court.” In the present case, while the existence of said adverse claim was duly proven (thus being filed with the Registry of Deeds which contained the Declaration of Heirship with Waiver of rights an was annotated at the back of the Original Certificate of Title to the land in question), there is no evidence whatsoever that a deed of sale was executed between Cosme Pido’s heirs and de los Reyes transferring the rights of the heirs to the land in favor of de los Reyes. De los Reyes’ right or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title to be issued in de los Reyes’ name. 7. Transaction between heirs and de los Reyes binding between parties, but cannot affect right of
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Acap to tenanted land without corresponding proof thereof While the transaction between Pido’s heirs and de los Reyes may be binding on both parties, the right of Acap as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of de los Reyes’ ownership without the corresponding proof thereof. Acap had been a registered tenant in the subject land since 1960 and religiously paid lease rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his family (after Pido’s death), even if in 1982, de los Reyes allegedly informed Acap that he had become the new owner of the land. 8. No unjustified or deliberate refusal to pay the lease rentals to the landowner / agricultural lessor De los Reyes never registered the Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with the MAR, but instead, he filed a notice of adverse claim on the said lot to establish ownership thereof (which cannot be done). It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by Acap to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in this case, de los Reyes failed to established in his favor by clear and convincing evidence. This notwithstanding the fact that initially, Acap may have, in good faith, assumed such statement of de los Reyes to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to latter. For in 1983, it is clear that Acap had misgivings over de los Reyes’ claim of ownership over the said land because in the October 1983 MAR conference, his wife Laurenciana categorically denied all of de los Reyes’ allegations. In fact, Acap even secured a certificate from the MAR dated 9 May 1988 to the effect that he continued to be the registered tenant of Cosme Pido and not of delos Reyes. 9. Sanction of forfeiture of tenant’s preferred right and possession of farmholdings should not be applied The sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer under PD 27 and to the possession of his farmholdings should not be applied against Acap, since de los Reyes has not established a cause of action for recovery of possession against Acap. [2] Adalin vs. CA [G.R. No. 120191. October 10, 1997.] First Division, Hermosisima Jr. (J): 3 concurring, 1 took no part Facts: In August 1987, Elena K. Palanca, in behalf of the Kado siblings, commissioned Ester Bautista to look for buyers for their property fronting the Imperial Hotel in Cotabato City. Bautista logically offered said property to the owners of the Imperial Hotel which may be expected to grab the offer and take advantage of the proximity of the property to the hotel site. True enough, Faustino Yu, the President-General Manager of Imperial Hotel, agreed to buy said property. Thus during that same month of August 1987, a conference was held in Yu’s office at the Imperial Hotel. Present there were Yu, Loreto Adalin who was one of the tenants of the 5-door, 1-storey building standing on the subject property, and Elena Palanca and Teofilo Kado in their own behalf as sellers and in behalf of the other tenants of said building. During the conference, Yu and Lim categorically asked Palanca whether the other tenants were interested to buy the property, but Palanca also categorically answered that the other tenants were not interested to buy the same. Consequently, they agreed to meet at the house of Palanca on 2 September 1987 to finalize the sale. On said date, Loreto Adalin; Yu and Lim and their legal counsel; Palanca and Kado and their legal counsel; and one other tenant, Magno Adalin, met at Palanca’s house. Magno Adalin was there in his own behalf as tenant of two of the five doors of the one-storey building standing on the subject property and in behalf of the tenants of the two other doors, namely. Carlos Calingasan and Demetrio Adaya. Again, Yu and Lim asked Palanca and Magno Adalin whether the other tenants were interested to buy the subject property, and Magno Adalin unequivocally answered that he and the other tenants were not so interested mainly because they could not afford it. However, Magno Adalin asserted that he and the other tenants were each entitled to a disturbance fee of
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P50,000.00 as consideration for their vacating the subject property. During said meeting, Palanca and Kado, as sellers, and Loreto Adalin and Yu and Lim, as buyers, agreed that the latter will pay P300,000 as downpayment for the property and that as soon as the former secures the eviction of the tenants, they will be paid the balance of P2,300,000. Pursuant to the above terms and conditions, a Deed of Conditional Sale was drafted by the counsel of Yu and Lim. On 8 September 1987, at Yu’s Imperial Hotel office, Palanca and Eduarda Vargas, representing the sellers, and Loreto Adalin and Yu and Lim signed the Deed of Conditional Sale. They also agreed to defer the registration of the deed until after the sellers have secured the eviction of the tenants from the subject property. The tenants, however, refused to vacate the subject property. Being under obligation to secure the eviction of the tenants, in accordance with the terms and conditions of the Deed of Conditional Sale, Elena Palanca filed with the Barangay Captain a letter complaint for unlawful detainer against the said tenants. Two days after Palanca filed an ejectment case before the Barangay Captain against the tenants of the subject property, Magno Adalin, Demetrio Adaya and Carlos Calingasan wrote letters to Palanca informing the Kado siblings that they have decided to purchase the doors that they were leasing for the purchase price of P600,000 per door. Almost instantly, Palanca, in behalf of the Kado siblings, accepted the offer of the said tenants and returned the downpayments of Yu and Lim. Of course, the latter refused to accept the reimbursements. Yu and Lim filed a complaint witht the Barangay Captain for Breach of Contract against Elena Palanca. During the conference, Yu and Lim, if only to accommodate Magno Adalin and settle the case amicably, agreed to buy only 1 door each so that the latter could purchase the two doors he was occupying. However, Magno Adalin adamantly refused, claiming that he was already the owner of the 2 doors. When Lim asked Magno Adalin to show the Deed of Sale for the two doors, the latter insouciantly walked out. There being no settlement forged, on 16 May 1988, the Barangay Captain issued the Certification to File Action. On 5 May 1988, Yu and Lim filed their complaint for ‘Specific Performance’ against the Palanca, et. al. and Adalin in the RTC. On 14 June 1988, Yu and Lim caused the annotation of a “Notice of Lis Pendens” at the dorsal portion of TCT 12963. On 25 October 1988, Calingasan, Adalin, et.al. filed a ‘Motion for Intervention as Plaintiffs-Intervenors’ appending thereto a copy of the ‘Deed of Sale of Registered Land’ signed by Palanca, et.al. On 27 October 1988, Calingasan et.al. filed the “Deed of Sale of Registered Land” with the Register of Deeds on the basis of which TCT 24791 over the property was issued under their names. On the same day, Calingasan, et.al. filed in the Court a quo a “Motion To Admit Complaint-In-Intervention”. Attached to the Complaint-In-Intervention was the “Deed of Sale of Registered Land.” Yu and Lim were shocked to learn that Palanca, et. al. had signed the said deed. As a counter-move, Yu and Lim filed a motion for leave to amend Complaint and, on 11November1988, filed their Amended Complaint impleading Calingasan, et. al. as additional Defendants. Palanca, et.al. suffered a rebuff when, on 10 January 1989, the RTC General Santos City issued an Order dismissing the Petition of Calingasan, et. al. for consignation. In the meantime, on 30 November 1989, Loreto Adalin died and was substituted, per order of the Court a quo, on 5 January 1990, by his heirs, namely, Anita, Anelita, Loreto, Jr., Teresita, Wilfredo, Lilibeth, Nelson, Helen and Jocel, all surnamed Adalin. After trial, the Court a quo rendered judgment in favor of Calingasan, Adalin, et.al. The Court order Palanca, et.al. in solidum to pay moral damages of P500,000.00, P100,000.00 exemplary damages each to both Yu and Lim and P50,000.00 as and for attorney’s fees. They were ordered to return the P200,000.00 initial payment received by them with legal interest from date of receipt thereof up to 3 November 1987. Yu and Lim wasted no time in appealing from the decision of the trial court. They were vindicated when the Court of Appeals rendered its decision in their favor. Accordingly, the Court of Appeals rendered another judgment in the case and ordered that the “Deed of Conditional Sale” was declared valid; that the “Deeds of Sale of Registered Land” and TCT 24791 were hereby declared null and void; that Calingasan, et.al. except the heirs of Loreto Adalin were ordered to vacate the property within 30 days from the finality of the Decision; that Palanca, et.al were ordered to execute, in favor of Yu and Lim, a “Deed of Absolute Sale”
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covering 4 doors of the property (which includes the area of the property on which said four doors were constructed) except the door purchased by Loreto Adalin, free of any liens or encumbrances; that Yu amd Lim were ordered to remit to Palanca, et.al. the balance of the purchase price of the 4 doors in the amount of P1,880,000; that Palanca, et.al. were ordered to refund to Calingasan, et.al. the amount of P840,000 which they paid for the property under the “Deed of Conditional Sale of Registered Land” without interest considering that they also acted in bad faith; that Magno Adalin was ordered to pay the amount of P3,000 a month, and each of other tenants, except Loreto Adalin, the amount of P1,500 to Yu and Lim, from November 1987, up to the time the property was vacated and delivered to the latter, as reasonable compensation for the occupancy of the property, with interest thereon at the rate of 6% per annum; and that Palanca, et.al. were ordered to pay, jointly and severally, to Yu and Lim, individually, the amount of P100,000.00 by way of moral damages, P20,000.00 by way of exemplary damages and P20,000.00 by way of attorney’s fees. Hence, the petition for review. The Supreme Court dismissed the petition; with costs against Calingasan, Adalin, et.al. 1. Grounds merely splits aspects of the issue, i.e. the true nature of transaction entered by Yu and Lim with the Kado siblings The grounds relied upon by Calingasan, Adalin, et.al. are essentially a splitting of the various aspects of the one pivotal issue that holds the key to the resolution of this controversy: the true nature of the sale transaction entered into by the Kado siblings with Faustino Yu and Antonio Lim. The Courts task amounts to a declaration of what kind of contract had been entered into by said parties and of what their respective rights and obligations are thereunder. 2. Deed of Conditional Sale; Obligation of the seller to eject the tenants and the obligation of the buyer to pay the balance of the purchase price; Choice as to whom to sell is determined Palanca, in behalf of the Kado siblings who had already committed to sell the property to Yu and Lim and Loreto Adalin, understood her obligation to eject the tenants on the subject property. Having gone to the extent of filing an ejectment case before the Barangay Captain, Palanca clearly showed an intelligent appreciation of the nature of the transaction that she had entered into: that she, in behalf of the Kado siblings, had already sold the subject property to Yu and Lim and Loreto Adalin, and that only the payment of the balance of the purchase price was subject to the condition that she would successfully secure the eviction of their tenants. In the sense that the payment of the balance of the purchase price was subject to a condition, the sale transaction was not yet completed, and both sellers and buyers have their respective obligations yet to be fulfilled: the former, the ejectment of their tenants; and the latter, the payment of the balance of the purchase price. In this sense, the Deed of Conditional Sale may be an accurate denomination of the transaction. But the sale was conditional only inasmuch as there remained yet to be fulfilled, the obligation of the sellers to eject their tenants and the obligation of the buyers to pay the balance of the purchase price. The choice of who to sell the property to, however, had already been made by the sellers and is thus no longer subject to any condition nor open to any change. In that sense, therefore, the sale made by Palanca to Yu, Lim, and Adalin was definitive and absolute. 3. No acts of parties justifies radical change of Palanca’s posture; No legal basis for the acceptance of tenant’s offer to buy Nothing in the acts of the sellers and buyers before, during or after the said transaction justifies the radical change of posture of Palanca who, in order to provide a legal basis for her later acceptance of the tenants’ offer to buy the same property, in effect claimed that the sale, being conditional, was dependent on the sellers not changing their minds about selling the property to Yu and Lim. The tenants, for their part, defended Palanca’s subsequent dealing with them by asserting their option rights under Palanca’s letter of 2 September 1987 and harking on the non-fulfillment of the condition that their ejectment be secured first. 4. No legal rationalizing can sanction Palanca’s arbitrary breach of contract
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The Court cannot countenance the double dealing perpetrated by Palanca in behalf of the Kado siblings. No amount of legal rationalizing can sanction the arbitrary breach of contract that Palanca committed in accepting the offer of Magno Adalin, Adaya and Calingasan to purchase a property already earlier sold to Yu and Lim. 5. Alleged 30-day option for tenant to purchase void for lack of consideration The 30-day option to purchase the subject property allegedly given to the tenants as contained in the 2 September 1987 letter of Palanca, is not valid for utter lack of consideration. 6. Palanca and tenants estopped Yu and Lim twice asked Palanca and the tenants concerned as to whether or not the latter were interested to buy the subject property, and twice, too, the answer given was that the said tenants were not interested to buy the subject property because they could not afford it. Clearly, said tenants and Palanca, who represented the former in the initial negotiations with Yu and Lim, are estopped from denying their earlier statement to the effect that the said tenants Magno Adalin, Adaya and Calingasan had no intention of buying the four doors that they were leasing from the Kado siblings. 7. Subsequent sale clearly made in bad faith The subsequent sale of the subject property by Palanca to the tenants, smacks of gross bad faith, considering that Palanca and the said tenants were in full awareness of the August and September negotiations between Bautista and Palanca, on the one hand, and Loreto Adalin, Faustino Yu and Antonio Lim, on the other, for the sale of the one-storey building. It cannot be denied, thus, that Palanca and the said tenants entered into the subsequent or second sale notwithstanding their full knowledge of the subsistence of the earlier sale over the same property to Yu and Lim. 8. Prior registration cannot erase gross bad faith characterizing second sale Though the second sale to the said tenants was registered, such prior registration cannot erase the gross bad faith that characterized such second sale, and consequently, there is no legal basis to rule that such second sale prevails over the first sale of the said property to Yu and Lim. 9. Refusal of tenants from vacating property not a valid justification to renege on obligation to sell Palanca, et.al. cannot invoke the refusal of the tenants to vacate the property and the latter’s decision to themselves purchase the property as a valid justification to renege on and turn their backs against their obligation to deliver or cause the eviction of the tenants from and deliver physical possession o the property to Yu and Lim. It would be the zenith of inequity for Palanca, et. al. to invoke the occupation by the tenants, as of the property, as a justification to ignore their obligation to have the tenants evicted from the property and for them to give P50,000.00 disturbance fee for each of the tenants and a justification for the latter to hold on to the possession of the property. 10. Second sale cannot be preferred even if the prior conditional sale was not consummated Assuming, gratia arguendi, for the nonce, that there had been no consummation of the “Deed of Conditional Sale” by reason of the non-delivery to Yu and Lim of the property, it does not thereby mean that the “Deed of Sale of Registered Land” executed by Palanca, et.al and the tenants should be given preference. [3] Addison vs. Felix [G.R. No. 12342. August 3, 1918.] En Banc, Fisher (J): 5 concurring Facts: By a public instrument dated 11 June 1914, A. A. Addison sold to Marciana Felix, with the consent of her husband, Balbino Tioco, 4 parcels of land. Felix paid, at the time of the execution of the deed, the sum of
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P3,000 on account of the purchase price, and bound herself to pay the remainder in installments, the first of P2,000 on 15 July 1914, the second of P5,000 30 days after the issuance to her of a certificate of title under the Land Registration Act, and further, within 10 years from the date of such title, P10 for each coconut tree in bearing and P5 for each such tree not in bearing, that might be growing on said 4 parcels of land on the date of the issuance of title to her, with the condition that the total price should not exceed P85,000. It was further stipulated that the purchaser was to deliver to the vendor 25% of the value of the products that she might obtain from the 4 parcels from the moment she takes possession of them until the Torrens certificate of title be issued in her favor. It was also covenanted that within 1 year from the date of the certificate of title in favor of Marciana Felix, this latter may rescind the present contract of purchase and sale, in which case Felix shall be obliged to return to Addison the net value of all the products of the 4 parcels sold, and shall be obliged to return to her all the sums that was paid, together with interest at the rate of 10% per annum. After the execution of the deed of sale, at the request of Felix. Addison went to Lucena, accompanied by the former’s representative, for the purpose of designating and delivering the lands sold. He was able to designate only 2 of the 4 parcels, and more than 2/3s of these were found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts so occupied by him. Addison admitted that Felix would have to bring suit to obtain possession of the land. In June 1914, Felix filed an application with the Land Court for the registration in her name of 4 parcels of land described in the deed of sale executed in her favor, to obtain from the Land Court a writ of injunction against the occupants, and for the purpose of the issuance of this writ. The proceedings in the matter of this application were subsequently dismissed, for failure to present the required plans within the period of the time allowed for the purpose. In January 1915, Addison filed suit in the CFI Manila to compel Felix to make payment of the first installment of P2,000, demandable on 15 July 1914, and of the interest in arrears, at the stipulated rate of 8% per annum. Felix and Tioco answered the complaint and alleged by way of special defense that Addison had absolutely failed to deliver the lands that were the subject matter of the sale, notwithstanding the demands made upon him for this purpose. She therefore asked that she be absolved from the complaint, and that, after a declaration of the rescission of the contract of the purchase and sale of said lands, Addison be ordered to refund the P3,000 that had been paid to him on account, together with the interest agreed upon, and to pay an indemnity for the losses and damages which the defendant alleged she had suffered through Addison’s nonfulfilment of the contract. The trial court rendered judgment in favor of Felix, holding the contract of sale to be rescinded and ordering the return the P3,000 paid on account of the price, together with interest thereon at the rate of 10% per annum. From this judgment Addison appealed. The Supreme Court held that the contract of purchase and sale entered into by and between the Parties on 11 June 1914 is rescinded, and ordered Addison to make restitution of the sum of P3,000 received by him on account of the price of the sale, together with interest thereon at the legal rate of 6% per annum from the date of the filing of the complaint until payment, with the costs of both instances against Addison. 1. sold Cross Complaint not founded on conventional rescission but on the failure to deliver the land

The Cross complaint is not founded on the hypothesis of the conventional rescission relied upon by the court, but on the failure to deliver the land sold. The right to rescind the contract by virtue of the special agreement not only did not exist from the moment of the execution of the contract up to one year after the registration of the land, but does not accrue until the land is registered. The wording of the clause substantiates the contention. The one year’s deliberation granted to the purchaser was to be counted “from the date of the certificate of title . . ..” Therefore the right to elect to rescind the contract was subject to a condition, namely, the issuance of the title. The record shows that up to the present time that condition has not been fulfilled; consequently Felix cannot be heard to invoke a right which depends on the existence of that condition. 2. “Fulfillment of condition impossible for reason imputable to party” not presented
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If in-the cross-complaint it had been alleged that the fulfillment of the condition was impossible for reasons imputable to Addison, and if this allegation had been proven, perhaps the condition would have been considered as fulfilled (arts. 1117, 1118, and 1119, Civ. Code). This issue, however, was not presented in Felix’s answer. 3. Tradition / Delivery by the vendor of the thing sold The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed “in the hands and possession of the vendee.” (Civ. Code, art. 1462.) It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality — the delivery has not been effected. 4. Delivery, according to Dalloz The word ‘delivery’ expresses a complex idea, the abandonment of the thing by the person who makes the delivery and the taking control of it by the person to whom the delivery is made (Dalloz;Gen. Rep., vol. 43, p. 174 in his commentaries on article 1604 of the French Civil Code). 5. Execution of a public instrument, when sufficient The execution of a public instrument is sufficient for the purposes of the abandonment made by the vendor, but it is not always sufficient to permit of the apprehension of the thing by the purchaser. 6. Fictitious tradition not necessarily implies real tradition of the thing sold When the sale is made through the means of a public instrument, the execution of this latter is equivalent to the delivery of the thing sold: which does not and cannot mean that this fictitious tradition necessarily implies the real tradition of the thing sold, for it is incontrovertible that, while its ownership still pertains to the vendor (and with greater reason if it does not), a third person may be in possession of the same thing; wherefore, though, as a general rule, he who purchases by means of a public instrument should be deemed to be the possessor in fact, yet this presumption gives way before proof to the contrary (Supreme court of Spain, decision of November 10, 1903, [Civ. Rep., vol. 96, p. 560] interpreting article 1462 of the Civil Code). 7. Rescission of sale and return of price due to non-delivery of thing sold In the present case, the mere execution of the instrument was not a fulfillment of the vendor’s obligation to deliver the thing sold, and that from such nonfulfillment arises the purchaser’s right to demand, as she has demanded, the rescission of the sale and the return of the price. (Civ. Code, arts. 1506 and 1124.) 8. No agreement for vendee to take steps to obtain material possession of thing sold If the sale had been made under the express agreement of imposing upon the purchaser the obligation to take the necessary steps to obtain the material possession of the thing sold, and it were proven that she knew that the thing was in the possession of a third person claiming to have property rights therein, such agreement would be perfectly valid. But there is nothing in the instrument which would indicate, even implicitly, that such was the agreement.

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8.

Possession while land is being registered contemplated in contract The obligation was incumbent upon Felix to apply for and obtain the registration of the land in the new registry of property; but from this it cannot be concluded that she had to await the final decision of the Court of Land Registration, in order to be able to enjoy the property sold. On the contrary, it was expressly stipulated in the contract that the purchaser should deliver to the vendor 1/4 “of the products of the 4 parcels from the moment when she takes possession of them until the Torrens certificate of title be issued in her favor.” This obviously shows that it was not foreseen that the purchaser might be deprived of her possession during the course of the registration proceedings, but that the transaction rested on the assumption that she was to have, during said period, the material possession and enjoyment of the 4 parcels of land. 9. Legal interest due as rescission is made by virtue of provisions of law As the rescission is made by virtue of the provisions of law and not by contractual agreement, it is not the conventional but the legal interest that is demandable. [4] Adelfa Properties vs. CA [G.R. No. 111238. January 25, 1995.] Second Division, Regalado (J): 3 concurring Facts: Rosario Jimenez-Castaneda, Salud Jimenez and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 sq. ms (TCT 309773) situated in Barrio Culasi, Las Piñas, Metro Manila. On 28 July 1988, Jose and Dominador Jimenez sold their share consisting of 1/2 of said parcel of land, specifically the eastern portion thereof, to Adelfa Properties pursuant to a “Kasulatan sa Bilihan ng Lupa.” Subsequently, a “Confirmatory Extrajudicial Partition Agreement” was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 sq. ms. was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to Rosario and Salud Jimenez. Thereafter, Adelfa Properties expressed interest in buying the western portion of the property from Rosario and Salud. Accordingly, on 25 November 1989, an “Exclusive Option to Purchase” was executed between the parties, with the condition that the selling price shall be P2,856,150, that the option money of P50,000 shall be credited as partial payment upon the consummation of sale, that the balance is to be paid on or before 30 November 1989, and that in case of default by Adelfa Properties to pay the balance, the option is cancelled and 50% of the option money shall be forfeited and the other 50% refunded upon the sale of the property to a third party, and that all expenses including capital gains tax, cost of documentary stamps are for the account of the vendors and the expenses for the registration of the deed of sale for the account of Adelfa properties. Considering, however, that the owner’s copy of the certificate of title issued to Salud Jimenez had been lost, a petition for the re-issuance of a new owner’s copy of said certificate of title was filed in court through Atty. Bayani L. Bernardo. Eventually, a new owner’s copy of the certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to Adelfa Properties, Inc. Before Adelfa Properties could make payment, it received summons on 29 November 1989, together with a copy of a complaint filed by the nephews and nieces of Rosario and Salud against the latter, Jose and Dominador Jimenez, and Adelfa Properties in the RTC Makati (Civil Case 89-5541), for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT 309773. As a consequence, in a letter dated 29 November 1989, Adelfa Properties informed Rosario and Salud that it would hold payment of the full purchase price and suggested that the latter settle the case with their nephews and nieces, adding that “if possible, although 30 November 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m.” Another letter of the same tenor and of even date was sent by Adelfa Properties to Jose and Dominador Jimenez. Salud Jimenez refused to heed the suggestion of Adelfa Properties and attributed the suspension of payment of the purchase price to “lack of word of honor.” On 7 December 1989, Adelfa Properties caused to be annotated on the title of the lot its option contract with Salud and Rosario, and its contract of sale with Jose and Dominador Jimenez, as Entry
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No. 1437-4 and entry No. 1438-4, respectively. On 14 December 1989, Rosario and Salud sent Francisca Jimenez to see Atty. Bernardo, in his capacity as Adelfa Properties’ counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This was rejected by Rosario and Salud. On 22 December 1989, Atty. Bernardo wrote Rosario and Salud on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter. On 23 February 1990, the RTC dismissed Civil Case 89-5541. On 28 February 1990, Adelfa Properties caused to be annotated anew on TCT 309773 the exclusive option to purchase as Entry 4442-4.On the same day, 28 February 1990, Rosario and Salud executed a Deed of Conditional Sale in favor of Emylene Chua over the same parcel of land for P3,029,250.00, of which P1,500,000.00 was paid to the former on said date, with the balance to be paid upon the transfer of title to the specified 1/2 portion. On 16 April 1990, Atty. Bernardo wrote Rosario and Salud informing the latter that in view of the dismissal of the case against them, Adelfa Properties was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. This was ignored by Rosario and Salud. On 27 July 1990, Jimenez’ counsel sent a letter to Adelfa Properties enclosing therein a check for P25,000.00 representing the refund of 50% of the option money paid under the exclusive option to purchase. Rosario and Salud then requested Adelfa Properties to return the owner’s duplicate copy of the certificate of title of Salud Jimenez. Adelfa Properties failed to surrender the certificate of title. Rosario and Salud Jimenez filed Civil Case 7532 in the RTC Pasay City (Branch 113) for annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that Adelfa Properties be ordered to return the owner’s duplicate certificate of title; and that the annotation of the option contract on TCT 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention. On 5 September 1991, the trial court rendered judgment holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by Adelfa Properties constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that Adelfa Properties could not validly suspend payment in favor of Rosario and Salud on the ground that the vindicatory action filed by the latter’s kin did not involve the western portion of the land covered by the contract between the parties, but the eastern portion thereof which was the subject of the sale between Adelfa Properties and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered Adelfa Properties to pay damages and attorney’s fees to Rosario and Salud, with costs. On appeal, the Court of appeals affirmed in toto the decision of the court a quo (CA-GR 34767) and held that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner not to buy the property; that the suspension of payment constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the document subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale executed by Rosario and Salud in favor of intervenor Emylene Chua. Hence, the petition for review on certiorari. The Supreme Court affirmed the assailed judgment of the Court of Appeals in CA-GR CV 34767, with modificatory premises. 1. Agreement between parties a contract to sell and not an option contract or a contract of sale The alleged option contract is a contract to sell, rather than a contract of sale. The distinction between the two is important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the
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full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, 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 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. 2. Intent not to transfer ownership need not be expressed The parties never intended to transfer ownership to Adelfa Properties to completion of payment of the purchase price, this is inferred by the fact that the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that Adelfa Properties is obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, it may legally be inferred that there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the Civil Code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and binding and enforceable between the parties. A contract which contains this kind of stipulation is considered a contract to sell. Moreover, that the parties really intended to execute a contract to sell is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from Adelfa Properties’ letter dated 16 April 1990 wherein it informed the vendors that it “is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale.” 3. No actual or constructive delivery of property to indicate contract of sale; Circumstances negate presumption of possession of title is to be understood as delivery It has not been shown that there was delivery of the property, actual or constructive, made. The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. Neither did Adelfa Properties take actual, physical possession of the property at any given time. It is true that after the reconstitution of the certificate of title, it remained in the possession of Atty. Bayani L. Bernardo, Adelfa’s counsel. Normally, under the law, such possession by the vendee is to be understood as a delivery. However, Rosario and Salud explained that there was really no intention on their part to deliver the title to Adelfa Properties with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. The court found no reason not to believe said explanation, aside from the fact that such contention was never refuted or contradicted by Adelfa Properties. 4. Perfected contract to sell The controverted document should legally be considered as a perfected contract to sell, and not “strictly an option contract.” 5. Contract interpreted to ascertain intent of parties; Title not controlling if text shows otherwise The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is to be discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone. Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. In addition, the title of a contract does not necessarily determine its true nature. Hence, the fact that the document under discussion is entitled “Exclusive Option to Purchase” is not controlling where the text thereof shows that it is a contract to sell.

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6.

Option defined As used in the law on sales, an option is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an “unaccepted offer.” An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that is, the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. 7. Contract defined A contract, like a contract to sell, involves a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. 8. Distinction between an option and a contract of sale The distinction between an “option” and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell his land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement. 9. Acceptance; formal or informal Except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. In the present case, a perusal of the contract involved, as well as the oral and documentary evidence presented by the parties, readily shows that there is indeed a concurrence of Adelfa’s offer to buy and the Jimenezes’ acceptance thereof. 10. Contract clear, only performance of obligations required of parties The offer to buy a specific piece of land was definite and certain, while the acceptance thereof was absolute and without any condition or qualification. The agreement as to the object, the price of the property, and the terms of payment was clear and well-defined. No other significance could be given to such acts that than that they were meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by stipulating that “all expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa Properties, Inc.” Hence, there was nothing left to be done except the performance of the respective obligations of the parties.

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11.

No counter-offer The offer of Adelfa Properties to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price for the settlement of the civil case was not a counter-offer. There already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only when it is accepted by the other. In the case of the Jimenezes, they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable. At any rate, the same cannot be considered a counter-offer for the simple reason that Adelfa Properties’ sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by Adelfa Properties to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by Adelfa Properties that it was totally abandoning the original contract. 12. Test to determine contract as a “contract of sale or purchase” or mere “option” The test in determining whether a contract is a “contract of sale or purchase” or a mere “option” is whether or not the agreement could be specifically enforced. There is no doubt that Adelfa’s obligation to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had the Jimenezes chosen to enforce the contract, they could have specifically compelled Adelfa to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence. 13. Option agreement An agreement is only an “option” when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing for forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made. This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves. 14. Contract not an option contract; “Balance” While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited in case of default in payment is to be considered as an option contract, the contract executed between the parties is an option contract, for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were not merely quoting an agreed value for the property. The term “balance,” connotes a remainder or something remaining from the original total sum already agreed upon. 15. When earnest money given in a contract of sale Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain. 16. Distinctions between earnest and option money There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy.

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17.

Article 1590, New Civil Code Article 1590 of the Civil Code provides “Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price.” As the agreement between the parties was not an option contract but a perfected contract to sell; and therefore, Article 1590 would properly apply. 18. Adelfa Properties justified in suspending payment of balance by reason of vindicatory action filed against it In Civil Case 89-5541, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between Adelfa Properties and the Jimenez brothers, the same likewise prayed for the recovery of therein Jimenez’ share in that parcel of land specifically covered by TCT 309773. In other words, the Jimenezes were claiming to be co-owners of the entire parcel of land described in TCT 309773, and not only of a portion thereof nor did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers. Therefore, Adelfa Properties was justified in suspending payment of the balance of the purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by the Jimenezes that Adelfa Properties did not have to worry about the case because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price. 19. Jimenezes may no longer be compelled to sell and deliver subject property Be that as it may, and the validity of the suspension of payment notwithstanding, the Jimenezes may no longer be compelled to sell and deliver the subject property to Adelfa Properties for two reasons, that is, Adelfa’s failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by the Jimenezes. 20. Tender and consignation required in discharge of obligation (eg. Contract to sell); Different in cases involving exercise of right or privilege The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. Besides, a mere tender of payment is not sufficient to compel the Jimenezes to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish Adelfa Properties’ obligation to pay the balance of the purchase price. The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase, wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. A contract to sell involves the performance of an obligation, not merely the exercise of a privilege or a right. Consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. 21. Adelfa no longer had right to suspend payment after dismissal of civil case against it Adelfa Properties no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, Adelfa failed to seasonably make payment, as in fact it has failed to do so up to the present time, or even to deposit the money with the trial court when this case was originally filed therein.

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22.

Rescission in a contract to sell Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, as in the contract involved in the present controversy. By Adelfa’s failure to comply with its obligation, the Jimenezes elected to resort to and did announce the rescission of the contract through its letter to Adelfa dated 27 July 1990. That written notice of rescission is deemed sufficient under the circumstances. 23. Resolution of reciprocal contracts may be made extrajudicially, unless impugned in court It was held in University of the Philippines vs. De los Angeles, etc. that the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. However, this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be subject to judicial determination. Otherwise, if said party does not oppose it, the extrajudicial rescission shall have legal effect. In the present case, although Adelfa Properties was duly furnished and did receive a written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of Jimenezes’ claim. 24. Adelfa estopped Furthermore, the initiative of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. But then, aside from the lackadaisical manner with which Adelfa Properties treated the Jimenezes’ letter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If the Jimenezes had not taken the initiative of filing Civil Case 7532, evidently Adelfa had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it desires but which it had theretofore disdained. [5] Agricultural and Home Extension Development Group vs. CA [G.R. No. 92310. September 3, 1992.] First Division, Cruz (J): 3 concurring Facts: On 29 March 1972, the spouses Andres Diaz and Josefa Mia sold to Bruno Gundran a 19-hectare parcel of land in Las Piñas, Rizal, covered by TCT 287416. The owner’s duplicate copy of the title was turned over to Gundran. However, he did not register the Deed of Absolute Sale because he said he was advised in the Office of the Register of Deeds of Pasig of the existence of notices of lis pendens on the title. On 20 November 1972, Gundran and Agricultural and Home Development Group (AHDG) entered into a Joint Venture Agreement for the improvement and subdivision of the land. This agreement was also not annotated on the title. On 30 August 1976, the spouses Andres Diaz and Josefa Mia again entered into another contract of sale of the same property with Librado Cabautan. On 3 September 1976, by virtue of an order of the CFI Rizal, a new owner’s copy of the certificate of title was issued to the Diaz spouses, who had alleged the loss of their copy. On that same date, the notices of lis pendens annotated on TCT 287416 were canceled and the Deed of Sale in favor of Cabautan was recorded. A new TCT S-33850/T-172 was thereupon issued in his name in lieu of the canceled TCT 287416. On 14 March 1977, Gundran instituted an action for reconveyance before the CFI Pasay City * against Librado Cabautan and Josefa Mia seeking, among others, the cancellation of TCT 33850/T-172 and the issuance of a new certificate of title in his name. On 31 August 1977, AHDG, represented by Nicasio D. Sanchez, Sr. (later substituted by Milagros S. Bucu), filed a complaint in intervention with substantially the same allegations and prayers as that in Gundran’s complaint. In a decision dated 12 January 1987, Gundran’s
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complaint and petitioner’s complaint in intervention were dismissed for lack of merit. So was Cabautan’s counterclaims, for insufficiency of evidence. Upon appeal, this decision was affirmed by the Court of Appeals, with the modification that Josefa Mia was ordered to pay Gundran the sum of P90,000.00, with legal interest from 3 September 1976, plus the costs of suit. The Supreme Court denied the petition and affirmed in toto the questioned decision; with costs against AHDG. 1. Article 1544 Under Article 1544 of the Civil Code of the Philippines, it is provided that “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. 2. Preferential right of first to register The first sale to Gundran was not registered while the second sale to Cabautan was registered. Preferential rights are accorded to Cabautan, who had registered the sale in his favor, as against AHDG’s coventurer whose right to the same property had not been recorded. 3. Purchaser in good faith A purchaser in good faith is defined as “one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property.” In the present case, an examination of TCT 287416 discloses no annotation of any sale, lien, encumbrance or adverse claim in favor of Gundran or AHDC. 4. Registered property under Torrens system; Person charge with notice of burdens noted on the register of title When the property sold is registered under the Torrens system, registration is the operative act to convey or affect the land insofar as third persons are concerned. Thus, a person dealing with registered land is only charged with notice of the burdens on the property which are noted on the register or certificate of title. 5. Notices of lis pendes not a lien or encumbrance, merely notice of litigation of property subject to the result of the suit Notices of lis pendens in favor of other persons were earlier inscribed on the title did not have the effect of establishing a lien or encumbrance on the property affected. Their only purpose was to give notice to third persons and to the whole world that any interest they might acquire in the property pending litigation would be subject to the result of the suit. 6. Cabautan a purchaser in good faith and for value Cabautan took the risk of acquiring the property even in the light of notice of lis pendens inscribed in the title. Significantly, three days after the execution of the deed of sale in his favor, the notices of lis pendens were canceled by virtue of the orders of the CFI Rizal, Branch 23, dated 1 and 4 April 1974. Cabautan therefore acquired the land free of any liens or encumbrances and so could claim to be a purchaser in good faith and for value.

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7.

No evidence of alleged possession by AHDG AHDG insists that it was already in possession of the disputed property when Cabautan purchased it and that he could not have not known of that possession. Such knowledge should belie his claim that he was an innocent purchaser for value. However, the courts below found no evidence of the alleged possession, which the Supreme Court must also reject in deference to this factual finding. 8. Casis vs. CA not applicable; Different issues The issue in the present case is whether Cabautan is an innocent purchaser for value and so entitled to the priority granted under Article 1544 of the Civil Code. The Casis case, on the other hand, involved the issues of whether or not: 1) certiorari was the proper remedy of the petitioner: 2) the previous petition for certiorari which originated from the quieting of title case was similar to and, hence, a bar to the petition for certiorari arising from the forcible entry case; and 3) the court a quo committed grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the order which dissolved the restraining order issued in connection with the ejectment case. The Court was not called upon in that case to determine who as between the two purchasers of the subject property should be preferred. 9. Excerpt used by AHDG a narration of background facts and not adopted as a doctrine by the Supreme Court AHDG invokes the ruling of the lower court in that case to the effect that the registration of the sale in favor of the second purchaser and the issuance of a new certificate of title in his favor did not in any manner vest in him any right of possession and ownership over the subject property because the seller, by reason of their prior sale, had already lost whatever right or interest she might have had in the property at the time the second sale was made. The excerpt was included in the ponencia only as part of the narration of the background facts and was not thereby adopted as a doctrine of the Court. It was considered only for the purpose of ascertaining if the court below had determined the issue of the possession of the subject property pending resolution of the question of ownership. Obviously, the Court could not have adopted that questionable ruling as it would clearly militate against the provision of Article 1544. 10. No one can sell what he does not own; Article 1544 either an exception to the general rule or a reiteration of the general rule insofar as innocent third parties are concerned Justice Edgardo L. Paras observed that “No one can sell what he does not own, but this is merely the general rule. Is Art. 1544 then an exception to the general rule? In a sense, yes, by reason of public convenience (See Aitken v. Lao, 36 Phil. 510); in still another sense, it really reiterates the general rule in that insofar as innocent third persons are concerned, the registered owner (in the case of real property) is still the owner, with power of disposition. 11. Language of Article 1544 clear; Cabautan deemed owner The language of Article 1544 is clear and unequivocal. In light of its mandate and of the facts established in the present case, Ownership must be recognized in the private respondent, who bought the property in good faith and, as an innocent purchaser for value, duly and promptly registered the sale in his favor. [6] Almendra vs. IAC [G.R. No. 75111. November 21, 1991.] Third Division, Fernan (CJ): 4 concurring Facts: The mother, Aleja Ceno, was first married to Juanso Yu Book with whom she had 3 children named Magdaleno, Melecia and Bernardina, all surnamed Ceno. Sometime in the 1920’s, Juanso Yu Book took his family to China where he eventually died. Aleja and her daughter Bernardina later returned to the Philippines. During said marriage, Aleja acquired a parcel of land which she declared in her name under Tax Declaration
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11500. After Juanso Yu Book’s death, Bernardina filed against her mother a case for the partition of the said property in the then CFI Leyte. On 17 August 1970, the lower court rendered a “supplemental decision” finding that the said property had been subdivided into Lots 6354 (13,738 sq.ms.), 6353 (16,604 sq.ms.), 6352 (23,868 sq.ms.) and 6366 (71,656 sq.ms.). The Court declared Bernardina Ojeda owner of and entitled to possession of Lot 6354; Ojeda as owner of and entitled to possession of Lot 6353 without prejudice to whatever rights her sister Melecia Ceno (presently in China) may have over the property; Aleja Almendra as owner of and entitled to possession of Lot 6366; and Aleja Almendra as owner of and entitled to possession of Lot 6352, subject to whatever may be the rights thereto of her son Magdaleno Ceno (presently in China). The Court ordered the parties to bear the fees of the commissioner. Meanwhile, Aleja married Santiago Almendra with whom she had 4 children named Margarito, Angeles, Roman and Delia. During said marriage Aleja and Santiago acquired a 59,196-sq.ms. parcel of land in Cagbolo, Abuyog, Leyte. OCT 10094 was issued therefor in the name of Santiago Almendra married to Aleja Ceno and it was declared for tax purposes in his name. In addition to said properties, Aleja inherited from her father, Juan Geno, a 16,000-sq.ms. parcel of land also in Cagbolo. For his part, her husband Santiago inherited from his mother, Nicolasa Alvero, a 16-sq. ms. parcel of residential land located in Nalibunan, Abuyog, Leyte. While Santiago was alive, he apportioned these properties among Aleja’s children in the Philippines, including Bernardina, who, in turn, shared the produce of the properties with their parents. After Santiago’s death, Aleja sold to her daughter, Angeles Almendra, for P2,000 two parcels of land in the deed of sale dated 10 August 1973 (½ portion or conjugal share of land [TD 22234, OCT 10094], and ½ portion or conjugal share of land [TD 27190] both located in Bo. Cagbolo, Abuyog, Leyte. On 26 December 1973, Aleja sold to her son, Roman Almendra, also for P2,000 a parcel of land described in the deed of sale as located in Cagbolo, Abuyog, Leyte “under T/D 11500 which cancelled T/D 9635; having an area of 6.6181 hec., assessed at P1,580.00.” On the same day, Aleja sold to Angeles and Roman again for P2,000 yet another parcel of land described in the deed of sale (Lot 6352). Aleja died on 7 May 1975. On 21 January 1977 Margarito, Delia and Bernardina (plaintiffs) filed a complaint against Angeles and Roman for the annulment of the deeds of sale in their favor, partition of the properties subjects therein and accounting of their produce. From China, their sister Melecia signed a special power of attorney in favor of Bernardina. Magdaleno, who was still in China, was impleaded as a defendant in the case and summons by publication was made on him. Later, the plaintiffs informed the court that they had received a document in Chinese characters which purportedly showed that Magdaleno had died. Said document, however, was not produced in court. Thereafter, Magdaleno was considered as in default without prejudice to the provisions of Section 4, Rule 18 of the Rules of Court which allows the court to decide a case wherein there are several defendants upon the evidence submitted only by the answering defendants. On 30 April 1981, the lower court rendered a decision declaring the deeds of sale to be simulated and therefore null and void; ordering the partition of the estate of the deceased Aleja Ceno among her heirs and assigns; appointing the Acting Clerk of Court, Atty. Cristina T. Pontejos, as commissioner, for the purpose of said partition, who is expected to proceed accordingly upon receipt of a copy of this decision; and to render her report on or before 30 days from said receipt. The expenses of the commissioner shall be borne proportionately by the parties. The defendants appealed to the then Intermediate Appellate Court which, on 20 February 1986 rendered a decision upholding the validity of the deeds of sale and ordered the partition of the “undisposed” properties left by Aleja and Santiago Almendra and, if an extrajudicial partition can be had, that it be made within a reasonable period of time after receipt of its decision. The plaintiffs filed their motion for reconsideration, which was denied. Hence, the petition for review on certiorari. The Supreme Court affirmed the decision of the then Intermediate Appellate Court subject to the modifications stated in the present decision. The Court directed the lower court to facilitate with dispatch the preparation and approval of a project of partition of the properties considered unsold under the present decision.

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1.

No convincing reason to nullify deeds of sale; Testimony of the notary given more credence There is no valid, legal and convincing reason for nullifying the questioned deeds of sale. Petitioner had not presented any strong, complete and conclusive proof to override the evidentiary value of the duly notarized deeds of sale. Moreover, the testimony of the lawyer who notarized the deeds of sale that he saw not only Aleja signing and affixing her thumbmark on the questioned deeds but also Angeles and Aleja “counting money between them,” deserves more credence than the self-serving allegations of the petitioners. Such testimony is admissible as evidence without further proof of the due execution of the deeds in question and is conclusive as to the truthfulness of their contents in the absence of clear and convincing evidence to the contrary. 2. No proof that price (P2,000) was grossly inadequate The petitioners’ allegations that the deeds of sale were “obtained through fraud, undue influence and misrepresentation,” and that there was a defect in the consent of Aleja in the execution of the documents because she was then residing with Angeles, had not been fully substantiated. They failed to show that the uniform price of P2,000 in all the sales was grossly inadequate. It should be emphasized that the sales were effected between a mother and two of her children in which case filial love must be taken into account. 3. Defendants proved they have means to purchase the properties Angeles and Roman amply proved that they had the means to purchase the properties. Petitioner Margarito Almendra himself admitted that Angeles had a sari-sari store and was engaged in the business of buying and selling logs. 20 Roman was a policeman before he became an auto mechanic and his wife was a school teacher. 4. Conjugal property; Aleja cannot claim title for definite portion of the conjugal property before its partition The 10 August 1973 sale to Angeles of one-half portion of the conjugal property covered by OCT P10094 may only be considered valid as a sale of Aleja’s one-half interest therein. Aleja could not have sold the particular hilly portion specified in the deed of sale in the absence of proof that the conjugal partnership property had been partitioned after the death of Santiago. Before such partition, Aleja could not claim title to any definite portion of the property for all she had was an ideal or abstract quota or proportionate share in the entire property. 5. Paraphernal property; Sale valid The sale of the one-half portion of the parcel of land covered by Tax Declaration 27190 is valid because the said property is paraphernal being Aleja’s inheritance from her own father. 6. Land subject to Civil Case 4387; Aleja could not have intended the sale of whole property already subdivided As regards the sale of the property covered by Tax Declaration 11500, since the property had been found in Civil Case 4387 to have been subdivided, Aleja could not have intended the sale of the whole property covered by said tax declaration. She could exercise her right of ownership only over Lot 6366 which was unconditionally adjudicated to her in said case. 7. Caveat emptor on Lot 6352; Lot still subject to rights of Magdaleno Ceno Lot 6352 was given to Aleja in Civil Case 4387 “subject to whatever may be the rights thereto of her son Magdaleno Ceno.” A reading of the deed of Sale covering this parcel of land would show that the sale is subject to the condition stated above; hence, the rights of Magdaleno Ceno are amply protected. The role on caveat emptor applies. [7]

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Ang Yu Asuncion, et.al. vs. CA [G.R. No. 109125. December 2, 1994.] En Banc, Vitug (J): 11 concurring, 1 took no part, 1 on leave Facts: On 29 July 1987 a Second Amended Complaint for Specific Performance was filed by Ann Yu Asuncion, Arthur Go, and Keh Tiong against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the RTC Manila (Branch 31, Civil Case 87-41058) alleging, among others, that the former are tenants or lessees of residential and commercial spaces owned by the latter described as 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before 9 October 1986, the latter informed the former that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while Ang Yu Asuncion, et.al. (plaintiffs) made a counter offer of P5-million; that plaintiffs thereafter asked Bobby Cu Unjieng, Rose Cu Unjueng and Jose Tan (defendants) to put their offer in writing to which request defendants acceded; that in reply to defendants’ letter, plaintiffs wrote them on 24 October 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated 28 January 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them. After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants’ offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11 million or below, plaintiffs will have the right of first refusal. Aggrieved by the decision, plaintiffs appealed to the Court of Appeals (CA-GR CV 21123). In a decision promulgated on 21 September 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), the appellate court affirmed with modification the lower court’s judgment, holding that there was no meeting of the minds between the parties concerning the sale of the property and thus, the claim for specific performance will not lie. The appellate did not grant the appellants the right of first refusal in the event the subject property is sold for a price in excess of P11 million. The decision of the appellate court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on 6 May 1991 “for insufficiency in form and substances.” On 15 November 1990, while CA-GR CV 21123 was pending consideration by the appellate court, the Cu Unjieng spouses executed a Deed of Sale transferring the property in question to Buen Realty and Development Corporation for P15 million. As a consequence of the sale, TCT 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT 195816 was issued in the name of Buen Realty on 3 December 1990. On 1 July 1991, Buen Realty as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. On 16 July 1991, the lessees wrote a reply to Buen Realty stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case 87-41058 annotated on TCT 105254/T-881 in the name of the Cu Unjiengs. The lessees filed a Motion for Execution dated 27 August 1991 of the Decision in Civil Case 87-41058 as modified by the Court of Appeals in CA-GR CV 21123. On 30 August 1991, the Judge issued an order ordering Cu Unkieng to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of the latter’s right of first refusal and that a new TCT be issued in favor of the buyer, and thus, setting aside all previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, which was said to have been executed in bad faith. On 22 September 1991, the Judge issue another order directing the Deputy Sheriff to implement the Writ of Execution ordering the defendants among
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others to comply with the Order of the Court within a period of 1 week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go. On the same day, the corresponding writ of execution was issued. On 4 December 1991, the appellate court, on appeal to it by Buen Realty (CA-GR SP 26345), set aside and declared without force and effect the questioned orders of the court a quo. Hence, the petition for certiorari. The Supreme Court upheld the decision of the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo; with costs against Ang Yu Asuncion, et. al. 1. 2. Obligation defined An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code).

Obligation, elements The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects. 3. Contract as a source of obligation Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. 4. Various stages of a contract: Negotiation, preparation, and consummation A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. 5. Perfection of a contract of sale In sales, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides that “By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.”

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6.

Contract to sell is conditional; Effect of breach of condition When the sale is not absolute but conditional, such as in a “Contract to Sell” where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 7. Stipulations govern over title in determining contract to be a contract of sale or contract to sell In Dignos vs. Court of Appeals (158 SCRA 375), although denominated a “Deed of Conditional Sale,” a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 8. Unconditional mutual promise to buy and sell obligatory on the parties An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 9. Perfected contract of option An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, which provides that “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. (1451a)” 10. Option not the contract of sale itself The option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 11. Offer A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). 12. Offer with a period; Effects of withdrawal (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdrawal the offer before its acceptance, or, if an acceptance has been made, before the offeror’s coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that “every person must, in the exercise of his rights and in the performance of his duties, act with justice,
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give everyone his due, and observe honesty and good faith.” (2) If the period has a separate consideration, a contract of “option” is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract (“object” of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an “earnest money” in a contract of sale that can evidence its perfection (Art. 1482, Civil Code). 13. Right of first refusal innovative; neither an option nor an offer In the law on sales, the so-called “right of first refusal” is an innovative juridical relation. It cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, or possibly of an offer under Article 1319 of the same Code. 14. Distinction of right of first refusal to an option or to an offer An option or an offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. 15. Breach of right of first refusal does not warrant issuance of a writ of execution nor sanction an action for specific performance; may only warrant recovery for damages under Article 19 of the Civil Code Even on the premise that such right of first refusal has been decreed under a final judgment, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would be inconsequential for an unjustified disregard thereof, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages. In the present case, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose. 16. Issue on Buen Realty’s good faith should be addressed in appropriate proceedings, as Buen Realty was not impleaded in Civil Case 87-41058 Whether Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case 87-41058, cannot be held subject to the writ of execution issued, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court. 17. Decision in Civil Case 87-41058 could have not been decreed
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The decision in Civil Case 87-41058 could not have decreed at the time the execution of any deed of sale between the Cu Unjiengs and Buen Realty. There was nothing in the decision, as modified by the appellate court, that decreed the execution of a deed of sale between the Cu Unjiengs and the lessees, or the fixing of the price of the sale, or the cancellation of title in the name of Buen Realty (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).” [8] Angeles vs. Calasanz [G.R. No. L-42283. March 18, 1985.] En Banc, Gutierrez Jr. (J): 5 concurring, 1 took no part Facts: On 19 December 1957, Ursula Torres Calasanz and Tomas Calasanz and Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum. Angeles made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P41.20 until fully paid, the installments being due and payable on the 19th day of each month. They paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, Calasanz accepted and received delayed installment payments from Angeles. On 7 December 1966, Calasanz wrote Angeles a letter requesting the remittance of past due accounts. On 28 January 1967, Calasanz cancelled the said contract because Angeles failed to meet subsequent payments. Angeles’ letter with their plea for reconsideration of the said cancellation was denied by Calasanz. Angeles filed Civil Case 8943 with the CFI Rizal, Seventh Judicial District, Branch X to compel Calasanz to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out that they have already paid the total amount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the land. Calasanz, on the other hand, alleged that the complaint states no cause of action and that Angeles violated paragraph 6 of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the month of August, 1966 for more than 5 months, thereby constraining Calasanz to cancel the said contract. The lower court rendered judgment in favor of Angeles, ordering that the contract was not validly cancelled by Calasanz, and ordered the latter to execute a final Deed of Sale In favor of Angeles, and to pay the sum of P500 by way of attorney’s fees; with costs against Calasanz. A motion for reconsideration filed by Calasanz was denied. On Appeal, the then Court of Appeals certified the case to the Supreme Court considering that the appeal involves pure questions of law. The Supreme Court denied the petition for lack of merit, affirmed the decision appealed from is with the modification that Angeles should pay the balance of P671.67 without any interests; with costs against Calasanz. 1. Contents of Paragraph 6 of the Contract Paragraph six of the contract provides “In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein agreed upon, he is granted a month of grace within which to make the retarded payment, together with the one corresponding to the said month of grace; it is understood, however, that should the month of grace herein granted to the party of the SECOND PART expired; without the payments corresponding to both months having been satisfied, an interest of 10% per annum will be charged on the amounts he should have paid; it is understood further, that should a period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned, and the party of SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date, the
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party of the FIRST PART has the right to declare this contract cancelled and of no effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel of land covered by this contract in favor of other persons, as if this contract had never been entered into. In case of such cancellation of the contract, all the amounts paid in accordance with this agreement together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the above mentioned premises, and as payment for the damages suffered by failure of the party of the SECOND PART to fulfill his part of the agreement, and the party of the SECOND PART hereby renounces all his right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party of the FIRST PART.” 2. Article 1191 of the Civil Code; Rescission of reciprocal obligations Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:”The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the later should become impossible.” Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. 3. Judicial action for rescission not necessary where contract provides for revocation for breach; Froilan vs. Pan Oriental Shipping There is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276). A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions’ (Lopez v. Commissioner of Customs, 37 SCRA 327, 334, and cases cited therein). Resort to judicial action for rescission is obviously not contemplated . . . The validity of the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by the Supreme Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504).” 4. UP vs. delos Angeles: Qualification to the Froilan ruling; Rescission must be justified The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides that it may be rescinded for violation of its terms and conditions, was qualified by the Court in University of the Philippines v. De los Angeles, (35 SCRA 102). It was held therein that “the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. Thus, the party who deems the contract violated many consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law . . .” 5. Extrajudicial resolution remains contestable and thus subject to judicial invalidation, unless barred by acquiescence, estoppel or prescription There is no conflict between this ruling and the previous jurisprudence of the Court declaring that judicial action is necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction
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can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription. 6. Right to rescind contract for non-performance of stipulations not absolute; Universal Food Corp. vs. CA The right to rescind the contract for non-performance of one of its stipulations is not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that “the general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968).” 7. Breach too slight; Sanctioning the rescission will do injustice, leads to unjust enrichment The breach of the contract adverted to by Calasanz is so slight and casual considering that apart from the initial downpayment of P392.00 Angeles had already paid the monthly installments for a period of almost 9 years. In other words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P3,920.00 excluding the 7% interests, Angeles had already paid an aggregate amount of P4,533.38. To sanction the rescission made by Calasanz will work injustice to Angeles. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich Calasanz. 8. Article 1234 of the Civil Code; Substantial performance Article 1234 of the Civil Code which provides that: “If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.” 9. Purpose of subdivisions Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise purposely done to afford those landless, low income group people of realizing their dream of a little parcel of land which they can really call their own. 10. Acceptance of delayed payments of installments, a waiver; Sellers estopped from exercising right of rescission When Calasanz, instead of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though Angeles have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, Calasanz has waived and is now estopped from exercising her alleged right of rescission. 11. De Guzman vs. Guieb in point In De Guzman v. Guieb (48 SCRA 68), the Court held therein that “In spite of the long arrearages, neither they nor their predecessor, Teodoro de Guzman, even took steps to cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is admitted that the delayed payments were received without protest or qualification.” Under these circumstances, the Court “cannot but agree with the lower court that at the time appellees exercised their option, appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the non-payment of six months rentals by appellees by their having accepted without qualification on July 21, 1964 the full payment by appellees of all their arrearages.” 12. Present contract to sell has characteristics of contract of adhesion The contract to sell entered into by the parties has some characteristics of a contract of adhesion.
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Calasanz drafted and prepared the contract; while Angeles, eager to acquire a lot upon which to build a home, affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to them on a “take it or leave it” basis. 13. Contract of adhesion; Sweet Lines vs. Teves In Sweet Lines, Inc. v. Teves (83 SCRA 361), the Court held that “while generally, stipulations in a contract come about after deliberate drafting by the parties thereto, .. there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the signing of his signature or his `adhesion’ thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category.’ (Paras, Civil Code of the Philippines, Seventh ed., Vol. I, p. 80.)” 14. Construction of a contract of adhesion The contract to sell, being a contract of adhesion, must be construed against the party causing it. The terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most unfair to the buyers. [9] Azcona vs. Reyes [G.R. No. 39590. February 6, 1934.] Second Division, Villa-Real (J): 4 concurring Facts: On 11 October 1920, Florentina Cordero, now deceased, executed a power of attorney authorizing her only daughter, Alberta L. Reyes, to mortgage in her name and representation all her land situated in the municipality of Pola, Mindoro. On 22 October 1920, Reyes, personally and as attorney in fact of her mother Florentina Cordero, in consideration of the sum of P6,500 received from Enrique Azcona, now deceased, sold to the latter, with the right of repurchase within the period of 4 years, 5 parcels of land with certificates of title belonging to her and Cordero. The vendors became lessees of the property sold, at a yearly rental of P780. On 23 October 1920, Reyes, as attorney in fact of Cordero, in consideration of the sum of P5,000 received from Azcona, sold to the latter, with the right of repurchase within the period of 4 years, a parcel of land with certificate of title 58 of the registry of deeds of Mindoro, belonging to Cordero. Cordero became the lessee of said property at a yearly rental of P600. On 1 October 1925, Reyes and Cordero jointly executed a power of attorney authorizing Gregorio Venturanza to sell and encumber all their real and personal including their cattle. Azcona died on 12 May 1925, and was succeeded in all his rights by his only son, Jesus Azcona, to whom the entire estate of his deceased father, together with the credits, was judicially adjudicated. Inasmuch as neither Reyes nor Cordero, during her lifetime, had exercised her right of redemption within the period of4 years, and inasmuch as they had asked for an extension of time, on 29 November 1926, Gregorio Venturanza, as attorney in fact of Reyes and Cordero, on one side, and Jesus Azcona, on the other, executed a deed whereby the deeds of sale with the right of repurchase dated October 22 and 23, 1920, respectively, were cancelled and their respective amounts of P6,500 and P5,000, together with the sum of P1,000 representing the unpaid accrued interest thereon, or a total amount of P12,500, were converted into a mortgage credit. In order to secure the cancellation of the registration of the alleged sales with the right of repurchase, the parcels of land described in the respective deeds were resold to the vendors and a mortgage was constituted thereon to secure the payment of said mortgage credit of P12,500 within the period of 2 years, extensible to another two years, with interest at 12% per annum. Under said contract the mortgagors Reyes and Cordero were permitted to liquidate said debt by installments in the sum of P2,500 with the interest due, to be paid on December 1 of every year, beginning in 1927. Reyes and Cordero, through Venturanza, paid by way of amortization and
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interest (P2,500 on 15 February 1927, P2,200 on 17 October 1927, P1,200 on 9 February 1929, P350 on 30 June 1929, and P600 on 20 September 1929; leaving a balance of P8,935.12). Since the last mentioned date, the mortgagors failed to pay amortization and interest so that on 30 June 1932, the unpaid balance thereof together with the unpaid accrued interest amounted to P11,958.05. <The facts do not provide the manner on how the issue was raised in the CFI Mindoro>. The parties (Jesus Azcona, on one hand; and Alberta Reyes and Gervasio Larracas as special administrator of the estate of Florentina Cordero, on the other) admit and the trial court so found that, although the instruments are in the form of deeds of sale with pacto de retro, in reality they represent mortgage loans. The CFI ordered Reyes, as administratix of Cordero’s estate, to pay Azcona the um of P11,985.05 with 12% interest until fully paid, 10$ of the sum representing expenses and attorney’s fees, and P2 as fees for the registration of the mortgage deed. The court also ordered that in case Reyes fails to pay the sums within 90 days from final judgment, the parcels of land shall be sold at public auction and the proceeds thereof applied to the payment of the sum and the balance delivered to Reyes. Reyes and Larracas appealed separately. The Supreme Court found no error in the judgment appealed from, and thus affirmed it in toto, with the costs against Reyes and Larracas. 1. Deeds of sale are not true deeds of pacto de retro sale but of mortgage; Resale mere formality to cancellation of registration and the notation of the mortgage deed The instruments are not true deeds of sale with pacto de retro but of mortgage, the resale of the parcels of land, made by Jesus Azcona in favor of Reyes and Cordero, is null and void on the ground that, as mere mortgagors, they never ceased to be the owners thereof and that Enrique Azcona, as a mere mortgagee, never acquired any title of ownership thereto. In order for a sale to be valid, it is necessary that the vendor be the owner of the thing sold, inasmuch as it is a principle of law that nobody can dispose of that which does not belong to him. However, the sales with pacto de retro were fictitious for the reason that the contracts entered into by Reyes and the deceased Enrique Azcona were really mortgage in their nature. Therefore, the resale was a mere formality resorted to for the purpose of obtaining the lawful cancellation of the registration thereof in the registry of deeds and the notation of the mortgage deed. 2. Mortgage deed not void, does not lack consideration or principal obligation which it purports to secure Reyes received the sum of P6,500 and another sum of P5,000 from the deceased Enrique Azcona, both sums representing the purchase price of certain parcels of land, which were sold with the right of repurchase. The sum of P12,500 which constitutes the cause or consideration of the deed of resale and mortgage Exhibit A is the total of the sums of P6,500 and P5,000 which Reyes, personally and as attorney in fact of Cordero, received from Enrique Azcona, together with the sum of P1,000 representing the unpaid credits passed by inheritance to Jesus Azcona. It cannot be said that the mortgage, executed by Venturanza, as attorney in fact of Reyes and Cordero, in favor of Jesus Azcona, lacks consideration or principal obligation for the fulfillment of which said instrument was executed as security. 3. Contracts of mortgage loans executed in form (attachment of SPA), binds Cordero Upon examination of said documents, Reyes made it appear that she acted as Florentina Cordero’s attorney in fact under a power of attorney issued to her by attaching a copy of said power of attorney to the deed in question. In the case of Orden de Dominicos vs. De Coster (50 Phil., 115), the Court held that such form is valid and sufficient under the law. Considered as mere contracts of mortgage loans, the deeds dated 22-23 October 1920 are binding upon Cordero, and compliance with the obligations contracted thereunder may be demanded in her intestate proceedings either as credit in favor of the intestate estate of Enrique Azcona or as credit in favor of Jesus Azcona against Cordero under the mortgage deed. 4. No statement of facts of alleged usury
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In regard to the question of usury raised, although it is true that failure to file a sworn answer to a cross-complaint for the recovery of usurious interest paid implies an admission of the existence of a usurious rate of interest (Lo Bun Chay vs. Paulino, 54 Phil., 144, cited with approval in the case of Ramirez and Polido vs. Bergado, 56 Phil., 810), however, the counterclaim and cross-complaint filed in the present case failed to state facts constituting the alleged usury but merely allege that in payment of a debt of P9,500 Azcona and his predecessor in interest received the amount of P20,130. Such statement does not in itself constitute an allegation of usury and failure to file a reply thereto implies denial of such allegation (Sec. 104, Act No. 190). 5. Existence of usurious interest not proven; 12% per annum stipulated, Charging compound interest does not make loan usurious The existence of usurious interest has not been proven during the trial inasmuch as it is stipulated that the vendors, as lessees, would have to pay the sum of P1,380 as yearly rental. Such sum, computed on the basis of a capital of P11,500 gives a rate of interest of only 12% per annum, which is allowed by law (Robinson vs. Sackermann and Postal Savings Bank, 46 Phil., 539). Furthermore, in the deed of resale and mortgage loan, interest at the rate of only 12% per annum is stipulated. The existence of a stipulation to the effect that accrued interest shall bear interest does not imply that the loans in question are usurious inasmuch as it is permitted to charge compound interest (sec. 5, Act No. 2655, as amended by sec. 3 of Act No. 3291; Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 54 Phil., 976). [10] Aznar vs. Yapdiangco [G.R. No. L-18536. March 31, 1965.] En Banc, Regala (J): 10 concurring Facts: In May 1959, Teodoro Santos advertised in two metropolitan papers the sale of his Ford Fairlane 500. In the afternoon of 28 May 1959, a certain L. De Dios, claiming to be a nephew of Vicente Marella, went to the Santos residence to answer the ad. However, Teodoro was out during this call and only the latter’s son, Irineo received and talked with De Dios. The latter told the young Santos that he had come in behalf of his uncle, Marella, who was interested to buy the advertised car. On being informed of the above, Teodoro instructed his son to see Marella the following day at his given address: 1642 Crisostomo Street, Sampaloc, Manila. And so, in the morning of 29 May 1959, Irineo went to said address. At this meeting, Marella agreed to buy the car for P14,700.00 on the understanding that the price would be paid only after the car had been registered in his name. Irineo then fetched his father who, together with De Dios, went to the office of a certain Atty. Jose Padolina where the deed of sale for the car was executed in Marella’s favor. The parties to the contract thereafter proceeded to the Motor Vehicles’ Office in Quezon City where the registration of the car in Marella’s name was effected. Up to that stage of the transaction, the purchase price had not been paid. From the Motor Vehicles Office, Teodoro returned to his house. He gave the registration papers and a copy of the deed of sale to his son and instructed him not to part with them until Marella shall have given the full payment for the car. Irineo and De Dios then proceeded to 1642 Crisostomo Street, Sampaloc in Manila where the former demanded for the payment from Marella. Marella said that the amount he had on hand then was short by some P2,000.00 and begged off to be allowed to secure the shortage from a sister supposedly living somewhere in Azcarraga Street, also in Manila. Thereafter, he ordered De Dios to go to the said sister and suggested that Irineo to go with him. At the same time, he requested for the registration papers and the deed of sale from Ireneo on the pretext that he would like to show them to his lawyers. Trusting the good faith of Marella, Ireneo handed over the same to the latter and thereupon, in the company of De Dios and another unidentified person, proceeded to the alleged house of Marella’s sister. At a place in Azcarraga, Irineo and De Dios alighted from the car and entered a house, while their unidentified companion remained in the car. Once inside, De Dios asked Irineo to wait at the sala while he went inside a room. That was the last that Ireneo saw of him. For, after a considerable length of time waiting in vain for De Dios to return, Ireneo went down to discover that neither the car nor their unidentified companion was there anymore. Going back to the house, he inquired from a woman he saw for De Dios and he was told that no such name lived or was even known
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therein. Whereupon, Ireneo rushed to 1642 Crisostomo to see Marella. He found the house closed and Marella gone. Finally, he reported the matter to his father who promptly advised the police authorities. That very same day, Marella was able to sell the car in question to Jose B. Aznar, for P15,000.00. Aznar acquired the said car from Marella in good faith, for a valuable consideration and without notice of the defect appertaining to the vendor’s title. While the car was thus in the possession of Aznar and while he was attending to its registration in his name, agents of the Philippine Constabulary seized and confiscated the same in consequence of the report to them by Teodoro that the said car was unlawfully taken from him. Aznar filed a complaint for replevin before the CFI Quezon City (Branch IV) against Captain Rafael Yapdiangco, the head of the Philippine Constabulary unit which seized the car. Claiming ownership of the vehicle, he prayed for its delivery to him. In the course of the litigation, however, Teodoro Santos moved and was allowed to intervene by the lower court. At the end of the trial, the lower court rendered a decision awarding the disputed motor vehicle to Santos. From the decision, Aznar appealed. The Supreme Court dismissed the appeal and affirmed the decision of the lower court in full; with costs against Aznar. 1. Article 559 of the Civil Code; Santos entitled to recovery of personal property Santos had been unlawfully deprived of his personal property by Marella, from whom Aznar traces his right. Consequently, although Aznar acquired the car in good faith and for a valuable consideration from Marella, the said decision concluded, still Santos was entitled to its recovery on the mandate of Article 559 of the New Civil Code which provides: “ The possession of movable property acquired in good faith is equivalent to title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.” Under Article 559, the rule is to the effect that if the owner has lost the thing, or if he has been unlawfully deprived of it, he has a right to recover it, not only from the finder, thief or robber, but also from the third person who may have acquired it in good faith from such finder, thief or robber. 2. Seller’s title, voidable at least, essential in Article 1506; Article 559 applies Article 1506 provides:” Where the seller of goods has a voidable title thereto, but his title has not been voided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller’s defect of title.” Under the provision, it is essential that the seller should have a voidable title at least. It is very clearly inapplicable where the seller had no title at all. 3. Ownership or title acquired only by tradition or delivery; Article 712 of the Civil Code Under Article 712 of the Civil Code, “ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition.” As interpreted by this Court in a host of cases, by this provision, ownership is not transferred by contract merely but by tradition or delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. (Gonzales vs. Rojas, 16 Phil. 51; Ocejo, Perez and Co. vs. International Bank, 37 Phil. 631; Fidelity and Deposit Co. vs. Wilson, 8 Phil. 51; Kuenzle & Streiff vs. Wacke & Chandler, 14 Phil. 610; Easton vs. Diaz & Co., 32 Phil. 180). For the legal acquisition and transfer of ownership and other property rights, the thing transferred must be delivered, inasmuch as, according to settled jurisprudence the tradition of the thing is a necessary and indispensable requisite in the acquisition of said ownership by virtue of a contract. (Walter Easton vs. E. Diaz & Co. & the Provincial Sheriff of Albay, supra.) So long as property is not delivered, the ownership over it is not transferred by contract merely but by delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the method of accomplishing the same, the title and the method of acquiring it being different in our law.” (Gonzales vs. Rojas, 16 Phil. 51) In the present case, the
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car was never delivered to the vendee by the vendor as to complete or consummate the transfer of ownership by virtue of the contract. It should be recalled that while there was indeed a contract of sale between Vicente Marella and Teodoro Santos, the former, as vendee, took possession of the subject matter thereof by stealing the same while it was in the custody of the latter’s son. 4. Delivery of key not delivery contemplated by Article 712; Intent must be present There is no adequate evidence on record as to whether Irineo Santos voluntarily delivered the key to the car to the unidentified person who went with him and L. De Dios to the place in Azcarraga where a sister of Marella allegedly lived. But even if Irineo Santos did, it was not the delivery contemplated by Article 712 of the Civil Code. For then, it would be indisputable that he turned it over to the unidentified companion only so that he may drive Irineo Santos and De Dios to the said place in Azcarraga and not vest the title to the said vehicle to him as agent of Vicente Marella. Article 712 above contemplates that the act be coupled with the intent of delivering the thing. (10 Manresa 132) 5. Article 559 establishes exception to the general rule or irrevindicability Article 559 establishes two exceptions to the general rule of irrevindicability to wit: when the owner (1) has lost the thing, or (2) has been unlawfully deprived thereof. In these cases, the possessor cannot retain the thing as against the owner, who may recover it without paying any indemnity, except when the possessor acquired it in a public sale. (Del Rosario vs. Lucena, 8 Phil. 535; Varela vs. Finnick, 9 Phil. 482; Varela vs. Matute, 9 Phil. 479; Arenas vs. Raymundo, 19 Phil. 46. Tolentino, id., Vol II, p. 261.) 6. Cruz vs. Pahati on Article 559 In the case of Cruz vs. Pahati, et al., 52 OG 3053, the Court ruled that “Under Article 559 of the new Civil Code, a Person illegally deprived of any movable may recover it from the person in possession of the same and the only defense the latter may have is if he has acquired it in good faith at a public sale, in which case, the owner cannot obtain its return without reimbursing the price paid therefor. In the present case, plaintiff has been illegally deprived of his car through the ingenious scheme of defendant B to enable the latter to dispose of it as if he were the owner thereof. Plaintiff, therefore, can still recover possession of the car even if it is in the possession of a third party who had acquired it in good faith from defendant B. The maxim that “no man can transfer to another a better title than he has himself’ obtains in the civil as well as in the common law.” (U.S. vs. Sootelo, 28 Phil. 147) 7. Common law principle yields to statutory provision The right of the owner to recover personal property acquired in good faith by another, is based on his being dispossessed without his consent. The common law principle that where one of two innocent persons must suffer by a fraud perpetrated by another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to be committed, cannot be applied in a case which is covered by an express provision of the new Civil Code, specifically Article 559. Between a common law principle and a statutory provision, the latter must prevail in this jurisdiction. (Cruz vs. Pahati, supra). [11] Babasa vs. CA [G.R. No. 124045. May 21, 1998.] First Division, Bellosillo (J): 4 concurring Facts: On 11 April 1981 a contract of “Conditional Sale of Registered Lands” was executed between the spouses Vivencio and Elena Babasa as vendors and Tabangao Realty Inc. (Tabangao) as vendee over 3 parcels of land, Lots 17827-A, 17827-B and 17827-C, situated in Brgy. Libjo, Batangas City. Since the certificates of title over the lots were in the name of third persons who had already executed deeds of reconveyance and disclaimer in favor of the Babasas, it was agreed that the total purchase price of P2,121,920.00 would be paid in the following manner: P300,000.00 upon signing of the contract, and P1,821,920.00 upon presentation by
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the Babasas of transfer certificates of titles in their name, free from all liens and encumbrances, and delivery of registerable documents of sale in favor of Tabangao within 20 months from the signing of the contract. In the meantime, the retained balance of the purchase price would earn interest at 17% per annum or P20,648.43 monthly payable to the Babasas until 31 December 1982. It was expressly stipulated that Tabangao would have the absolute and unconditional right to take immediate possession of the lots as well as introduce any improvements thereon. On 18 May 1981 Tabangao leased the lots to Shell Gas Philippines, Inc. (SHELL), which immediately started the construction thereon of a Liquefied Petroleum Gas Terminal Project, an approved zone export enterprise of the Export Processing Zone. Tabangao is the real estate arm of SHELL. The parties substantially complied with the terms of the contract. Tabangao paid the first installment of P300,000.00 to the Babasas while the latter delivered actual possession of the lots to the former. In addition, Tabangao paid P379,625.00 to the tenants of the lots as disturbance compensation and as payment for existing crops as well as P334,700.00 to the owners of the houses standing thereon in addition to granting them residential lots with the total area of 2,800 square meters. Tabangao likewise paid the stipulated monthly interest for the 20-month period amounting to P408,580.80. Meanwhile, the Babasas filed Civil Case 519 and Petition 373 for the transfer of titles of the lots in their name. However, 2 days prior to the expiration of the 20-month period, specifically on 31 December 1982, the Babasas asked Tabangao for an indefinite extension within which to deliver clean titles over the lots. They asked that Tabangao continue paying the monthly interest of P20,648.43 starting January 1983 on the ground that Civil Case 519 and Petition 373 had not yet been resolved with finality in their favor. Tabangao refused the request. In retaliation the Babasas executed a notarized unilateral rescission dated 28 February 1983 to which Tabangao responded by reminding the Babasas that they were the ones who did not comply with their contractual obligation to deliver clean titles within the stipulated 20-month period, hence, had no right to rescind their contract. The Babasas insisted on the unilateral rescission and demanded that SHELL vacate the lots. On 19 July 1983 Tabangao instituted an action for specific performance with damages in the RTC Batangas City to compel the spouses to comply with their obligation to deliver clean titles over the properties. The Babasas moved to dismiss the complaint on the ground that their contract with Tabangao became null and void with the expiration of the 20-month period given them within which to deliver clean certificates of title. SHELL entered the dispute as intervenor praying that its lease over the premises be respected by the Babasas. Eventually, judgment was rendered in favor of Tabangao and SHELL, declaring that the notarial rescission executed by the Babasas void and of no legal effect; declaring that the lease contract between Tabangao and SHELL deemed legally binding on the spouses; ordering the spouses to deliver to Tabangao clean transfer certificates in their name and execute all necessary deeds and document necessary for the Register of Deeds to facilitate the issuance of TCTs; directing Tabangao to pay the spouses the remaining balance of P1,821,920.00 out of the full purchase price for these three lots enumerated in the agreement plus interest thereon of 17% per annum or P20,648.43 a month compounded annually beginning January 1983 until fully paid; making the restraining order against the spouses in putting up structures interfering with the activities of SHELL, its employees and agents, and canceling the bond posted by Shell; and ordering the spouses to pay the cost of the proceedings as well as the premium SHELL paid in the posting of the P2 million bond for the issuance of the restraining order. The spouses appealed to the Court of Appeals which on 29 February 1996 affirmed the decision of the trial court; but ordered that the compounded interest to be paid from 19 July 1983 only and not from January 1983 as decreed by the trial court. Hence, the appeal. The Supreme Court denied the petition, and affirmed the appealed decision of the Court of Appeals in CA-GR CV 39554; without costs. 1. Contract of sale and not of lease The contract is replete with terms and stipulations clearly indicative of a contract of sale. Thus, the opening whereas clause states that the parties desire and mutually “agreed on the sale and purchase of the . . .
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three parcels of land;” the Babasas were described as the “vendors” while Tabangao as the “vendee” from the beginning of the contract to its end; the amount of P2,121,920.00 was stated as the purchase price of the lots; Tabangao, as vendee, was granted absolute and unconditional right to take immediate possession of the premises while the Babasas, as vendors, warranted such peaceful possession forever; Tabangao was to shoulder the capital gains tax, and; lastly, the Babasas were expected to execute a Final Deed of Absolute Sale in favor of Tabangao necessary for the issuance of transfer certificates of title the moment they were able to secure clean certificates of title in their name. It cannot be said that the contract was one of lease simply because the word “ownership” was never mentioned therein. Besides, the spouses did not object to the terms and stipulations employed in the contract at the time of its execution when they could have easily done so considering that they were then ably assisted by their counsel, Atty. Edgardo M. Carreon, whose legal training negates their pretended ignorance on the matter. 2. Contracts valid thought parties entered into it against own wish and desire, or even against his better judgment Although Tabangao dangled the threat of expropriation by the government (through the Export Processing Zone Authority) in the event voluntary negotiations failed, a cause to commiserate with the spouses may be perceived, it is not enough to provide them with an avenue to escape contractual obligations validly entered into. Contracts are valid even though one of the parties entered into it against his own wish and desire, or even against his better judgment. Besides, a threat of eminent domain proceedings by the government cannot be legally classified as the kind of imminent, serious and wrongful injury to a contracting party as to vitiate his consent. Private landowners ought to realize, and eventually accept, that property rights must yield to the valid exercise by the state of its all-important power of eminent domain. 3. Contract is absolute although denominated a conditional sale; Actual and constructive delivery Although denominated “Conditional Sale of Registered Lands,” the contract of 11 April 1981 between the spouses and Tabangao is one of absolute sale. Aside from the terms and stipulations used therein indicating such kind of sale, there is absolutely no proviso reserving title in the Babasas until full payment of the purchase price, nor any stipulation giving them the right to unilaterally rescind the contract in case of nonpayment. A deed of sale is absolute in nature although denominated a conditional sale” absent such stipulations. In such cases, ownership of the thing sold passes to the vendee upon the constructive or actual delivery thereof. In the instant case, ownership over Lots 17827-A, 17827-B and 17827-C passed to Tabangao both by constructive and actual delivery. Constructive delivery was accomplished upon the execution of the contract of 11 April 1981 without any reservation of title on the part of the Babasas while actual delivery was made when Tabangao took unconditional possession of the lots and leased them to its associate company SHELL which constructed its multi-million peso LPG Project thereon. 4. Distinction between conditions imposed on the perfection of contract and condition imposed on the performance of an obligation In Romero v. Court of Appeals and Lim v. Court of Appeals, the Court distinguished between a condition imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely gives the other party the option to either refuse to proceed with the sale or to waive the condition. In the present case, the spouses’ contract with Tabangao did not lose its efficacy when the 20-month period stipulated therein expired without the spouses being able to deliver clean certificates of title such that Tabangao may no longer demand performance of their obligation. 5. Unilateral rescission of the contract by the spouses unwarranted The spouses’ act of unilaterally rescinding their contract with Tabangao is unwarranted. The failure of petitioners to deliver clean titles within 20 months from the signing of the contract merely gives Tabangao the option to either refuse to proceed with the sale or to waive the condition in consonance with Article 1545 of the New Civil Code. Besides, it would be the height of inequity to allow the Babasas to rescind their contract
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of sale with Tabangao by invoking as a ground therefor their own failure to deliver the titles over the lots within the stipulated period. [12] Bagnas v. CA [G.R. No. 38498. August 10, 1989.] First Division, Narvasa (J): 4 concurring Facts: Hilario Mateum of Kawit, Cavite, died on 11 March 1964, single, without ascendants or descendants, and survived only by collateral relatives, of whom Isaac, Encarnacion, Silvestre, Maximina, and Sixto Bagtas, and Agatona Encarnacion, his first cousins, were the nearest. Mateum left no will, no debts, and an estate consisting of 29 parcels of land in Kawit and Imus, Cavite, 10 of which are involved in the case. On 3 April 1964, Rosa L. Retonil, Teofilo Encarnacion and Jose B. Nambayan, themselves collateral relatives of Mateum though more remote in degree, registered with the Registry of Deeds for the Province of Cavite 2 deeds of sale purportedly executed by Mateum in their favor covering 10 parcels of land. Both deeds were in Tagalog, save for the English descriptions of the lands conveyed under one of them; and each recited the reconsideration of the sale to be P1, services rendered and to be rendered for Mateum’s benefit. One deed was dated 6 February 1963 and covered 5 parcels of land, and the other was dated 4 March 1963, covering 5 other parcels, both, therefore, antedating Mateum’s death by more than a year. It is asserted by the Bagtas, et.al., but denied by Retonil, et.al., that said sales notwithstanding, Mateum continued in the possession of the lands purportedly conveyed until his death, that he remained the declared owner thereof and that the tax payments thereon continued to be paid in his name. Whatever the truth, however, is not crucial; what is not disputed is that on the strength of the deeds of sale, Retonil, et.al. were able to secure title in their favor over 3 of the 10 parcels of land conveyed thereby. On 22 May 1964, Bagtas et.al. commenced suit against Retonil, et.al. in the CFI Cavite, seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of acceptance embodied in a public instrument. Claiming ownership pro indiviso of the lands subject of the deeds by virtue of being intestate heirs of Hilario Mateum, Bagtas, et. al. prayed for recovery of ownership and possession of said lands, accounting of the fruits thereof and damages. Although the complaint originally sought recovery of all the 29 parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy be limited to the 10 parcels subject of the questioned sales, and the Trial Court ordered the exclusion of the 19 other parcels from the action. Of the 10 parcels which remained in litigation, 9 were assessed for purposes of taxation at values aggregating P10,500.00. The record does not disclose the assessed value of the tenth parcel, which has an area of 1,443 sq.ms. Retonil, et.al. denied the allegations. After Bagtas, et.al. had presented their evidence, Retonil, et.al. filed a motion for dismissal — in effect, a demurrer to the evidence — reasserting the defense set up in their answer that Bagtas, et.al., as mere collateral relatives of Hilario Mateum had no right to impugn the latter’s disposition of his properties by means of the questioned conveyances and submitting, additionally, that no evidence of fraud tainting said transfers had been presented. The Trial Court granted the motion to dismiss, holding on the authority of Armentia vs. Patriarca, that Bagtas, et.al., as mere collateral relatives, not forced heirs, of Hilario Mateum, could not legally question the disposition made by said deceased during his life time, regardless of whether, as a matter of objective reality, said dispositions were valid or not; and that Bagtas, et.al.’s evidence of alleged fraud was insufficient, the fact that the deeds of sale each stated a consideration of only P1 not being in itself evidence of fraud or simulation. On appeal by Bagtas, et. al. to the Court of Appeals, that court affirmed, adverting with approval to the Trial Court’s reliance on the Armentia ruling which, it would appear, both courts saw as denying, without exception, to collaterals, of a decedent, not forced heirs, the right to impugn the latter’s dispositions inter vivos of his property. The Supreme Court reversed the appealed Decision of the Court of Appeals, and declared the questioned
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transfers void and of no force or effect. The Court ordered the annulment of such certificates of title Retonil, et.al. may have obtained over the properties subject of said transfers, and ordered them to return to Bagtas, et.al. possession of all the properties involved in the action, to account to the latter for the fruits thereof during the period of their possession, and to pay the costs. No damages, attorney’s fees or litigation expenses were awarded, there being no evidence thereof before the Court. 1. Void contracts: Cause not existing at time of transaction and contract without or with false cause (where no hidden cause is proved) Under the Civil Code of the Philippines, Article 1409, paragraph 3, Contracts, with a cause that did not exist at the time of the transaction are in existent and void from the beginning. The same is true of contracts stating a false cause (consideration) unless the persons interested in upholding the contract should prove that there is another true and lawful consideration therefor. (Article 1353). 2. Intestate heirs have legal standing; Property subject of void contract does not leave patrimony of transferor and recoverable by the heirs or the estate administrator The heirs intestate have legal standing to contest the conveyance made by the deceased if the same were made without any consideration, or for a false and fictitious consideration. If therefore the contract has no causa or consideration, or the causa is false and fictitious (and no true hidden causa is proved) the property allegedly conveyed never really leaves the patrimony of the transferor, upon the latter’s death without a testament, such property would passed to the transferor’s hairs intestate and be, recoverable by them or by the Administrator of the transferor’s estate. 3. Armentia ruling clarified Concepcion and Solis rulings; False cause without hidden cause now not merely voidable, but void ab initio The Armentia ruling does not reject, and is not to be construed as rejecting, the Concepcion and Solis rulings (Concepcion vs. Sta. Ana, 87 Phil. 787 and Solis vs. Chua Pua Hermanos, 50 Phil. 536) as outrightly erroneous. On the contrary, those rulings undoubtedly read and applied correctly the law extant in their time: Article 1276 of the Civil Code of 1889 under which the statement of a false cause in a contract rendered it voidable only, not void ab initio. The fact that the law as it is now (during the time of Armentia) no longer deems contracts with a false cause, or which are absolutely simulated or fictitious, merely voidable, but declares them void, i.e., inexistent (“nulo”) unless it is shown that they are supported by another true and lawful cause or consideration. 4. Armentia case; Effect of the change in the juridical status of contracts based on false cause A logical consequence of that change is the juridical status of contracts without, or with a false, cause is that conveyances of property affected with such a vice cannot operate to divest and transfer ownership, even if unimpugned. If afterwards the transferor dies the property descends to his heirs, and without regard to the manner in which they are called to the succession, said heirs may bring an action to recover the property from the purported transferee. Such an action is not founded on fraud, but on the premise that the property never leaves the estate of the transferor and is transmitted upon his death to heirs, who would labor under no incapacity to maintain the action from the mere fact that they may be only collateral relatives and bound neither principally or subsidiarily under the deed / contract of conveyance. 5. Armentia case; Conveyance merely annullable as action based on fraud vitiating conveyance In Armentia, the Court determined that the conveyance questioned was merely annullable, not void ab initio, and that the action was based on fraud vitiating said conveyance. The court found that Marta Armentia executed the document, a fact uncontroverted by the case’s plaintiff. Also, the vendees, being minors, makes the contract, at worst, only annullable by them. Moreover, inadequacy of consideration does not imply total want of consideration. Further, the purported acts of Marta Armentia after the sale did not indicate that the said sale was void from the beginning. Thus, in essence the plaintiffs’ case is bottomed on fraud, which renders the contract merely voidable.
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6. Armentia case applies to voidable contracts obtained or made fraudulently; does not apply to transfers which are void for lack or falsity of consideration As a precedent, Armentia only ruled that transfers made by a decedent in his lifetime, which are voidable for having been fraudulently made or obtained, cannot be posthumously impugned by collateral relatives succeeding to his estate who are not principally or subsidiarily bound by such transfers. That ruling is not extendible to transfers which, though made under closely similar circumstances, are void ab initio for lack or falsity of consideration. 7. False and fictitious consideration, without any alternative true or lawful cause presented, renders contract void Upon the consideration alone that the apparent gross, not to say enormous, disproportion between the stipulated price in each deed of P1 plus unspecified and unquantilled services and the undisputably valuable real estate allegedly sold (worth at least P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of actual value) plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio. 10. Donations of immovable property must be made and accepted in a public document; Liberality as cause denied The validity of the conveyances cannot be defended on the theory that their true causa is the liberality of the transferor and they may be considered in reality donations, because the law also prescribes that donations of immovable property, to be valid, must be made and accepted in a public instrument, and it is not denied by Retonil, et. al. that there has been no such acceptance which they claim is not required. 11. Properties remained as part of estate of Mateum, and thus recoverable The transfers in question being void, it follows as a necessary consequence and conformably to the concurring opinion in Armentia, with which the Court fully agrees, that the properties purportedly conveyed remained part of the estate of Hilario Mateum, said transfers notwithstanding, recoverable by his intestate heirs, i.e. Bagtas, et.al., whose status as such is not challenged. 12. Lack of proof that could have saved transfers from taint of invalidity; Burden of proof in the existence of a valid and licit contract Retonil, et.al. have only themselves to blame for the lack of proof that might have saved the questioned transfers from the taint of invalidity as being fictitious and without licit cause; proof, to be brief, of the character and value of the services, past, present, and future, constituting — according to the very terms of said transfers the principal consideration therefor. The onus of showing the existence of valid and licit consideration for the questioned conveyances rested on Retonil, et.al.. But even on a contrary assumption, and positing that Bagnas, et.al. initially had the burden of showing that the transfers lacked such consideration as they alleged in their complaint, that burden was shifted to Retonil, et.al. when Bagnas, et.al. presented the deeds which they claimed showed that defect on their face and it became the duty of Retonil, et.al. to offer evidence of existent, lawful consideration. 13. Demurrer to evidence; Effect Retonil, et. al., opting to rely on a demurrer to Bagtas, et. al.’s evidence and upon the thesis that the latter, being mere collateral relatives of the deceased transferor, were without right to the conveyances in question. In effect, they gambled their right to adduce evidence on a dismissal in the Trial Court and lost, it being the rule that when a dismissal thus obtained is reversed on appeal, the movant loses the right to present evidence in his behalf. [13]
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Balatbat v. CA [G.R. No. 109410. August 28, 1996.] Second division, Torres Jr (J): 4 concurring Facts: On 15 June 1977, Aurelio A. Roque filed a complaint for partition against his children Corazon, Feliciano, Severa and Osmundo Roque, and Alberto de los Santos before the CFI Manila (Branch IX, Civil Case 109032). The Roque children were declared in default and Aurelio presented evidence ex-parte. On 29 March 1979, the trial court rendered a decision in favor of Aurelio; holding that Aurelio and his wife Maria Mesina acquired the lot (TCT 51330) during their conjugal union, as well as the house that was constructed thereon; that when Maria Mesina died on 28 August 1966, leaving no debt, Aurelio (as surviving spouse) was entitled to ½ share pro-indiviso of the conjugal property (i.e. house and lot) and that Aurelio and his 4 children were entitled to 1/5 share pro-indiviso each of the ½ share pro-indiviso forming the estate of Maria Mesina; ordering the partition of the properties; and dismissing Aurelio’s claim for moral, exemplary and actual damages and attorney’s fees; without pronouncement as to costs. On 2 June 1979, the decision became final and executory; with the corresponding entry of judgment made 29 March 1979. On 5 October 1979, the Register of Deeds of Manila issued TCT 135671 (with Aurelio Roque having 6/10 share; and the Roque children with 1/10 share each). On 1 April 1980, Aurelio sold his 6/10 share in TCT 135671 to spouses Aurora Tuazon-Repuyan and Jose Repuyan as evidenced by a “Deed of Absolute Sale.” On 21 July 1980, Aurora Tuazon Repuyan caused the annotation of her affidavit of adverse claim on the TCT 135671, “claiming that she bought 6/10 portion of the property from Aurelio Roque for the amount of P50,000.00 with a downpayment of P5,000.00 and the balance of P45,000.00 to be paid after the partition and subdivision of the property.” On 20 August 1980, Aurelio Roque filed a complaint for “Rescission of Contract” against spouses Repuyan before the then CFI Manila (Branch IV, Civil Case 134131). The complaint is grounded on spouses Repuyan’s failure to pay the balance of P45,000.00 of the purchase price. On 5 September 1980, spouses Repuyan filed their answer with counterclaim. In the meantime, the trial court issued an order in Civil Case 109032 (Partition case) dated 2 February 1982, ordering the Deputy Clerk of the court to sign the deed of absolute sale for and in behalf of Roque children pursuant to Section 10, Rule 39 of the Rules of Court, in order to effect the partition of the property involved in the case (P100,000 purchase price for the 84 sq. ms. In Callejon Sulu, Sta. Cruz, Manila is reasonable and fair; and that opportunities have been given to the children to sign the deed voluntarily). A deed of absolute sale was executed on 4 February 1982 between Aurelio, Corazon, Feliciano, Severa and Osmundo Roque and Clara Balatbat, married to Alejandro Balatbat. On 14 April 1982, Clara Balatbat filed a motion for the issuance of a writ of possession which was granted by the trial court on 14 September 1982 “subject, however, to valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights or interest under it.” The corresponding writ of possession was issued on 20 September 1982. On 20 May 1982, Clara Balatbat filed a motion to intervene in Civil Case 134131 which was granted as per court’s resolution of 21 October 1982. However, Clara Balatbat failed to file her complaint in intervention. On 15 April 1986, the trial court rendered a decision dismissing the complaint, and declaring the Deed of Absolute Sale dated 1 April 1980 as valid and enforceable and Aurelio is, as he is hereby ordered, to partition and subdivide the land covered by TCT 135671, and to aggregate therefrom a portion equivalent to 6/10 thereof, and cause the same to be titled in the name of spouses Repuyan, and after which, the latter to pay Aurelio the sum of P45,000.00. Considering further that the spouses suffered damages since they were forced to litigate unnecessarily, by way of their counterclaim, Aurelio is hereby ordered to pay the spouses the sum of P15,000.00 as moral damages, attorney’s fees in the amount of P5,000.00; with costs against Aurelio. On 3 March 1987, Balatbat filed a notice of lis pendens in Civil Case 109032 before the Register of Deeds of
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Manila. On 9 December 1988, Balatbat and her husband filed a complaint for delivery of the owners duplicate copy of TCT 135671 before the RTC Manila (Branch 24, Civil Case 88-47176) against Jose and Aurora Repuyan. On 27 January 1989, spouses Repuyan filed their answer with affirmative defenses and compulsory counterclaim. The Repuyans and the Balatbats submitted their memoranda on 13 November 1989 and 23 November 1989, respectively. On 2 August 1990, the RTC Manila rendered a decision dismissing the complaint, finding that the Balatbats were not able to establish their cause of action against the Repuyans and have no right to the reliefs demanded in the complaint, and ordering Balatbat to pay the Repuyans the amount of P10,000 as attorney’s fees, P5,000 as costs of litigation, and to pay the costs of the suit. Dissatisfied, Balatbat filed an appeal before the Court of Appeals (CA-GR CV 29994) which rendered decision on 12 August 1992, affirming the judgment appealed from with modification deleting the awards of P10,000 for attomey’s fees and P5,000 as costs of litigation. On 22 March 1993, the Court of Appeals denied Balatbat’s motion for reconsideration. Hence, the petition for review pursuant to Rule 45 of the Revised Rules of Court. The Supreme Court dismissed the petition for review for lack of merit; without pronouncement as to costs. 1. 1 April 1980 sale consummated, valid and enforceable The sale dated 1 April 1980 in favor the Repuyan spouses is consummated, hence, valid and enforceable; not merely executory for the reason that there was no delivery of the subject property and that consideration/price was not fully paid. In a decision dated 15 April 1986 of the RTC Manila (Branch IV, Civil Case 134131), the Court dismissed Aurelio complaint for rescission of the deed of sale and declared that the sale dated 1 April 1980, as valid and enforceable. No appeal having been made, the decision became final and executory. It must be noted that Balatbat filed a motion for intervention in that case but did not file her complaint in intervention. 2. 1 April 1980 Deed of Sale devoid of stipulation withholding ownership of thing until full payment; Ownership pass upon delivery of thing sold even if purchase price not fully paid The terms and conditions of the “Deed of Sale” dated 1 April 1980, the P45,000.00 balance is payable only after the property covered by TCT 135671 has been partitioned and subdivided, and title issued in the name of the buyer hence, the vendor cannot demand payment of the balance unless and until the property has been subdivided and titled in the name of the Repuyan spouses. Devoid of any stipulation that “ownership in the thing shall not pass to the purchaser until he has fully paid the price”, ownership in the thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. 3. Non-payment in a contract of sale merely creates right to demand fulfillment of obligation or rescission of contract; Article 1191 The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract. With respect to the non-delivery of the possession of the subject property to the private respondent, suffice it to say that ownership of the thing sold is acquired only from the time of delivery thereof, either actual or constructive. 28 4. Ownership of a thing sold acquired from time of actual or constructive delivery; Possession of public instrument of the land accords buyer rights of ownership Article 1498 of the Civil Code provides that — when the sale is made through a public instrument,
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the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be inferred. The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an owner over the same. It is not necessary that vendee be physically present at every square inch of the land bought by him, possession of the public instrument of the land is sufficient to accord him the rights of ownership. Thus, delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive). In the present case, vendor Roque delivered the owner’s certificate of title to the Repuyan spouses. 5. Necessity of public document merely for convenience, and not for validity or enforceability of a contract of sale The provision of Article 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument. 6. Contract of sale consensual, perfected by mere consent of the parties; Non-payment does not render sale null and void for lack of consideration A contract of sale being consensual, it is perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies. 7. Present case is a double sale The present case is a case of double sale contemplated under Article 1544 of the New Civil Code. In the present case, Aurelio Roque sold 6/10 portion of his share in TCT 135671 to the Repuyan spouses on 1 April 1980. Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10) and his children (4/10), represented by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on 4 February 1982. 8. Article 1544; Double sale Article 1544 of the New Civil Code provides that “if the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be movable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession and in the absence thereof, to the person who present the oldest title, provided there is good faith.” Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred (1) to the person acquiring it who in 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 the oldest title, provided there is good faith. 9. Ownership vests in person who acquired the immovable property in good faith and who first recorded it in the Registry of Property; Annotation of adverse claim sufficient In an instance of a double sale of an immovable property, the ownership shall vests in the person acquiring it who in good faith first recorded it in the Registry of Property. In the present case, the Repuyan spouses caused the annotation of an adverse claim on the title of the subject property denominated as Entry 5627/T-135671 on 21 July 1980. The annotation of the adverse claim on TCT 135671 in the Registry of Property is sufficient compliance as mandated by law and serves notice to the whole world. Balatbat, on the other hand, filed a notice of lis pendens only on 2 February 1982. Accordingly, the Repuyan spouses who first caused the annotation of the adverse claim in good faith shall have a better right over Balatbat.
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10.

Possession of Balatbat merely provisionary The physical possession of Balatbat by virtue of a writ of possession issued by the trial court on 20 September 1982 is “subject to the valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights to interest under it.” 11. First registrant, first in possession, else oldest title As between two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable property. Even in default of the first registrant or first in possession, the Repuyan spouses have presented the oldest title. Thus, the spouses who acquired the subject property in good faith and for valuable consideration established a superior right as against Balatbat. 12. Due diligence in the purchase of real estate required to allege good faith It is incumbent upon the vendee of the property to ask for the delivery of the owner’s duplicate copy of the title from the vendor. A purchaser of a valued piece of property cannot just close his eyes to facts which should put a reasonable man upon his guard and then claim that he acted in good faith and under the belief that there were no defect in the title of the vendor. One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. Good faith, or the want of it is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged of by actual or fancied tokens or signs. 13. Balatbat not a buyer in good faith Balatbat cannot be considered as a buyer in good faith. In the complaint for rescission filed by Aurelio Roque on 20 August 1980, Balatbat filed a motion for intervention on 20 May 1982 but did not file her complaint in intervention, hence, the decision was rendered adversely against her. If Balatbat did investigate before buying the land on 4 February 1982, she should have known that there was a pending case and an annotation of adverse claim was made in the title of the property before the Register of Deeds and she could have discovered that the subject property was already sold to the Repuyan spouses. 14. Gross negligence equvalent to intentional wrong Balatbat had nobody to blame but herself in dealing with the disputed property for failure to inquire or discover a flaw in the title to the property, thus, it is axiomatic that — culpa lata dolo aequiparatur — gross negligence is equivalent to intentional wrong. [14] Calimlim-Canullas v. Fortun [G.R. No. 57499. June 22, 1984.] First Division, Melencio-Herrera (J): 5 concurring Facts: Mercedes Calimlim-Canullas and Fernando Canullas were married on 19 December 1962. They begot five children. They lived in a small house on the residential land in question with an area of approximately 891 sq. m., located at Bacabac, Bugallon, Pangasinan. After Canullas’ father died in 1965, he inherited the land. In 1978, Canullas abandoned his family and lived with Corazon Daguines. On 15 April 1980, Canullas sold the subject property with the house thereon to Daguines for the sum of P2,000.00. In the document of sale, Canullas described the house as “also inherited by me from my deceased parents.” Unable to take possession of the lot and house, Daguines initiated a complaint beore the CFI Pangasinan (Branch 1, Civil Case 15620) on 19 June 1980 for quieting of title and damages against Calimlim-Canullas. CalimlimSales, 2003 ( 40 )

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Canullas resisted and claimed that the house in dispute where she and her children were residing, including the coconut trees on the land, were built and planted with conjugal funds and through her industry; that the sale of the land together with the house and improvements to Daguines was null and void because they are conjugal properties and she had not given her consent to the sale. On 6 October 1980, the trial court ruled in favor of Daguines as the lawful owner of the land as well as ½ of the house erected on the land. Upon reconsideration and on 27 November 1980, however, the lower court modified the judgment by declaring Daguines as the lawful owner of the land and 10 coconut trees thereon but declaring the sale of the conjugal house including 3 coconuts and other crops during the conjugal relation of the spouses null and void. A petition for review on certiorari was filed with Supreme Court. During the pendency of the appeal, however, Fernando Canullas and Corazon Daguines were convicted of concubinage in a judgment rendered on 27 October 1981 by the then CFI Pangasinan, Branch II, which judgment has become final. The Supreme Court set aside the decision and resolution of the lower court, and declared the sale of the lot, house and improvements null and void; without costs. 1. Land and building belongs to the conjugal partnership, spouse owning the land becomes the creditor of the conjugal partnership Pursuant to the second paragraph of Article 158 of the Civil Code, which provides that “buildings constructed at the expense of the partnership during the marriage on land belonging to one of the spouses also pertain to the partnership, but the value of the land shall be reimbursed to the spouse who owns the same,” both the land and the building belong to the conjugal partnership but the conjugal partnership is indebted to the husband for the value of the land. The spouse owning the lot becomes a creditor of the conjugal partnership for the value of the lot, which value would be reimbursed at the liquidation of the conjugal partnership. 2. Padilla v. Paterno is better rule than Maramba v. Lozano; Spouse cannot alienate property without the consent of the other In the case of Maramba vs. Lozano, it was held that the land belonging to one of the spouses, upon which the spouses have built a house, becomes conjugal property only when the conjugal partnership is liquidated and indemnity paid to the owner of the land. The better rule, however, is that held in Padilla vs. Paterno, where the conversion of the properties from paraphernal to conjugal assets should be deemed to retroact to the time the conjugal buildings were first constructed thereon or at the very latest, to the time immediately before the death of one spouse that ended the conjugal partnership. They can not be considered to have become conjugal property only as of the time their values were paid to the estate of the widow because by that time the conjugal partnership no longer existed and it could not acquire the ownership of said properties. The acquisition by the partnership of the properties was, under the 1943 decision, subject to the suspensive condition that their values would be reimbursed to the widow at the liquidation of the conjugal partnership; once paid, the effects of the fulfillment of the condition should be deemed to retroact to the date the obligation was constituted (Article 1187, New Civil Code). Thus, in the present case, considering the foregoing premises, Canullas cannot have alienated the house and lot to Daguines since the wife had not given her consent to the sale. 3. Contract of sale null and void for being contrary to morals and public policy Article 1409 of the Civil Code provides “contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning.” Article 1352 also provides that “contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy.” In the present case, the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his
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wife and children lived and from whence they derived their support. That sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects. 4. Law prohibits sale and donation between husband and wife, such applies even those living together without benefit of marriage The law prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. (Buenaventura v. Bautista [CA]) 5. Disabilities attached to marriage also applies to concubinage The ruling in Buenaventura vs. Bautista [CA] was cited in Matabuena vs. Cervantes, reiterating that while Article 133 of the Civil Code considers as void a donation between the spouses during the marriage, policy considerations of the most exigent character as well as the dictates of morality require that the same prohibition should apply to a common-law relationship. If the policy of the law is to prohibit donations in favor of the other consort and his descendants because of fear of undue influence and improper pressure upon the donor, a prejudice deeply rooted in our ancient law, then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as pointed out by Ulpian, it would not be just that such donations should subsist, lest the conditions of those who incurred guilt should turn out to be better. So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage. [15] Carbonell vs. CA [G.R. No. L-29972. January 26, 1976.] First Division, Makasiar (J): 3 concurring Facts: Prior to 27 January 1955, Jose Poncio, a native of the Batanes Islands, was the owner of the parcel of land with improvements situated at 179 V. Agan St., San Juan, Rizal, having an area of some 195 square meters, more or less, covered by TCT 5040 and subject to a mortgage in favor of the Republic Savings Bank for the sum of P1,500.00. Rosario Carbonell, a cousin and adjacent neighbor of Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street. Both Rosario Carbonell and Emma Infante offered to buy the said lot from Poncio. Poncio, unable to keep up with the installments due on the mortgage, approached Carbonell one day and offered to sell to the latter the said lot, excluding the house wherein he lived. Carbonell accepted the offer and proposed the price of P9.50 per square meter. Poncio, after having secured the consent of his wife and parents, accepted the price proposed by Carbonell, on the condition that from the purchase price would come the money to be paid to the bank. Carbonell and Poncio went to the bank and secured the consent of the President thereof for her to pay the arrears on the mortgage and to continue the payment of the installments as they fall due. The amount in arrears reached a total sum of P247.26. But because Poncio had previously told her that the money needed was only P200, only the latter amount was brought by Carbonell constraining respondent Poncio to withdraw the sum of P47 from his bank deposit with Republic Savings Bank. The next day, Carbonell refunded to Poncio the sum of P47. On 27 January 1955, Carbonell and Poncio, in the presence of a witness, made and executed a document in the Batanes dialect, allowing Poncio to occupy the land sold within one year, and may continue occupying the site with rent
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thereafter if could not find any place to move his house. Thereafter, Carbonell asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the formal deed of sale, which she brought to Poncio together with the amount of some P400, the balance she still had to pay in addition to her assuming the mortgage obligation to Republic Savings Bank. Upon arriving at Poncio’s house, however, the latter told Carbonell that he could not proceed any more with the sale, because he had already given the lot to Emma Infante (and Ramon Infante); and that he could not withdraw from his deal with Infante, even if he were to go to jail. Carbonell then sought to contact Infante, but the latter refused to see her. On 5 February 1955, Carbonell saw Infante erecting a wall around the lot with a gate. Carbonell then consulted Atty. Jose Garcia, who advised her to present and adverse claim over the land in question with the Office of the Register of Deeds Rizal. Atty. Garcia actually sent a letter of inquiry to the Register of Deeds and demand letters to Jose Poncio and Emma Infante. In his answer to the complaint, Poncio admitted “that on 30 January 1955, Infante improved her offer and he agreed to sell the land and its improvements to her for P3,535.00. In a private memorandum agreement dated 31 January 1955, Poncio indeed bound himself to sell to Infante, the property for the sum of P2,357.52, with Infante still assuming the existing mortgage debt in favor of Republic Savings Bank in the amount of P1,177.48. Infante lives just behind the houses of Poncio and Carbonell. On 2 February 1955, Poncio executed the formal deed of sale in favor of Infante in the total sum of P3,554.00 and on the same date, the latter paid Republic Savings Bank the mortgage indebtedness of P1,500.00. The mortgage on the lot was eventually discharged. Informed that the sale in favor of Infante had not yet been registered, Atty. Garcia prepared an adverse claim for Carbonell, who signed and swore to and registered the same on 8 February 1955. The deed of sale in favor of Infante was registered only on 12 February 1955. As a consequence thereof, a TCT was issued to her but with the annotation of the adverse claim of Carbonell. Infante took immediate possession of the lot involved, covered the same with 500 cubic meters of garden soil and built therein a wall and gate, spending the sum of P1,500. She further contracted the services of an architect to build a house; but the construction of the same started only in 1959, years after the litigation actually began and during its pendency. Infante spent for the house the total amount of P11,929. On 1 June 1955, Carbonell, thru counsel, filed a second amended complaint against Poncio and Infante, praying that she be declared the lawful owner of the questioned parcel of land; that the subsequent sale to Infante be declared null and void, and that Poncio be ordered to execute the corresponding deed of conveyance of said land in her favor and for damages and attorney’s fees. Poncio and Infante first moved to dismiss the complaint on the ground, among others, that Carbonell’s claim is unenforceable under the Statute of Frauds, the alleged sale in her favor not being evidenced by a written document; and when said motion was denied without prejudice to passing on the question raised therein when the case would be tried on the merits, Poncio and Infante filed separate answers, reiterating the grounds of their motion to dismiss. In its order of 26 April 1966, the trial court sustained the objection and dismissed the complaint on the ground that the memorandum presented by Carbonell to prove said sale does not satisfy the requirements of the law. From the above order of dismissal, Carbonnel appealed to the Supreme Court (GR L-11231) which ruled in a decision dated 12 May 1958, that the Statute of Frauds, being applicable only to executory contracts, does not apply to the alleged sale between Carbonell and Poncio, which Carbonell claimed to have been partially performed, so that Carbonell is entitled to establish by parol evidence “the truth of this allegation, as well as the contract itself.” The order appealed from was thus reversed, and the case remanded to the court a quo for further proceedings. After trial in the court a quo, a decision was rendered on 5 December 1962, declaring the second sale by Poncio to Infante of the land in question null and void and ordering Poncio to execute the proper deed of conveyance of said land in favor of Carbonell after compliance by the latter of her covenants under her agreement with Poncio. On 23 January 1963, Infante, through another counsel, filed a motion for re-trial to adduce evidence for the proper implementation of the court’s decision in case it would be affirmed on appeal,
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which motion was opposed by Carbonell for being premature. Before their motion for re-trial could be resolved, Infante, this time through their former counsel, filed another motion for new trial, claiming that the decision of the trial court is contrary to the evidence and the law, which motion was also opposed by Carbonell. The trial court granted a new trial, at which re-hearing only Infante introduced additional evidence consisting principally of the cost of improvements they introduced on the land in question. After the rehearing, the trial court rendered a decision, reversing its decision of 5 December 1962 on the ground that the claim of Infante was superior to the claim of Carbonell, and dismissing the complaint\. From this decision, Carbonell appealed to the Court of Appeals. On 2 November 1967, the Court of Appeals (Fifth Division composed of Justices Magno Gatmaitan, Salvador V. Esguerra and Angel H. Mojica, speaking through Justice Magno Gatmaitan), rendered judgment reversing the decision of the trial court, declaring Carbonell to have a superior right to the land in question, and condemning Infante to reconvey to Carbonell, after her reimbursement to them of the sum of P3,000 plus legal interest, the land in question and all its improvements. Infante sought reconsideration of said decision and acting on the motion for reconsideration, the Appellate Court, three Justices (Villamor, Esguerra and Nolasco), of Special Division of Five, granted said motion, annulled and set aside its decision of 2 November 1967, and entered another judgment affirming in toto the decision of the court a quo, with Justices Gatmaitan and Rodriguez dissenting. Carbonell moved to reconsider the Resolution of the Special Division of Five, which motion was denied by Minute Resolution of 6 December 1968 (but with Justices Rodriguez and Gatmaitan voting for reconsideration). Hence, this appeal by certiorari. The Supreme Court reversed the decision of the special division of five of the court of appeals of 30 October 1968; declared Carbonell to have the superior right to the land in question and directed Carbonell to reimburse to Infante the sum of P1,500 within 3 months from the finality of the decision; directed the Register of Deeds of Rizal to cancel TCT 37842 issued in favor of Infante covering the disputed lot, which cancelled TCT 5040 in the name of Poncio, and to issue a new TCT in favor of Carbonell upon presentation of proof of payment by her to Infante of the aforesaid amount. Infante may remove their useful improvements from the lot within 3 months from the finality of this decision, unless Carbonell elects to acquire the same and pay Infante the amount of P13,429 within 3 months from the finality of the decision. Should Carbonell fail to pay the said amount within the period of 3 months from the finality of the decision, the period of 3 months within which Infante may remove their useful improvements shall commence from the expiration of the 3 months given Carbonell to pay for the said useful improvements; with costs against Poncio and Infante. 1. Double sale; Article 1544 Article 1544, New Civil Code, which is decisive of this case, recites “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.” 2. Good faith essential in registering deed of sale It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of said Article 1544. Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who first takes possession in good faith of personal or real property, the second paragraph directs that ownership of immovable property should be recognized in favor of one “who in good faith first recorded” his right. Under the first and third paragraphs, good faith must characterize the prior possession. Under the second paragraph, good faith must characterize the act of anterior registration
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(DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al., 8 SCRA 489). 3. Decisive fact if there is no inscription, or if there is inscription If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in the present case, prior registration in good faith is a pre-condition to superior title. 4. Carbonell’s prior purchase and registration in good faith When Carbonell bought the lot from Poncio on 27 January 1955, she was the only buyer thereof and the title of Poncio was still in his name solely encumbered by bank mortgage duly annotated thereon. Carbonell was not aware of any sale to Infante as there was no such sale to Infante then. Hence, Carbonell’s prior purchase of the land was made in good faith. Her good faith subsisted and continued to exist when she recorded her adverse claim 4 days prior to the registration of Infante’s deed of sale. Carbonell’s good faith did not cease after Poncio told her on 31 January 1955 of his second sale of the same lot to Infante. Because of that information, Carbonell wanted an audience with Infante, which desire underscores Carbonell’s good faith. Infante refused to see her. Carbonell did the next best thing to protect her right, she registered her adverse claim on 8 February 1955. Under the circumstances, this recording of her adverse claim should be deemed to have been done in good faith and should emphasize Infante’s bad faith when she registered her deed of sale 4 days later on 12 February 1955. 5. Bad faith of Infante; Facts showing bad faith Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the following facts: (1) Infante refused to see Carbonell, who wanted to see Infante after she was informed by Poncio that he sold the lot to Infante but several days before Infante registered her deed of sale. Ordinarily, one will not refuse to see a neighbor. Her refusal to talk to Carbonell could only mean that she did not want to listen to Carbonell’s story that the latter had previously bought the lot from Poncio. (2) Carbonell was already in possession of the mortgage passbook [not Poncio’s savings deposit passbook: Infantes] and Poncio’s copy of the mortgage contract, when Poncio sold the lot to Infante. This shows that the lot was already sold to Carbonell who, after paying the arrearages of Poncio, assumed the balance of his mortgage indebtedness to the bank, which in the normal course of business must have necessarily informed Infante about the said assumption by Carbonell of the mortgage indebtedness of Poncio. Before or upon paying in full the mortgage indebtedness of Poncio to the bank, Infante naturally must have demanded from Poncio the delivery to her of his mortgage passbook as well as Poncio’s mortgage contract so that the fact of full payment of his bank mortgage will be entered therein; and Poncio, as well as the bank, must have inevitably informed her that said mortgage passbook could not be given to her because it was already delivered to Carbonell; (3) The fact that Poncio was no longer in possession of his mortgage passbook and that the said mortgage passbook was already in possession of Carbonell, should have compelled Infante to inquire from Poncio why he was no longer in possession of the mortgage passbook and from Carbonell why she was in possession of the same (Paglago, et al., vs. Jarabe, et al., 22 SCRA 1247, 1252-1253); (4) Carbonell registered on 8 February 1955 her adverse claim, which was accordingly annotated on Poncio’s title 4 days before Infante registered on 12 February 1955 her deed of sale executed on 2 February 1955. Infante was again on notice of the prior sale to Carbonell. Such registration of adverse claim is valid and effective (Jovellanos vs. Dimalanta, L-11736-37, January 30, 1959, 105 Phil. 1250-51); (5) In his answer to the complaint filed by Poncio, as defendant in the CFI, he alleged that both Infante and Carbonell offered to buy the lot at P15 per sq.m., which offers he rejected as he believed that his lot is worth at least P20 per sq.m. Knowledge of this should have put Infante on her guard and should have compelled her to inquire from Poncio whether or not he had already sold the property to Carbonell (See Carbonell vs. Poncio, L-11231, 12 May 1958). 6. “Contract for ½ lot…” not in the purview of Statute of Frauds; not a contract of sale; indicates sale as an accomplished act The private document executed by Poncio and Carbonell and witnessed by Constancio Meonada captioned “Contract for One-half Lot which I Bought from Jose Poncio,” was not such a memorandum in
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writing within the purview of the Statute of Frauds. The memorandum in question merely states that Poncio is allowed to stay in the property which he had sold to Carbonell. There is no mention of the consideration, a description of the property and such other essential elements of the contract of sale. There is nothing in the memorandum which would tend to show even in the slightest manner that it was intended to be an evidence of contract of sale. On the contrary, from the terms of the memorandum, it tends to show that the sale of the property in favor of Carbonell is already an accomplished act. By the very contents of the memorandum itself, it cannot therefore, be considered to be the memorandum which would show that a sale has been made by Poncio in favor of Carbonell.” 7. Contract of Sale not in the purview of Statute of Frauds as it is allegedly partially performed Because the complaint alleges and the Carbonell claims that the contract of sale was partly performed, the same is removed from the application of the Statute of Frauds and Carbonell should be allowed to establish by parol evidence the truth of her allegation of partial performance of the contract of sale. There was a partial performance of the verbal sale executed by Poncio in favor of the Carbonell, when the latter paid P247.26 to the Republic Savings Bank on account of Poncio’s mortgage indebtedness. 8. Language (Dialect) used of memorandum indicates lack of intent on the part of Carbonell to mislead Poncio The document signed by Poncio is in the Batanes dialect, which, according to Carbonell’s uncontradicted evidence, is the one spoken by Poncio, he being a native of said region. The allegation in Poncio’s answer to the effect that he signed the document under the belief that it ‘was a permit for him to remain in the premises in the event’ that ‘he decided to sell the property’ to Carbonell at P20 a sq. m. is, on its face, difficult to believe. If he had not decided as yet to sell the land to Carbonell, who had never increased her offer of P15 a sq,m., there was no reason for Poncio to get said permit from her. Upon the other hand, if Carbonell intended to mislead Poncio, she would have caused the document to be drafted, probably, in English, instead of taking the trouble of seeing to it that it was written precisely in his native dialect, the Batanes. Moreover, Poncio’s signature on the document suggests that he is neither illiterate nor so ignorant as to sign a document without reading its contents, apart from the fact that Meonada had read the document to him and given him a copy thereof , before he signed thereon, according to Meonada’s uncontradicted testimony. 9. Carbonell entitled to introduce parol evidence The Court would not know why Poncio’s bank deposit book is in Carbonell’s possession, or whether there is any relation between the P247.26 entry therein and the partial payment of P247.26 allegedly made by Carbonell to Poncio on account of the price of his land, if the Court does not allow Carbonell to explain it on the witness stand. She is entitled, legally as well as from the viewpoint of equity, to an opportunity to introduce parol evidence in support of the allegations of her second amended complaint. 10. One-half lot clearly the parcel of land occupied by Poncio and where he has his improvements erected The one half lot was mentioned in the document because the original description carried in the title states that it was formerly part of a bigger lot and only segregated later. Such explanation is tenable, in considering the time value of the contents of the document, there is a sufficient description of the lot referred to as none other than the parcel of land occupied by Poncio and where he has his improvements erected. The identity of the parcel of land involved is sufficiently established by the contents of the note. 11. Existence of a contract of sale There had been celebrated a sale of the property excluding the house for the price of P9.50 per square meter, so much so that on faith of that, Rosario had advanced the sum of P247.26 and binding herself to pay unto Jose the balance of the purchase price after deducting the indebtedness to the Bank. Since the wording of the private document goes so far as to describe their transaction as one of sale, already consummated between
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them, as can be noted with the past tense used in the phrase, ‘the lot sold by him to me’ and going so far even as to state that from that day onwards, vendor would continue to live therein, for one year, ‘during which time he will not pay anything’ this can only mean that between Rosario and Jose, there had been a true contract of sale, consummated by delivery constitutum possessorium (Art.1500, New Civil Code); vendor’s possession having become converted from then on, as a mere tenant of vendee, with the special privilege of not paying rental for one year. 12. Contract is consensual; Oral contract does not invalidate sale but merely incapable of proof Even if the document was not registered at all, it was a valid contract nonetheless. Under the law, a contract sale is consensual, perfected by mere consent (Couto vs. Cortes, 8 Phil. 459). Under the New Civil Code, while a sale of an immovable is ordered to be reduced to a public document (Art. 1358), that mandate does not render an oral sale of realty invalid, but merely incapable of proof. Where still executory and action is brought and resisted for its performance (1403, par. 2, 3); but where already wholly or partly executed or where even if not yet, it is evidenced by a memorandum, in any case where evidence to further demonstrate is presented and admitted, then the oral sale becomes perfectly good, and becomes a good cause of action not only to reduce it to the form of a public document, but even to enforce the contract in its entirety (Art. 1357). 13. Perfected sale; Justice Gatmaitan correct In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of 2 November 1967 as well as his findings of facts therein, and reiterated that the private memorandum is a perfected sale, as a sale is consensual and consummated by mere consent, and is binding on and effective between the parties. This statement of the principle is correct. 14. Mortgage of lot about to be foreclosed when Poncio agreed to sell the lot to Carbonell; Ample consideration in the sale The mortgage on the lot was about to be foreclosed by the bank for failure on the part of Poncio to pay the amortizations thereon. To forestall the foreclosure and at the same time to realize some money from his mortgaged lot, Poncio agreed to sell the same to Carbonell at P9.50 per square meter, on condition that Carbonell [1] should pay (a) the amount of P400.00 to Poncio and (b) the arrears in the amount of P247.26 to the bank; and [2] should assume his mortgage indebtedness. The bank president agreed to the said sale with assumption of mortgage in favor of Carbonell and Carbonell accordingly paid the arrears of P247.26. On January 27, 1955, she paid the amount of P200.00 to the bank because that was the amount that Poncio told her as his arrearages and Poncio advanced the sum of P47.26 which amount was refunded to him by Carbonell the following day. This conveyance was confirmed that same day, January 27, 1955, by the private document which was prepared in the Batanes dialect by the witness Constancio Meonada, who is also from Batanes like Poncio and Carbonell. The sale did not include Poncio’s house on the lot. Poncio was given the right to continue staying on the land without paying any rental for one year, after which he should pay rent if he could not still find a place to transfer his house. All these terms are part of the consideration of the sale to Carbonell. There was ample consideration, and not merely the sum of P200.00, for the sale of Poncio to Carbonell of the lot in question. 15. Carbonell, not Infante, victim of injustice and outrage Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to Carbonell and told Carbonell, who confronted him about it, that he would not withdraw from his deal with Infante even if he is sent to jail. The victim, therefore, “of injustice and outrage” is the widow Carbonell and not the Infantes, who without moral compunction exploited the greed and treacherous nature of Poncio, who, for love of money and without remorse of conscience, dishonored his own plighted word to Carbonell, his own cousin. 16. Infante not entitled to recover value of improvements introduced in the lot The bad faith of Emma Infante – from the time she enticed Poncio to dishonor his contract with
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Carbonell, and instead to sell the lot to her (Infante) by offering Poncio a much hinger price than the price for which he sold the same to Carbonell – is clear. Being guilty of bad faith, both in taking physical possession of the lot and in recording their deed of sale, the Infantes cannot recover the value of the improvements they introduced in the lot. And after the filing by Carbonell of the complaint in June 1955, the Infantes had less justification to erect a building thereon since their title to said lot is seriously disputed by Carbonell on the basis of a prior sale to her. 17. Poncio did not remain owner by possessing the lot Being a valid consensual contract, the document effectively transferred the possession of the lot to the vendee Carbonell by constitutum possessorium (Article 1500, New Civil Code); because thereunder the vendor Poncio continued to retain physical possession of the lot as tenant of the vendee and no longer as owner thereof. More than just the signing of the document by Poncio and Carbonell with Constancio Meonada as witness to perfect the contract of sale, the transaction was further confirmed when Poncio agreed to the actual payment by Carbonell of his mortgage arrearages to the bank on 27 January 1955 and by his consequent delivery of his own mortgage passbook to Carbonell. If he remained owner and mortgagor, Poncio would not have surrendered his mortgage passbook to Carbonell. 18. Poncio does not own another parcel of land with the same area adjacent to Carbonell It is not shown that Poncio owns another parcel with the same area, adjacent to the lot of his cousin Carbonell and likewise mortgaged by him to the Republic Savings Bank. The transaction therefore between Poncio and Carbonell can only refer and does refer to the lot involved. If Poncio had another lot to remove his house, the document would not have stipulated to allow him to stay in the sold lot without paying any rent for one year and thereafter to pay rental in case he cannot find another place to transfer his house. 19. Carbonell liable to efund amount Infante paid the bank to redeem the mortgage While Carbonell has the superior title to the lot, she must however refund to Infante the amount of P1,500, which Infante paid to the Republic Savings Bank to redeem the mortgage. 20. Article 546 and 547 The Infante spouses being possessors in bad faith, their rights to the improvements they introduced on the disputed lot are governed by Articles 546 and 547 of the New Civil Code. 21. Infante’s expenses Their expenses consisting of P1,500 for draining the property, filling it with 500 cubic meters of garden soil, building a wall around it and installing a gate and P11,929for erecting a bungalow thereon, are useful expenditures; for they add to the value of the property (Aringo vs. Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45). 21. Article 546 and 547; Possessor in good faith entitled to right of retention of useful improvement and right to a refund for useful expenses; Implies contrary to possessor in bad faith Under the second paragraph of Article 546, the possessor in good faith can retain the useful improvements unless the person who defeated him in his possession refunds him the amount of such useful expenses or pay him the increased value the land may have acquired by reason thereof. Under Article 547, the possessor in good faith has also the right to remove the useful improvements if such removal can be done without damage to the land, unless the person with the superior right elects to pay for the useful improvements or reimburse the expenses therefor under paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith has neither the right of retention of useful improvements nor the right to a refund for useful expenses. 22. Equity; Infante’s right of remotion or the value of the improvements (not current value) if Carbonell appropriates for herself the improvements
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If the lawful possessor can retain the improvements introduced by the possessor in bad faith for pure luxury or mere pleasure only by paying the value thereof at the time he enters into possession (Article 549 NCC), as a matter of equity, the Infantes, although possessors in bad faith, should be allowed to remove the improvements, unless Carbonell chooses to pay for their value at the time Infante introduced said useful improvements in 1955 and 1959. Infante cannot claim reimbursement for the current value of the said useful improvements; because they have been enjoying such improvements for about 2 decades without paying any rent on the land and during which period Carbonell was deprived of its possession and use. [16] Carumba vs. CA [G.R. No. L-27587. February 18, 1970.] En Banc, Reyes JBL (J): 10 concurring Facts: On 12 April 1956, the spouses Amado Canuto and Nemesia Ibasco, by virtue of a Deed of Sale of Unregistered Land with Covenants of “Warranty,’ sold a parcel of land, partly residential and partly coconut land with a periphery (area) of 359.09 square meters, more or less, located in the barrio of Santo Domingo, Iriga, Camarines Sur, to the spouses Amado Carumba and Benita Canuto, for the sum of P350.00. The referred deed of sale was never registered in the Office of the Register of Deeds of Camarines Sur, and the Notary, Mr. Vicente Malaya, was not then an authorized notary public in the place. Besides, it has been expressly admitted by Carumba that he is the brother-in-law of Canuto, the alleged vendor of the property sold to him. Canuto is the older brother of the wife of Carumba. On 21 January 1957, a complaint for a sum of money was filed by Santiago Balbuena (and wife Angeles Boaquina) against Canuto and Ibasco before the Justice of the Peace Court of Iriga, Camarines Sur (Civil Case 139) and on 15 April 1967, a decision was rendered in favor of Balbuena. On 1 October 1958, the exofficio Sheriff, Justo V. Imperial, of Camarines Sur, issued a “Definite Deed of Sale of the property in favor of Balbuena, which instrument of sale was registered before the Office of the Register of Deeds of Camarines Sur, on 3 October 1958. The aforesaid property was declared for taxation purposes in the name of Balbuena in 1958.” The Court of First Instance Camarines Sur (Civil Case 4646), finding that after execution of the document Carumba had taken possession of the land, planting bananas, coffee and other vegetables thereon, declared him to be the owner of the property under a consummated sale; held void the execution levy made by the sheriff, pursuant to a judgment against Carumba’s vendor, Amado Canuto; and nullified the sale in favor of the judgment creditor, Balbuena. The Court, therefore, declared Carumba the owner of the litigated property and ordered Balbuena to pay P30.00, as damages, plus the costs. The Court of Appeals (Case 36094-R), without altering the findings of fact made by the court of origin, declared that there having been a double sale of the land subject of the suit Balbuena’s title was superior to that of his adversary under Article 1644 of the Civil Code of the Philippines, since the execution sale had been properly registered in good faith and the sale to Carumba was not recorded. Hence, the petition for review on certiorari by Amado Carumba. The Supreme Court reversed the decision of the Court of Appeals and affirmed that of the CFI; with costs against Santiago Balbuena. 1. Unregistered land; Article 1544 does not apply While under the invoked Article 1544, registration in good faith prevails over possession in the event of a doubt sale by the vendor of the same piece of land to different vendees, said article is of no application to the present case, even if Balbuena, the later vendee, was ignorant of the prior sale made by his judgment debtor in favor of Carumba. The reason is that the purchaser of Unregistered land at a sheriff’s execution sale
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only steps into the shoes of the judgment debtor, and merely acquires the latter’s interest in the property sold as of the time the property was levied upon. This is specifically provided by section 35 of Rule 39 of the Revised Rules of Court, the second paragraph of said section specifically providing that “Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee shall be substituted to and acquire all the right, title, interest, and claim of the judgment debtor to the property as of the time of the levy, except as against the judgment debtor in possession, in which case the substitution shall be effective as of the time of the deed.” 2. Deed of sale (even in private instrument) coupled with possession of registered land suffice to vest ownership The deed of sale in favor of Canuto had been executed on 12 April 1955, two years before the decision against the former owners of the land was rendered in favor of Balbuena (15 April 1957), and while only embodied in a private document, the same, coupled with the fact that the buyer (Carumba) had taken possession of the unregistered land sold, sufficed to vest ownership on the said buyer. When the levy was made by the Sheriff, therefore, the judgment debtor no longer had dominical interest nor any real right over the land that could pass to the purchaser at the execution sale. Hence, the latter must yield the land to petitioner Carumba. 3. Rule different in cases covered by Torrens title The rule is different in case of lands covered by Torrens titles, where the prior sale is neither recorded nor known to the execution purchaser prior to the levy; but the land here in question is admittedly not registered under Act 496. [17] Celestino Co v. Collector of Internal Revenue [G.R. No. L-8506. August 31, 1956.] First Division, Bengzon (J): 7 concurring Facts: Celestino Co & Company is a duly registered general copartnership doing business under the trade name of “Oriental Sash Factory”. From 1946 to 1951 it paid percentage taxes of 7% on the gross receipts of its sash, door and window factory, in accordance with section 186 of the National Revenue Code imposing taxes on sales of manufactured articles. However in 1952 it began to claim liability only to the contractor’s 3% tax (instead of 7%) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Hence, the appeal. The Supreme Court affirmed the appealed decision. 1. Business name and income militates against claim as ordinary contractor The company has taken all the trouble and expense of registering a special trade name for its sash business and has ordered company stationery carrying the bold print “Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furnitures, etc. used season-dried and kiln-dried lumber, of the best quality workmanship.” It is unlikely that these act were made solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. Further, the Company has chosen for its tradename and has offered itself to the public as a “Factory”, which means it is out to do business, in its chosen lines on a big scale. Moreover, as shown from the investigation of the Company’s books of accounts (for transactions covering the period of 1 January 1952 to 30 September 1952), it sold sash, doors and windows worth P188,754.69. It will be difficult to believe that such amount that ran to six figures was derived entirely from its few customers who made special orders. Thus, Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public, and it has admitted by the appellant itself that the company “manufactures.”
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2.

Construction work contractors defined Construction work contractors are those who alter or repair buildings, structures, streets, highways, sewers, street railways, railroads, logging roads, electric, steam or water plants telegraph and telephone plants and lines, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68). 3. Nature of business does not fall in any of the occupation that may be classified as contractor within the purview of Section 191 of the National Internal Revenue Code Even if it were to believe that the company does not manufacture ready-made sash, doors and windows for the public and that it makes these articles only upon special order of its customers, that does not make it a contractor within the purview of section 191 of the National Internal Revenue Code. There are no less than fifty occupations enumerated in the said section of the National Internal Revenue Code subject to percentage tax, not one under which the business enterprise of petitioner could appropriately fall. It would require a stretch of the law to make the business of manufacturing sash, doors and windows upon special order of customers fall under the category of ‘road, building, navigation, artesian well, water works and other construction work contractors. 4. Percentage tax imposed under Section 191 of the Tax Code a tax on sales of service, while tax imposed by Section 186 a tax on original sales of articles The percentage tax imposed in section 191 of the Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formilleza’s Commentaries and Jurisprudence on the National Internal Revenue Code, Vol II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. 5. Custom specifications required by customer does not alter character of business, the company does not become an employee or servant of the customer Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer, sizes not previously held in stock for sale to the public, it thereby becomes an employee or servant of the customer, not the seller of lumber. The same consideration applies to this sash manufacturer. The Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. 6. Installation of window panels not construction work in common parlance Petitioner’s idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels as construction work in common parlance. 7. Contract of sale distinguished from a contract for a piece of work Article 1467 of the New Civil Code provides that “a contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work.” In the present case, it is apparent that the Factory did not merely sell its services to Teodoro & Co. because it also sold the materials. When it sold materials ordinarily manufactured by it (sash, panels, mouldings), although in such form or combination as suited the fancy of the purchaser, such new form does not divest the Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had
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in stock the sash, mouldings and panels it used therefor. 8. Contract for a piece of work in Factory happens if the use of extraordinary or additional equipment is required or if it involves services not generally performed by it When the Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it, it thereby contracts for a piece of work, i.e. filling special orders within the meaning of Article 1467. In the present case, however, the orders exhibited were not shown to be special. They were merely orders for work, regular work. 9. Transfers under Section 186 of the Tax Code If all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work; and supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. Still, as the doors and windows had been admittedly “manufactured” by the Sash Factory, such transactions could be, and should be taxed as “transfers” thereof under section 186 of the National Revenue Code. [18] Cheng vs. Genato [G.R. No. 129760. December 29, 1998.] Second Division, Martinez (J): 3 concurring Facts: Ramon B. Genato is the owner of two parcels of land located at Paradise Farms, San Jose del Monte, Bulacan covered by TCTs T-76.196 (M) and T-76.197 (M) with an aggregate area of 35,821 square meters, more or less. On 6 September 1989, Genato entered into an agreement with spouses Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) over the two parcels of land. The agreement culminated in the execution of a contract to sell for which the purchase price was P80 per sq. m. The contract was in a public instrument and was duly annotated at the back of the two certificates of title on the same day. On October 4, 1989, the Da Jose spouses, not having finished verifying the titles (to confirm the truth and authenticity of documents, and that no restrictions, limitations, and developments imposed on and/or affecting the property subject of this contract shall be detrimental to his interest), asked for and was granted by Genato an extension of another 30 days, or until 5 November 1989. However, according to Genato, the extension was granted on condition that a new set of documents is made 7 days from 4 October 1989, which was denied by the Da Jose spouses. Pending the effectivity of the aforesaid extension period, and without due notice to the Da Jose spouses, Genato executed an Affidavit to Annul the Contract to Sell on 13 October 1989. Moreover, no annotation of the said affidavit at the back of his titles was made right away. The affidavit contained the stipulation that the parties agreed that the downpayment of P950,000 shall be paid 30 days from the execution of the Contract (thus, on 6 October 1989), that the vendees failed to pay the downpayment (thus, a breach of contract), and that the affidavit was executed to annul the contract to sell. On 24 October 1989, Ricardo Cheng went to Genato’s residence and expressed interest in buying the subject properties. On that occasion, Genato showed Cheng copies of his TCTs and the annotations at the back thereof of his contract to sell with the Da Jose spouses. Genato also showed him the Affidavit to Annul the Contract to Sell which has not been annotated at the back of the titles. Despite these, Cheng went ahead and issued a check for P50,000.00 upon the assurance by Genato that the previous contract with the Da Jose spouses will be annulled for which Genato issued a handwritten receipt. On 25 October 1989, Genato deposited Cheng’s check. On the same day, Cheng called up Genato reminding him to register the affidavit to annul the contract to sell. The following day, acting on Cheng’s request, Genato caused the registration of the Affidavit to Annul the Contract to Sell in the Registry of Deeds, Meycauayan, Bulacan as primary entry 262702. While the Da Jose spouses were at the Office of the Registry of Deeds of Meycauayan, Bulacan on 27 October 1989, they met Genato by coincidence. It was only then that the Da Jose spouses discovered about the affidavit to annul their contract. The latter were shocked at the disclosure and protested against the rescission of their contract. After being reminded that Genato had given the Da Jose spouses an additional 30-day period to finish their
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verification of his titles, that the period was still in effect, and that they were willing and able to pay the balance of the agreed down payment, later on in the day, Genato decided to continue the Contract he had with them. The agreement to continue with their contract was formalized in a conforme letter dated 27 October 1989. Thereafter, Genato advised Cheng of his decision to continue his contract with the Da Jose spouses and the return of Cheng’s P50,000.00 check. Consequently, on 30 October 1989, Cheng’s lawyer sent a letter to Genato demanding compliance with their agreement to sell the property to him stating that the contract to sell between him and Genato was already perfected and threatening legal action. On 2 November 1989, Genato sent a letter to Cheng enclosing a BPI Cashier’s Check for P50,000 and expressed regret for his inability to “consummate his transaction” with him. After having received the letter of Genato on 4 November 1989, Cheng, however, returned the said check to the former via RCPI telegram dated 6 November 1989, reiterating that “our contract to sell your property had already been perfected.” Meanwhile, also on 2 November 1989, Cheng executed an affidavit of adverse claim and had it annotated on the subject TCT’s. On the same day, consistent with the decision of Genato and the Da Jose spouses to continue with their Contract to Sell, the Da Jose spouses paid Genato the complete down payment of P950,000 and delivered to him 3 postdated checks (all dated 6 May 1990, the stipulated due date) in the total amount of P1,865,680 to cover full payment of the balance of the agreed purchase price. On 8 December 1989, Cheng instituted a complaint for specific performance with the RTC Quezon City (Branch 96) to compel Genato to execute a deed of sale to him of the subject properties plus damages and prayer for preliminary attachment. After trial on the merits, and on 18 January 1994, the lower court ruled that the receipt issued by Genato to Cheng unerringly meant a sale and not just a priority or an option to buy. It cannot be true that the transaction was subjected to some condition or reservation, like the priority in favor of the Da Jose spouses as first buyer because, if it were otherwise, the receipt would have provided such material condition or reservation, especially as it was Genato himself who had made the receipt in his own hand. It also opined that there was a valid rescission of the Contract to Sell by virtue of the Affidavit to Annul the Contract to Sell. Time was of the essence in the execution of the agreement between Genato and Cheng, under this circumstance demand, extrajudicial or judicial, is not necessary. It falls under the exception to the rule provided in Article 1169 of the Civil Code. The right of Genato to unilaterally rescind the contract is said to be under Article 1191 of the Civil Code. Additionally, after reference was made to the substance of the agreement between Genato and the Da Jose spouses, the lower court also concluded that Cheng should be preferred over the Da Jose spouses in the purchase of the subject properties. The trial court rendered its decision declaring the contract to sell dated 6 September 1989 executed between Genato, as vendor, and Spouses Da Jose, as vendees, resolved and rescinded in accordance with Article 1191, Civil Code, by virtue of Genato’s affidavit to annul contract to sell dated 13 October 1989 and as the consequence of the spouses’ failure to execute within 7 days from 4 October 1989 another contract to sell pursuant to their mutual agreement with Genato; ordering Genato to return to the spouses the sum of P1 million plus interest at the legal rate from 2 November 1989 until full payment; directing Genato to return to the spouses the 3 postdated checks immediately upon finality of this judgment; commanding Genato to execute with and in favor of Cheng, as vendee, a deed of conveyance and sale of the real properties described and covered in TCTs T-76196 (M) and T-76.197 (M) of the Registry of Deeds of Bulacan, Meycauayan Branch, at the rate of P70/square meter, less the amount of P50,000.00 already paid to Genato, which is considered as part of the purchase price, with the Cheng being liable for payment of the capital gains taxes and other expenses of the transfer pursuant to the agreement to sell dated 24 October 1989; and ordering Genato to pay Cheng and the spouses P50,000.00, as nominal damages, to Cheng; P50,000.00, as nominal damages, to the spouses; P20,000.00, as and for attorney’s fees, to Cheng; P20,000.00 as and for attorney’s fees, to the spouses; and the cost of the suit. Not satisfied with the decision, Genato and Da Jose spouses appealed to the appellate court (in CA-GR 44706) which, on 7 July 1997, reversed such judgment and ruled that the prior contract to sell in favor of the Da Jose spouses was not validly rescinded; that the subsequent contract to sell between Genato and Cheng, embodied in the handwritten receipt, was without force and effect due to the failure to rescind the prior
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contract; and that Cheng should pay damages to Genato and the spouses herein being found to be in bad faith. The Court of Appeals reversed and set aside the appealed decision ordering the dismissal of the complaint; the cancellation of the annotations of the Genato’s Affidavit to Annul Contract to Sell and Cheng’s Notice of Adverse Claim in the subject TCT’s namely, TCT No. T-76.196 (M) and TCT No. T-76.197 (M); payment by the spouses of the remaining balance of the purchase price pursuant to their agreement with the Genato to suspend encashment of the three post-dated checks issued since 1989; execution by the Genato of the Deed of Absolute Sale over the subject two lots in favor of the spouses; return by Genato of the P50,000.00 paid to him by Cheng; and payment by Cheng of moral damages to the spouses of P100,000, exemplary damages of P50,000, attorney’s fees of P50,000, and costs of suit; and to Genato, of P100,000 in exemplary damages, P50,000 in attorney’s fees. The amounts payable to Genato may be compensated by Cheng with the amount of the check Genato has to pay Cheng. Hence, the petition for review on certiorari. The Supreme Court denied the instant petition for review and affirmed the assailed decision en toto. 1. Contract to sell; non-payment of purchase price not a breach In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. It is one where the happening of the event gives rise to an obligation. Thus, for its non-fulfillment there will be no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. In fact with this circumstance, there can be no rescission of an obligation that is still non-existent, the suspensive condition not having occurred as yet. 2. Breach contemplated in Article 1191 The breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. 3. No default can be ascribed to the spouses No default can be ascribed to the Da Jose spouses since the 30-day extension period has not yet expired. The Da Jose spouses’ contention that no further condition was agreed when they were granted the 30days extension period from 7 October 1989 in connection with a clause of their contract to sell dated 6 September 1989 should be upheld: firstly, If this were not true, Genato could not have been persuaded to continue his contract with them and later on agree to accept the full settlement of the purchase price knowing fully well that he himself imposed such sine qua non condition in order for the extension to be valid; secondly, Genato could have immediately annotated his affidavit to annul the contract to sell on his title when it was executed on 13 October 1989 and not only on 26 October 1989 after Cheng reminded him of the annotation; thirdly, Genato could have sent at least a notice of such fact, there being no stipulation authorizing him for automatic rescission, so as to finally clear the encumbrance on his titles and make it available to other would be buyers. It likewise settles the holding of the trial court that Genato “needed money urgently.” 4. Affidavit to annul contract uncalled for; Conditional obligation does not exist if suspensive condition does not take place Even assuming in gratia argumenti that the Da Jose spouses defaulted, in their Contract to Sell, the execution by Genato of the affidavit to annul the contract is not even called for. For with or without the affidavit their non-payment to complete the full downpayment of the purchase price ipso facto avoids their contract to sell, it being subjected to a suspensive condition. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled. If the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. 5. Notice to other party required to cancel contract; Act always provisional Genato is not relieved from the giving of a notice, verbal or written, to the Da Jose spouses for his
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decision to rescind their contract. In many cases, even though the validity of a stipulation in a contract to sell authorizing automatic rescission for a violation of its terms and conditions is upheld, at least a written notice must be sent to the defaulter informing him of the same. The act of a party in treating a contract as cancelled should be made known to the other. For such act is always provisional. It is always subject to scrutiny and review by the courts in case the alleged defaulter brings the matter to the proper courts. 6. Extrajudicial steps to protect interest an exercise of due diligence to minimize damages In University of the Philippines vs. De Los Angeles, it was held that the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other’s breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code. Article 2203). 7. Notice required to prevent defaulting party from assuming offer still in effect The rule validates, both in equity and justice, contracts, in order to avoid and prevent the defaulting party from assuming the offer as still in effect due to the obligee’s tolerance for such non-fulfillment. Resultantly, litigations shall be prevented and the relations among would-be parties may be preserved. 8. Issue not raised during trial cannot be raised for the first time on appeal An issue which was not raised during the trial in the court below cannot be raised for the first time on appeal. Issues of fact and arguments not adequately brought to the attention of the trial court need not be and ordinarily will not be considered by a reviewing court as they cannot be raised for the first time on appeal. In the present case, Cheng alleged that the P50,000 was earnest money, but in his testimony, offered to prove the transaction was actually a perfected contract to sell. Both courts correctly held that the receipt which was the result of their agreement is a contract to sell. This was, in fact Cheng’s contention in his pleadings before said courts. The patent twist only operates against Cheng’s posture which is indicative of the weakness of his claim. 9. Receipt, even if a conditional contract of sale does not have any obligatory force Even if it is assumed that the receipt is to be treated as a conditional contract of sale, it did not acquire any obligatory force since it was subject to suspensive condition that the earlier contract to sell between Genato and the Da Jose spouses should first be cancelled or rescinded, a condition never met, as Genato, to his credit, upon realizing his error, redeemed himself by respecting and maintaining his earlier contract with the Da Jose spouses. 10. Receipt does not contain requisites of a valid contract of sale A careful reading of the receipt alone would not even show that a conditional contract of sale has been entered by Genato and Cheng. When the requisites of a valid contract of sale are lacking in said receipt, therefore the “sale” is neither valid or enforceable. 11. Coronel vs. CA not foursquare The factual milieu in Coronel is not on all fours with those in the present case. In Coronel, the Court found that the petitioners therein clearly intended to transfer title to the buyer which petitioner themselves admitted in their pleading. The agreement of the parties therein was definitively outlined in the “Receipt of Down Payment” both as to property, the purchase price, the delivery of the seller of the property and the manner of the transfer of title subject to the specific condition that upon the transfer in their names of the subject property the Coronels will execute the deed of absolute sale. Whereas, in the present case, even by a
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careful perusal of the receipt alone, such kind of circumstances cannot be ascertained without however resorting to the exceptions of the Rule on Parol Evidence. 12. Double sale; Article 1544 Article 1544 provides that “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and in the absence thereof, to the person who presents the oldest title, provided there is good faith” 13. Article 1544 is not apropos to present case, according to Court of Appeals A meticulous reading of the Article 1544 shows that said law is not apropos to the present case. This provision connotes that the following circumstances must concur: “(a) The two (or more) sales transactions in issue must pertain to exactly the same subject matter, and must be valid sales transactions. (b) The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and (c) The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller.” These situations obviously are lacking in a contract to sell for neither a transfer of ownership nor a sales transaction has been consummated. The contract to be binding upon the obligee or the vendor depends upon the fulfillment or non-fulfillment of an event. 15. right Article 1544 applies in the present case, according to Supreme Court: First in time, stronger in

The governing principle of Article 1544, Civil Code, applies in the present situation. Jurisprudence teaches us that the governing principle is PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in right). For not only was the contract between Genato and the spouses first in time; it was also registered long before Cheng’s intrusion as a second buyer. This principle only applies when the special rules provided in Article 1544 of the Civil Code do not apply or fit the specific circumstances mandated under said law or by jurisprudence interpreting the article. 16. Article 1544, How second buyer can displace first buyer The rule exacted by Article 1544 of the Civil Code for the second buyer to be able to displace the first buyer are: (1) that the second buyer must show that he acted in good faith (i.e. in ignorance of the first sale and of the first buyer’s rights) from the time of acquisition until title is transferred to him by registration or failing registration, by delivery of possession; (2) the second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law. In the present case, knowledge gained by Cheng of the first transaction between the Da Jose spouses and Genato defeats his rights even if he is first to register the second transaction, since such knowledge taints his prior registration with bad faith. 17. Knowledge of first buyer of the second transaction does not defeat his rights The knowledge gained by the Da Jose spouses, as first buyers, of the new agreement between Cheng and Genato will not defeat their rights as first buyers except where Cheng, as second buyer, registers or annotates his transaction or agreement on the title of the subject properties in good faith ahead of the Da Jose spouses. Moreover, although the Da Jose spouses, as first buyers, knew of the second transaction it will not bar them from availing of their rights granted by law, among them, to register first their agreement as against the second buyer. 18. Registration defined “Registration”, as defined by Soler and Castillo, means any entry made in the books of the registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and even marginal
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notes. In its strict acceptation, it is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights. 19. Inscription of Deed of Sale in registry of property on original document a registration of sale When a Deed of Sale is inscribed in the registry of property on the original document itself, what was done with respect to said entries or annotations and marginal notes amounted to a registration of the sale. In the present case, there is no reason why the annotation made by the Da Jose spouses with respect to their Contract to Sell dated 6 September 1989 should not be given priority in right. 20. Good faith in registration for right to be enforceable Good faith must concur with registration for such prior right to be enforceable. In the present case, the annotation made by the Da Jose spouses on the titles of Genato of their “Contract To Sell” more than satisfies this requirement. Whereas in the case of Genato’s agreement with Cheng such is unavailing. For even before the receipt was issued to Cheng information of such pre-existing agreement has been brought to his knowledge which did not deter him from pursuing his agreement with Genato. Since Cheng was fully aware, or could have been if he had chosen to inquire, of the rights of the Da Jose spouses under the Contract to Sell duly annotated on the TCTs of Genato, it becomes unnecessary to further elaborate in detail the fact that he is indeed in bad faith in entering into such agreement. 21. Knowledge of defect in tile cannot claim good faith against another interest In Leung Yee vs. F . L . Strong Machinery Co., it was stated that “One who purchases real estate with knowledge of a defect of title in his vendor cannot claim that he has acquired title thereto in good faith as against an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendor’s title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation. Good faith, or lack of it, is in its last analysis a question of intention; but in ascertaining the intention by which one is actuated on a given occasion, we are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined. So it is that ‘the honesty of intention,’ ‘the honest lawful intent,’ which constitutes good faith implies a ‘freedom from knowledge and circumstances which ought to put a person on inquiry,’ and so it is that proof of such knowledge overcomes the presumption of good faith in which the courts always indulge in the absence of the proof to the contrary. Good faith, or the want of it, is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judge of by actual or fancied tokens or signs.” (Wilder vs. Gilman, 55 Vt. 504, 505; Cf. Cardenas vs. Miller, 108 Cal., 250; BreauxRenoudet, Cypress Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8, 10, 17) 22. Bad faith basis for damages Damages were awarded by the appellate court on the basis of its finding that Cheng “was in bad faith when he filed the suit for specific performance knowing fully well that his agreement with Genato did not push through.” Such bad faith, coupled with his wrongful interference with the contractual relations between Genato and the Da Jose spouses, which culminated in his filing of the present suit and thereby creating what the counsel for Genato and the spouses describes as “a prolonged and economically unhealthy gridlock” on both the land itself and their rights provides ample basis for the damages awarded. Based on these overwhelming evidence of bad faith on the part of Cheng, the award of damages made by the appellate court is in order.
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[19] CIR v. Engineering Equipment and Supply [G.R. No. L-27044. June 30, 1975.] Engineering Equipment and Supply v. CIR [G.R. No. L-27452. June 30, 1975.] First Division, Esguerra (J): 4 concurring Facts: Engineering Equipment and Supply Co. is an engineering and machinery firm; and being an operator of an integrated engineering ship, is engaged in the design and installation of central type air conditioning system, pumping plants and steel fabrications. On 27 July 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing the Company for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. The Company was likewise denounced to the Central Bank for alleged fraud in obtaining its dollar allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on 27 September 1956, on which occasion voluminous records of the firm were seized and confiscated. On 30 September 1957, revenue examiners reported and recommended to the then Collector, now Commissioner, of Internal Revenue that the Company be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the same Code. This assessment was revised on 23 January 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges. On 3 March 1959, the Commissioner assessed against, and demanded upon, the Company payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of the Company’s penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioner’s assessment. The Commissioner replied that the assessment was in accordance with law and the facts of the case. On 30 July 1959, the Company appealed the case to the Court of Tax Appeals (CTA) and during the pendency of the case the investigating revenue examiners reduced the Company’s deficiency tax liabilities from P916,362.65 to P740,587.86, based on findings after conferences had with the Company’s Accountant and Auditor. On 29 November 1966, the CTA rendered its decision, modifying the decision appealed from, declaring the Company as contractor exempt from the deficiency manufacturers sales tax covering the period from 1 June 1948 to 2 September 1956 but ordered said company to pay the Commissioner, or his collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September 1956; With costs against the Company. The Commissioner, not satisfied with the decision of the CTA, appealed to the Supreme Court on 18 January 1967, (GR L-27044). On the other hand, the Company, on 4 January 1967, filed with the CTA a motion for reconsideration; which was denied on 6 April 1967, prompting the Company to file also with the Supreme Court its appeal (GR L-27452). Since the two cases involve the same parties and issues, the Court decided to consolidate and jointly decide them. The Supreme Court affirmed the decision appealed from with modification that the Company is also made liable to pay the 50% fraud surcharge. 1. Manufacturer defined Section 194 of the Tax code provides that “’Manufacturer’ includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or
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partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption.” 2. Test to distinguish contract of sale and contract for work, labor and materials The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant’s request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. 3. Contract of sale distinguished from a contract for a piece of work The New Civil Code distinguishes a contract of sale from a contract for a piece of work. Article 1467 provides that “a contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order and not for the general market, it is a contract for a piece of work.” 4. Contractor defined; Test to determine contractor The word “contractor” has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. (Arañas, Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191(2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad 43, Phil. 816, 819, would seem to be that he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished. 5. Engineering Equipment Co. is a contractor and not a manufacturer The Company did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils), which were used in executing contracts entered into by it. The Company fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system; prepares the plans and specifications therefor which are distinct and different from each other; the air conditioning units and spare parts or accessories thereof used are not the window type of air conditioner which are manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units and spare parts or accessories thereof are supplied and installed upon previous orders of its customers conformably with their needs and requirements.” The facts and circumstances support the theory that the Company is a contractor rather than a manufacturer. 6. Engineering Equipment Co. subject to contractors tax (Section 191); As it imports goods not subject to sales tax, it also liable to 30% compensation tax (Section 190 in relation to Section 18[m], but without the 50% mark up provided in Section 183[b]
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The Company, being a contractor and not a manufacturer, is subject to the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved that the Company imported air conditioning units parts or accessories thereof for use in its construction business and these items were never sold resold bartered or exchanged the Company should be held liable to pay taxes prescribed under Section 190 of the Code. This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales tax. The Company, therefore, should be held liable to the payment of 30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section 183(b). 7. Air conditioning equipment grouped into 2 classifications, unitary and central system There is a great variety of equipment in use to do air conditioning. Some devices are designed to serve a specific type of space; others to perform a specific function; and still others as components to be assembled into a tailor-made system to fit a particular building. Generally, however, they may be grouped into two classifications, unitary and central system. The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied or built-up systems, require the installation of components at different points in a building and their interconnection. The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers (Engineering handbook by LC Morrow). The central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign definite space and usually the spaces they assign are very small and of various sizes, in buildings dissimilar to existing buildings. The window type air conditioner is a sort of compromise; it cannot control humidity to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator. 8. Celestino Co v. CIR, Advertising Associates v. Collector of customs, Manila Trading v. City of Manila not applicable The Company did not and was not engaged in the manufacture of air conditioning units but had its services contracted for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts in all the cases cited are entirely different. In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. From the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print “ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows . . .” Likewise, Celestino Co never put up a contractor’s bond as required by Article 1729 of the Civil Code. Also, as a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which “sales” were reflected in their books of accounts totalling P118,754.69 for the period of only nine (9) months. The Court found said sum difficult to have been derived from its few customers who placed special orders for these items. In the present case, the Company advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system. Similarly, ot did not have ready-made air conditioning units for sale.
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9. SM Lawrence Co. v. McFarland, CIR of the State of Tennessee and McCanless is on all fours with present case The case of S.M. Lawrence Co. vs. McFarland, Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101, is the one on all fours with the present case, “where the cause presents the question of whether one engaged in the business of contracting for the establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the position that appellant was not engaged in the business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed system of ducts running from the basic units through walls, ceilings and floors to registers. The contract called for completed air conditioning systems which became permanent part of the buildings and improvements to the realty.” The Court held the appellant a contractor which used the materials and the equipment upon the value of which the tax herein imposed war levied in the performance of its contracts with its customers, and that the customers did not purchase the equipment and have the same installed. 10. Engineering Equipment had intent to misdeclare its importation as evidenced by its communications; Company liable to 50% fraud surcharge The communications (between the Company and various suppliers such as Trane Co., Acme Industries Inc., and Owens-Corning Fiberglass Corp.) presented as exhibits in the case were strongly indicative of the fraudulent intent of the Company to misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. Since the commission of fraud is altogether too glaring, the Court cannot agree with the CTA in absolving the Company from the 50% fraud surcharge, otherwise it will be tantamount to giving premium to a plainly intolerable act of tax evasion. 11. Company liable to 25% compensation tax; Section 190 as amended The original text of Section 190 of Commonwealth Act 466, otherwise know as the National Internal Revenue Code, as amended by CA 503, effective on 1 October 1939, does not provide for the filing of a compensating tax return and payment of the 25% surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code, as amended by CA 503, the contention of the Company that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently amended by RA 48, 253, 361, 1511 and 1612 effective 1 October 1946, 1 July 1948, 9 June 1949, 16 June 1956 and 24 August 1956 respectively, which invariably provides among others, that “if any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other purposes corresponding entry should be made in the looks of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice and if tax is not paid within such period the amount of the tax shall be increased by 25% the increment to be a part of the tax,” and that “since the imported air conditioning units and spare parts or accessories thereof are subject to the compensating tax of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. . . . Consequently, as the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the 25% surcharge for delinquency in the payment of the said tax.”

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12. Prescription not yet set in; Prescription of tax assessment is 10 years if based on false or fraudulent return to evade tax A review of the record reveals that the Company filed a tax return or declaration with the Bureau of Customs before it paid the advance sales tax of 7%, and the declaration filed reveals that it did in fact misdeclare its importations. Section 332 (a) of the Tax Code therefore is applicable. Section 332 (a) provides for the exceptions as to period of limitation of assessment and collection of taxes, providing that “(a) in the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission.” Thus, considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from the Company, the tax assessment was made within the period prescribed by law and prescription had not set in against the Government. [20] Coronel v. CA [G.R. No. 103577. October 7, 1996.] Third division, Melo (J): 3 concurring, 1 took no part Facts: On 19 January 1985, Romulo Coronel, et al. executed a document entitled “Receipt of Down Payment” in favor of Ramona Patricia Alcaraz for P50,000 downpayment of the total amount of P1.24M as purchase price for an inherited house and lot (TCT 119627, Registry of Deeds of Quezon City), promising to execute a deed of absolute sale of said property as soon as such has been transferred in their name. The balance of P1.19M is due upon the execution of said deed. On the same date, Concepcion D. Alcaraz, mother of Ramona, paid the down payment of P50,000.00. On 6 February 1985, the property originally registered in the name of the Coronels’ father was transferred in their names (TCT 327043). However, on 18 February 1985, the Coronels sold the property to Catalina B. Mabanag for P1,580,000.00 after the latter has paid P300,000.00. For this reason, Coronels canceled and rescinded the contract with Alcaraz by depositing the down payment in the bank in trust for Alcaraz. On 22 February 1985, Alcaraz filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT 327403. On 2 April 1985, Mabanag caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City. On 25 April 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Mabanag. On 5 June 1985, a new title over the subject property was issued in the name of Mabanag under TCT 351582. In the course of the proceedings, the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Upon submission of their respective memoranda and the corresponding comment or reply thereto, and on 1 March 1989, judgment was handed down in favor of the plaintiffs, ordering the defendant to execute a deed of absolute sale of the land covered by TCT 327403 and canceling TCT 331582 and declaring the latter without force and effect. Claims for damages by plaintiffs and counterclaims by the defendants and intervenors were dismissed. A motion for reconsideration was thereafter filed, which was denied. Petitioners interposed an appeal, but on 16 December 1991, the CA rendered its decision fully agreeing with the trial court. Hence, the instant petition. The Supreme Court dismissed the petition and affirmed the appealed judgment. 1. Receipt of downpayment a binding contract; Meeting of the minds The document embodied the binding contract between Ramona Patricia Alcaraz and the heirs of
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Constancio P. Coronel, pertaining to a particular house and lot covered by TCT 119627, as defined in Article 1305 of the Civil Code of the Philippines. 2. Definition of contract of sale The Civil Code defines a contract of sale, in Article 1458, as “one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.” Sale, thus, by its very nature a consensual contract because it is perfected by mere consent. 3. Elements of contract of sale; Contract to sell not contract of sale due to the lack of first element; Distinction necessary when property is sold to a third person The essential elements of a contract of sale are (a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) Determinate subject matter; and (c) Price certain in money or its equivalent. A Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person. 4. Contract to sell: Seller agrees to sell property when purchase price is delivered to him; seller reserves transfer of title until fulfillment of suspensive condition (payment) In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes taken to be the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. 5. Contract to sell: failure to deliver payment is not a breach but event preventing vendor to convey title; obligation demandable upon full payment of price; promise binding if supported by payment distinct from the price When a contract is a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force (Roque v. Lapuz). Upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code (“A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.”) 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. 6. Contract to sell defined A contract to sell be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. 7. Contract to sell not a conditional contract of sale (existence of first element) A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because
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in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. 8. Conditional contract of sale: if suspensive condition not fulfilled, pefection abated; if fulfilled, contract of sale perfected and ownership automatically transfers to buyer If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. 9. Contract to sell: if suspensive condition fulfilled, seller has still to convey title even if property is previously delivered In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. 10. Contract to sell: there is no double sale; if property sold to another, the seller may be sued for damages In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the intending buyer. 11. Conditional contract of sale: sale becomes absolute upon fulfillment of condition; if property sold to another, first buyer may seek reconveyance In a conditional contract of sale, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. 12. Interpretation of contracts, natural and meaning of words unless technical meaning was intended It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). 13. Document entitled “Receipt of Down Payment” indicates Conditional Contract of Sale and not contract to sell The agreement could not have been a contract to sell because the sellers made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, had the certificate of title been in the names of petitioners-sellers at that time, there
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would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by petitioners, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners’ father to their names. The suspensive condition was fulfilled on 6 February 1985 and thus, the conditional contract of sale between the parties became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the “Receipt of Down Payment.” 14. Article 1475 and 1181 applies to present case; Perfection of a contract of sale and Conditional obligation based on the happening of the event Article 1475 of the New Civil Code provides that “the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.” From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. Article 1181 of the same code provides that “in conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.” In the present case, since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners’ names was fulfilled on 6 February 1985, the respective obligations of the parties under the contract of sale became mutually demandable, i.e. the sellers were obliged to present the TCT already in their names to he buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00. 15. Condition deemed fulfilled when obligor voluntary prevents its fulfillment; Condition fulfilled, such fact controlling over hypothetical arguments Article 1186 provides that “the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.” Thus, in the present case, the petitioners having recognized that they entered into a contract of sale subject to a suspensive condition, as evidenced in the first paragraph in page 9 of their petition, cannot now contend that there could have been no perfected contract of sale had the petitioners not complied with the condition of first transferring the title of the property under their names. It should be stressed and emphasized that the condition was fulfilled on 6 February 1985, when TCT 327403 was issued in petitioners’ name, and such fact is more controlling than mere hypothetical arguments. 16. Retroactivity of conditional obligation to day of constitution of obligation Article 1187 provides that “the effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation.” In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. In the present case, the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on 6 February 1985. As of that point in time, reciprocal obligations of both seller and buyer arose. 17. Succession as a mode of transferring ownership Article 774 of the Civil Code defines Succession as a mode of transferring ownership, providing “succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law.” In the present case, petitioners-sellers being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the
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instance of their father’s death, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]). 18. Estoppel, as to lack of capacity Article 1431 provides that “through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” In the present case, the petitioners, having represented themselves as the true owners of the subject property at the time of sale, cannot claim now that they were not yet the absolute owners thereof at the time they entered into agreement. 19. Mere allegation is not evidence The supposed grounds for petitioners’ rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners’ allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]). 20. No stipulation to authorize extrajudicial rescission of contract of sale Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on 6 February 1985, petitioners-sellers’ act of unilaterally and extrajudicially rescinding the contract of sale cannot be justified as there was no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (cf Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984]) 21. Estoppel, acceptance of check from buyer’s mother; buyer’s absence not a ground for rescission Petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona’s mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. “B”; Exh. “2”) for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion’s authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale. 22. Buyer not in default as there is no proof that seller presented the TCT and signify their readiness to execute the deed of absolute sale Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default. Said article provides that “those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins.” In the present case, there is no proof offered whatsoever to show that the seller actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona’s corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default. 23. Double sale; Article 1544, paragraph 2 applies in the present case
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Article 1544 of the Civil Code provides that “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith.” In the present case, the record of the case shows that the Deed of Absolute Sale dated 25 April 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on 5 June 1985. Thus, the second paragraph of Article 1544 shall apply. 24. Double sale presumes title to pass to first buyer, exceptions Article 1544, the provision on double sale, presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer. 25. Prius tempore, potior jure (first in time, stronger in right); First to register in good faith The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). It was further held that it is essential, to merit the protection of Article 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (Cruz v. Cabana, 129 SCRA 656, citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992). 26. Double sale; good faith in recording of second sale, not in buying In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. In the present case, Mabanag could not have in good faith registered the sale entered into on 18 February 1985 because as early as 22 February 1985, a notice of lis pendens had been annotated on the TCT in the names of petitioners, whereas Mabanag registered the said sale sometime in April 1985. At the time of registration, therefore, petitioner knew that the same property had already been previously sold to Coronel, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Mabanag thus cannot close her eyes to the defect in petitioners’ title to the property at the time of the registration of the property. 27. Double sale; Bad faith in registration does not confer registrant any right If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1981];citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.) 28. Agency; The issue whether Concepcion, mother of Ramona, is an agent or a co-buyer is undisturbed Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the
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instant petition, nor in such assumption disputed between mother and daughter. The Court did not touch this issue and did not disturb the lower courts’ ruling on this point. [21] Coronel vs. Ona [G.R. No. 10280. February 7, 1916.] First Division, Torres (J): 3 concurring, 1 took no part Facts: In the administration of the intestate estate of the deceased Isidra Coronel, the administrator thereof, Engracio Coronel, discovered certain arrangements between the surviving spouse, Cenon Ona, and other persons, which decreased and injured the property under administration, whereof, by permission of the court, the said administrator on 16 May 1913, filed suit against Cenon, et. al., in which suit, by agreement of the parties, they were included as plaintiffs the heirs of the said deceased named Francisco Coronel, Agripina Coronel, Engracia Torres, Manuela Torres and her husband Lucio Pañganiban, and the minor Anastacia Ramon, represented by his curator ad litem, Engracio Coronel. Coronel, et. al. allege in their complaint that the administration is the owner of one-half pro indiviso of a rural estate, 10 hectares and 42 centares in area, situate in the barrio of Lagalag of the town of Tiaong, Province of Tayabas, planted with 2,000 coco palms from 4 to 5 years old, the boundaries whereof are set forth in the complaint, said realty being conjugal property as it was acquired for a consideration by the deceased Isidra Coronel and her husband Cenon Ona during their marriage; that upon the death of the wife in April 1911, the surviving spouse Cenon Ona became the administrator of said undivided property, taking all its products and refusing to make partition of the land with the lawful heirs of his deceased wife; that on 5 November 1912, Cenon Ona and the other defendants formed a conspiracy, with intent of gain for themselves, to the fraud and injury of the plaintiff administration, and drew up and signed an alleged instrument of sale, whereby Cenon Ona sold to the spouses Benigno Nadres and Victoria Villa the said land, which instrument they falsely dated as prior to the death of his wife Isidra Coronel and forged and imitated her signature or mark by writing her name and surname thereon with a cross between them; that on the same date, 5 November 1912, the same defendants, continuing their fraudulent proceedings, executed another instrument of sale of the same land, wherein they made to appear as vendors thereof Benigno Nadres and Victoria Villa and as vendees the spouses Crispin Castillo and Maria recto, so that thereby it would be more difficult for the plaintiff administration to recover said estate, and from that date Cenon Ona surrendered possession and enjoyment of the said land to the spouses Crispin Castillo and Maria Recto, who have been up to the present time in possession thereof and have taken the products therefrom, having refused to give the administration any portion of the latter; that by reason of the malicious and fraudulent acts of these defendants the administration has suffered damages to the extent of P1,000. On 29 May 1913, Benigno Nadres, Victoria Villa, Crispin Castillo, and Maria Recto answered the complaint, denying all the allegations thereof generally and specifically, and alleging in special defense: That on 8 November 1910, the spouses Benigno Nadres and Victoria Castillo [Villa] had acquired the land which is the subject matter of the complaint at a genuine and absolute sale from the spouses Cenon Ona and Isidra Coronel, and that spouses Crispin Castillo and Maria Recto acquired the same land on 5 November 1912, at a genuine and absolute sale from Nadres and Villa. In another document of a later date, Crispin Castillo and Maria Recto, denied the facts set forth in the complaint and in special defense alleged that they are the exclusive owners of the land described in the complaint, as they acquired it by purchase from the spouses Nadres and Villa. Counsel for Cenon Ona in answer denied generally and specifically all the paragraphs of the complaint and alleged solely in special defense that he had never, either before or at the time of the sale made by him and his deceased wife Isidra Coronel of the land which is the subject matter of the complaint, concerted or conspired with his codefendants to effect said sale. After trial and examination of the evidence adduced by both parties and on 29 April 1914, the CFI Tayabas rendered the judgment denying the claim of spouses Crispin Castillo and Maria Recto, for recovery of damages they had suffered by reason of the filing of the complaint against them, finding that the instruments of conveyance of the land in litigation void and of no force or legal effect because the parties who sold the land by means of said instruments lacked any right to alienate it; denying the claim of Coronel, et. al. that the defendants pay the value of one-half of the products
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of this land received by them and a sum of money in the nature of compensatory damages, and merely sentencing Cenon Ona and Benigno Nadres to the payment of the costs in equal parts. Hence the appeal through a bill of exceptions by counsel for the defendants. The Supreme affirmed the judgment appealed from, with the costs against the appellants. 1. Facts: Identity of property not disputed There is no question whatsoever as to the identity of the land claimed in the complaint, it being a rural estate situated in the barrio of Lagalag of the municipality of Tiaong, Tayabas, with an area of ten hectares and forty-two centiares and planted with 2,000 coco palms. 2. Property conjugal; Coronel’s heirs by operation of law Cenon Ona was lawfully married to Isidra Coronel and during their marriage they acquired by purchase from Juan Cadiz the land, wherefore said realty is their conjugal property. This marriage was dissolved by the death of Isidra Coronel on 13 April 1911, without issue from these spouse and without a will executed in life by the woman, so the heirs that by operations of law must succeed said deceased Isidra Coronel are her brothers and sisters and nephews and nieces, residing in the town of San Juan de Bocboc, Batangas. The land in litigation is not only conjugal property, with one-half thereof belonging to the deceased Isidra Coronel, but also from the moment of her death it passed by operation of law into the ownership of her intestate heirs, and for this reason her widower could not dispose of said half to the injury of the nearest relatives and heirs of his deceased wife. (Arts. 657, 659, 661, Civil Code.) 3. Facts: Stipulations in the instrument of purchase and sale In the instrument of purchase and sale, written in the Tagalog dialect (Case 776) and translated in the present case, the spouses Cenon Ona and Isidra Coronel transferred by absolute sale on 8 November 1910, the land litigation to te spouses Benigno Nadres and Victoria Villa, under the following conditions: (1) The spouses Cenon Ona and Isidra Coronel had planted coco palms on a certain tract of land belonging to Benigno Nadres and his wife, which land Cenon Ona and Isidra Coronel had alienated without the consent of the owners thereof, the said Nadres and wife; (2) on their part the spouses Ona and Coronel possessed another tract of land which they had purchased from Juan Cadiz, whereon they has already set out 1,400 young coco palms and 800 more could be planted; (3) as Benigno Nadres and his wife were demanding return of the land previously sold by Ona and Coronel, the latter thought it fair to cede their own land to said Nadres and wife in exchange for what they had alienated, Nadres and his wife there in hand paying P2,500 as the increase in the price; (4) this exchange was made on the condition that Cenon Ona and his wife should for the period of four years; (5) the betel nut, paddy, buri, and other products shall pertain exclusively to the vendors, Cenon Ona and Isidra Coronel, who shall pay the land tax for the said four years of the life of the contract; and (6) the spouses Benigno Nadres and Victoria Villa were agreed that they would no participation in the crops from the land. This instrument is signed by the contracting parties and the witnesses, except Isidra Coronel, who placed her mark on the instrument her name and surname, which must have been affixed by another person, as she could not write. 4. Deduced facts of the case From the abundant, but contradictory, evidence adduced at the trial, the following facts are deduced: (1) The consideration which gave rise to the execution by Cenon Ona and Isidra Coronel, with reference to their having alienated a parcel of land belonging to Benigno Nadres and his wife, is not a valid one; (2) the consideration for the transfer of the land in question to the Nadres couple, with payment by them of P2,500 to the vendors, is false and simulated; (3) the instrument evidencing the sale of this land was executed after Isidra Coronel’s death and cannot therefore produce any effect against her heirs; and (4) the transfer by exchange and sale of the land to the vendee Benigno Nadres is not valid, as said transfer was recorded in the instrument for the sole and deliberate purpose of preventing the lawful heirs of Isidra Coronel from inheriting their portion thereof.
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5.

Consideration false and simulated Cenon Ona stated that he and his wife Isidra Coronel had received a tract of land from said Benigno Nadres, on which to set out coco-palms, with the condition that after the planting had been finished and 6 years had elapsed, he and his wife should become the owners if one-half of the said tract, as had happened, and as he was then in need of money he had sold to a third person said portion of land that then belonged to him; but it is not true that he obligated himself not to sell that portion of land to anybody but its original owner, Nadres. This testimony of Ona, which was not rebutted or contradicted by the other defendants, constitutes conclusive proof of the invalidity of the reason given for the exchange of the land in question for that previously sold and for transferring it to the said Benigno Nadres and his wife; and it is furthermore to be noted that Ona himself stated under oath that in transferring this land to Nadres on 8 November 1910, he had no intention of transferring it absolutely but had made this transfer appear in an instrument so that Nadres might take charge of the land and not bother him, as he was then old, and also to prevent the heirs of his wife Coronel from participating in her inheritance. Hence it is inferred that the consideration which gave rise to the transfer of this land to Nadres and his wife is not valid, but false and simulated. Hence, said realty was not sold to Nadres but a pretense was made of transferring it in order to sell it as the agent of Ona, and therefore the land continued to belong to Ona and his wife, the deceased Coronel. It is furthermore to be noted that when said transfer was made to Nadres the heirs of the deceased Coronel had already filed a claim for the land and consequently any alienation thereof that may have been made after the date of said claim filed by the heirs of the deceased Coronel is fraudulent. (Oria vs. McMicking, 21 Phil., Rep., 243,249) 7. Instrument simulated The simulation of the instrument is corroborated by the fact that Cenon Ona delivered to the administrator, Engracio Coronel, the sum of P900 so that the latter and his coplaintiffs should desist from filing a judicial, claim to the land in litigation, and, according to agreement, they executed the instrument setting forth that sum, both parties, signing it in the presence of two witnesses and ratifying it before a justice of the peace. Coronel and Ona affirm the truth of the fact set forth in said instrument to demonstrate that the land was not absolutely alienated but continued to be at the disposition of the widower. But the CFI disapproved said agreement and ordered restitution to the widower Ona of the money received by Coronel. 8. Suppressed testimony presumed prejudicial One of the individuals who played a principal part in the sale of the realty, Benigno Nadres, was not presented by the defendants s a witness at the trial to clear up certain obscure and doubtful points, for he only testified in rebuttal, although he was present in the court at the last session of the trial in this case; wherefore it is to be supposed, in the absence of proof to the contrary, that his testimony, which was willfully suppressed by the defendants, would have been prejudicial to them (No. 5, section 334, Code of Civil Procedure), while the record shows that Cenon Ona made declarations contrary to the interest of his other codefendants, which could not be contradicted or impugned as false. 9. First sale simulated, Second sale void and ineffective for lack of right to dispose of land Having reached the conclusion that the instrument, where it appears that the spouses Benigno Nadres and Victoria Villa purchased the land in question, is false and void, because said sale was not effected. Therefore, the sale made by them to the spouses Crispin Castillo and Maria Recto on 5 November 1912, is also void and ineffective, for the parties who figure therein as vendors had no right to dispose of the land, nor could they transmit to the vendees any title of ownership, nor could the latter acquire ownership of the land sold. 10. Article 1254 of the Civil Code; Consent Article 1254 of the Civil Code states “A contract exists from the moment one or more persons consent to bind himself or themselves, with regard to another or others, to give something or to render some service.” In the present case, since Coronel was dead on the date when the contract was drawn up and could
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not have taken part in the execution thereof or given her consent to the pretended sale of the land to which it refers and which belonged to the conjugal partnership of Ona and Coronel, said contract has never existed, and being void it could not serve as a legal means for transferring ownership to the alleged purchasers, Nadres and Villa; and as they could not acquire any right of ownership to the land sold by virtue of a contract that had not existed and was consequently null and void they had not transfer such a right to the spouses Crispin Castillo and Maria Recto. 11. Requisites of a valid contract; Article 1261 There is no contract, says article 1261 of the same Code, unless there exist the essential requisites of consent of the contracting parties, a definite object which may be the subject of the contract, and the consideration for the obligation which may be established. In the present case, Isidra Coronel was not present to give her consent to the alleged contract of sale, because she was dead when said contract was simulated, nor is any consideration for the obligation stated therein, and consequently the contract set forth in said instrument is flagrantly null and void. Although it appears to have been dated 8 November 1910, while Isidra Coronel was still alive, it was prepared on 5 November 1912, for the widower Cenon Ona so testified. 12. Crispin Castillo and Maria Recto not entitled to damages Since Coronel, et. al. did not take part in the execution of the contracts of sale and did not act in bad faith in filing this complaint against the efendants, Crispin Castillo and Maria Recto, the latter are not entitled to recover any indemnity for damages. 13. Coco palms not yet borne fruit, therefore claim on value of products cannot be granted By the declaration of the administrator himself, Engracio Coronel, and by that of Cenon Ona, that the coco palms set out on the land in dispute have not yet borne fruit, wherefore Coronel et.al’s claim that they be paid the value of one-half of the products taken from the land in question cannot be granted. [22] Cruz vs. Cabana [G.R. No. 56232. June 22, 1984.] First Division, Teehankee (J): 5 concurring Facts: The land in question was sold by Leodegracia Cabana with right of repurchase on 1 June 1965 to Spouses Teofilo Legaspi and lluminada Cabaña. The said document ‘Bilihang Muling Mabibili’ stipulated that the land can be repurchased by the vendor within 1 year from 31 December 1966. Said land was not repurchased and in the meantime, said spouses took possession of the land. Upon request of Leodegaria Cabaña, the title of the land was lent to her in order to mortgage the property to the PNB. Said title was, forthwith, deposited with the PNB. On 21 October 1968, Cabaña sold the land by way of absolute sale to the spouses. Said spouses attempted to register the deed of sale but said registration was not accomplished because they could not present the owner’s duplicate of title which was at that time in the possession of the PNB as mortgage. However, on 29 November 1968 Cabana sold the same property to Abellardo Cruz. Likewise, when Cruz tried to register the deed of sale executed by Leodegaria Cabaña on 3 September 1970, he was informed that the owner thereof had sold the land to the spouses on 21 October 1968. Still, Cruz was able to register the land in his name on 9 February 1971. Raised in the CFI Quezon Province, the court ruled in favor of the spouses. Appeal was made in the Court of Appeals. Abelardo Cruz died while the case was pending, and by resolution, he was substituted by his heirs, Consuelo C. Cruz, Claro C. Cruz and Stephen C. Cruz. The Court of Appeals affirmed the decision of the CFI. The Supreme Court affirmed in toto the appealed judgment of appellate court, upholding spouses Teofilo Legaspi and Iluminada Cabana as the true and rightful owners of the property in litigation and ordering the
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issuance of a new title with the cancellation as null and void of Title T-99140 obtained by Abelardo C. Cruz; and ordered Leodegracia Cabana, in accordance with the partial grant of Cruz’ prayer for alternative relief, to reimburse and pay to Cruz’ heirs the total sum of P5,750 (P2,352.50 as payment to PNB to discharge mortgage obligation, and P3,397.50 as consideration of the sale with pacto de retro of the property). 1. CA Ruling: Applicability of Article 1544, when invoked; Registration should be in good faith In order that the provisions of Article 1544 of the new Civil Code may be invoked, it is necessary that the conveyance must have been made by a party who has an existing right in the thing and the power to dispose of it (10 Manresa 170, 171). It cannot be set up by a second purchaser who comes into possession of the property that has already been acquired by the first purchaser in full dominion (Bautista vs. Sison, 39 Phil. 615), this notwithstanding that the second purchaser records his title in the public registry, if the registration be done in bad faith. The philosophy underlying this rule being that the public records cannot be covered into instruments of fraud and oppression by one who secures an inscription therein in bad faith (Chupinghong vs. Borreros, 7 CA Rep. 699). 2. CA Ruling: Purchaser with knowledge of defect of vendor’s title not a purchaser in good faith A purchaser who has knowledge of fact which would put him upon inquiry and investigation as to possible defects of the title of the vendor and fails to make such inquiry and investigation, cannot claim that he is a purchaser in good faith. Knowledge of a prior transfer of a registered property by a subsequent purchaser makes him a purchaser in bad faith and his knowledge of such transfer vitiates his title acquired by virtue of the latter instrument of conveyance which creates no right as against the first purchaser (Reylago vs. Jarabe, L-20046, March 27, 1968, 22 SCRA 1247). 3. CA Ruling: Spouses first to register deed of sale The spouses registered the deed of absolute sale ahead of Cruz. Said spouses were not only able to obtain the title because at that time, the owner’s duplicate certificate was still with the Philippine National Bank. 4. CA Ruling: Spouses first in possession The spouses have been in possession all along of the land in question. If immovable property is sold to different vendees, the ownership shall belong to the person acquiring it who in good faith first recorded it in the registry of property; and should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession (Soriano, et al. vs. The Heirs of Domingo Magali, et al., L-15133, July 31, 1963, 8 SCRA 489). Priority of possession stands good in favor of the spouses (Evangelista vs. Abad, [CA] 36 O.G. 2913; Sanchez vs. Ramos, 40 Phil. 614; Quimson vs. Rosete, 87 Phil. 159).” 5. Double Sale; Article 1544 Article 1544 provides that “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.” 6. Spouses are first buyers; Spouses first and only ones in possession Spouses were the first buyers, first on 1 June 1965 under a sale with right of repurchase and later on 21 October 1968 under a deed of absolute sale and that they had taken possession of the land sold to them. Cruz was the second buyer under a deed of sale dated 29 November 1968, which to all indications, contrary to the text, was a sale with right of repurchase for 90 days. The spouses were the first and the only ones to be in possession of the subject property.

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7.

Spouses first to register sale; Cruz registered sale in bad faith The spouses were likewise the first to register the sale with right of repurchase in their favor on 13 May 1965 under Primary Entry 210113 of the Register of Deeds. They could not register the absolute deed of sale in their favor and obtain the corresponding transfer certificate of title because at that time the seller’s duplicate certificate was still with the bank. When Cruz succeeded in registering the later sale in his favor, he knew and he was informed of the prior sale in favor of the spouses. Such “knowledge of a prior transfer of a registered property by a subsequent purchaser makes him a purchaser in bad faith and his knowledge of such transfer vitiates his title acquired by virtue of the latter instrument of conveyance which creates no right as against the first purchaser.” 8. Buyer must act in good daith to merit protection of the second paragraph of Article 1544; Governing principle is Prius tempore, potior jure; How second buyer may displace first buyer As held in Carbonell vs. Court of Appeals, “it is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of Article 1544.” The governing principle here is prius tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights except only as provided by the Civil Code and that is where the second buyer first registers in good faith the second sale ahead of the first. Such knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase as against the second buyer. But in converso 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. This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer; that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e. in ignorance of the first sale and of the first buyer’s rights) — from the time of acquisition until the title is transferred to him by registration or failing registration, by delivery of possession. The second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law.” 9. Cruz’ prayer of affirmative relief; Cabana, not the Legaspi spouses, liable for amounts paid; No reimbursement for realty taxes Cruz’ prayer for alternative relief for reimbursement of the amount of P2,352.50 paid by him to the bank to discharge the existing mortgage on the property and of the amount of P3,397.50 representing the price of the second sale are well taken insofar as the seller Leodegaria Cabana is concerned. These amounts have been received by Cabana on account of a void second sale and must be duly reimbursed by her to Cruz’ heirs, but the Legaspi spouses cannot be held liable therefor since they had nothing to do with the said second sale nor did they receive any benefit therefrom. Cruz’ claim for reimbursement of the amount of P102.58 as real estate taxes paid on the property is not well taken because the Legaspi spouses had been paying the real estate taxes on the same property since 1 June 1969. [23] Cruz vs. Filipinas Investment [G.R. No. L-24772. May 27, 1968.] En Banc, Reyes JBL (J): 7 concurring, 1 on leave Facts: On 15 July 1963, Ruperto G. Cruz purchased on installments, from the Far East Motor Corporation, 1 unit of Isuzu Diesel Bus for P44,616.24, payable in installments of P1,487.20 per month for 30 months, beginning 22 October 1963, with 12% interest per annum, until fully paid. As evidence of said indebtedness, Cruz executed and delivered to the Far East Motor Corporation a negotiable promissory in the sum of P44,616.24. To secure the payment of the promissory note, Cruz executed in favor of the seller Far East Motor Corporation, a chattel mortgage over the motor vehicle. As no down payment was made by Cruz, the seller, Far East Motor Corporation, on the very same date, 15 July 1963, required and Cruz agreed to give, additional security for his obligation besides the chattel mortgage. Additional security was given by Felicidad
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Vda. de Reyes in the form of Second Mortgage on a parcel of land owned by her (68,902 sq. ms., TCT T36480 of the Registry of Deeds of Bulacan, mortgaged to the DBP to secure loan of P2,600), together with the building and improvements thereon, in San Miguel, Bulacan. On 15 July 1963, the Far East Motors for value received indorsed the promissory note and assigned all its rights and interest in the Deeds of Chattel Mortgage and in the Deed of Real Estate Mortgage to Filipinas Investment & Finance Corporation (FIFC), with due notice of such assignment to Cruz, et.al. Cruz defaulted in the payment of the promissory note and that the only sum ever paid was P500 on 2 October 1963, which was applied as partial payment of interests on his principal obligation. Notwithstanding FIFC’s demands, Cruz made no payment on any of the installments stipulated in the promissory note. By reason of Cruz’s default, FIFC took steps to foreclose the chattel mortgage on the bus. However, said vehicle had been damaged in an accident while in the possession of Cruz. At the foreclosure sale held on 31 January 1964 by the Sheriff of Manila, FIFC was the highest bidder (for P15,000.00). The proceeds of the sale of the bus were not sufficient to cover the expenses of sale, the principal obligation, interests, and attorney’s fees, i.e., they were not sufficient to discharge fully the indebtedness of Cruz to FIFC. On 12 February 1964, preparatory to foreclosing its real estate mortgage on Mrs. Reyes’ land, FIFC paid the mortgage indebtedness of Mrs. Reyes to the DBP, in the sum of P2,148.07, the unpaid balance of said obligation. Pursuant to a provision of the real estate mortgage contract, authorizing the mortgagee to foreclose the mortgage judicially or extra-judicially, FIFC on 29 February 1964 requested the Provincial Sheriff of Bulacan to take possession of, and sell, the land subject of the Real Estate Mortgage to satisfy the sum of P43,318.92, the total outstanding obligation of Cruz, et. al. to FIFC. Notices of sale were duly posted and served to the Mortgagor, Mrs. Reyes, pursuant to and in compliance with the requirements of Act 3135. On 20 March 1964, Reyes through counsel, wrote a letter to FIFC asking for the cancellation of the real estate mortgage on her land, but FIFC did not comply with such demand as it was of the belief that Reyes’ request was without any legal basis. An action was commenced by Cruz and Reyes in the CFI Rizal (Civil Case Q- 7949), for cancellation of the real estate mortgage constituted on Reyes’ land in favor of FIFC (as assignee of the Far East Motor Corporation). The provincial Sheriff of Bulacan held in abeyance the sale of the mortgaged real estate pending the resolution of the case. The trial court in its decision of 21 April 1965, sustained Cruz, et.al.’s stand and declared that the extrajudicial foreclosure of the chattel mortgage on the bus barred further action against the additional security put up by Reyes. Consequently, the real estate mortgage constituted on Reyes’ land was ordered cancelled and FIFC was directed to pay Reyes attorney’s fees in the sum of P200.00. Hence, the appeal by FIFC. The Supreme Court modified the decision appealed from, by ordering Reyes to reimburse to FIFC the sum of P2,148.07, with legal interest thereon from the finality of this decision until it is fully paid. In all other respects, the judgment of the trial court was affirmed, with costs against FIFC. 1. Article 1484 of the Civil Code Article 1484 of the Civil Code of the Philippines is the pertinent legal provision on sale of personal property on installments. It provides that “In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee’s failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.” 2. Provision clear as to available remedies; Remedies alternative not cumulative The provision is clear and simple: should the vendee or purchaser of a personal property default in the payment of two or more of the agreed installments, the vendor or seller has the option to avail of any one of these three remedies — either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. These remedies have
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been recognized as alternative, not cumulative, that the exercise of one would bar the exercise of the orders. 3. Foreclosure and actual sale of mortgage chattel bars recovery of any balance by vendor; Reason for the doctrine The foreclosure and actual sale of a mortgage chattel bars further recovery by the vendor of any balance on the purchaser’s outstanding obligation not so satisfied by the sale. The reason for the doctrine was aptly stated in the case of Bachrach Motor Co. vs. Millan, thus “the principal object of the amendment was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. This amendment prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness. Under this amendment the vendor of personal property, the purchase price of which is payable in installments, has the right to cancel the sale or foreclose the mortgage if one has been given on the property. Whichever right the vendor elects he need not return to the purchaser the amount of the installments already paid, ‘if there be an agreement to that effect. Furthermore, if the vendor avails himself of the right to foreclose the mortgage this amendment prohibits him from bringing an action against the purchaser for the unpaid balance.” 4. Further action against guarantor would indirectly subvert protection given by Article 1484 to purchaser To sustain FIFC’s argument (that what is being withheld from the vendor, by the proviso of Article 1484 of the Civil Code, is only the right to recover “against the purchaser” and not a recourse to the additional security put up, not by the purchaser himself, but by a third person) is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchaser price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Article 2066, Civil Code). Thus, ultimately, it will be the vendee who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and public policy overturned. 5. “Action” without a definitive or exclusive meaning; Action referred to in Article 1484 thus may be judicial or extrajudicial The word “action” is without a definite or exclusive meaning. It has been invariably defined as “the legal demand of one’s right, or rights; the lawful demand of one’s rights in the form given by law; a demand of a right in a court of justice; the lawful demand of one’s right in a court of justice; the legal and formal demand of one’s rights from another person or party, made and insisted on in a court of justice; a claim made before a tribunal; an assertion in a court of justice of a right given by law; a demand or legal proceeding in a court of justice to secure one’s rights; the prosecution of some demand in a court of justice; the means by which men litigate with each other; the means that the law has provided to put the cause of action into effect” (Gutierrez Hermanos vs. De la Riva, 46 Phil. 827, 834-835). Considering the purpose for which the prohibition contained in Article 1484 was intended, the word “action” used therein may be construed as referring to any judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy. Certainly, an extrajudicial foreclosure of a real estate mortgage is one such proceeding. 6. Award of attorney’s fees; Litigation was avoidable as law and jurisprudence are explicit The provision of law and jurisprudence on the matter being explicit so that this litigation could have been avoided, the award by the lower court of attorney’s fees to Cruz, et.al. in the sum of P200.00 is reasonable and in order. 7. Reimbursement for FIFC payment of Reyes’ outstanding balance on loan with DBP To the extent that she was benefited by the payment of FIFC to DBP, for the release of the first
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mortgage of Reyes’ land, Reyes should have been required to reimburse FIFC. [24] Cuyugan v. Santos, 34 PHIL 100 (1916) [25] Dagupan Trading vs. Macam [G.R. No. L-18497. May 31, 1965.] En Banc, Dizon (J): 7 concurring Facts: In 1955, Sammy Maron and his 7 brothers and sisters were pro-indiviso owners of a parcel of unregistered land located in barrio Parayao, Binmaley, Pangasinan. While their application for registration of said land under Act 496 was pending, they executed, on June 19 and 21 September 1955, two deeds of sale conveying the property to Rustico Macam, who thereafter took possession thereof and proceeded to introduce substantial improvements therein. One month later, that is on 14 October 1955, OCT 6942 covering the land was issued in the name of the Marons, free from all liens and encumbrances. On 4 August 1956, by virtue of a final judgment rendered in Civil Case 42215 of the Municipal Court of Manila against Sammy Maron in favor of the Manila Trading and Supply Company, levy was made upon whatever interest he had in the the property, and thereafter said interest was sold at public auction to the judgment creditor. The corresponding notice of levy, certificate of sale and the sheriff’s certificate of final sale in favor of the Manila Trading and Supply Co. (because nobody exercised the right of redemption) were duly registered. On 1 March 1958, the latter sold all its rights and title in the property to Dagupan Trading Company. On 4 September 1958, Dagupan Trading commenced an action against Macam with the CFI Pangasinan (Civil Case 13772), praying that it be declared owner of 1/7 portion of the land; that a partition of the whole property be made; that Macam be ordered to pay it the amount of P500.00 a year as damages from 1958 until said portion is delivered, plus attorney’s fees and costs. Answering the complaint, Macam alleged that Sammy Maron’s share in the property, as well as that of all his co-heirs, had been acquired by purchase by him since June 19 and 21 September 1955, before the issuance of the OCT in their name; that at the time levy in execution was made on Maron’s share therein, the latter had no longer any right or interest in said property; that Dagupan Trading and its predecessor in interest were cognizant of the facts already mentioned; that since the sales made in his favor, he had enjoyed uninterrupted possession of the property and introduced considerable improvements therein. Macam likewise sought to recover damages by way of counterclaim. After trial upon the issue thus joined, the court rendered judgment dismissing the complaint, which, on appear, was affirmed by the Court of Appeals. Hence, the appeal by Dagupan Trading. The Supreme Court affirmed the decision appealed from; with costs. 1. [If] Situation 1: Unregistered land, Macam having better right If the property covered by the conflicting sales were unregistered land, Macam would undoubtedly have the better right in view of the fact that his claim is based on a prior sale coupled with public, exclusive and continuous possession thereof as owner. 2. [If] Situation 2: Registered Land, Dagupan Trading having better right Were the land involved in the conflicting transactions duly registered land, Dagupan Trading has the better right because in case of conveyance of registered real estate, the registration of the deed of sale is the operative act that gives validity to the transfer. This would be fatal to Macam’s claim, the deeds of sale executed in his favor by the Marons not having been registered, while the levy in execution and the provisional certificate of sale as well as the final deed of sale in favor of appellant were registered.
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Consequently, this registered conveyance must prevail although posterior to the one executed in favor of Macam, and Dagupan Trading must be deemed to have acquired such right, title and interest as appeared on the certificate of title issued in favor of Sammy Maron, subject to no lien, encumbrance or burden not noted thereon. (Anderson & Co., vs. Garcia 64 Phil. 506; Reynes et al., vs. Barrera, et al., 68 Phil. 656; Banco National, etc. vs. Camus, 70 Phil. 289) 3. Present case does not fall within either situation; Last paragraph of Section 35, Rule 39 of Rules of Court applies The sale in favor of Macam was executed before the land subject matter thereof was registered, while the conflicting sale in favor of Dagupan Trading was executed after the same property had been registered. The case, therefore, cannot be decide the case in the light of whatever adjudicated cases there are covering the two situations mentioned. What should determine the issue are the provisions of the last paragraph of Section 35, Rule 39 of the Rules of Court, to the effect that upon the execution and delivery of the final certificate of sale in favor of the purchaser of land sold in an execution sale, such purchaser “shall be substituted to and acquire all the right, title, interest and claim of the judgment debtor to the property as of the time of the levy”. 4. Maron does not have claim and interest on 1/8 portion of land at time of levy Sammy Maron has no interest or claim on the 1/8 portion of the property inherited by him and his coheirs, at the time of the levy, because for a considerable time prior to the levy, his interest had already been conveyed to Macam, “fully and irretrievably.” 5. Levy was void and of no effect Consequently, subsequent levy made on the property for the purpose of satisfying the judgment rendered against Sammy Maron in favor of the Manila Trading Company was void and of no effect. (Buson vs. Licauco 13 Phil. 357-358; Landig vs. U. S. Commercial Company, 89 Phil. 638). 6. Torrens title did not cancel unregistered sale and consequent conveyance of title and ownership The unregistered sale and the consequent conveyance of title and ownership in favor of Macam could not have been cancelled and rendered of no effect upon the subsequent issuance of the Torrens title over the entire parcel of land. 7. Right fixed and established cannot be overthrown by artificial and technical grounds In the inevitable conflict between a right of ownership already fixed and established under the Civil Law and/or the Spanish Mortgage Law (which cannot be affected by any subsequent levy or attachment or executions) and a new law or system which would make possible the overthrowing of such ownership on admittedly artificial and technical grounds, the former must be upheld and applied. 8. Circumstances does not justify technicality to prevail; Justice and Equity An important circumstance must be noted; that upon the execution of the deed of sale in his favor by Sammy Maron, Macam took possession of the land conveyed as owner thereof, and introduced considerable improvements therein. To deprive him now of the same by sheer force of technicality would be against both justice and equity. [26] Dalion vs. CA [G.R. No. 78903. February 28, 1990.] First Division, Medialdea (J): 3 concurring Facts: On 28 May 1973, Ruperto Sabesaje Jr. sued to recover ownership of a parcel of land (located at Panyawan, Sogod, Southern Leyte; TCT 11148, with an area of 8947 sq.ms., assessed at P180), based on a private document of absolute sale, dated 1 July 1965, allegedly executed by Segundo Dalion, who, however
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denied the fact of sale, contending that the document sued upon is fictitious, his signature thereon, a forgery, and that subject land is conjugal property, which he and his wife (Epifania Sabesaje-Dalion) acquired in 1960 from Saturnina Sabesaje as evidenced by the “Escritura de Venta Absoluta.” The spouses denied claims of Sabesaje that after executing a deed of sale over the parcel of land, they had pleaded with Sabesaje, their relative, to be allowed to administer the land because Dalion did not have any means of livelihood. They admitted, however, administering since 1958, 5 parcels of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died in 1956. They never received their agreed 10% and 15% — commission on the sales of copra and abaca, respectively. Sabesaje’s suit, they countered, was intended merely to harass, preempt and forestall Dalion’s threat to sue for these unpaid commissions. The trial court rendered its decision on 17 January 1984, ordering Dalion to deliver to Sabesaje the parcel of land subject of the case and to execute the corresponding formal deed of conveyance in a public document in favor of Sabesaje (or in case of default, the deed shall be executed in their behalf by the Provincial Sheriff or his deputy), ordering Dalion to pay Sabesaje the amount of P2,000 as attorney fees and P500 as litigation fees, and to pay the costs. From the adverse decision of the trial court, Dalion appealed, assigning errors some of which, however, were disregarded by the appellate court, not having been raised in the trial court. On 26 May 1987, the Court of Appeals affirmed in toto the ruling of the trial court, upholding the validity of the sale of a parcel of land by Segundo Dalion in favor of Ruperto Sabesaje, Jr. Hence, the petition. The Supreme Court denied the petition, and affirmed the decision of the Court of Appeals upholding the ruling of the trial court; without costs. 1. Admissibility of a private writing Section 21, Rule 132 of the Rules of Court (Private writing, its execution and authenticity, how proved) provides that “Before any private writing may be received in evidence, its due execution and authenticity must be proved either: (a) By anyone who saw the writing executed; (b) By evidence of the genuineness of the handwriting of the maker; or (c) By a subscribing witness.” 2. Proof of Handwriting Section 23, Rule 132 of the Rules of Court (Handwriting, how proved.) provides that “The handwriting of a person may be proved by any witness who believes it to be the handwriting of such person, and has seen the person write, or has seen writing purporting to be his upon which the witness has acted or been charged, and has thus acquired knowledge of the handwriting of such person. Evidence respecting the handwriting may also be given by a comparison, made by the witness or the court, with writings admitted or treated as genuine by the party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge.” 3. Each party must prove his own affirmative allegations Against Dalion’s mere denial that he signed the document, the positive testimonies of the instrumental witnesses Ogsoc (the one who prepared the deed) and Espina, aside from the testimony of Sabesaje, must prevail. Dalion has affirmatively alleged forgery, but he never presented any witness or evidence to prove his claim of forgery. Each party must prove his own affirmative allegations (Section 1, Rule 131, Rules of Court). 4. Forgery not presumed; Presumption of innocence It is presumed that a person is innocent of a crime or wrong (Section 5 (a), idem), and defense should have come forward with clear and convincing evidence to show that Sabesaje committed forgery or caused said forgery to be committed, to overcome the presumption of innocence. Mere denial of having signed does not suffice to show forgery.

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5.

Forger would attempt to forge an unnecessary signature Two signatures of Segundo D. Dalion appear on the face of the questioned document, one at the right corner bottom of the document and the other at the left hand margin thereof. The second signature is already a surplusage. A forger would not attempt to forge another signature, an unnecessary one, for fear he may commit a revealing error or an erroneous stroke. 6. Conclusions and findings of fact by trial court entitled to great weight on appeal Appellate courts have consistently subscribed to the principle that conclusions and findings of fact by the trial courts are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons, since it is undeniable that the trial court is in a more advantageous position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185) 7. Article 1358 for convenience, not for validity or enforceability The provision of Article 1358 on the necessity of a public document (i.e. “acts and contracts which have for their object the creation, transmission, modification or extinction of real rights over immovable property must appear in a public instrument”) is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument. 8. Contract of sale is consensual A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold (Art. 1458, NCC). 9. thing Delivery; Execution of formal deed of conveyance in public document equivalent to delivery of

Under Art. 1498, NCC, when the sale is made through a public instrument, the execution of the corresponding formal deed of conveyance in a public document thereof is equivalent to the delivery of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive). 10. Suit for recovery of ownership is proper Article 1475 of the Civil Code gives the parties to a perfected contract of sale the right to reciprocally demand performance, and to observe a particular form, if warranted, (Art. 1357). Sabesaje’s complaint sufficiently alleged a cause of action to compel Dalion to execute a formal deed of sale, and the suit for recovery of ownership, which is premised on the binding effect and validity inter partes of the contract of sale, merely seeks consummation of said contract. 11. Sale of real property may be in a private instrument A sale of a real property may be in a private instrument, but that contract is valid and binding between the parties upon its perfection. And a party may compel the other party to execute a public instrument embodying their contract affecting real rights once the contract appearing in a private instrument has been perfected (See Art. 1357). [27] Daguilan vs. IAC [G.R. No. L-69970. November 28, 1988.]
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First Division, Cruz (J): 4 concur Facts: Two lots were owned by Domingo Melad. The lots are claimed by both Felix Daguilan and Apolonia Melad (and her husband Jose Tagacay). On 29 January 1962, Apolonia Melad filed a complaint against Daguilan in the then CFI Cagayan for recovery of a farm lot and a residential lot which she claimed she had purchased from Domingo Melad in 1943 and were now being unlawfully withheld by Daguilan. In his answer, Daguilan denied the allegation and averred that he was the owner of the said lots of which he had been in open, continuous and adverse possession, having acquired them from Domingo Melad in 1941 and 1943. The case was dismissed for failure to prosecute but was refiled in 1967. At the trial, Melad presented a deed of sale dated 4 December 1943, purportedly signed by Domingo Melad and duly notarized, which conveyed the said properties to her for the sum of P80.00. She said the amount was earned by her mother as a worker at the Tabacalera factory. She claimed to be the illegitimate daughter of Domingo Melad, with whom she and her mother were living when he died in 1945. She moved out of the farm only when in 1946 Felix Danguilan approached her and asked permission to cultivate the land and to stay therein. She had agreed on condition that he would deliver part of the harvest from the farm to her, which he did from that year to 1958. The deliveries having stopped, she then consulted the municipal judge who advised her to file the complaint against Danguilan. Melad’s mother, her only other witness, corroborated this testimony. Daguilan testified that he was the husband of Isidra Melad, Domingo’s niece, whom Domingo Melad and his wife Juana Malupang had taken into their home as their ward as they had no children of their own. He and his wife lived with the couple in their house on the residential lot and helped Domingo with the cultivation of the farm. Domingo Melad signed in 1941 a private instrument in which he gave Daguilan the farm and in 1943 another private instrument in which he also gave him the residential lot, on the understanding that the latter would take care of the grantor and would bury him upon his death. Danguilan presented three other witnesses to corroborate his statements and to prove that he had been living in the land since his marriage to Isidra and had remained in possession thereof after Domingo Melad’s death in 1945. Two of said witnesses declared that neither the plaintiff nor her mother lived in the land with Domingo Melad. The trial court believed Daguilan and rendered a decision based mainly on the issue of possession. On appeal, however, the appellate court upheld Melad as the true and lawful owner of the disputed property, holding that the private instruments where Domingo Melad had conveyed the land to Daguilan were null and void for reason that donation of real property should be effected through a public instrument. Hence, the petition to the Supreme Court. The Supreme Court set aside the decision of the appellate court and reinstated that of the trial court, with costs against Apolonia Melad. 1. Onerous donations not covered by Articled 749, requiring donations of real properties be effected through a public instrument Considering the language of the two private instruments delivering the residential lots, Domingo Melad did intend to donate the properties to Daqguilan. The donee, however, was not moved by pure liberality. While truly donations, the conveyances were onerous donations as the properties were given to Daguilan in exchange for his obligation to take care of the donee for the rest of his life and provide for his burial. Hence, it was not covered by the rule in Article 749 of the Civil Code requiring donations of real properties to be effected through a public instrument. 2. Doctrine in Manalo vs. de Mesa applies The present case is squarely under the doctrine laid down in Manalo v. De Mesa, where it was held that “the donation in question was made for a valuable consideration, since the donors made it conditional upon the donees’ bearing the expenses that might be occasioned by the death and burial of the donor, a condition and obligation which the donee carried out in his own behalf and for his wife. Therefore, in order to determine whether or not said donation is valid and effective, it should be sufficient to demonstrate that, as a
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contract, it embraces the conditions the law requires and is valid and effective, although not recorded in a public instrument. 3. No evidence adduced to support values exchanged were disproportionate or equal No evidence has been adduced to support the contention that the values exchanged (the value of the lands donated and the services for which they were being exchanged) were disproportionate or unequal for the two transactions to be considered pure or gratuitous donations of real rights, and hence, be effected through a public instrument and not by mere private writings. 4. Daguilan took care of the Melad spouses; Proof of onerous donation Both the trial and appellate court affirmed the factual allegation that Daguilan took care of Domingo Melad and later arranged for his burial in accordance with the condition imposed by the donor. Daguilan farmed the land practically by himself and so provided for the donee (and his wife) during the latter part of Domingo Melad’s life. It may be assumed that there was a fair exchange between the donor and the donee that made the transaction an onerous donation. 5. Deed of Sale in favor of Apolonia Melad suspicious The deed of sale in favor of Apolonia Melad was suspicious. It was allegedly executed when Apolonia was only three years old and the consideration was supposedly paid by her mother, Maria Yedan, from her earnings as a wage worker in a factory. One may well wonder why the transfer was not made to the mother herself, who was after all the one paying for the lands. The sale was made out in favor of Apolonia Melad although she had been using the surname Yedan, her mother’s surname, before that instrument was signed and in fact even after she got married. Averment was also made that the contract was simulated and prepared after Domingo Melad’s death in 1945. It was also alleged that even after the supposed execution of the said contract, Apolonia Melad considered Domingo Melad the owner of the properties and that she had never occupied the same. Considering these serious challenges, the appellate court could have devoted a little more time to examining the deed and the circumstances surrounding its execution before pronouncing its validity. 6. Presumption of due execution of a public instrument Due execution of a public instrument is presumed, the presumption is disputable and will yield to contradictory evidence, which in the present case was not refuted. 7. sale Melad’s testimony inconsistent, fails to prove actual delivery of thing sold in the alleged deed of

Even assuming the validity of the deed of sale, the record shows that Melad did not take possession of the disputed properties and indeed waited until 1962 to file the action for recovery of the lands from Daguilan. If she did have possession, she transferred the same to Daguilan in 1946, by her own sworn admission, and moved out to another lot belonging to her step-brother. Her claim that Daguilan was her tenant (later changed to administrator) was disbelieved by the trial court, and properly so, for its inconsistency. In short, she failed to show that she consummated the contract of sale by actual delivery of the properties to her and her actual possession thereof in concept of purchaser-owner. 8. Garchitorena vs. Almeda; Tradition: Ownership does not pass by mere stipulation but only by delivery As held in Garchitorena v. Almeda, it is a fundamental and elementary principle that ownership does not pass by mere stipulation but only by delivery (Civil Code, Art. 1095; Fidelity and Surety Co. v. Wilson, 8 Phil. 51), and the execution of a public document does not constitute sufficient delivery where the property involved is in the actual and adverse possession of third persons (Addison vs. Felix, 38 Phil. 404; Masallo vs. Cesar, 39 Phil. 134), it becomes incontestable that even if included in the contract, the ownership of the property in dispute did not pass to the vendee.
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9. Garchitorena vs. Almeda; Proper action against present possessors: specific performance of sale and not revindicacion Not having become the owner for lack of delivery, the vendee cannot presume to recover the property from its present possessors. His action, therefore, is not one of revindicacion, but one against his vendor for specific performance of the sale to him. 9. Non mudis pactis, sed traditione dominia rerum transferuntur In Fidelity and Deposit Co. v. Wilson, it was declared that it is a fundamental principle in all matters of contracts and a well-known doctrine of law that “non mudis pactis, sed traditione dominia rerum transferuntur”. As established in paragraph 2 of article 609 of Civil Code, the ownership and other property rights are acquired and transmitted by law, by gift, by testate or intestate succession, and, in consequence of certain contracts, by tradition. The logical application of this disposition article 1095 prescribes that a creditor has the rights to the fruits of a thing from the time the obligation to deliver it arises. However, he shall not acquire a real right (and the ownership is surely such) until the property has been delivered to him. In accordance with such disposition and provisions the delivery of a thing constitutes a necessary and indispensable requisite for the purpose of acquiring the ownership of the same by virtue of a contract. 10. Doctrine of transfer of property by mere consent not admitted As Manresa states in his Commentaries on the Civil Code, volume 10, pages 339 and 340: “Our law does not admit the doctrine of the transfer of property by mere consent but limits the effect of the agreement to the due execution of the contract . . . The ownership, the property right, is only derived from the delivery of a thing . . . “ 11. Actual delivery of the thing sold The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed in the hands and possession of the vendee. (Civil Code, art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality — the delivery has not been effected. In the present case, Daguilan and not Melad is in actual possession of the litigated properties. 12. In case the respective claims of the parties are weak; Santos & Espinosa v. Estejada Even if the respective claims of the parties were both to be discarded as being inherently weak, the decision should still incline in favor of Daguilan pursuant to the doctrine announced in Santos & Espinosa v. Estejada, where the Court announced that if the claim of both the plaintiff and the defendant are weak, judgment must be for the one who is in possession, as he is presumed to be the owner, and cannot be obliged to show or prove a better right. [28] De la Cavada v. Diaz [G.R. No. L-11668. April 1, 1918.] First Division, Johnson (J): 5 concurring
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Facts: On 15 November 1912, Antonio Diaz and Antonio Enriquez de la Cavada entered into a “contract of option” for the latter to purchase the former’s hacienda at Pitogo, within the period necessary for the approval and issuance of a Torrens title thereto by the Government for P30,000 in cash or P40,000 with 6% interest per annum within 6 years with due security, i.e. the 100 hectares of land in Pitogo, Tayabas; containing 20,000 coconut trees and 10,000 nipa-palm trees sold to Enriquez for P70,000. Subsequently, Enriquez informed Diaz of his conformity with the letter of option under the condition that he shall send a surveyor to survey the said property, and to apply to the Government for a Torrens title therefor, and, if the expenses incurred for the same should not exceed P1,000, he shall pay the P500 and you the other P500; Provided, however, that Diaz shall give the surveyor all necessary assistance during his stay at the hacienda; and that he shall pay the purchase price to you in conformity with our letter of option of this date, and after the Torrens title shall have been officially approved. Soon after the execution of said contract, and in part compliance with the terms thereof, Diaz presented 2 petitions in the Court of Land Registration (13909 and 13919), each for the purpose of obtaining the registration of a part of the “Hacienda de Pitogo.” Said petitions were granted, and each parcel was registered and a certificate of title was issued for each part under the Torrens system to Diaz. Later, and pretending to comply with the terms of said contract, Diaz offered to transfer to Enriquez one of said parcels only, which was a part of said “hacienda.” Enriquez refused to accept said certificate for a part only of said “hacienda” upon the ground that it was only a part of the “Hacienda de Pitogo,” and under the contract he was entitled to a transfer to him a all said “hacienda.” Raised in the lower court, Diaz’ theorized that the contract of sale of said “Hacienda de Pitogo” included only 100 hectares, more or less, of said “hacienda,” and that offering to convey to Enriquez a portion of said “hacienda,” and that by offering to convey to Enriquez a portion of said “hacienda” composed of “100 hectares, more or less,” he thereby complied with the terms of the contract. Enriquez theorized, on the other hand, that he had purchased all of said “hacienda,” and that the same contained, at least, 100 hectares, more or less. The lower court sustained the contention of Enriquez, that the sale was a sale of the “Hacienda de Pitogo” and not a sale of a part of it. The Court ordered Diaz, within 30 days from the date upon which this decision becomes final, convey to Enriquez a good and sufficient title in fee simple to the Court of Land Registration, upon payment or legal tender of payment by Enriquez of the sum of P30,000 in cash, and upon Enriquez giving security approved by this court for the payment within the term of 6 years from the date of the conveyance for the additional sum of P40,000 with interest at the rate of 6% per annum. The Court further ordered and adjudged that in the event of the failure of Diaz to execute the conveyance, Enriquez has and recover judgment against him, Diaz, for the sum of P20,000, with interest at the rate of 6% (6% per annum from the date upon which the conveyance should have been made). From the judgment, Diaz appealed. The Supreme Court affirmed the judgment of the lower court, with costs. 1. Agreement between parties in civil litigation valid On 21 November 1914, the parties agreed (with reference to the method of presenting their proof) that each of the litigating parties shall present his evidence before Don Felipe Canillas, assistant clerk of the CFI Manila, who, for such purpose, should be appointed commissioner; that said commissioner shall set a day and hour for the presentation of the evidence, both oral and documentary, and in the stenographic notes shall have record entered of all objections made to the evidence by either party, in order that they may afterwards be decided by the court; that the transcription of the stenographic notes, containing the record of the evidence taken, shall be paid for in equal shares by both parties; and that at the close of the taking of the evidence, each of the parties shall file his brief in respect to such evidence, whereupon the case as it then stands shall be submitted to the decision of the court. Said agreement was approved by the lower court. There is nothing in the law nor in public policy which prohibits the parties in a civil litigation from making an agreement on the method of presentation of their proofs. While the law concedes to parties litigant, generally, the right to have their proof taken in the presence of the judge, such a right is a renounceable one. In a civil action the parties litigant have a right to agree, outside of the court, upon the facts in litigation. Under certain conditions the
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parties litigant have a right to take the depositions of witnesses and submit the sworn statements in that form to the court. The proof, as it was submitted to the court in the present case, by virtue of said agreement, was, in effect, in the form of a deposition of the various witnesses presented. Having agreed to the method of taking the proof, and the same having been taking in compliance with said agreement, it is now too late, there being no law to the contrary, for them to deny and repudiate the effect of their agreement. (Biunas vs. Mora, R.G. No. 11464, March 11, 1918; Behr vs. Levy Hermanos, R.G. No. 12211, March 19, 1918.) Not only is there no law prohibiting the parties from entering into an agreement to submit their proof to the court in civil actions, but it may be a method highly convenient, not only to the parties, but to busy courts. The judgment of the lower court, therefore, should not be modified or reversed. 2. Contract offered in evidence, and not objected to; thus, was properly presented The contract was offered in evidence and admitted as proof without objection. Said contract was, therefore, properly presented to the court as proof. Not only was the contract before the court by reason of its having been presented in evidence, but that Diaz himself made said contract an integral part of his pleadings. Diaz admitted the execution and delivery of the contract, and alleged that he made an effort to comply with its terms. His only defense is that he sold to Enriquez a part of the “hacienda” only and that he offered, in compliance with the terms of the contract, to convey to Enriquez all of the land which he had promised to sell. 3. Inadequacy of consideration raised for the first time on appeal With reference to the objection that there was no consideration for said contract it may be said (a) that the contract was for the sale of a definite parcel of land: (b) that it was reduced to writing; (c) that Diaz promised to convey to Enriquez said parcel of land; (d) that Enriquez promised to pay therefor the sum of P70,000 in the manner prescribed in said contract; (e) that Diaz admitted the execution and delivery of the contract and alleged that he made an effort to comply with the same and requested Enriquez to comply with his part of the contract; and (f) that no defense or prevention was made in the lower court that there was no consideration for his contract. Having admitted the execution and delivery of the contract, having admitted an attempt to comply with its terms, and having failed in the court below to raise any question whatsoever concerning the inadequacy of consideration, it is rather late, in the face of said admissions, to raise that question for the first time in the Supreme Court. 4. A promise made in accordance with forms required by law may be a good consideration for a another party’s promise A promise made by one party, if made in accordance with the forms required by the law, may be a good consideration (causa) for a promise made by another party. (Art. 1274, Civil Code.) The consideration (causa) need not pass from one to the other at the time the contract is entered into. For example, A promises to sell a certain parcel of land to B for the sum of P70,000. If A, by virtue of the promise of B to P70,000, promises to sell said parcel of land to B for said sum, then the contract is complete, provided they have complied with the forms required by the law. A cannot enforce a compliance with the contract and require B to pay said sum until he has complied with his part of the contract. 5. Contract not an “optional contract” in its ordinary meaning, but an absolute promise to sell a land for a fixed price upon definite condition The contract was not an “optional contract” as that phrase in generally used. It is clearly an absolute promise to sell a definite parcel of land for a fixed price upon definite conditions. Diaz promised to convey to Enriquez the land in question as soon as the same was registered under the Torrens system, and Enriquez promised to pay to Diaz the sum of P70,000, under the condition named, upon the happening of that event. 6. Contract of option distinguished from present contract The contract was not what is generally known as a “contract of option.” It differs very essentially from a contract of option. An optional contract is a privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, for example, certain merchandise of certain specified
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property, from another person, if he chooses, at any time within the agreed period, at a fixed price. The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the option. A consideration for an optional contract is just as important as the consideration for any other kind of contract. If there was no consideration for the contract of option, then it cannot be enforced any more than any other contract where no consideration exists. To illustrate, A and B the sum of P100,000 for the option of buying his property within the period of 30 days. While it is true that the conditions upon which A promises to buy the property at the end of the period mentioned are usually fixed in the option, the consideration from the consideration of the contract with reference to which the option exists. A contract of option is a contract by virtue of the terms of which the parties thereto promise and obligate themselves to enter into another contract at a future time, upon the happening of certain events, or the fulfillment of certain conditions. 7. Laying the foundation for action damages When Diaz alleged that he had complied with his part of the contract and demanded that Enriquez should immediately comply with his part of the same, he evident was laying the foundation for an action damages, the nullification or a specific compliance with contract. 8. Contract made with Enriquez, and not Rosenstock Upon the face of the contract, the contract was made by Diaz with Enriquez. Not having raised the contention, that the contract was made with Rosenstock, Elser & Co. and not with Enriquez, in the lower court, and having admitted the execution and delivery of the contract in question with the plaintiff, Diaz’ admission is conclusive upon that question and need not be further discussed. 9. Action not premature; Payment simultaneous with delivery of deed of conveyance but not need not be made until deed of conveyance is offered The action was not premature. The contention that Enriquez had not paid nor offered to pay the price agreed upon, under the conditions named, for the land in question was not raised in the lower court, which fact, ordinarily, would be a sufficient answer to the contention of the appellant. Still, Diaz could not demand the payment until he had offered the deeds of conveyance, in accordance with the terms of the contract, as he did not offer to comply with the terms of his contract. He offered to comply partially with the terms of the contract, but not fully. While the payment must be simultaneous with the delivery of the deeds of conveyance, the payment need not be made until deed of conveyance is offered. Enriquez stood ready and willing to perform his part of the contract immediately upon on the part of Diaz. (Arts. 1258 and 1451 of Civil Code.) 10. Enriquez stood ready to comply It cannot be said that Diaz was not obligated to sell the “Hacienda de Pitogo” to Enriquez due to Enriquez’ alleged nonfulfillment, renunciation, abandonment and negligence, as such question was not presented to the lower court. Still, the record shows that Enriquez, at all times, insisted upon a compliance with the terms of the contract on the part of Diaz, standing ready to comply with his part of the same. Enriquez was constantly insisting upon compliance with the terms of the contract, to wit, a conveyance to him of the “Hacienda de Pitogo” by Diaz. Naturally, he refused, under the contract, to accept a conveyance of a part only be said “hacienda.” 11. No modification due to Enriquez’ claim for damages The only proof upon the question of damages suffered by Enriquez for the noncompliance with the terms of the contract in question on the part of Diaz is that Enriquez, in contemplation of the compliance with the terms of the contract on the part of Diaz, entered into a contract with a third party to sell the said “hacienda” at a profit of P30,000. That proof is not disputed. No attempt was made in the lower court to deny that fact. The proof shows that the person with whom Enriquez had entered into a conditional sale of the land in question had made a deposit for the purpose of guaranteeing the final consummation of the that contract. By reason of the failure of Diaz to comply with the contract here in question, Diaz was obliged to return the
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sum deposited by said third party with a promise to pay damages. The record does not show why Enriquez did not ask for damages in the sum of P30,000, but asked for a judgment only in the sum of P20,000. Considering the fact that he neither asked for a judgment for more than P20,000 nor appealed from the judgment of the lower court, Enriquez’ request to modify the judgment of the lower court cannot be granted. 12. Subsequent sale of land to third person not an excuse for compliance of terms of contracts or to answer for damages The mere fact that Diaz had sold a part of the “hacienda” to other person, is no sufficient reason for not requiring a strict compliance with the terms of his contract with Enriquez, or to answer in damages for his failure. (Arts. 1101 and 1251 of the Civil Code.) [29] Delta Motors Sales vs. Niu Kim Duan [G.R. No. 61043. September 2, 1992.] Second Division, Nocon (J): 4 concurring Facts: On 5 July 1975, Niu Kim Duan and Chan Fue Eng (defendants) purchased from Delta Motor Sales Corporation 3 units of ‘DAIKIN’ air-conditioner all valued at P19,350.00. The deed of sale stipulates that the defendants shall pay a down payment of P774.00 and the balance of P18,576.00 shall be paid by them in 24 installments; that the title to the properties purchased shall remain with Delta Motors until the purchase price thereof is fully paid; that if any two installments are not paid by the defendants on their due dates, the whole of the principal sum remaining unpaid shall become due, with interest at the rate of 14% per annum: and in case of a suit, the defendants shall pay an amount equivalent to 25% of the remaining unpaid obligation as damages, penalty and attorney’s fees; that to secure the payment of the balance of P18,576.00 the defendants jointly and severally executed in favor of the Delta Motors a promissory note. The 3 air-conditioners were delivered to and received by the defendants. After paying the amount of P6,966.00, the defendants failed to pay at least 2 monthly installments; that as of 6 January 1977, the remaining unpaid obligation of the defendants amounted to P12,920.08. Statements of accounts were sent to the defendants and the Delta Motors’ collectors personally went to the former to effect collections but they failed to do so. Because of the unjustified refusal of the defendants to pay their outstanding account and their wrongful detention of the properties in question, Delta Motors tried to recover the said properties extra-judicially but it failed to do so. The matter was later referred by Delta Motors to its legal counsel for legal action. In its verified complaint dated 28 January 1977, Delta Motors prayed for the issuance of a writ of replevin, which the Court granted in its Order dated 28 February 1977, after Delta Motors posted the requisite bond. On 11 April 1977, Delta Motors, by virtue of the writ, succeeded in retrieving the properties in question. As of 3 October 1977, the outstanding account of the defendants is only in the amount of P6,188.29 as shown by the computation, after deducting the interests in arrears, cover charges, replevin bond premiums, the value of the units repossessed and the like. In view of the failure of the defendants to pay their obligations, the amount of P6,966.00 which had been paid by way of installments were treated as rentals for the units in question for 2 years pursuant to the provisions of paragraph 5 of the Deed of Conditional Sale. The trial court promulgated its decision on 11 October 1977 ordering the defendants to pay Delta Motors the amount of P6,188.29 with a 14% per annum interest which was due on the 3 “Daikin” air-conditioners the defendants purchased from Delta Motors under a Deed of Conditional Sale, after the same was declared rescinded by the trial court. They were likewise ordered to pay Delta Motors P1,000.00 for and as attorney’s fees. Niu Kim Duan and Chan Fue Eng appealed. The case was elevated to the Supreme Court by the Court of Appeals, in its Resolution of 20 May 1982, on a pure question of law. The Supreme Court set aside the judgment of the trial court in Civil Case 25578 and dismissed the complaint filed by Delta Motor Sales Corporation; without costs.
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1. Treatment of installment payments as rentals not unconscionable (even if it approximates 1/3 of cost of the 3 airconditioners) Defendants cannot complain that their downpayment of P774.00 and installment payments of P5,655.92 were treated as rentals, even though the total amount of P6,429,92 which they had paid, approximates one-third (1/3) of the cost of the 3 air-conditioners. A stipulation in a contract that the installments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances is sanctioned by Article 1486 of the New Civil Code. The monthly installment payable by defendants was P774.00. The P5,655.92 installment payments correspond only to 7 monthly installments. Since they admit having used the air-conditioners for 22 months, this means that they did not pay 15 monthly installments on the said air-conditioners and were thus using the same FREE for said period, to the prejudice of Delta Motors. Under the circumstances, the treatment of the installment payments as rentals cannot be said to be unconscionable. 2. Remedies available to vendor in a sale of personal property payable in installments The vendor in a sale of personal property payable in installments may exercise one of three remedies, namely, (1) exact the fulfillment of the obligation, should the vendee fail to pay; (2) cancel the sale upon the vendee’s failure to pay two or more installments; (3) foreclose the chattel mortgage, if one has been constituted on the property sold, upon the vendee’s failure to pay two or more installments. The third option or remedy, however, is subject to the limitation that the vendor cannot recover any unpaid balance of the price and any agreement to the contrary is void (Art. 1484). 3. Remedies alternative, not cumulative The 3 remedies are alternative and NOT cumulative. If the creditor chooses one remedy, he cannot avail himself of the other two. 4. Air-conditioning units repossessed, bars action to exact payment for balance of the price Delta Motors had taken possession of the 3 air-conditioners, through a writ of replevin when defendants refused to extra-judicially surrender the same. The case Delta Motors filed was to seek a judicial declaration that it had validly rescinded the Deed of Conditional Sale. Delta Motors thus chose the second remedy of Article 1484 in seeking enforcement of its contract with defendants. Having done so, it is barred from exacting payment from defendants of the balance of the price of the three air-conditioning units which it had already repossessed. It cannot have its cake and eat it too. [30] Dignos vs. Lumungsod [G.R. No. L-59266. February 29, 1988.] Third Division, Bidin (J): 4 concurring Facts: The spouses Silvestre Dignos and Isabel Lumungsod were owners of a parcel of land (Lot 3453, Opon Cadastre), of the cadastral survey of Opon, Lapu-Lapu City. On 7 June 1965, the Dignos spouses sold the said parcel of land to Atilano J. Jabil for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale executed in favor of Jabil, and the next installment in the sum of P4,000.00 to be paid on or before 15 September 1965. On 25 November 1965, the Dignos spouses sold the same land in favor of Luciano Cabigas and Jovita L. De Cabigas, who were then US citizens, for the price of P35,000.00. A deed of absolute sale was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act 3344. As the Dignos spouses refused to accept from Jabil the balance of the purchase price of the land, and as Jabil
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discovered the second sale made by the Dignos spouses to the Cabigas spouses, Jabil filed the suit with the CFI Cebu (Civil Case 23-L). After due trial, the CFI Cebu rendered its Decision on 25 August 1972, declaring the deed of sale executed on 25 November 1965 in favor of the Cabigas spouses null and void, and the deed of sale in favor of Jabil not rescinded; ordering Jabil to pay the sum of P16,0000 to the Dignos spouses upon the execution of the Deed of Absolute Sale and when the decision of the case becomes final and executory; ordering Jabil to reimburse the Cabigas couple reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed; ordering the Dignos spouses to return to the Cabigas spouses the sum of P35,000; and making the writ of preliminary injunction issued 23 September 1966 permanent by virtue of the decision. Jabil and the Dignos spouses appealed to the Court of Appeals (CA-GR 54393-R). On 31 July 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. A motion for reconsideration of said decision was filed by the Dignos spouses, but on 16 December 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit. Hence, the petition for review on certiorari. In the resolution of 10 February 1982, the Second Division of the Supreme Court denied the petition for lack of merit. A motion for reconsideration of said resolution was filed on 16 March 1982. In the resolution dated 26 April 1982, Jabil was required to comment thereon, which comment was filed on 11 May 1982 and a reply thereto was filed on 26 July 1982 in compliance with the resolution of 16 June 1982 . On 9 August 1982, acting on the motion for reconsideration and on all subsequent pleadings filed, the Supreme Court resolved to reconsider its resolution of 10 February 1982 and to give due course to the present petition. On 6 September 1982, Jabil filed a rejoinder to reply of the Dignos spouses which was noted on the resolution of 20 September 1982. The Supreme Court dismissed the petition filed for lack of merit and affirmed the assailed decision of the Court of Appeals in toto. 1. Contract is a Deed of Sale The contract in question is a Deed of Sale, with the conditions that (1) Atilano G. Jabil is to pay the amount of Twelve Thousand Pesos (P12,000.00) Philippine Currency as advance payment; (2) Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular Bank of Cebu; (3) Atilano G. Jabil is to pay the said spouses the balance of Four Thousand Pesos (P4,000.00) on or before September 15, 1965. (4) That the said spouses agreed to defend the said Atilano G. Jabil from other claims on the said property; (5) the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property upon the payment of the balance of Four Thousand Pesos.” By and large, the issues in the present case have already been settled by the Court in analogous cases. 2. Deed of Sale absolute although denominated as a “Deed of Conditional Sale” A deed of sale is absolute in nature although denominated as a “Deed of Conditional Sale” where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period (Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305). In the present case, there is no stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period. 3. Elements of valid contract present; Article 1458 All the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent.

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4.

Ownership transferred upon actual or constructive delivery; Froilan vs. Pan Oriental Shipping In addition, Article 1477 of the same Code provides that “The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof. As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), the Supreme Court held that in the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. . 5. Actual delivery made in the present case While there was no constructive delivery of the land sold in the present case, as subject Deed of Sale is a private instrument, it is beyond question that there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the land in question to Jabil as early as 27 March 1965 so that the latter constructed thereon Sally’s Beach Resort also known as Jabil’s Beach Resort in March, 1965; Mactan White Beach Resort on 15 January 1966 and Bevirlyn’s Beach Resort on 1 September 1965. Such facts were admitted by the Dignos spouses. 6. Contemporaneous acts show that absolute deed of sale was intended The Court of Appeals in its resolution dated 16 December 1981 found that the acts of the Dignos spouses, contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell. 7. Subsequent sale to the Cabigas spouses null and void When the Dignoes spouses sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. 8. Taguba vs. Vda. De Leon on all fours; Articles 1592 of the Civil Code Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the present case, the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. The Dignos spouses never notified Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. 9. Article 1358 of the Civil Code, Acts and contracts for the extinguishments of reaql rights over immovable property must appear in public document The most that the Dignos spouses were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money and further advised the Dignos spouses to sell the land in litigation to another party. There is no showing that Amistad was properly authorized by Jabil to make such extra judicial rescission for the latter who, on the contrary, vigorously denied having sent Amistad to tell the Dignos spouses that he was already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which have for their object the extinguishment of real rights over immovable property must appear in a public document. 10. Slight delay by one party not sufficient ground fro rescission Where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement (Taguba v. Vda. de Leon, supra). Considering that Jabil has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the case that Jabil be given an additional period within which to complete payment of the purchase price. [31] Dizon v. CA, 302 SCRA 288

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[32] Doromal vs. CA [G.R. No. L-36083. September 5, 1975.] En Banc, Barredo (J): 6 concurring, 2 took no part, 2 on leave Facts: Lot 3504 of the cadastral survey of Iloilo, situated in the poblacion of La Paz, one of its districts, with an area of a little more than 2-1/2 hectares was originally decreed in the name of the late Justice Antonio Horilleno, in 1916, under OCT 1314. Before he died, on a date not particularized in the record, he executed a last will and testament attesting to the fact that it was a co-ownership between himself and his brothers and sisters. The truth was that the owners or better stated, the co-owners were, besides Justice Horilleno, Luis, Soledad, Fe, Rosita, Carlos and Esperanza, all surnamed Horilleno, in the proportion of 1/7 undivided ownership each. Since Esperanza had already died, she was succeeded by her only daughter, Filomena Javellana. Still, even though their right had not as yet been annotated in the title, the co-owners led by Carlos, and as to deceased Justice Antonio Horilleno, his daughter Mary, sometime since early 1967, had wanted to sell their shares, or if possible if Filomena Javellana were agreeable, to sell the entire property. They hired an acquaintance Cresencia Harder, to look for buyers, and the latter came to the interest of Ramon Doromal, Sr. and Jr. In preparation for the execution of the sale (since the brothers and sisters Horilleno were scattered in various parts of the country: Carlos in Ilocos Sur, Mary in Baguio, Soledad and Fe, in Mandaluyong, Rizal, and Rosita in Basilan City), the Horillenos executed various powers of attorney in favor of their niece, Mary H. Jimenez. They also caused preparation of a power of attorney of identical tenor for signature by Javellana, and sent it with a letter of Carlos, dated 18 January 1968 unto her thru Mrs. Harder. Carlos informed Javellana that the price was P4.00 a square meter. It appears, however, that as early as 22 October, 1967, Carlos had received in check as earnest money from Ramon Doromal, Jr., the sum of P5,000.00 and the price therein agreed upon was P5.00 a square meter. At any rate, Javellana, not being agreeable, did not sign the power of attorney, and the rest of the co-owners went ahead with their sale of their 6/7. Carlos saw to it that the deed of sale prepared by their common attorney in fact, Mary H. Jimenez, be signed and ratified. The Deed was signed and ratified in Candon, Ilocos Sur, on 15 January 1968, and was brought to Iloilo by Carlos in the same month. The Register of Deeds of Iloilo refused to register right away, since the original registered owner, Justice Antonio Horilleno was already dead. Carlos had to hire Atty. Teotimo Arandela to file a petition within the cadastral case, on 26 February 1968, for the purpose. After which, Carlos returned to Luzon. After compliance with the requisites of publication, hearing and notice, the petition was approved. On 29 April 1968, Carlos (in Iloilo) went to the Register of Deeds and caused the registration of the order of the cadastral court approving the issuance of a new title in the name of the co-owners, as well as of the deed of sale to the Doromals, as a result of which on that same date, a new title was issued TCT 23152, in the name of the Horillenos to 6/7 and Javellana to 1/7, Exh. D, only to be cancelled on the same day under TCT 23153, , already in the names of the vendees Doromals for 6/7 and to Javellana, 1/7. On 30 April 1968, the Doromals paid Carlos the sum of P97,000.00 by a check of the Chartered Bank which was later substituted by check of PNB, because there was no Chartered Bank Branch in Ilocos Sur. Besides the amount paid in check, the Doromals according to their evidence still paid an additional amount in cash of P18,250.00 since the agreed price was P5.00 a square meter; and thus was consummated the transaction. On 10 June 1968, Atty. Arturo H. Villanueva (Javellana’s lawyer) arrived at the residence of the Doromals in Dumangas, Iloilo, bringing with him her letter of that date, making a formal offer to repurchase or redeem the 6/7 undivided share in Lot No. 3504, of the Iloilo Cadastre, which the Doromals bought from her erstwhile co-owners, the Horillenos, for the sum of P30,000.00 (the sum Atty. Villanueva has with him which he would deliver to the Doromals as soon as they execute the contract of sale in her favor). The Doromals refused. On 11 June, 1968, Javellana filed the case before the CFI Iloilo seeking to exercise her right to redeem the share of the property, as co-owner, at the price stated in the deed of sale, i.e. P30,000.00. The trial judge, after hearing the evidence, ruled in favor of the Doromals, holding that Javellana had no more right, to redeem as she was already informed of the intended sale of the 6/7 share belonging to the Horillenos, and further condemned Javellana to pay attorney’s fees, and moral and exemplary damages. Javellana appealed.
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The Court of Appeals (in CA-GR 47945-R) reversed the trial court’s decision and held that although respondent Javellana was informed of her co-owners’ proposal to sell the land in question to the Doromals she was, however, “never notified least of all, in writing”, of the actual execution and registration of the corresponding deed of sale, hence, Javellana ‘s right to redeem had not yet expired at the time she made her offer for that purpose thru her letter of 10 June 1968 delivered to the Doromals on even date. The intermediate court further held that the redemption price to be paid by Javellana should be that stated in the deed of sale which is P30,000 notwithstanding that the preponderance of the evidence proves that the actual price paid by the Doromals was P115,250. The Doromals appealed. The Supreme Court affirmed the decision of the Court of Appeals, with costs against Spouses Doromal Sr. and Doromal Jr. 1. Right of pre-emption or redemption Article 1623 of the Civil Code which provides that “The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be 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. The right of redemption of co-owners excludes that of adjoining owners.” 2. Carlos’ letters do not constitute notice for the computation of the 30-day period in Article 1623; Alleged letters do not refer to a consummated sale The letters sent by Carlos Horilleno to Filomena Javellana (dated 18 January 1968 and 5 November 1967) do not constitute the required notice in writing from which the 30-day period fixed in said provision should be computed. There is no showing that said letters were in fact received by Javellana and when they were actually received. In any event, neither of said letters referred to a consummated sale. It was Carlos Horilleno alone who signed them, and as of 18 January 1968, powers of attorney from the various co-owners were still to be secured. Indeed, the later letter of 18 January 1968 mentioned that the price was P4.00/sq.m. whereas in the earlier letter of 5 November 1967 it was P5.00. In fact, as early as 21 October 1967, Carlos had already received P5,000 from the Doromals supposedly as earnest money, of which, however, mention was made by him to his niece only in the later letter of 18 January 1968, the explanation being that “at later negotiation it was increased to P5.00/sq.m.” 3. Sale not yet perfected during the time of the sending of letters; “Earnest money” was made as understood under the Old Civil Code While the letters relied upon by the Doromals could convey the idea that more or less some kind of consensus had been arrived at among the other co-owners to sell the property in dispute to the Doromals, it cannot be said definitely that such a sale had even been actually perfected. The difference in the prices per square meter in the two letters negatives the possibility that a “price definite” had already been agreed upon. While P5,000 might have indeed been paid to Carlos in October 1967, there is nothing to show that the same was in the concept of the earnest money contemplated in Article 1482 of the Civil Code as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, said P5,000 were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it is not clear that there was already a definite agreement as to the price then and that the Doromals were decided to buy 6/7 only of the property should Javellana refuse to agree to part with her 1/7 share. 3. Right of redemption; Requirement of notice, must be in a public instrument (Article 1620 and 1623) For purposes of the co-owner’s right of redemption granted by Article 1620 of the Civil Code, the notice in writing which Article 1623 requires to be made to the other co-owners and from receipt of which the
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30-day period to redeem should be counted is a notice not only of a perfected sale but of the actual execution and delivery of the deed of sale. This is implied from the latter portion of Article 1623 which requires that before a register of deeds can record a sale by a co-owner, there must be presented to him, an affidavit to the effect that the notice of the sale had been sent in writing to the other co-owners. A sale may not be presented to the register of deeds for registration unless it be in the form of a duly executed public instrument. Moreover, the law prefers that all the terms and conditions of the sale should be definite and in writing. 4. Co-owner’s right of redemption (Article 1619) Article 1619 of the Civil Code bestows unto a co-owner the right to redeem and “to be subrogated under the same terms and conditions stipulated in the contract”, and to avoid any controversy as to the terms and conditions under which the right to redeem may be exercised, it is best that the period therefor should not be deemed to have commenced unless the notice of the disposition is made after the formal deed of disposal has been duly executed. 5. Javellana not notified in writing Javellana has never been notified in writing of the execution of the deed of sale by which the Doromals acquired the subject property, it necessarily follows that her tender to redeem the same made on 10 June 1968 was well within the period prescribed by law. Indeed, it is immaterial when she might have actually come to know about said deed, it appearing she has never been shown a copy thereof through a written communication by either any of the Doromals or any of the Horillenos. (Cf. Cornejo et al. vs. CA et al., 16 SCRA 775.) 6. Tax evasion must be condemned It is impossible for the Supreme Court to sanction the Doromals’ pragmatic but immoral posture. Being patently violative of public policy and injurious to public interest, the seemingly wide practice of understating considerations of transactions for the purpose of evading taxes and fees due to the government must be condemned and all parties guilty thereof must be made to suffer the consequences of their ill-advised agreement to defraud the state. The trial court fell short of its devotion and loyalty to the Republic in officially giving its stamp of approval to the stand of the Doromals and even berating Javellana as wanting to enrich herself “at the expense of her own blood relatives who are her aunts, uncles and cousins.” On the contrary, said “blood relatives” should have been sternly told that they are in pari-delicto with the Doromals in committing tax evasion and should not receive any consideration from any court in respect to the money paid for the sale in dispute. Their situation is similar to that of parties to an illegal contract. 7. Consideration is P30,000 The consideration of P30,000 only was placed in the deed of sale to minimize the payment of the registration fees, stamps and sales tax. The redemption in controversy should be only for the price stipulated in the deed, regardless of what might have been actually paid by the Doromals. 8. Article 1619: Legal redemption as the right to be subrogated Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title. In the present case, the stipulation in the public evidence of the contract, made public by both vendors and vendees is that the price was P30,000.00. 9. Article 1620 and 1623; Reasonable price “A co-owner of a thing may exercise the right of redemption in case the share of all the other coowners or any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one.” The law seeks to protect redemptioner and converts his position into one not that of a contractually but of a legally subrogated creditor as to the right of redemption, if the price is not ‘grossly excessive’, what the law had intended redemptioner to pay can be read in Art. 1623,
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which provides that “The right of a legal pre-emption or redemption shall not be exercised except within thirty (30) days from the notice in writing by the prospective vendor, or by the vendor as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof of all possible redemptioners.” 10. Affidavits intended for a definitive purpose Affidavit must have been intended by the lawmakers for a definite purpose, to argue that this affidavit has no purpose is to go against all canons of statutory construction. No law mandatory in character and worse, prohibitive should be understood to have no purpose at all. That would be an absurdity. Purpose could not but have been to give a clear and unmistakable guide to redemptioner, on how much he should pay and when he should redeem. Notice must have been intended to state the truth and if vendor and vendee should have instead, decided to state an untruth therein, it is they who should bear the consequences of having thereby misled the redemptioner who had the right to rely and act thereon and on nothing else. 11. Equitable estoppel Stated otherwise, all the elements of equitable estoppel are present since the requirement of the law is to submit the affidavit of notice to all possible redemptioners, that affidavit to be a condition precedent to registration of the sale therefore. The law must have intended that it be by the parties understood that they were there asking a solemn representation to all possible redemptioners, who upon faith of that are thus induced to act. In the present case, the parties to the sale sought to avoid compliance with the law and certainly refusal to comply cannot be rewarded with exception and acceptance of the plea that they cannot be now estopped by their own representation. 12. No unjust enrichment, as right is not contractual but granted by law Javellana’s right is not contractual, but a mere legal one, the exercise of a right granted by the law, and the law is definite that she can subrogate herself in place of the buyer, upon the same terms and conditions stipulated in the contract, in the words of Art. 1619, and here the price. stipulated in the contract was P30,000.00, in other words, if this be possible enrichment on the part of Javellana, it was not unjust but just enrichment because permitted by the law. 13. Exercise of right, just solution, promotion of justice What Javellana sought to enforce is not an abuse but a mere exercise of a right. The solution is not unjust because it only binds the parties to make good their solemn representation to possible redemptioners on the price of the sale, to what they had solemnly averred in a public document required by the law to be the only basis for that exercise of redemption. This thus promote justice. [33] Dy vs. CA [G.R. No. 92989. July 8, 1991.] Third Division, Gutierrez Jr. (J): 3 concur, 1 took no part Facts: Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan. Perfecto Dy wanted to buy the tractor from his brother so on 20 August 1979, he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter. In a letter dated 27 August 1979, Libra thru its manager, Cipriano Ares approved the Perfecto’s request. Thus, on 4 September 1979, Wilfredo executed a deed of absolute sale in favor of Perfecto over the tractor in question. At that time, the subject tractor was in the possession of Libra Finance due to Wilfredo’s failure to pay the amortizations. Despite the offer of full payment by Perfecto to Libra for the tractor, the immediate release could not be effected because Wilfredo had obtained financing not only for said tractor but also for a truck and Libra insisted on full
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payment for both. Perfecto was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full payment could be made for both. On 22 November 1979, a PNB check was issued in the amount of P22,000 in favor of Libra, thus settling in full the indebtedness of Wilfredo with the financing firm. Payment having been effected through an out-of-town check, Libra insisted that it be cleared first before Libra could release the chattels in question. Meanwhile, Civil Case R-16646 entitled “Gelac Trading, Inc. v. Wilfredo Dy”, a collection case to recover the sum of P12,269.80 was pending in another court in Cebu. On the strength of an alias writ of execution issued on 27 December 1979, the provincial sheriff was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where Gelac Trading was the lone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales. It was only when the check was cleared on 17 January 1980 that Perfecto learned about GELAC having already taken custody of the subject tractor. Perfecto Dy filed an action to recover the subject tractor against GELAC Trading with the RTC Cebu City. On 8 April 1988, the 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; directing the Gelac Trading and Gonzales jointly and severally to pay Perfecto the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral damages; P50,000 for exemplary damages; and to pay the cost. On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint with costs against Perfecto. The Court of Appeals 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 issued in Civil Case R-16646. Hence, the petition for review on certiorari. The Supreme Court granted the petition, set aside the decision of the Court of Appeals promulgated on 23 March 1990, and reinstated the decision of the Regional Trial Court dated 8 April 1988. 1. Sale of mortgaged property valid; Mortgagor maintains ownership of the property offered as security In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court (174 SCRA 80 [1989]), it was stated that “the chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of the mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the Philippines, [1972], Volume IV-s Part I, p. 5s251) Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties executing them but also upon those who later, by purchase or otherwise, acquire the properties referred to therein. The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person, therefore, effects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.” The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected. In the present case, Wilfredo Dy can sell the subject tractor. The consent of Libra Finance was obtained. In a letter dated 27 August 1979, Libra allowed Perfecto to purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was therefore valid and binding as between them and to the mortgagee, as well. 2. Ownership acquired when thing delivered to vendee; Article 1496 Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee
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from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other manner signing an agreement that the possession is transferred from the vendor to the vendee. 3. Article 1498 and 1499 applicable in present case; Tractor cannot be delivered Articles 1498 and 1499 are applicable in the present case. Article 1498 states that “when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.” Article 1499 provides that “The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason.” In the present case, actual delivery of the subject tractor could not be made. However, there was constructive delivery already upon the execution of the public instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. 4. Mortgagee’s right of foreclosure; implied right to possess property to effect foreclosure A mortgagee has the right of foreclosure upon default by the mortgagor in the performance of the conditions mentioned in the contract of mortgage. The law implies that the mortgagee is entitled to possess the mortgaged property because possession is necessary in order to enable him to have the property sold. In the present case, it was Libra Finance which was in possession of the subject tractor due to Wilfredo’s failure to pay the amortization as a preliminary step to foreclosure. 5. Mortgagee not owner of the property mortgaged; Mortgagee’s remedy is to have property sold in public auction and to apply proceeds to obligation secured While it is true that Wilfredo Dy was not in actual possession and control of the subject tractor, his right of ownership was not divested from him upon his default. Neither could it be said that Libra was the owner of the subject tractor because the mortgagee can not become the owner of or convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said property continues to belong to the mortgagor. The only remedy given to the mortgagee is to have said property sold at public auction and the proceeds of the sale applied to the payment of the obligation secured by the mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no showing that Libra Finance has already foreclosed the mortgage and that it was the new owner of the subject tractor. 6. Third person who purchases the mortgaged property assumes obligation of original mortgagor Where a third person purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. (See Industrial Finance Corp. v. Apostol, 177 SCRA 521[1989]). His right of ownership shall be subject to the mortgage of the thing sold to him. In the present case, Perfecto was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libra’s consent to the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo which Libra undeniably agreed to. 7. price Payment of check intended to extinguish mortgage obligation and not a payment of purchase

The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to Perfecto. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra and Perfecto is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment determined the full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of the sale. The transaction between the brothers is distinct and apart from the transaction between Libra and Perfecto. The contention, therefore, that the consummation of the sale depended upon the encashment of the check is untenable.

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8.

Sale consummated upon execution of public instrument; Constructive delivery The sale of the subject tractor was consummated upon the execution of the public instrument on 4 September 1979. At this time constructive delivery was already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was levied upon by the sheriff in December 1979. 9. Only properties unquestionably owned by judgment debtor can be levied upon Only properties unquestionably owned by the judgment debtor and which are not exempt by law from execution should be levied upon or sought to be levied upon. For the power of the court in the execution of its judgment extends only over properties belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals, G.R. No. 78771, January 23, 1991). 10. Third party not precluded from taking other legal remedies to prosecute claim It is inconsequential whether a third party claim has been filed or not by Perfecto during the time the sheriff levied on the subject tractor. A person other than the judgment debtor who claims ownership or right over levied properties is not precluded, however, from taking other legal remedies to prosecute his claim. (Consolidated Bank and Trust Corp. v. Court of Appeals, supra) This is precisely what the petitioner did when he filed the action for replevin with the RTC. 11. Factual finding of trial court given great respect and weight; Fraud not presumed but established by clear evidence; Relationship not a badge of fraud The Court accords great respect and weight to the findings of fact of the trial court. There is no sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is true that Wilfredo and Perfecto are brothers, this fact alone does not give rise to the presumption that the sale was fraudulent. Relationship is not a badge of fraud (Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it must be established by clear convincing evidence. 12. Actuations of Gelac trading violative of provisions on human relations Gelac Trading knew very well of the transfer of the property to Perfecto on 14 July 1980 when it received summons based on the complaint for replevin filed by Perfecto with the RTC. Notwithstanding said summons, it continued to sell the subject tractor to one of its stockholders on 2 August 1980. [34] EDCA Publishing vs. Santos [G.R. No. 80298. April 26, 1990.] First Division, Cruz (J): 4 concur Facts: On 5 October 1981, a person identifying himself as Professor Jose Cruz placed an order by telephone with EDCA Publishing and Distributing Corp. for 406 books, payable on delivery. EDCA prepared the corresponding invoice and delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of P8,995.65. On 7 October 1981, Cruz sold 120 of the books to Leonor Santos who, after verifying the seller’s ownership from the invoice he showed her, paid him P1,700.00. Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his first check, made inquiries with the De la Salle College where he had claimed to be a dean and was informed that there was no such person in its employ. Further verification revealed that Cruz had no more account or deposit with the Philippine Amanah Bank, against which he had drawn the payment check. EDCA then went to the police, which set a trap and arrested Cruz on 7 October 1981. Investigation disclosed his real name as Tomas de la Peña and his sale of 120 of the books he had ordered from EDCA to Leonor Santos (and Gerardo Santos, doing business as Santos Bookstore). On the night of said date 7 October 1981, EDCA sought the assistance of the police in Precinct 5 at the UN Avenue, which forced their way into Santos Bookstore and threatened Leonor Santos with prosecution for buying stolen property. They seized the 120 books without warrant, loading them in a van belonging to EDCA, and thereafter turned them over to EDCA. Protesting this highSales, 2003 ( 96 )

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handed action, the Santos spouses sued for recovery of the books after demand for their return was rejected by EDCA. A writ of preliminary attachment was issued and EDCA, after initial refusal, finally surrendered the books to the Santos spouses. Ownership of the books was recognized in the Santos spouses by the Municipal Trial Court, which was sustained by the Regional Trial Court, which was in turn sustained by the Court of Appeals. EDCA appealed to the Supreme Court. The Supreme Court affirmed the challenged decision and denied the petition, with costs against EDCA Publishing. 1. Article 559 of the Civil Code Article 559 provides that “The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. 2. Arbitrary action, act of taking the law on own hands, condemned The Court expresses its disapproval of the arbitrary action of EDCA Publishing in taking the law into its own hands and forcibly recovering the disputed books from the Santos spouses. The circumstance that it did so with the assistance of the police, which should have been the first to uphold legal and peaceful processes, has compounded the wrong even more deplorably. Questions, such as the ownership of the books, are decided not by policemen but by judges and with the use not of brute force but of lawful writs. 3. Possession of movable property acquired in good faith equivalent to title The first sentence of Article 559 provides that “the possession of movable property acquired in good faith is equivalent to a title,” thus dispensing with further proof. It cannot be said that the spouses cannot establish their ownership of the disputed books because they have not even produced a receipt to prove they had bought the stock. 4. Santos a purchaser in good faith, even if books were bought at discount Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing that they had been sold to Cruz, who said he was selling them for a discount because he was in financial need. The Santos spouses are in the business of buying and selling books and often deal with hard-up sellers who urgently have to part with their books at reduced prices. To Leonor Santos, Cruz must have been only one of the many such sellers she was accustomed to dealing with. It is hardly bad faith for any one in the business of buying and selling books to buy them at a discount and resell them for a profit. 5. Contract of sale consensual and is perfected upon agreement The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. According to Article 1475 of the Civil Code, “The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.” Article 1477, on the other hand, provides that “The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.” Article 1478 provides that “The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.” 6. Rule in the transfer of ownership Ownership in the thing sold shall not pass to the buyer until full payment of the purchase price only if
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there is a stipulation to that effect. Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. Absent the stipulation, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. 7. Effect of non-payment; Relief Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of bouncing checks. 8. valid Asiatic Commercial Corporation vs. Ang; Company not unlawfully deprived of property, sale

In Asiatic Commercial Corporation v. Ang, the company sold some cosmetics to Francisco Ang, who in turn sold them to Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he had validly bought them from Ang, paying for the same in cash. Finding that there was no conspiracy between Tan and Ang to deceive Asiatic, the Court of Appeals declared that the company was not unlawfully deprived of the cartons of Gloco Tonic within the scope of this legal provision. It has voluntarily parted with them pursuant to a contract of purchase and sale. The circumstance that the price was not subsequently paid did not render illegal a transaction which was valid and legal at the beginning. 9. Tagatac vs. Jimenez; Sale voidable due to fraud but subsists as valid until annulled In Tagatac v. Jimenez, Trinidad C. Tagatac sold her car to Warner Feist, who sold it to Sanchez, who sold it to Jimenez. When the payment check issued to Tagatac by Feist was dishonored, Tagatac sued to recover the vehicle from Jimenez on the ground that she had been unlawfully deprived of it by reason of Feist’s deception. In ruling for Jimenez, the Court of Appeals held that “the fraud and deceit practiced by Feist earmarks this sale as a voidable contract (Article 1390). Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified, the action to annul it is extinguished (Article 1392) and the contract is cleansed from all its defects (Article 1396); if the contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as a consequence (Article 1398). However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale remains valid and binding. When Tagatac delivered the car to Feist by virtue of said voidable contract of sale, the title to the car passed to Feist (the title was defective and voidable). Nevertheless, at the time he sold the car to Felix Sanchez, his title thereto had not been avoided and he therefore conferred a good title on the latter, provided he bought the car in good faith, for value and without notice of the defect in Feist’s title (Article 1506). There being no proof on record that Felix Sanchez acted in bad faith, it is safe to assume that he acted in good faith. 10. Ownership validly transferred to the Santos spouses Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly transfer to the Santos spouses. The fact that he had not yet paid for them to EDCA was a matter between him and EDCA and did not impair the title acquired by the spouses to the books. 11. Injustice will arise if “unlawfully deprived” would be interpreted in a different manner One may well imagine the adverse consequences if the phrase “unlawfully deprived” were to be interpreted in the manner premised on the argument that the impostor acquired no title to the books that he could have validly transferred to the spouses. A person relying on the seller’s title who buys a movable property from him would have to surrender it to another person claiming to be the original owner who had not yet been paid the purchase price therefor. The buyer in the second sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith without even the right to reimbursement of the amount he had paid for it. 12. Diligence exercised by Santos, but not by EDCA
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Leonor Santos took care to ascertain first that the books belonged to Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had been paid for on delivery. Santos did not have to go beyond that invoice to satisfy herself that the books being offered for sale by Cruz belonged to him; yet she did. Although the title of Cruz was presumed under Article 559 by his mere possession of the books, these being movable property, Leonor Santos nevertheless demanded more proof before deciding to buy them. By contrast, EDCA was less than cautious — in fact, too trusting — in dealing with the impostor. Although it had never transacted with him before, it readily delivered the books he had ordered (by telephone) and as readily accepted his personal check in payment. It did not verify his identity although it was easy enough to do this. It did not wait to clear the check of this unknown drawer. Worse, it indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in the buyer. 13. Santos spouses cannot be made to suffer It would certainly be unfair to make the spouses bear the prejudice sustained by EDCA as a result of its own negligence. There is no justice in transferring EDCA’s loss to the Santoses who had acted in good faith, and with proper care, when they bought the books from Cruz. While the Court sympathized with EDCA for its plight, it is clear that its remedy is not against the spouses but against Tomas de la Peña, who has apparently caused all this trouble. 14. Santos have the right to complain The spouses have themselves been unduly inconvenienced, and for merely transacting a customary deal not really unusual in their kind of business. It is they and not EDCA who have a right to complain. [35] Elisco Tool Manufacturing v. CA, 308 SCRA 731 (1999) [36] Engineering and Machinery Corp. v. CA [G.R. No. 52267. January 24, 1996.] Third Division, Panganiban (J): 3 concur Facts: Pursuant to the contract dated 10 September 1962 between the Engineering and Machinery Corporation (the Corporation) and Almeda, the former undertook to fabricate, furnish and install the airconditioning system in the latter’s building along Buendia Avenue, Makati in consideration of P12,000.00. The Corporation was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by Almeda, who paid in full the contract price. On 2 September 1965, Almeda sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDC’s noncompliance with the terms and conditions of the deed of sale, Almeda was able to secure judicial rescission thereof. The ownership of the building having been decreed back to Almeda, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC employees of the defects of the air-conditioning system of the building. Acting on this information, Almeda commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with the Corporation. In his report, Sapico enumerated the defects of the system and concluded that it was “not capable of maintaining the desired room temperature of 76ºF — 2ºF.” On the basis of this report, Almeda filed on 8 May 1971 an action for damages against the Corporation with the then CFI Rizal (Civil Case 14712). The complaint alleged that the air-conditioning system installed by the Corporation did not comply with the agreed plans and specifications, hence, Almeda prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorney’s fees.
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The Corporation moved to dismissed the case, alleging prescription, but which was denied by the Court. Thereafter, Almeda filed an ex-parte motion for preliminary attachment on the strength of the Corporation’s own statement to the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon Almeda’s posting of a bond of P50,000.00, ordered the issuance of a writ of attachment. In due course, and on 15 April 1974, the trial court rendered a decision, which ordered the Corporation to pay Almeda the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by the Corporation in Almeda’s building, plus damages, attorney’s fees and costs). Petitioner appealed to the Court of Appeals, which affirmed on 28 November 1978 the decision of the trial court. Hence, it instituted a petition for review on certiorari under Rule 45 of the Rules of Court. The Supreme Court denied the petition and affirmed the decision assailed; without costs. 1. The Court’s power to review The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. It is not the function of this Court to re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the judgment is based on a misapprehension of facts. The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below. 2. Contract of a piece of work defined Article 1713 of the Civil Code defines a contract for a piece of work as “by the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material.” 3. Contract for a piece of work distinguished from a contract of sale A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale. “A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public.” (Celestino Co. vs. Collector, 99 Phil. 8411). To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work.

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4.

Contract in question is one for a piece of work The contract in question is one for a piece of work. It is not the Corporation’s line of business to manufacture air-conditioning systems to be sold “off-the-shelf.” Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. 5. Obligations of a contractor for a piece of work The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code. Article 1714 provides that “if the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. — This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale.” Article 1715 provides that “the contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor’s cost.” 6. Provisions on warranty against hidden defects The provisions on warranty against hidden defects, referred to in Article 1714, are found in Articles 1561 and 1566. Article 1561 provides that “the vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.” Article 1566 provides that “the vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof,” and provides further that the provision “shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.” 7. Remedy against violation of the warranty against hidden defects The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (rehibitory action) or to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case. 8. Prescriptive period as specified in express warranty, or in the absence of which, 4 years; Prescriptive period of 6 months for rehibitory action is applicable only in implied warranties While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a rehibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties; and where there is an express warranty in the contract, the prescriptive period is the one specified in the express warranty, and in the absence of such period, the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply. (Villostas v. CA) 9. Original complaint is one for arising from breach of a written contact and not a suit to enforce warranty against hidden defects; Article 1715 in relation to Article 1144 apply, prescription in 10 years; Action not prescribed The lower courts opined and so held that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air
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conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant. Thus, having concluded that the original complaint is one for damages arising from breach of a written contract, and not a suit to enforce warranties against hidden defects, the governing law therefore is Article 1715. However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions “upon a written contract” prescribe in 10 years. Since the governing contract was executed on 10 September 1962 and the complaint was filed on 8 May 1971, it is clear that the action has not prescribed. 10. Acceptance of the work by the employer does not relieve the contractor of liability for any defect in the work The mere fact that Almeda accepted the work does not, ipso facto, relieve the Corporation from liability for deviations from and violations of the written contract, as the law gives him 10 years within which to file an action based on breach thereof. As held by the Court of Appeals, “as the breach of contract consisted in appellant’s omission to install the equipment [sic], parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air-conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that Almeda is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it has been furnished and installed as per agreed specifications.” [37] Equatorial Realty vs. Mayfair Theater [G.R. No. 106063. November 21, 1996.] En Banc, Hermosisima Jr. (J): 13 concur, 1 took no part Facts: Carmelo & Bauermann Inc. (Carmelo) owned a parcel of land, together with two 2-storey buildings constructed thereon located at Claro M Recto Avenue, Manila (TCT 18529, Register of Deeds of Manila). On 1 June 1967, Carmelo entered into a contract of lease with Mayfair Theater for the latter’s lease of a portion of Carmelo’s property, i.e. a portion of the 2/F of the two-storey building with floor area of 1610 sq.ms. and the second floor and mezzanine of the two-storey building situated at CM Recto Avenue, Manila with a floor area of 150 sq.ms. for use by Mayfair as a motion picture theater and for a term of 20 years. Mayfair thereafter constructed on the leased property a movie house known as Maxim Theatre. On 31 March 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo’s property, i.e. a portion of the 2/F of the two-storey building with floor area of 1064 sq.ms. and two store spaces at the ground floor and mezzanine of the two-storey building situated at CM Recto Avenue, Manila with a floor area of 300 sq.ms. and bearing street numbers 1871 and 1875 for similar use as a movie theater and for a similar term of 20 years. Mayfair put up another movie house known as ‘Miramar Theatre’ on this leased property. Both contracts of lease provide identically worded paragraph 8, which reads “That if the LESSOR should desire to sell the leased premises, the lessee shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the Lessee, the lessor is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.” Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US$1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for P6 million to P7 million. Mr. Yang replied that he would let Mr. Pascal know of his decision. On 23 August 1974, Mayfair replied through a letter confirming the correspondence between Pascual and Yang and reiterating paragraph 8 of the two contracts of lease. Carmelo did no reply to this letter. On 18 September 1974, Mayfair sent another letter to
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Carmelo purporting to express interest in acquiring not only the leased premises but the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter. Four years later, on 30 July 1978, Carmelo sold its entire CM. Recto Avenue land and building, which included the leased premises housing the ‘Maxim’ and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P1,300,000. In September 1978, Mayfair instituted the action for specific performance and annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and affirmative defense that it had informed Mayfair of its desire to sell the entire CM. Recto Avenue property and offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was impossible since the property was not a condominium; and that the option to purchase invoked by Mayfair is null and void for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative defense that the option is void for lack of consideration and is unenforceable by reason of its impossibility of performance because the leased premises could not be sold separately from the other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed against codefendant Carmelo for indemnification in respect of Mayfair’s claims. After assessing the evidence, the court rendered decision dismissing the complaint with costs against Mayfair; ordering Mayfair to pay Carmelo & Bauermann P40,000.00 by way of attorneys’s fees on its counterclaim; and ordering Mayfair to pay Equatorial Realty P35,000.00 per month as reasonable compensation for the use of areas not covered by the contracts of lease from 31 July 1979 until Mayfair vacates said areas plus legal interest from 31 July 1978; P70,000.00 per month as reasonable compensation for the use of the premises covered by the contracts of lease dated (1 June 1967 from 1 June 1987 until Mayfair vacates the premises plus legal interest from 1 June 1987; P55,000.00 per month as reasonable compensation for the use of the premises covered by the contract of lease dated 31 March 1969 from 30 March 1989 until Mayfair vacates the premises plus legal interest from 30 March 1989; and P40,000.00 as attorney’s fees; and dismissing Equatorial’s crossclaim against Carmelo & Bauermann. The trial court adjudged the identically worded paragraph 8 found in both lease contracts to be an option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration therefor. Mayfair taking exception to the decision of the trial court, appealed to the Court of Appeals. The appellate court reversed the trial court and rendered judgment reversing and setting aside the appealed Decision; directing Mayfair to pay and return to Equatorial the amount of P11,300,000.00 within 15 days from notice of this Decision, and ordering Equatorial to accept such payment; directing Equatorial, upon payment of the sum of P11,300,000, to execute the deeds and documents necessary for the issuance and transfer of ownership to Mayfair of the lot registered under TCT 17350, 118612, 60936, and 52571; and should Mayfair be unable to pay the amount as adjudged, declaring the Deed of Absolute Sale between Carmelo and Equatorial as valid and binding upon an the parties. Hence, the petition for review. The Supreme Court denied the petition for review of the decision of the Court of Appeals (23 June 1992, in CA-GR CV 32918), declaring the Deed of Absolute Sale between Equatorial and Carmelo as deemed rescinded; ordering Carmelo to return to Equatorial the purchase price; directing Equatorial to execute the deeds and documents necessary to return ownership to Carmelo of the disputed lots; and ordering Carmelo to allow Mayfair to buy the lots for P11,300,000. 1. Issue on irregularities in Court of Appeals passed upon so as not to preempt the administrative proceedings related thereto It was raised that the Court of Appeals violated its own internal rules in the assignment of appealed cases when it allowed the same Division XII, particularly Justice Manuel Herrera, to resolve all the motions in the “Completion Process” and to still resolve the merits of the case in the “Decision Stage.” This was related to letter complaint written by the counsel for Equatorial on 20 September 1992 to the Supreme Court
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alleging certain irregularities and infractions committed by certain lawyers, and Justices of the Court of Appeals and of the Supreme Court in connection with case CA-GR CV 32918 (GR 106063). This partakes of the nature of an administrative complaint for misconduct, against members of the judiciary. While the lettercomplaint arose as an incident in said case, the disposition thereof should be separate and independent from case GR 106063. It would be correct, prudent and consistent course of action not to pre-empt the administrative proceedings to be undertaken respecting the said irregularities. A discussion of such in the present case would entail a finding on the merits as to the real nature of the questioned procedures and the true intentions and motives of the players therein. 2. Paragraph 8 of lease contracts provides for a right of first refusal, and is not an option clause nor an option contract The contractual stipulation (Paragraph 8) provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contact. It is a contract of a right of first refusal. The true nature of the paragraph 8 is ascertained to be that of a contractual grant of the right of first refusal to Mayfair. 3. Option contract; Validity based on a separate and distinct consideration As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily invoking the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. T he deed of option or option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell. 4. Option contract, according to Bouvier Law Dictionary Bouvier, in his Law Dictionary (edition of 1897) defines an option as a contract, “a contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to B, certain securities or properties within a limited time at a specified price. (Story vs Salamon, 71 N.Y. 420.)” 5. Option contract, according to “Words and Phrases” An agreement in writing to give a person the option to purchase lands within a given time at a named price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land, he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value, that is, the right to call for and receive lands if he elects The owner parts with his right to sell his lands, except to the second party, for a limited period The second party receives this right, or, rather, from his point of view, he receives the right to elect to buy. (Vol. 6, page 5001, of the work ‘Words and Phrases, ‘ citing the case of Ide vs. Leiser [24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17]). 6. Cases involving option contracts In Tuason vs. de Asis (107 PHIL 131 [1960]), it was held that the lessee loses his right to buy the leased property for a named price per square meter upon failure to make the purchase within the time specified. In Mendoza vs. Comple (15 SCRA 162), the Court freed the landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in 3 weeks because such option was not supported by a distinct consideration. In the same vein, in Sanchez vs. Rigos (45 SCRA 368 [1972]), the Court also invalidated an instrument entitled, “Option to Purchase” a parcel of land for the sum of P1,510.00 because of lack of consideration. And as an exception to the doctrine enumerated in the two preceding cases, in Vda de Quirino vs. Palarca (29 SCRA 1 [1969]), it was ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for that of the other. In all these cases, the
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selling price of the object thereof is always predetermined and specified in the option clause in the contract or in the separate deed of option. Ang Yu Asuncion case: 7. Perfection of a contract of sale In sales, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides that “By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.” 8. Contract to sell is conditional; Effect of breach of condition When the sale is not absolute but conditional, such as in a “Contract to Sell” where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 9. Unconditional mutual promise to buy and sell obligatory on the parties An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 10. Perfected contract of option An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, which provides that “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. (1451a)” 11. Option not the contract of sale itself The option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 12. Offer A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). 13. Offer with a period; Effects of withdrawal (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdrawal the offer before its acceptance, or, if an acceptance has been made, before the offeror’s coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409;
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Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that “every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.” (2) If the period has a separate consideration, a contract of “option” is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract (“object” of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an “earnest money” in a contract of sale that can evidence its perfection (Art. 1482, Civil Code). 14. Requirement for separate consideration has no applicability as paragraph 8 is not an option contract but a right of first refusal No option to purchase in contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts. Paragraph 8 grants the right of first refusal to Mayfair and is not an option contract. The requirement of a separate consideration for the option, thus, has no applicability in the case. There is nothing in paragraph “8” of the contracts which would bring them into the ambit of the usual offer or option requiring an independent consideration. 15. Option and Right of First Refusal distinguished An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. In the instant case, the right of first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties. 16. Right of First Refusal inutile if governed by Article 1324 on withdrawal of the offer on Article 1479 on promise to buy and sell To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offer on Article 1479 on promise to buy and sell would render ineffectual or “inutile” the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property at the price which Carmelo is willing to accept. 17. Consideration in an agreement of right of first refusal: Consideration for lease It is not correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration for the right of first refusal. 18. Consideration in an agreement of right of first refusal: Consideration is obligation or promise (reciprocal contract) Mayfair is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the obligation or promise of each party is the consideration for that of the other.
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19.

Difference to Ang Yu Asuncion case: Equatorial Realty and Carmelo acted in bad faith Carmelo and Equatorial Realty acted in bad faith to render Paragraph 8 “inutile.” What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair’s right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the “30-day exclusive option” time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. 20. Rescission lies when the purchase is in bad faith Equatorial (being aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts) is a buyer in bad faith, and thus renders the sale to it of the property in question rescissible. Guzman, Bocaling & Co. vs. Bonnevie case 21. Rescission as remedy Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferential right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. 22. Purchaser not considered a third party It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitoner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith. 23. Purchaser in good faith defined A purchaser in good faith and for value who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests. 24. Purchaser required to know term of lease contract when buying property under lease Having known that the property it was buying was under lease, it behooved it as a prudent person to have required the owner of the property or the broker to show to it the Contract of Lease in which the right of first refusal is contained. 25. Indivisibility of the property Common sense and fairness dictate that instead of nullifying the agreement on the basis that the entire
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property is indivisible property, the stipulation should be given effect by including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal contract where the ascendant or the more important of the two parties is the landowner should be given effect, if possible, instead of being nullified on a selfish pretext posited by the owner. Following the arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its rights; the right of first refusal should include not only the property specified in the contracts but also the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. 26. Boundaries of the property sold Mayfair is authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible property. The boundaries of the property sold should be the boundaries of the offer under the right of first refusal. 27. Doctrine in Ang Yu Asuncion deemed modified As to the remedy to enforce Mayfair’s right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals should be modified, it not amplified under the peculiar facts of the present case. 28. Multiplicity of suits frowned upon by Court; Relief: (1) Contract between Equatorial and Carmelo rescinded, (2) Price fixed The Supreme Court has always been against multiplicity of suits where all remedies according to the facts and the law can be included. Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. Since Carmelo sold the property for P11,300,000 to Equatorial, the price at which Mayfair could have purchased the property is, therefore, fixed. The damages which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled to accept or reject which is P11,300,000. To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its right. 29. Present case covered by law on contracts, not merely by codal provisions on human relations Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on contracts but by the codal provisions on human relations. This may apply if the contract is limited to the buying and selling of the real property. However, the obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to the property under the right of the first refusal according to the terms at which they should have been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms. 30. No interest due Carmelo and Equatorial cannot avail of considerations based on equity which might warrant the grant of interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the property. It has used the P11,300,000.00 all these years earning income or interest from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no
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obligation to pay any interests arising from this judgment to either Carmelo or Equatorial. [38] Intestate Estate of Emilio Camon; Ereneta v. Bezore [G.R. No. L-29746. November 26, 1973.] First Division, Castro (J): 5 concur Facts: Emilio Camon was the lessee of the hacienda Rosario, located in Pontevedra, Negros Occidental, for the period from crop year 1940-41 to crop year 1960-61. ½ pro-indiviso of the said sugar plantation belonged to Ignatius Henry Bezore, Elwood Knickerbocker and Mary Irene Fallon McCormick (as their inheritance from the late Thomas Fallon), while the other half belonged to Petronila Alunan vda. de Sta. Romana, Amparo Sta. Romana and Alberta vda. de Hopon (as their inheritance from their mother Rosario Sta. Romana). Upon the death of Emilio Camon in 1967, his widow, Concepcion Ereñeta, filed a petition in the CFI Negros Occidental (Special Proceeding 8366) praying for the grant to her of letters of administration of the estate of the deceased Camon. The petition was granted. Thereafter, the court issued an order requiring all persons with money claims against the estate to file their claims within the period prescribed in the order.Thru their judicial administrator and counsel, Martiniano O. de la Cruz, Bezore, et al. filed a claim against the estate in the amounts of P62,065 as the money value of sugar allotments and allowances and P2,100 as the money value of palay and rentals, or a total of P64,165, appertaining to the claimants’ half-share in the hacienda. Bezore, et. al. and Ereneta are agreed that the late Emilio Camon appropriated for himself the amounts claimed. Bezore, et. al. had demanded payment of their claim from Emilio Camon when he was still alive, but Ereneta ignored the demands. At the trial, 3 documents were submitted in evidence by Ereneta, the authenticity of each of which is not controverted by Bezore, et.al.; i.e. (1) An “Agreement to Sell,” executed on 11 January 1961, whereby Bezore, et al., agreed to sell their ½ share in the hacienda Rosario to Amparo Sta. Romana and Alberta vda. de Hopon; (2) A “Release and Waiver of Claims,” executed on 12 January 961, whereby Amparo Sta. Romana and Alberta vda. de Hopon, for and in consideration of “their gratitude for the various services, financial and personal” extended to them by Emilio Camon, released him from “any and all claims that may have accrued pertaining to the 2/4 pro-indiviso share in Hacienda Rosario” owned by Bezore, et. al. who had bound themselves “to sell their share in the said Hacienda Rosario” to Amparo and Alberta, “including rights accrued or accruing,” and whereby Amparo and Alberta bound themselves “to waive in favor of Mr. Emilio Camon for his own use and benefit said rights accrued or accruing;” and (3) A “Deed of Sale,” executed on 4 August 1961, whereby Bezore, et al., for and in consideration of the sum of P78,000, to be paid in the manner stated in the instrument, sold, transferred and conveyed “all their rights, title, interest and participation, whether accrued or accruing in their 2/4 pro-indiviso share” in the hacienda Rosario, “together with all the improvements existing thereon, including its sugar quota,” in favor of Amparo Sta. Romana and Alberta vda. de Hopon. On 20 July 1968, the lower court dismissed the claim, rejecting Bezore et.al’s contention that the sugar allotments and allowances, subject of their claim against the estate of Emilio Camon, were not included in the sale, and held that by the positive and categorical terms of the deed of sale, all benefits accrued and accruing to the appellants before 4 August 1961 were included in the sale. Bezore, et.al. filed a direct appeal with the Supreme Court. The Supreme Court affirmed the order of the lower court, at Bezore et. al.’s cost. 1. Right to accrued claims not waived in January 1961 At the time of the execution, on 12 January 1961, of the deed of “Release and Waiver of Claims,” Amparo Sta. Romana and Alberta vda. de Hopon could not release or waive accrued claims belonging to Bezore et..al, because the right that Amparo and Alberta then had was a mere promise by Bezore, et.al. to sell their share in the hacienda, not the right to the accrued claims. What was agreed to be sold in the future was different from what was purportedly waived; and even if the object in both contracts were the same, the waiver would still be invalid for it is essential that a right, in order that it may be validly waived, must be in
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existence at the time of the waiver. 2. Defect in waiver cured in August 1961; Bezore, et.al. parted with their accrued rights Whatever defect there was in the waiver was subsequently cured by the deed of sale of 4 August 1961 by virtue of which Bezore, et.al. sold not only their pro-indiviso half-share in the hacienda but also their accrued rights therein. It is immaterial that Emilio Camon was not the vendee since what mattered is that Bezore, et.al. parted with their accrued rights for a valuable consideration. 3. Question of fact not reviewable in direct appeal to Supreme Court Whether the vendees (Bezore etal) represented to Martiniano O. de la Cruz that the sugar quedans and palay were not included in the sale and that such was the intention of the parties, involves a question of fact which is not reviewable in a direct appeal to the Supreme Court. 4. “Accrued or accruing”; Literal meaning of contractual stipulations control if terms are clear The words “accrued or accruing’ in the deed of sale are not obscure and, as the lower court declared, are in fact positive and categorical enough to include accrued allotments and allowances. Since the said words are not ambiguous, there is no need to interpret them. Article 1370 of the Civil Code provides that “if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.” 5. Inadequacy of cause does not of itself invalidates the contract That the consideration in the sale was “cheap” is not a ground for the infirmity of the sale. Inadequacy of cause in a contract does not of itself invalidate the contract. 6. Silence as to demand letters not admission of debt The silence of Camon with respect to the several demand letters sent to him was an admission of his debt, is without support or sanction in law of evidence. 7. No change in the juridical relationship between hacienda owners and Emilio Camon after the written contract of lease; Continued cultivation merely implied a new lease, did not convert into express trust There was no change in the juridical relationship between the hacienda owners and Emilio Camon when, after the expiration of their written contract of lease, he continued cultivating the hacienda during the crop years 1952-53 to 1960-61. The continuance in the cultivation, with the acquiescence of the owners, did not convert the original relationship into an express trust but merely implied a new lease over the property, with the same terms and conditions provided in the original contract, except as to the period of the lease. 8. Article 1670 of the Civil Code Article 1670 of the Civil Code provides that “if at the end of the contract the lessee should continue enjoying the thing leased for 15 days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in articles 1682 and 1687. The other terms of the original contract shall be revived.” 9. Fiduciary relationship an essential characteristic of trust; No express trust There is nothing in the record that evidence the creation of a fiduciary relationship between the lessors and the lessee after the expiration of their written contract of lease. Fiduciary relationship is an essential characteristic of trust, and no written instrument has been pointed to as establishing an express trust, which writing is required in express trusts over immovables. There is no basis for the claim that an express trust was created when Camon continued to cultivate the land after the expiration of the written contract of lease.
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[39] Heirs of Escanlar, et.al. v. CA [G.R. No. 119777. October 23, 1997.] Holgado, et. al. v. CA [G.R. No. 120690. October 23, 1997.] Third division, Romero (J): 3 concur, 1 on leave Facts: Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively. Nombre’s heirs include his nephews and grandnephews. Victoriana Cari-an was succeeded by her late brother’s son, Gregorio Cari-an. The latter was declared as Victoriana’s heir in the estate proceedings for Nombre and his wife (Special Proceeding 7-7279). After Gregorio died in 1971, his wife, Generosa Martinez, and children, Rodolfo, Carmen, Leonardo and Fredisminda Cari-an, were also adjudged as heirs by representation to Victoriana’s estate. Leonardo Cari-an passed away, leaving his widow, Nelly Chua vda. de Cari-an and minor son Leonell, as his heirs. 2 parcels of land, denominated as Lot 1616 and 1617 of the Kabankalan Cadastre with an area of 29,350 sq.ms. and 460,948 sq.ms., respectively, formed part of the estate of Nombre and Cari-an. On 15 September 1978, Gregorio Cari-an’s heirs executed the Deed of Sale of Rights, Interests and Participation in favor of Pedro Escanlar and Francisco Holgado ½ portion pro-indiviso of Lot 1616 and 1617 of the Kabankalan Cadastre, pertaining to the ½ portion pro-indiviso of the late Victoriana Cari-an in consideration of P275,000 to be paid to the heirs except the share of the minor Leonell Cari-an, which shall be deposited with the Municipal Treasurer of Himamaylan, Negros Occidental; pursuant to the order of the CFI Negros Occidental (Branch VI) Hiimamaylan; said contract of sale being effective only upon the approval of said CFI in Himamaylan. Escanlar and Holgado, the vendees, were concurrently the lessees of the lots referred to. They stipulated that the balance of the purchase price (P225,000.00) shall be paid on or before May 1979 in a Deed of Agreement executed by the parties on the same day confirming and affirming the Deed of Sale of 15 September 1978; that pending complete payment thereof, the vendees are not to assign, sell, lease, nor mortgage the rights, interests and participation over said land; and that in the event the vendees fail and/or omit to pay the balance of said purchase price on 31 May 1979 and the cancellation of said Contract of Sale is made thereby, the sum of P50,000.00 shall be deemed as damages thereof to vendors. Escanlar and Holgado were unable to pay the Cari-an heirs’ individual shares, amounting to P55,000.00 each, by the due date. However, said heirs received at least 12 installments from them after May 1979. Rodolfo Cari-an was fully paid by 21 June 1979. Generosa Martinez, Carmen Cari-an and Fredisminda Cari-an were likewise fully compensated for their individual shares, per receipts given in evidence. The minor Leonell’s share was deposited with the RTC on 7 September 1982. Being former lessees, Escanlar and Holgado continued in possession of Lots 1616 and 1617. Interestingly, they continued to pay rent based on their lease contract. On 10 September 1981, Escanlar and Holgado moved to intervene in the probate proceedings of Nombre and Cari-an as the buyers of the Cari-ans’ share in Lots 1616 and 1617. Their motion for approval of the 15 September 1978 sale before the same court, filed on 10 November 1981, was opposed by the Cari-ans on 5 January 1982. On 16 September 1982, the probate court approved a motion filed by the heirs of Cari-an and Nombre to sell their respective shares in the estate. On 21 September 1982, the Cari-ans, in addition to some heirs of Guillermo Nombre, sold their shares in 8 parcels of land including Lots 1616 and 1617 to the spouses Ney Sarrosa Chua and Paquito Chua for P1,850,000.00. A week later, the vendor-heirs, including the Carians, filed a motion for approval of sale of hereditary rights, i.e. the sale made on 21 September 1982 to the Chuas. The Cari-ans instituted a case for cancellation of sale against Escanlar and Holgado on 3 November 1982. They complained of the latter’s failure to pay the balance of the purchase price by 31 May 1979 and alleged that they only received a total of P132,551.00 in cash and goods. Escanlar and Holgado replied that the Carians, having been paid, had no right to resell the subject lots; that the Chuas were purchasers in bad faith; and
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that the court approval of the sale to the Chuas was subject to their existing claim over said properties. On 20 April 1983, Escanlar and Holgado also sold their rights and interests in the subject parcels of land (Lots 1616 and 1617) to Edwin Jayme for P735,000.00 and turned over possession of both lots to the latter. The Jaymes in turn, were included in the civil case as fourth-party defendants. On 3 December 1984, the probate court approved the 21 September 1982 sale “without prejudice to whatever rights, claims and interests over any of those properties of the estate which cannot be properly and legally ventilated and resolved by the court in the same intestate proceedings.” The certificates of title over the 8 lots sold by the heirs of Nombre and Cari-an were later issued in the name of the spouses Chua. The trial court allowed a third-party complaint against the spouses Chua on 7 January 1986 where Escanlar and Holgado alleged that the Cari-ans conspired with the Chuas when they executed the second sale on 21 September 1982 and that the latter sale is illegal and of no effect. Spouses Chua countered that they did not know of the earlier sale of ½ portion of the subject lots to Escanlar and Holgado. Both parties claimed damages. On 28 April 1988, the trial court approved the Chuas’ motion to file a fourth-party complaint against the spouses Jayme. Spouses Chua alleged that the Jaymes refused to vacate said lots despite repeated demands; and that by reason of the illegal occupation of Lots 1616 and 1617 by the Jaymes, they suffered materially from uncollected rentals. Meanwhile, the RTC Himamaylan which took cognizance of Special Proceeding 7-7279 (Intestate Estate of Guillermo Nombre and Victoriana Cari-an) had rendered its decision on 30 October 1987. The probate court concluded that since all the properties of the estate were disposed of or sold by the declared heirs of both spouses, the case is considered terminated and the intestate estate of Guillermo Nombre and Victoriana Carian is closed, and thus found it unnecessary to resolve the Motion for Subrogation of movants Escanlar and Holgado in view of the proceeding’s summary nature and the probate court’s lack of jurisdiction upon the validity of sale of rights of the Nombre and Cari-an heirs to third parties. On 18 December 1991, the trial court resolved the case in favor of the cancellation of the 15 September 1978 sale as it was not approved by the probate court as required by the contested deed of sale of rights, interests and participation and because the Cari-ans were not fully paid. Consequently, the Deed of Sale executed by the heirs of Nombre and Cari-an in favor of the spouses Chua, which was approved by the probate court, was upheld. Thus, the court declared the 15 September 1978 Deed of Sale, and likewise the Deed of Agreement of the same date, executed by the heirs in favor of Escanlar and Holgado; the 20 April 1983 Deed of sale, and likewise the sale of leasehold rights, executed by Escanlar and Holgado in favor of spouses Jayme; were declared null and void and of no effect. The court also declared the amount of P50,000 as forfeited in favor of the heirs but ordering the heirs to return to Escanlar and Holgado the amounts they received after 31 May 1979 and the amount of P35,218.75 deposited with the Treasurer of Himamaylan; declared the 23 September 1982 Deed of Sale in favor of spouses Chua as legal, valid and enforceable subject to the burdens of the estate; ordered Holgado, Escanlar and spouses Jayme to pay in solidum the amount of P100,000 as moral damages, P30,000 as attorney’s fees to spouses Chua; ordered spouses Jayme to pay spouses Chua the sum of P157,000 as rentals for the Riceland and P3,200,000 as rentals for the fishpond from October 1985 to 24 July 1989 plus rentals from the latter date until the property is delivered to the spouses Chua; ordered Escanlar, Holgado and spouses Jayme to immediately vacate Lots 1616 and 1617, and to pay the costs. Escanlar and Holgado raised the case to the Court of Appeals (CA-GR CV 39975). The appellate court affirmed the decision of the trial court on 17 February 1995 and held that the questioned deed of sale of rights, interests and participation is a contract to sell because it shall become effective only upon approval by the probate court and upon full payment of the purchase price. Their motion for reconsideration was denied by the appellate court on 3 April 1995. Hence, the consolidated petitions for review. The Supreme Court granted the petitions; reversed and set aside the decision of the Court of Appeals under
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review; remanded the case to the RTC Negros Occidental (Branch 61) for Escanlar and Holgado and the Carians or their successors-in-interest to determine exactly which ½ portion of Lots 1616 and 1617 will be owned by each party, at the option of Escanlar and Holgado; and directed the trial court to order the issuance of the corresponding certificates of title in the name of the respective parties and to resolve the matter of rental payments of the land not delivered to the Chua spouses subject to the rates specified by the Court with legal interest from date of demand. 1. Distinction with contracts of sale and contract to sell with reserved title The distinction between contracts of sale and contracts to sell with reserved title has been recognized by the Court in repeated decisions, such as that in Luzon Brokerage Co. Inc. v. Maritime Building Co., Inc., upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse the conveyance, and retain the sums of installments already received where such rights are expressly provided for. 2. Contract to sell vs. Deed of conditional sale In contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To illustrate, although a deed of conditional sale is denominated as such, absent a proviso that title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a deed of absolute sale. 3. The 15 September 1978 Deed of Sale of Rights, Interests and Participation a contract of sale The 15 September 1978 sale of rights, interests and participation as to ½ portion pro indiviso of the 2 subject lots is a contract of sale for the reasons that (1) the sellers did not reserve unto themselves the ownership of the property until full payment of the unpaid balance of P225,000.00; (2) there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed period. 4. Delivery effected for the 15 September 1978 deed of sale; Traditio brevi manu Prior to the sale, Escanlar were in possession of the subject property as lessees. Upon sale to them of the rights, interests and participation as to the ½ portion pro indiviso, they remained in possession, not in concept of lessees anymore but as owners now through symbolic delivery known as traditio brevi manu. Under Article 1477 of the Civil Code, the ownership of the thing sold is acquired by the vendee upon actual or constructive delivery thereof. 5. Non-payment of price in a contract of sale; Remedies In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. 6. Contracts, Requisites Under Article 1318 of the Civil Code, the essential requisites of a contract are: consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established. Absent one of the above, no contract can arise. Conversely, where all are present, the result is a valid contract. 7. Modalities and restrictions do not affect validity of the contract, merely its effectivity Some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract. In the present case, the Deed of Sale is a valid one, even if it did
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not bear the stamp of approval of the probate court. The contract’s validity was not affected for in the words of the stipulation, “this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court.” Only the effectivity and not the validity of the contract is affected. 8. Need of probate court’s approval exists where specific properties of the estate are sold and not when ideal and indivisible shares of an heir are disposed of The need for approval by the probate court exists only where specific properties of the estate are sold and not when only ideal and indivisible shares of an heir are disposed of. In Dillena v. Court of Appeals, the Court declared that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his prospective heirs before final adjudication. The probate court’s approval is necessary for the validity of any disposition of the decedent’s estate. However, reference to judicial approval cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the co-heirship and/or coownership among the heirs. It must be recalled that during the period of indivision of a decedent’s estate, each heir, being a co-owner, has full ownership of his part and may therefore alienate it. But the effect of the alienation with respect to the co-owners shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. 9. Hereditary rights in an estate validly sold without need of court approval Hereditary rights in an estate can be validly sold without need of court approval. In the present case, when the Cari-ans sold their rights, interests and participation in Lots 1616 and 1617, they could legally sell the same without the approval of the probate court. 10. Contractual stipulations considered law between parties; Exception: contemporaneous acts of parties As a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as the law between the parties. However, the presence of two factors militate against this conclusion: (1) the evident intention of the parties appears to be contrary to the mandatory character of said stipulation. Whoever crafted the document of conveyance, must have been of the belief that the controversial stipulation was a legal requirement for the validity of the sale. But the contemporaneous and subsequent acts of the parties reveal that the original objective of the parties was to give effect to the deed of sale even without court approval. Receipt and acceptance of the numerous installments on the balance of the purchase price by the Cari-ans, although the period to pay the balance of the purchase price expired in May 1979, and leaving Escanlar and Holgado in possession of Lots 1616 and 1617 reveal their intention to effect the mutual transmission of rights and obligations. The Cari-ans did not seek judicial relief until late 1982 or three years later; (2) the requisite approval was virtually rendered impossible by the Cari-ans because they opposed the motion for approval of the sale filed by Escanlar and Holgado, and sued the latter for the cancellation of that sale. Having provided the obstacle and the justification for the stipulated approval not to be granted, the Cari-ans should not be allowed to cancel their first transaction with Escanlar and Holgado because of lack of approval by the probate court, which lack is of their own making. 11. Rescission of a sale of real property; Vendee may pay beyond due date as long as there is no judicial or notarial demand for rescission With respect to rescission of a sale of real property, Article 1592 of the Civil Code governs. The provides that “in the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, a long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.” In the present case, the sellers gave the buyers until May 1979 to pay the balance of the purchase price. After the latter failed to pay installments due, the former made no judicial demand for rescission of the contract nor did they execute any notarial act demanding the same, as required under Article 1592. Consequently, the buyers
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could lawfully make payments even after the May 1979 deadline, as in fact they paid several installments to the sellers which the latter accepted. 12. Acceptance of payment beyond due date a waiver to right to rescind; Sellers estopped As the sellers, upon the expiration of the period to pay, made no move to rescind but continued accepting late payments, such act cannot but be construed as a waiver of the right to rescind. When the sellers, instead of availing of their right to rescind, accepted and received delayed payments of installments beyond the period stipulated, and the buyers were in arrears, the sellers in effect waived and are now estopped from exercising said right to rescind. 13. Evidence does not prove Escanlar and Holgado were unable to complete payments Despite all her claims, Fredisminda’s testimony fails to convince the Court that the heirs were not fully compensated by Escanlar and Holgado. Fredisminda admits that her mother and her sister signed their individual receipts of full payment on their own and not in her presence. The receipts presented in evidence show that Generosa Martinez was paid P45,625.00; Carmen Cari-an, P45,625.00; Rodolfo Cari-an, P47,500.00 on June 21, 1979; Nelly Chua vda. de Cari-an, P11,334.00 and the sum of P34,218.00 was consigned in court for the minor Leonell Cari-an. Fredisminda insists that she signed a receipt for full payment without receiving the money therefor and admits that she did not object to the computation. It is incredible that a mature woman like Fredisminda Cari-an, would sign a receipt for money she did not receive. Furthermore, her claims regarding the actual amount of the installments paid to her and her kin are quite vague and unsupported by competent evidence. She even admits that all the receipts were taken by Escanlar. Supporting testimony from her co-heirs and siblings Carmen Cari-an, Rodolfo Cari-an and Nelly Chua vda. de Cari-an is also absent. Thus, in the absence of proof on the contrary, the Cari-ans were indeed paid the balance of the purchase price, despite having accepted installments therefor belatedly. There is thus no ground to rescind the contract of sale because of non-payment. 14. Continued payment of lease indicate vendees did not take undue advantage of the Cari-an heirs Escanlar and Holgado, in continuing to pay the rent for the parcels of land they allegedly bought until 1986 in compliance with their lease contract, only proves that they respected the contract and did not take undue advantage of the heirs of Nombre and Cari-an who benefited from the lease; contrary to the findings of the lower court that such act admits that the purchase price was not fully paid the Cari-ans. It should be stressed that Escanlar and Holgado purchased the hereditary shares solely of the Cari-ans and not the entire lot. 15. Subsequent sale of 8 parcels of land to spouses Chua is valid except to the extent of what was sold to Escanlar and Holgado on 15 September 1978 It must be emphasized that what was sold to Escanlar and Holgado was only the Cari-an’s hereditary shares in Lots 1616 and 1617 being held pro indiviso by them and is thus a valid conveyance only of said ideal shares. Specific or designated portions of land were not involved. Thus, the subsequent sale of 8 parcels of land, including Lots 1616 and 1617, to the spouses Chua is valid except to the extent of what was sold to Escanlar and Holgado in the 15 September 1978 conveyance. 16. Intestate proceedings final and cannot be re-opened; Need for the Supreme Court to resolve case definitively The proceedings surrounding the estate of Nombre and Cari-an having attained finality for nearly a decade since, the same cannot be re-opened. It must be noted that the probate court desisted from awarding the individual shares of each heir because all the properties belonging to the estate had already been sold. Thus it is not certain how much the Cari-ans were entitled to with respect to the two lots, or if they were even going to be awarded shares in said lots. The protracted proceedings which have undoubtedly left the property under a cloud and the parties involved in a state of uncertainty compels the Supreme Court to resolve it definitively.
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17. Cari-an heirs (and successor-in-interest) entitled to half of the estate, or half interest in each property in the estate The Cari-ans are the sole heirs by representation of Victoriana Cari-an who was indisputably entitled to half of the estate. There being no exact apportionment of the shares of each heir and no competent proof that the heirs received unequal shares in the disposition of the estate, it can be assumed that the heirs of Victoriana Cari-an collectively are entitled to half of each property in the estate. More particularly, the Carians are entitled to half of Lots 1616 and 1617 (14,675 sq.ms. of Lot 1616 and 230,474 sq.ms. of Lot 1617). Consequently, Escanlar and Holgado, as their successors-in-interest, own said half of the subject lots and ought to deliver the possession of the other half, as well as pay rents thereon, to the spouses Chua but only if the former (Escanlar and Holgado) remained in possession thereof. 18. Rate of rentals The rate of rental payments to be made were given in evidence by Ney Sarrosa Chua in her unrebutted testimony on 24 July 1989: For the fishpond (Lot 1617) — From 1982 up to 1986, rental payment of P3,000.00 per hectare; from 1986-1989 (and succeeding years), rental payment of P10,000.00 per hectare. For the riceland (Lot 1616) — 15 cavans per hectare per year; from 1982 to 1986, P125.00 per cavan; 19871988; P175.00 per cavan; and 1989 and succeeding years, P200.00 per cavan. [40] Espiritu vs. Valerio [G.R. No. L-18018. December 26, 1963.] En Banc, Dizon (J): 9 concur, 1 took no part Facts: On 15 September 1955 Valerio filed an action to quiet title in the CFI Pangasinan (Civil Case 13293) against Esperanza Espiritu and Antonia Apostol, alleging in his complaint that he was the owner of a parcel of unregistered land containing an area of approximately 8,573 square meters situated in Barrio Olo, Municipality of Mangatarem, Pangasinan, having acquired the same from the former owner, Pelagia Vegilia, as evidenced by a deed of sale executed by the latter in his favor on 31 January 1955; that Espiritu and Apostol had been asserting adversary rights over said land and disturbing his possession thereof. Espiritu and Apostol denied the material allegations of the complaint and alleged that they were the owners of the land in question, having acquired it by inheritance from the late Santiago Apostol, husband and father of appellants Espiritu and Apostol, respectively; that said deceased bought the property from Mariano Vegilia on 3 June 1934, as evidenced by the deed of sale, who, in turn, had acquired it from his niece, Pelagia Vegilia, on 26 May 1932, by virtue of the deed of sale. The CFI rendered decision declaring Valerio to be the owner of the land and enjoined Espiritu and Apostol from molesting him in the peaceful possession thereof. Hence, the appeal by Espiritu and her daughter Apostol. The Supreme Court affirmed the decision appealed from, with costs. 1. Espiritu and Apostol have better right only if both their deeds were valid The present appeal depends entirely upon the validity of the Deed of Sale allegedly executed by Pelagia Vegilia in favor of Mariano Vegilia, and of the Deed of Sale allegedly executed by the latter in favor of Santiago Apostol. If both are valid, Espiritu’s and Apostol’s contention that they have a better right than that claimed by Valerio would seem to be meritorious in the light of the facts of the case and the provisions of Article 1544 of the New Civil Code, it not being disputed that the Deed of Sale in favor of Valerio was registered under the provisions of Act 3344 on 16 June 1955, while the two deeds of Espiritu and Apostol were similarly registered 11 days before. 2. Deeds / Documents falsified; Witnesses and proof The document dated 26 May 1932, “is fictitious and a falsification,” and that the private document of
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3 June 1934 is likewise null and void, being without the necessary formal requisites, aside to its being fictitious and the fact that the alleged vendor acquired no right whatsoever in the land. The determination that the documents are falsified is based upon the testimony of Pelagia Vegilia and Mariano Vegilia. Pelagia emphatically denied that she sold the land in question to Mariano Vegilia, and that she appeared before Notary Public Lino Abad Pine before whom the ‘Escritura de Compraventa Definita’, was allegedly ratified. On the other hand, Mariano denied that he bought the said land from Pelagia Vegilia, and that he sold the same to Santiago Apostol as recited in ‘Pecivo’. In giving credence to the testimony of the two witnesses, the trial court said that (1) an examination of first deed reveals the glaring fact that it cannot be determined whose thumbmark is the one appearing on said document for the simple reason that it immediately precedes the name Anselmo Vegilia but it is under the name Pelagia Vegilia. Ordinarily, this thumbmark would be considered as the thumbmark of Anselmo Vegilia and not of Pelagia Vegilia; (2) that the one who wrote the name Anselmo Vegilia is the very one who wrote the name Pelagia Vegilia; (3) that Anselmo Vegilia could not have written the name Anselmo Vegilia in the document for the simple reason that it has been certified by the Notary Public that said Anselmo Vegilia is physically incapable (inutil physicamente); (4) that there is an apparent difference of the ink used in writing the names of Pelagia Vegilia and Anselmo Vegilia from the ink used by the other persons who signed the document indicating that the names Pelagia Vegilia and Anselmo Vegilia must have been written in a much later date than the other names appearing in the said document. On the other document, the names Mariano Vegilia and Jose B. Aviles must have been written by only one man. [41] Estoque vs. Pajimula [G.R. No. L-24419. July 15, 1968.] En Banc, Reyes JBL (J): 8 concur Facts: Lot 802 of the Cadastral survey of Rosario, covered by OCT RO-2720 (N.A.), was originally owned by the late spouses Rosendo Perez and Fortunata Bernal, who were survived by their children namely, Crispina Perez, Lorenzo Perez and Ricardo Perez. Ricardo Perez is also now dead. On 28 October 1951, Crispina P. Vda. de Aquitania sold her right and participation in Lot 802 consisting of 1/3 portion with an area of 640 square meters to Leonora Estoque. On 29 October 1951, Lorenzo Perez, Crispina Perez and Emilia P. Posadas, widow of her deceased husband, Ricardo Perez, for herself and in behalf of her minor children, Gumersindo, Raquel, Emilio and Ricardo, Jr., executed a deed of extrajudicial settlement wherein Lorenzo Perez, Emilia P. Posadas and her minor children assigned all their right, interest and participation in Lot 802 to Crispina Perez. On 30 December 1959, Crispina Perez and her children, Rosita Aquitania Belmonte, Remedios Aquitania Misa, Manuel Aquitania, Sergio Aquitania and Aurora Aquitania sold to Elena Pajimula (and Ciriaco Pajimula), the remaining 2/3 western portion of Lot 802 with an area of 958 square meters. Leonora Estoque based her complaint for legal redemption on a claim that she is a co-owner of lot 802, for having purchased 1/3 portion thereof, containing an area of 640 square meters as evidenced by a deed of sale, which was executed on 28 October 1951 by Crispina Perez de Aquitania, one of the co-owners, in her favor. On the other hand, Elena Pajimula (and Ciriaco Pajimula), who on 30 December 1959 acquired the other 2/3 portion of Lot 802 from Crispina Aquitania and her children, claimed that Estoque bought the 1/3 southeastern portion, which is definitely identified and segregated hence there existed no co-ownership at the time and after Estoque bought the portion, upon which right of legal redemption can be exercised or taken advantage of. The CFI La Union (Civil Case 1990), upon motion by Pajimula, dismissed the complaint for legal redemption by a co-owner (retracto legal de comuneros) on account of failure to state a cause of action. The Court held that the deeds of sale show that the lot acquired by Estoque was different from that of the Pajimula; hence they never became co-owners, and the alleged right of legal redemption was not proper. Estoque appealed. The Supreme Court affirmed the appealed order of dismissal; with cost against Estoque.

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1.

Co-ownership does not exist; Article 1620 does not apply The lower court held that the deeds of sale show that the lot acquired by Estoque was different from that of the Pajimula; hence they never became co-owners, and the alleged right of legal redemption was not proper. Article 1620, which provides that “A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-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 reasonable one. Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common,” does not apply. 2. Object sold is the southeastern third portion, not one-third undivided interest in Lot 802 The deed of sale to Estoque clearly specifies the object sold as the southeastern third portion of Lot 802 of the Rosario Cadastre, with an area of 840 square meters, more or less. Granting that the seller, Crispina Perez Vda. de Aquitania could not have sold this particular portion of the lot owned in common by her and her two brothers, Lorenzo and Ricardo Perez, by no means does it follow that she intended to sell to Estoque her 1/3 undivided interest in the lot. There is nothing in the deed of sale to justify such inference. That the seller could have validly sold her one-third undivided interest to appellant is no proof that she did choose to sell the same. Ab posse ad actu non valet illatio. 3. Estoque’s deed initially ineffective but validated when Crispina Perez acquired entire interest in Lot 802 While on the date of the sale to Estoque said contract may have been ineffective, for lack of power in the vendor to sell the specific portion described in the deed, the transaction was validated and became fully effective when the next day the vendor, Crispina Perez, acquired the entire interest of her remaining coowners and thereby became the sole owner of Lot 802 of the Rosario Cadastral survey (Llacer vs. Muñoz, 12 Phil. 328). Article 1434 of the Civil Code of the Philippines clearly prescribes that “When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.” Pursuant to this rule, Estoque became the actual owner of the southeastern third of lot 802 on 29 October 1951. 4. Estoque acquired no undivided interest in Lot 802 as portions sold to Estoque and Pajimula distinct and separate Estoque never acquired an undivided interest in Lot 802. And when eight years later Crispina Perez sold to Pajimula the western two-thirds of the same lot Estoque did not acquire a right to redeem the property thus sold, since their respective portions were distinct and separate. [42] Filinvest Credit vs. CA [G.R. No. 82508. September 29, 1989.] Second Division, Sarmiento (J): 3 concur, 1 on leave Facts: The spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. In order to increase their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the spouses to the Rizal Consolidated Corporation which then had for sale one such machinery (Lippman portable crushing plant, reconditioned; Jaw crusher, 10 x 16, Double roll crusher, 16 x 16; 3 units product conveyor, 75 HP electric motor, 8 pcs. Brand new tires; Chassis 19696, Good running condition). Oscar Sy Bang, a brother of Jose Sy Bang, went to inspect the machine at the Rizal Consolidated’s plant site. Apparently satisfied with the machine, Sy Bang signified their intent to purchase the same. They were confronted with a problem, the rock crusher carried a cash price tag of P550,000.00. Bent on acquiring the machinery, the spouses applied for financial assistance from Filinvest Credit Corporation. Filinvest agreed to extend to the spouses financial aid on the following conditions: that
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the machinery be purchased in Filinvest’s name; that it be leased (with option to purchase upon the termination of the lease period) to the spouses; and that the spouses execute a real estate mortgage in favor of Filinvest as security for the amount advanced by the latter. Accordingly, on 18 May 1981, a contract of lease of machinery (with option to purchase) was entered into by the parties whereby the spouses agreed to lease from the petitioner the rock crusher for two years starting from 5 July 1981 payable at P10,000.00 for first 3 months, P23,000.00 for the next 6 months, and P24,800.00 for the next 15 months. The contract likewise stipulated that at the end of the two-year period, the machine would be owned by the spouses. Thus, the spouses issued in favor of Filinvest a check for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the spouses executed a real estate mortgage over two parcels of land in favor of Filinvest. The rock crusher was delivered to the spouses on 9 June 1981. Three months from the date of delivery, or on 7 September 1981, however, the spouses, claiming that they had only tested the machine that month, sent a letter-complaint to Filinvest, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that Filinvest make good the stipulation in the lease contract. They followed that up with similar written complaints to Filinvest, but the latter did not, however, act on them. Subsequently, the spouses stopped payment on the remaining checks they had issued to Filinvest. As a consequence of the non-payment by the spouses of the rentals on the rock crusher as they fell due despite the repeated written demands, Filinvest extrajudicially foreclosed the real estate mortgage. On 18 April 1983, the spouses received a Sheriff a Notice of Auction Sale informing them that their mortgaged properties were going to be sold at a public auction on 25 May 1983, 10:00 a.m., at the Office of the Provincial Sheriff in Lucena City to satisfy their indebtedness to Filinvest. To thwart the impending auction of their properties, the spouses filed before the RTC Quezon (Branch LIX, Lucena City), on 4 May 1983, a complaint against Filinvest for the rescission of the contract of lease, annullment of the real estate mortgage, and for injunction and damages, with prayer for the issuance of a writ of preliminary injunction. On 23 May 1983, 3 days before the scheduled auction sale, the trial court issued a temporary restraining order commanding the Provincial Sheriff of Quezon, and Filinvest, to refrain and desist from proceeding with the public auction. Two years later, on 4 September 1985, the trial court rendered a decision in favor of the spouses, making the injunction permanent, rescinding the contract of lease of the machinery and equipment and ordering the spouses to return to the Filinvest the machinery subject of the lease contract, and Filinvest to return to the spouses the sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fully restituted; annulling the real estate mortgage constituted over the properties of the spouses covered by TCTs T-32480 and T-5779 of the Registry of Deeds of Lucena City; and ordering the Filinvest to pay the spouses P30,000.00 as attorney’s fees and the costs of the suit. Dissatisfied with the trial court’s decision, Filinvest elevated the case to the Court of Appeals. On 17 March 1988, the appellate court, finding no error in the appealed judgment, affirmed the same in toto. Hence, the petition for review on certiorari by Filinvest. The Supreme Court granted the petition, reversed and set aside the 17 March 1988 Decision of the Court of Appeals, and rendered another one dismissing the complaint; with costs against the spouses. 1. Financial institution not immune from recourse of the spouses; Filinvest owns crusher While it is accepted that Filinvest Credit Corporation is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of Jose Sy Bang that he did not purchase the rock crusher from Filinvest, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of Filinvest proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled Filinvest to enter into the “Contract of Lease of Machinery and Equipment” with the spouses
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2.

Nomenclature of agreement cannot change its true essence; sale on installment The real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. It is apparent that the intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the spouses. This form of agreement has been criticized as a lease only in name. 3. Payment in contract of lease with option to buy are installment payments In Vda. de Jose v. Barrueco, it was stated that “Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee.” 4. Article 1484 Article 1484 of the new Civil Code, which provides for the remedies of an unpaid seller of movables in installment basis, states “In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee’s failure to pay cover two or more installments; (3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.” 5. Remedies under Article 1484 alternative and not cumulative Under Article 1484, the seller of movables in installments, in case the buyer fails to pay two or more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. 6. Contract of lease with option to buy a device to circumvent Article 1484 The device — contract of lease with option to buy — is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. 7. Article 1485 places contract of lease with option to buy within the applicability of Article 1484 Article 1485 of the new Civil Code provides that “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 possession or enjoyment of the thing.” 8. No reason to hold Filinvest liable for failure of rock crusher to produce in accordance with its capacity
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The Court failed to find any reason to hold the petitioner liable for the rock crusher’s failure to produce in accordance with its described capacity. It was the spouses who chose, inspected, and tested the subject machinery. It was only after they had inspected and tested the machine, and found it to their satisfaction, that the spouses sought financial aid from Filinvest. These allegations of the petitioner had never been rebutted by the spouses, but in fact, even been admitted in the contract they signed (“LESSEE’S SELECTION, INSPECTION AND VERIFICATION. — The LESSEE hereby confirms and acknowledges that he has independently inspected and verified the leased property and has selected and received the same from the Dealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract.”) 9. Spouses presumed knowledgeable on machinery subject of the contract; Spouses negligent Considering that between the parties, it is the spouses, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this conflict. A well-established principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same. 10. Spouses precluded from imputing liability on Filinvest; Express waiver of warranties Even if the spouses could not be adjudged as negligent, they still are precluded from imputing any liability on Filinvest. One of the stipulations in the contract they entered into with Filinvest is an express waiver of warranties in favor of the latter. By so signing the agreement, the spouses absolved Filinvest from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machine’s production capacity being “typewritten” and that of the waiver being “printed” does not militate against the latter’s effectivity. As such, whether “a capacity of 20 to 40 tons per hour” is a condition or a description is of no moment. What stands is that the spouses had expressly exemptd Filinvest from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment states “WARRANTY — LESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated.” 11. Common sense dictates buyer inspects product before purchasing it; Caveat emptor Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or “buyer beware”) and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. 12. Declaration of waiver as non-effective would impair obligations of contracts Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, Filinvest deals in goods over which it has no sufficient know-how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. In the present case, to declare the waiver as non-effective would impair the obligation of contracts. Certainly, the waiver in question could not be considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of the case that the spouses has argued for its nullity or illegality. 13. No ambiguity in the language of the waiver In any event, there is no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a-vis the deficient output of the rock crusher. Suffice it to say that the spouses have validly excused Filinvest from any warranty on the rock crusher. Hence, they should bear the loss for any defect found therein.

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[43] Filipinas Investment vs. Ridad [G.R. No. L-27645. November 28, 1969.] En Banc, Castro (J): 9 concur Facts: The spouses Ridad (Lourdes V. Ridad and Luis Ridad) bought from the Supreme Sales & Development Corporation, Filipinas Investment and Finance Corporation (FIFC)’s assignor-in-interest, a Ford Consul sedan for the total price of P13,371.40. The sum of P1,160 was paid on delivery, the balance of P12,211.50 being payable in 24 equal monthly installments, with interest at 12% per annum, secured by a promissory note and a chattel mortgage on the car executed on 19 March 1964. The spouses thereafter failed to pay 5 consecutive installments on a remaining balance of P5,274.53. On 13 October 1965, FIFC instituted a replevin suit in the city court of Manila for the seizure of the car, or the recovery of the unpaid balance in case delivery could not be effected. The car was then seized by the sheriff of Manila and possession thereof was awarded to FIFC. During the progress of the case, FIFC instituted extrajudicial foreclosure proceedings, as a result of which, on 22 December 1965, the car was sold at public auction with FIFC as the highest bidder and purchaser. Meanwhile, in view of the failure of the spouses to appear at the scheduled hearing of the case, allegedly due to non-receipt of the summons, they were declared in default. The default judgment ordered them to pay to FIFC the sum of P500 as attorney’s fees, and P163,65 representing actual expenses relative to the seizure of the car, plus costs. Their motion to set aside the order of default and the decision having been denied, they appealed to the Court of First Instance of Manila. The CFI advanced the opinion (during pre-trial) that there was no need for the parties to adduce evidence and that the case could be decided on the basis of the pleadings submitted by the parties. On 5 September 1966, the trial court rendered judgment holding that FIFC is entitled to recover the amout of P163.65 which represents the expenses incurred by FIFC in the seizure of the car involved. The court also reduced the attorney’s fees granted to the plaintiff to P300.00 considering that FIFC recovered the car while still in the lower court and that the Ridads did not resist the case. The spouses Ridads appealed. The Supreme Court affirmed the judgment; without costs. 1. Decision complies with requirements of law by referring to pre-trial order as part of its conclusion The disputed decision of the lower court complies substantially with the requirements of law because it referred to the pre-trial order it issued on 27 May 1966 which contains substantial findings of facts. For although settled is the doctrine that a decree with absolutely nothing to support it is a nullity, the law, however, merely requires that a decision state the “essential ultimate facts upon which the court’s conclusion is drawn.” There being an express reference to the pre-trial order, the latter must be considered and taken as forming part of the decision. The claim, therefore, that the judgment clearly transgresses the legal precept because it does not state the facts of the case and the law on which it is based and hence, is a nullity, finds no justification here. 2. Article 1484 applies even if case is one for replevin as it culminated in the foreclosure of chattel mortgage It is true that the present action is one for replevin, but because it culminated in the foreclosure of the chattel mortgage and the sale of the car at public auction, it is our view that the provisions of art. 1484 of the Civil Code (Recto Law) must govern the resolution of the issue presented. 3. Article 1484 “In a contract of sale of personal property the price of which is payable in installments, the vendor
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may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee’s failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.” 4. Source of Article 1454 Article 1454 was reproduced from the old Article 1454-A, which in turn was inserted by Act 4122 (Recto Law). “Three remedies are available to the vendor who has sold personal property on the installment plan: (1) He may elect to exact the fulfillment of the obligation. (Bachrach Motor Co. vs. Millan, 61 Phil. 409) (2) If the vendee shall have failed to pay two or more installments, the vendor may cancel the sale. (3) If the vendee shall have failed to pay two or more installments, the vendor may foreclose the mortgage, if one has been given on the property. The basis of the first option is the Civil Code. The basis of the last two options is Act 4122 (inserted in the Spanish Civil Code as art. 4154-A and now reproduced in arts. 1485 and 1485), amendatory of the Civil Code. And the proviso to the right to foreclose is that if the vendor has chosen this remedy, he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same. In other words, as we see it, the Act does no more than qualify the remedy.” 5. Macondray & Co. vs. Eustaquio; Mortgage limited to property mortgage and not entitled to attorney's fees and cost of suit Under the amendment, in all proceedings for the foreclosure of a chattel mortgage, executed on chattels which have been sold on the installment plan, the mortgagee is limited to the property mortgaged and is not entitled to attorney’s fees and costs of suit. 6. Luneta Motor vs. Salvador; Cancellation of attorney’s fees and cost of suit when chattel mortgage was foreclosed during progress of action to recover unpaid balance of purchase price In a subsequent case, where the vendor in a sale of personal property in installments, upon failure of the vendee to pay his obligations, the vendor commenced, through court action, to recover the unpaid balance of the purchase price, but later, during the progress of the action, foreclosed the chattel mortgage constituted on the property, attorney’s fees and costs of suit were denied to the vendor. 7. Luneta Motor vs. Salvador; Remedies alternative not pursued conjunctively Paragraph 3 of Article 1484, New Civil Code, is clear that foreclosure of the chattel mortgage and recovery of the unpaid balance of the price are alternative remedies and may not be pursued conjunctively. It appearing that the vendor had already foreclosed the chattel mortgage constituted on the property and had taken possession thereof, the lower court acted rightly in dismissing the complaint filed for the purpose of recovering the unpaid balance of the purchase price. Thus, in that case, by seizing the truck and foreclosing the mortgage at the progress of the suit, the plaintiff renounced whatever claim it may have had under the promissory note, and consequently, he has no more cause of action against the promisor and the guarantor. And he has no more right either to the costs and the attorney’s fees that would go with the suit. This might be considered a reiteration of the ruling in Macondray. 8. Purpose of the doctrine as to Article 1484 (3) The doctrine’s ultimate and salutary purpose is to prevent the vendor from circumventing the Recto Law. Congress sought to protect the buyers on installment who more often than not have been victimized by sellers who, before the enactment of this law, succeeded in unjustly enriching themselves at the expense of the buyers, because aside from recovering the goods sold, upon default of the buyer in the payment of two installments, still retained for themselves all amounts already paid, and, in addition, were adjudged entitled to damages, such as attorney’s fees, expenses of litigation and costs. Congress could not have intended to impair much less do away with, the right of the seller to make commercial use of his credit against the buyer, provided the buyer is not burdened beyond what this law allows.
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9.

Philosophy of the Recto Law The emphasis and precision of the language employed in the decisions already adverted to that in no instance whatsoever may the mortgagee re cover from the mortgagor any amount or sum after the foreclosure of the mortgage, for, as we understand it, the philosophy of the Recto Law is that the underprivileged mortgagors must be afforded full protection against the rapacity of the mortgagees. 10. Action for replevin; Necessary expenses borne by mortgagor It is part of conventional wisdom and the rule of law that no man can take the law into his own hands; so it is not to be supposed that the Legislature intended that the mortgagee should wrest or seize the chattel forcibly from the control and possession of the mortgagor, even to the extent of using violence which is unwarranted in law. Since the mortgagee would enforce his rights through the means and within the limits delineated by law, the next step in such situations being the filing of an action for replevin to the end that he may recover immediate possession of the chattel and, thereafter, enforce his rights in accordance with the contractual relationship between him and the mortgagor as embodied in their agreement, then it logically follows as a matter of common sense, that the necessary expenses incurred in the prosecution by the mortgagee of the action for replevin so that he can regain possession of the chattel, should be borne by the mortgagor. Recoverable expenses would include expenses properly incurred in effecting seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin. The amounts awarded by the lower court to the mortgagee are reasonable. 11. Note as to potential matters which may be obiter dictum To the extent that the pronouncement in the present case conflicts with the ruling announced and followed in the cases discussed, the latter must be considered pro tanto qualified. [44] First Philippine International Bank v. CA, 252 SCRA (1996) [45] Froilan v. Pan-Oriental Shipping Co., 12 SCRA 276 (1964) [46] Fule v. CA [G.R. No. 112212. March 2, 1998.] Third division, Romero (J): 3 concur Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property in Tanay, Rizal (covered by TCT 320725) to the Rural Bank of Alaminos, Laguna to secure a loan in the amount of P10,000. Said mortgage was later foreclosed and the property offered for public auction upon his default. In June 1984, Gregorio Fule, as corporate secretary of the bank, asked Remelia Dichoso and Olivia Mendoza to look for a buyer who might be interested in the Tanay property. The two found one in the person of Ninevetch Cruz. It so happened that in January of said year, Gregorio Fule, also a jeweler, has shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has declined Fule’s offer to buy said jewelry for P100,000; and a subsequent bid by Fule to buy them for US$6,000 at $1 to P25 while making a sketch of said jewelry during an inspection at the lobby of Prudential Bank (the latter instance was declined, since the exchange rate appreciated to P19 per dollar). Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Atty. Belarmino was requested by Dr. Cruz to check the property and found out that no sale or barter was feasible as the 1-year period of redemption has not expired. In an effort to cut through any legal impediment, Fule executed on 19 October 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in
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the amount of P15,987.78, and on even date, Fr. Jacobe sold the property to Fule for P75,000.00. The haste with which the two deeds were executed is shown by the fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed barter, Fule went to Prudential Bank to take a look at the jewelry. On 23 October 1984, Fule met Atty. Belarmino at the latter’s residence to prepare the documents of sale. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while Fule and Dr. Cruz attended to the safekeeping of the jewelry. The following day, Fule, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale. Fule signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property; and issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale (the disparity purportedly aimed at minimizing the amount of the capital gains tax that Fule would have to shoulder). Since the jewelry was appraised only at P160,000.00, the parties agreed that the balance of P40,000.00 would just be paid later in cash. Thereafter, at the bank, as pre-arranged, Dr. Cruz and the cashier opened the safety deposit box, and delivered the contents thereof to Fule. Fule inspected the jewelry, near the electric light at the bank’s lobby, for 10-15 minutes. Fule expressed his satisfaction by nodding his head when asked by Dr. Cruz if the jewelry was okay. For services rendered, Fule paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of jewelry. He did not, however, give them half of the pair of earrings in question, which he had earlier promised. Later in the evening, Fule arrived at the residence of Atty. Belarmino complaining that the jewelry given him was fake. Dichoso, who borrowed the car of Dr. Cruz, called up Atty. Belarmino. Informed that Fule was at the lawyer’s house, went there posthaste thinking that Fule had finally agreed to give them half of the pair of earrings, only to find Fule demonstrating with a tester that the earrings were fake. Fule then accused Dichoso and Mendoza of deceiving him which they, however, denied. They countered that Fule could not have been fooled because he had vast experience regarding jewelry. Fule nonetheless took back the US$300.00 and jewelry he had given them. Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At around 9:30 p.m., Fule went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City, complaining about the fake jewelry. Upon being advised by the latter, Fule reported the matter to the police station where Dichoso and Mendoza likewise executed sworn statements. On 26 October 1984, Fule filed a complaint before the RTC San Pablo City against private respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit. On 30 October 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain from acting on the pertinent documents involved in the transaction. On 20 November 1984, however, the same court lifted its previous order and denied the prayer for a writ of preliminary injunction. After trial, the lower court rendered its decision on 7 March 1989; holding that the genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to Fule, that the contract was valid even if the agreement between the parties was principally a barter contract, that the agreement has been consummated at the time the principal parties parted ways at the bank, and that damages are due to the defendants. From the trial court’s adverse decision, petitioner elevated the matter to the Court of Appeals. On 20 October 1992, the Court of Appeals, however, rendered a decision affirming in toto the lower court’s decision. His motion for reconsideration having been denied on 19 October 1993. Hence, the petition for review on certiorari. The Supreme Court affirmed in toto the decision of the Court of Appeals, but ordered Dr. Cruz to pay Fule the balance of the purchase price of P40,000 within 10 days from the finality of the decision; with costs against petitioner. 1. New factual issues cannot be examined as it unduly transcends the limits of the Supreme Court’s review power
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The Supreme Court cannot entertain a factual issue, and thus examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange for the Tanay property, as this would unduly transcend the limits of the Court’s review power in petitions of this nature which are confined merely to pure questions of law. As a general rule, the Supreme Court accords conclusiveness to a lower court’s findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admission of both parties. To reiterate, the Supreme Court’s jurisdiction is only limited to reviewing errors of law in the absence of any showing that the findings complained of are totally devoid of support in the record or that they are glaringly erroneous as to constitute serious abuse of discretion. 2. Immediate rendition of decision not anomalous No proof has been adduced that Judge Jaramillo was motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof that someone else wrote the decision for him. The immediate rendition of the decision was no more than Judge Jaramillo’s compliance with his duty as a judge to “dispose of the court’s business promptly and decide cases within the required periods.” The two-year period within which Judge Jaramillo handled the case provided him with all the time to study it and even write down its facts as soon as these were presented to court. In fact, the Supreme Court does not see anything wrong in the practice of writing a decision days before the scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date of promulgation, provided that no malice or any wrongful conduct attends its adoption. The practice serves the dual purposes of safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge Jaramillo be made administratively answerable for the immediate rendition of the decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary power unless they are committed with fraud, dishonesty, corruption or bad faith. Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law and should instead be commended for his close attention to duty. 3. Contract perfected by mere consent, binds parties to stipulation and all the consequences; Contract of sale perfected upon meeting of minds upon the thing object of the contract and upon price; Embodiment of contract in public instrument only for convenience, and registration only to affect third parties; Lack of formal requirements does not invalidate the contract The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. 4. Voidable or annullable contracts Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. The contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the subject of the contract with their fruits, and the price with interest.
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5.

Fraud; No inducement made by the private respondents There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In the present case, the records, are bare of any evidence manifesting that private respondents employed such insidious words or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioner’s proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioner’s property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property. 6. Mistake; Mistake caused by manifest negligence cannot invalidate a judicial act To invalidate a contract, mistake must “refer to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.” An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by the parties with another. In the present case, the petitioner failed to prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution of an inferior one or one with Russian diamonds for the jewelry he wanted to exchange with his 10-hectare land. Further, on account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. A mistake caused by manifest negligence cannot invalidate a juridical act. As the Civil Code provides, “(t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.” 7. Contract of sale absolute if no stipulation that title to property is reserved to seller until full payment; Ownership transferred upon actual or constructive delivery A 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. In the present case, 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 Fule, respectively, upon the actual and constructive delivery thereof. 8. Contract silent when balance is due and demandable; non-payment does not invalidate the contract While it is true that the amount of P40,000.00 forming part of the consideration was still payable to Fule, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their contract is silent as to when it becomes due and demandable. 9. No interest due if it is not stipulated Failure to pay the balance of the purchase price does not result in the payment of interest thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee “for the period between the delivery of the thing and the payment of the price” in cases “(1) Should it have been so stipulated; (2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the time of judicial or
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extrajudicial demand for the payment of the price.” 10. Case distinguished from de la Cruz v Legaspi The present case should be distinguished from De la Cruz v. Legaspi, where the court held that failure to pay the consideration after the notarization of the contract as previously promised resulted in the vendee’s liability for payment of interest. In the present, there is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale. 11. Award of moral and exemplary damages Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the circumstances obtaining in the case and assess damages according to its discretion. To warrant the award of damages, it must be shown that the person to whom these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can properly base its estimate of the amount of damages. Statements of facts should establish such data rather than mere conclusions or opinions of witnesses. Thus, for moral damages to be awarded, it is essential that the claimant must have satisfactorily proved during the trial the existence of the factual basis of the damages and its causal connection with the adverse party’s acts. If the court has no proof or evidence upon which the claim for moral damages could be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages where it must be shown that the party acted in a wanton, oppressive or malevolent manner. 12. Rule that moral damages cannot be recovered from person who filed a complaint does not apply in present case While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith because it is not sound policy to place a penalty on the right to litigate, the same, however, cannot apply in the present case. This is not a situation where petitioner’s complaint was simply found later to be based on an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding moral and exemplary damages. Instead, the cause of action of the instant case appears to have been contrived by petitioner himself. The factual findings of the courts a quo to the effect that petitioner filed this case because he was the victim of fraud; that he could not have been such a victim because he should have examined the jewelry in question before accepting delivery thereof, considering his exposure to the banking and jewelry businesses; and that he filed the action for the nullification of the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more by ill will than a sincere attempt to protect his rights in commencing suit against respondents. It must be noted that before petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the precise moment when he was about to take physical possession thereof he failed to exert extra efforts to check their genuineness despite the large consideration involved has never been explained at all by petitioner. His acts thus failed to accord with what an ordinary prudent man would have done in the same situation. [47] Gaite v. Fonacier [G.R. No. L-11827. July 31, 1961.] En Banc, Reyes JBL (J): 9 concur Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims (Dawahan Group), situated in Jose Panganiban, Camarines Norte. By a “Deed of Assignment” dated 29 September 1952, Fonacier constituted and appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims on a
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royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On 19 March 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims unto the Larap Iron Mines, owned solely by him. Thereafter Gaite embarked upon the development and exploitation of the mining claims, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claimed and estimated to be approximately 24,000 metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite, and Gaite assented thereto subject to certain conditions. As a result, a document entitled “Revocation of Power of Attorney and Contract” was executed on 8 December 1954, wherein Gaite transferred to Fonacier, for the consideration of P20,000, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name “Larap Iron Mines” and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the “24,000 tons of iron ore, more or less” that the former had already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000, of which was paid upon the signing of the agreement, and the balance to be paid out of the first letter of credit covering the first shipment of iron ores or the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. To secure the payment of the balance, Fonacier promised to execute in favor of Gaite a surety bond; delivered on 8 December 1954 with Fonacier as principal and the Larap Mines and Smelting Co. and its stockholders as sureties. A second bond was executed by the parties to the first bond, on the same day, with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less than P65,000. Both bond were attached and made integral parts of the “Revocation of Power of Attorney and Contract.” On the same day that Fonacier revoked the power of attorney, Fonacier entered into a “Contract of Mining Operation” with Larap Mines and Smelting Co., Inc. to grant it the right to develop, exploit, and explore the mining claims, together with the improvements therein and the use of the name “Larap Iron Mines” and its goodwill, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap Mines & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite. On 8 December 1955, the bond with respect to the Far Eastern Surety and Insurance Company expired with no sale of the approximately 24,000 tons of iron ore, nor had the 65,000 balance of the price of said ore been paid to Gaite by Fonacier and his sureties. Whereupon, Gaite demanded from Fonacier and his sureties payment of said amount. When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed a complaint against them in the CFI Manila (Civil Case 29310) for the payment of the P65,000 balance of the price of the ore, consequential damages, and attorney’s fees. Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000 with interest at 6% per annum from 9 December 1955 until full payment, plus costs. From this judgment, defendants jointly appealed to the Supreme Court as the claims involved aggregate to more than P200,000. The Supreme Court affirmed the decision appealed from, with costs against appellants. 1. Shipment or local sale of ore not a condition precedent but a suspensive period or term The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.

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2.

The words of the contract express no contingency in the buyer’s obligation to pay. The contract stipulates that “the balance of Sixty-Five Thousand Pesos (P65,000) will be paid out of the first letter of credit covering the first shipment of iron ore . . .” etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. 3. Contract of sale commutative and onerous; Each party assume correlative obligation and anticipate performance from the other A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. In the present case, nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his rights over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. The fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000. 4. To consider sale as a condition precedent leaves the payment at the discretion o fthe debtor To subordinate the obligation to pay the remaining P65,000 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. Such construction of the contract should be avoided. 5. Interpretation incline in favor of the “greatest reciprocity of interests” Assuming that there could be doubt whether by the wording of the contract the parties intended a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000, the rules of interpretation would incline the scales in favor of “the greatest reciprocity of interests”, since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides “if the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests” and there can be no question that greater reciprocity obtains if the buyer’s obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existent or not binding until the ore was sold. 6. Sale of ore to Fonacier was a sale on credit, not an aleatory contract The sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment. 7. Non-renewal of bond impaired the securities given to the creditor Appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company’s undertaking on 8 December 1955 substantially reduced the security of the vendor’s rights as creditor for the unpaid P65,000, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier. The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines which provides “(2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities
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after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.” Appellants’ failure to renew or extend the surety company’s bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. 8. No waiver intended by creditor Gaite’s acceptance of the surety company’s bond with full knowledge that on its face it would automatically expire within one year was not a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain thereby; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company’s bond expired on 8 December 1955. But in the latter case the defendants- appellants’ obligation to pay became absolute after 1 year from the transfer of the ore to Fonacier by virtue of the deed. 9. No short-delivery made by Gaite This is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of “24,000 tons of iron ore, more or less”, stated in the contract, being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured or weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter. The sale between the parties is a sale of a specific mass of iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000 agreed upon by the parties based upon any such measurement (see Art. 1480, second par., New Civil Code). The subject-matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Luisiana Civil Code). The contract expressly stated the amount to be 24,000 tons, more or less. Applying the tonnage factor provided by the chief of Mines and Metallurgical Division of the Bureau of Mines which was between 3 metric tons minimum to 5 metric tons maximum, which was near the 3.3 metric ton tonnage factor adopted by Engr. Gamatero (at the request of Krakower, a stockholder of Larap), and if appellant’s witness is correct in his estimate of 6,609 cubic meters of ore, the product is 21,809.7 tons which is not far from the 24,000 tons estimate. (cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L. Ed. 1164). Thus, there was no short-delivery as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question since Gaite’s estimate appears to be substantially correct. [48] Goldenrod Inc. vs. CA [G.R. No. 126812. November 24, 1998.] First Division, Bellosillo: 4 concur Facts: Pio Barreto and Sons, Inc. owned 43 of registered land with a total area of 18,500 sq. ms. located at Carlos Palanca St. Quiapo, Manila which were mortgaged with the United Coconut Planters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent. Goldenrod, Inc. offered to buy the property from Barreto & Sons. On 25 May 1988, through its president Sonya G. Mathay, Goldenrod wrote Anthony Que, President of Barreto & Sons, confirming the latter’s acceptance of former’s offer to buy the Echague property (with the latter’s amendments that the payment of interest should be monthly instead of semi-annually and the period to remove the trusses, steel frames etc. which shall be 180 days instead of 90 days only), and enclosing the earnest money of P1 million.

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[Barreto Realty; Additional agreement] When the term of existence of Barreto & Sons expired, all its assets and liabilities including the property located in Quiapo, were transferred to Pio Barreto Realty Development, Inc. Goldenrod’s offer to buy the property resulted in its agreement with Barreto Realty that Goldenrod would pay the amounts of P24.5 million representing the outstanding obligations of Barreto Realty with UCPB on 30 June 1988, the deadline set by the bank for payment; and P20 million which was the balance of the purchase price of the property to be paid in installments within a 3-year period with interest at 18% per annum. Goldenrod did not pay UCPB the P24.5 million loan obligation of Barreto Realty on the deadline set for payment; instead, it asked for an extension of 1 month or up to 31 July 1988 to settle the obligation, which the bank granted. On 31 July 1988, Goldenrod requested another extension of 60 days to pay the loan. This time the bank demurred. In the meantime Barreto Realty was able to cause the reconsolidation of the 43 titles covering the property subject of the purchase into 2 titles covering Lots 1 and 2, which were issued on 4 August 1988. The reconsolidation of the titles was made pursuant to the request of Goldenrod in its letter to Barreto and Sons (or Barreto Realty) on 25 May 1988. Barreto Realty allegedly incurred expenses for the reconsolidation amounting to P250,000. On 25 August 1988 Goldenrod sought reconsideration of the denial by the bank of its request for extension of 60 days by asking for a shorter period of 30 days. This was again denied by UCPB. [Rescission of agreement by Goldenrod] On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation, which acted as agent and broker of Goldenrod, wrote Anthony Que informing him on behalf of Goldenrod that it could not go through with the purchase of the property due to circumstances beyond its fault, i.e., the denial by UCPB of its request for extension of time to pay the obligation. In the same letter, Logarta also demanded the refund of the earnest money of P1 million which Goldenrod gave to Barreto Realty. [Lot 2 sold to Asiaworld] On 31 August 1988 Barreto Realty sold to Asiaworld Trade Center Phils., Inc., Lot 2, one of the 2 consolidated lots, for the price of P23 million. On 13 October 1988 Barreto Realty executed deed transferring by way of “dacion” the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to Asiaworld for P24 million. [Demand for reimbursement of earnest money] On 12 December 1988 Logarta again wrote Que demanding the return of the earnest money to Goldenrod. On 7 February 1989 Goldenrod through its lawyer reiterated its demand, but the same remained un-heeded by Barreto Realty. Goldenrod filed a complaint with the RTC Manila against Barreto Realty, et.al. for the return of the amount of P1 million and the payment of damages including lost interests or profits. In their answer, Barreto Realty, et.al. contended that it was the agreement of the parties that the earnest money of P1 million would be forfeited to answer for losses and damages that might be suffered by Barreto Realty in case of failure by Goldenrod to comply with the terms of their purchase agreement. On 15 March 1991 the trial court rendered a decision ordering Barreto Realty, et.al. jointly and severally to pay Goldenrod P1,000,000.00 with legal interest from 9 February 1989 until fully paid, P50,000.00 representing unrealized profits and P10,000.00 as attorney’s fees. The trial court found that there was no written agreement between the parties concerning forfeiture of the earnest money if the sale did not push through. It further declared that the earnest money given by Goldenrod to Barreto Realty was intended to form part of the purchase price; thus, the refusal of the latter to return the money when the sale was not consummated violated Arts. 22 and 23 of the Civil Code against unjust enrichment. Obviously dissatisfied with the decision of the trial court, Barreto Realty appealed to the Court of Appeals which reversed the trial court and ordered the dismissal of the complaint; hence, the petition. The Supreme Court granted the petition, reversed and set aside the decision of the Court of Appeals, and ordered Barreto Realty, its successors and assigns are ordered to return to Goldenrod, the amount of P1,000,000.00 with legal interest thereon from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is fully paid, with costs against Barreto Realty, et.al. 1. Purpose of earnest money Under Article 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall
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be considered as part of the purchase price and as proof of the perfection of the contract. In the present case, Goldenrod clearly stated without any objection from Barreto Realty that the earnest money was intended to form part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the parties could not have intended that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. 2. Right to rescind not absolute, must be successfully impugned in court In University of the Philippines v. de los Angeles, the right to rescind contracts is not absolute and is subject to scrutiny and review by the proper court. In Adelfa Properties, Inc. v. Court of Appeals, that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. 3. Lack of opposition to rescission an admission of validity of the claim of rescinding party If the party does not oppose the declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an admission of the veracity and validity of the rescinding party’s claim. In the present case, Barreto Realty did not interpose any objection to the rescission by Goldenrod of the agreement. Barreto Realty even sold Lot 2 of the subject consolidated lots to another buyer, Asiaworld, one day after its President Anthony Que received the broker’s letter rescinding the sale. Subsequently, on 13 October 1988 respondent Barreto Realty also conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to Asiaworld. 4. Rescission creates obligation to return things subject of contract with fruits and interests Article 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. The vendor is therefore obliged to return the purchase price paid to him by the buyer if the latter rescinds the sale, or when the transaction was called off and the subject property had already been sold to a third person, as what obtained in this case. In the present case, by virtue of the extrajudicial rescission of the contract to sell, Barreto Realty as the vendor, had the obligation to return the earnest money of P1,000,000 plus legal interest from the date it received notice of rescission from Goldenrod, i.e., 30 August 1988, up to the date of the return or payment. [49] Guiang v. CA [G.R. No. 125172. June 26, 1998.] First Division, Panganiban (J): 4 concur Facts: Gilda and Judie Corpuz were married civilly on 24 December 1968 in Bacolod City. The couple have 3 children (Junie, Harriet, and Jodie or Joji. On 14 February 1983, the Corpuzes, with Gilda Corpuz as vendee, bought a 421 sq. m. lot (Lot 8, Block 9, (LRC) Psd-165409) located in Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South Cotabato from Manuel Callejo who signed as vendor through a conditional deed of sale for a total consideration of P14,735.00. The consideration was payable in installment, with right of cancellation in favor of vendor should vendee fail to pay 3 successive installments. On 22 April 1988, the Corpuzes sold ½ portion of their lot to spouses Antonio and Luzviminda Guiang. The latter have since then occupied the ½ portion and built their house thereon. They are thus adjoining neighbors of the Corpuzes. On June 1989, Gilda Corpuz left for Manila, with the consent of her husband, to look for work abroad. Unfortunately, she became a victim of an unscrupulous illegal recruiter, was not able to go abroad, and stayed for sometime in Manila. Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the remaining ½ portion including their house, of their homelot to the Guiangs. She wrote a letter to her mother informing her, who in turn replied that she was objecting to the sale. Harriet, however, did not inform her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that Guiang would advise her father. However, in the absence of his wife Gilda Corpuz, and on 1 March 1990, Judie Corpuz sold the remaining ½ portion of the lot and the house thereon to Luzviminda Guiang thru a document known as ‘Deed of Transfer of Rights’ (Exh.
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‘A’) for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June 1990. Judie Corpuz’s children Junie and Harriet signed the document as witnesses. On 5 March 1990, obviously to cure whatever defect in Judie Corpuz’s title over the lot transferred, Luzviminda Guiang as vendee executed another agreement over the lot with Manuela Jimenez Callejo, widow of Manuel Callejo (the original registered owner), who signed as vendor for a consideration of P9,000.00. Judie Corpuz signed as a witness to the sale. The new sale describes the lot sold as Lot 8, Block 9, (LRC) Psd-165408. As a consequence of the sale, the Guiangs spent P600.00 for the preparation of the Deed of Transfer of Rights; P9,000.00 as the amount they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of the Corpuzes to Mrs. Callejo; P100.00; a total of P759.62 basic tax and special educational fund on the lot; P127.50 as the total documentary stamp tax on the various documents; P535.72 for the capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification fee of P5.00. These expenses particularly the taxes and other expenses towards the transfer of the title to the Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409. On 11 March 1990, Gilda Corpuz returned home. She gathered her children, who were staying in different households, together and stayed at their house. Her husband was nowhere to be found. She was informed by her children that their father had a wife already. For staying in their house sold by her husband, Gilda was complained against by the Guiangs before the Barangay authorities of Barangay General Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (Barangay Case 38). On 16 March 1990, the parties thereat signed a document known as ‘amicable settlement’ requiring the Corpuzes to leave the house voluntarily on or before 7 April 1990, without any charge. Believing that she had received the shorter end of the bargain, Gilda approached the Barangay Captain for the annulment of the settlement. Annulment not having been made, Gilda stayed put in her house and lot. The Guiangs followed thru the amicable settlement with a motion for the execution of the amicable settlement, filing the same with the MTC Koronadal, South Cotabato. The proceedings [are] still pending before the said court, with the filing of the instant suit. On 28 May 1990, Gilda Corpuz filed an Amended Complaint against her husband Judie Corpuz and the Guiangs. The said Complaint sought the declaration of a certain deed of sale, which involved the conjugal property of private respondent and her husband, null and void. On 9 September 1992, The RTC Koronodal, South Cotabato (Branch 25) rendered a decision in favor of Gilda Corpuz, recognizing her lawful and valid ownership and possession over the remaining ½ portion of the lot, declaring the deed of transfer of rights and the amicable settlement null and void, and ordering Gilda Corpuz to reimburse the Guiangs the amount of P9,000 corresponding to the payment made by the Guiangs to Callejo for the unpaid balance and another P379.62 representing ½ of the amount of realty taxes paid by the Guiangs, both with legal interests thereon computed from the finality of the decision; without pronouncement as to costs. Dissatisfied, the Guiangs filed an appeal with the Court of Appeals. On 30 January 1996, the appellate court affirmed the decision of the lower court. Their motion for reconsideration was also denied. A petition for review was before the Supreme Court. The Supreme Court denied the petition, and affirmed the challenged decision and resolution; with costs against the Guiangs. 1. Valid contract, elements To constitute a valid contract, the Civil Code requires the concurrence of the following elements: (1) cause, (2) object, and (3) consent. The last element is indubitably absent in the present case, thus the nullity of the contract of sale is premised on the absence of private respondent’s consent. 2. Contract void for lack of consent by the other spouse The consent of one spouse to the contract of sale of the conjugal property was totally inexistent or absent. This being the case, said contract properly falls within the ambit of Article 124 of the Family Code. Article 124 of the Family Code provides that “the administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail,
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subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision” and that “in the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a)” 3. Amendatory effect of Article 124 FC to Article 166 NCC in relation to Article 173 NCC Under Article 166 of the Civil Code, the husband cannot generally alienate or encumber any real property of the conjugal partnership without the wife’s consent. The alienation or encumbrance if so made however is not null and void. It is merely voidable. The offended wife may bring an action to annul the said alienation or encumbrance. Thus, the provision of Article 173 of the Civil Code of the Philippines provides that “the wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.” The particular provision giving the wife 10 years during the marriage to annul the alienation or encumbrance was not carried over to the Family Code. It is thus clear that any alienation or encumbrance made after 3 August 1988 when the Family Code took effect by the husband of the conjugal partnership property without the consent of the wife is null and void. 4. Execution of document “amicable settlement” does not affect void character of deed of sale The fraud and the intimidation referred to by petitioners were perpetrated in the execution of the document embodying the amicable settlement. Gilda Corpuz alleged during trial that barangay authorities made her sign said document through misrepresentation and coercion. In any event, its execution does not alter the void character of the deed of sale between the husband and the Guiangs. The fact remains that such contract was entered into without the wife’s consent. 5. Void contract cannot be ratified By the specific provision of the law [Article 1390, Civil Code], the Deed of Transfer of Rights cannot be ratified, even by an ‘amicable settlement’. The participation by some barangay authorities in the ‘amicable settlement’ cannot otherwise validate an invalid act. Moreover, it cannot be denied that the ‘amicable settlement’ entered into by Gilda Corpuz and the Guiangs is a contract. It is a direct offshoot of the Deed of Transfer of Rights. By express provision of law (Article 1422), such a contract is also void. Article 1422 of the Civil Code provides that “a contract which is the direct result of a previous illegal contract, is also void and inexistent.” 6. Amicable settlement cannot be considered a continuing offer Neither can the “amicable settlement” be considered a continuing offer that was accepted and perfected by the parties, following the last sentence of Article 124. The order of the pertinent events is clear: after the sale, the Guiangs filed a complaint for trespassing against Gilda Corpuz, after which the barangay authorities secured an “amicable settlement” and the Guiangs filed before the MTC a motion for its execution. The settlement, however, does not mention a continuing offer to sell the property or an acceptance of such a continuing offer. Its tenor was to the effect that the Guiangs would vacate the property. By no stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124. [50]
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J. Schuback & Sons v. CA [G.R. No. 105387. November 11, 1993.] Third Division, Romero (J): 4 concur Facts: In 1981, Ramon San Jose (Philippine SJ Industrial Trading) established contact with Johannes Schuback & Sons Philippine Trading Corporation through the Philippine Consulate General in Hamburg, West Germany, because he wanted to purchase MAN bus spare parts from Germany. Schuback communicated with its trading partner, Johannes Schuback and Sohne Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare parts San Jose wanted to order. On 16 October 1981, San Jose submitted to Schuback a list of the parts he wanted to purchase with specific part numbers and description. Schuback referred the list to Schuback Hamburg for quotations. Upon receipt of the quotations, Schuback sent to San Jose a letter dated 25 November 1981 enclosing its offer on the items listed. On 4 December 1981, San Jose informed Schuback that he preferred genuine to replacement parts, and requested that he be given a 15% discount on all items. On 17 December 1981, Schuback submitted its formal offer containing the item number, quantity, part number, description, unit price and total to San Jose. On 24 December 1981, San Jose informed Schuback of his desire to avail of the prices of the parts at that time and enclosed its Purchase Order 0101 dated 14 December 1981. On 29 December 1981, San Jose personally submitted the quantities he wanted to Mr. Dieter Reichert, General Manager of Schuback, at the latter’s residence. The quantities were written in ink by San Jose in the same PO previously submitted. At the bottom of said PO, San Jose wrote in ink above his signature: “NOTE: Above PO will include a 3% discount. The above will serve as our initial PO.” Schuback immediately ordered the items needed by San Jose from Schuback Hamburg. Schuback Hamburg in turn ordered the items from NDK, a supplier of MAN spare parts in West Germany. On 4 January 1982, Schuback Hamburg sent Schuback a proforma invoice to be used by San Jose in applying for a letter of credit. Said invoice required that the letter of credit be opened in favor of Schuback Hamburg. San Jose acknowledged receipt of the invoice. An order confirmation was later sent by Schuback Hamburg to Schuback which was forwarded to and received by San Jose on 3 February 1981. On 16 February 1982, Schuback reminded San Jose to open the letter of credit to avoid delay in shipment and payment of interest. In the meantime, Schuback Hamburg received invoices from NDK for partial deliveries on Order 12204. On 16 February 1984, Schuback Hamburg paid NDK. On 18 October 1982, Schuback again reminded San Jose of his order and advised that the case may be endorsed to its lawyers. San Jose replied that he did not make any valid PO and that there was no definite contract between him and Schuback. Schuback sent a rejoinder explaining that there is a valid PO and suggesting that San Jose either proceed with the order and open a letter of credit or cancel the order and pay the cancellation fee of 30% F.O.B. value, or Schuback will endorse the case to its lawyers. Schuback Hamburg issued a Statement of Account to Schuback enclosing therewith Debit Note charging Schuback 30% cancellation fee, storage and interest charges in the total amount of DM 51,917.81. Said amount was deducted from Schuback’s account with Schuback Hamburg. Demand letters sent to San Jose by Schuback’s counsel dated 22 March 1983 and 9 June 1983 were to no avail. Schuback filed a complaint for recovery of actual or compensatory damages, unearned profits, interest, attorney’s fees and costs against San Jose. In its decision dated 13 June 1988, the trial court ruled in favor of Schuback by ordering San Jose to pay it, among others, actual compensatory damages in the amount of DM 51,917.81, unearned profits in the amount of DM 14,061.07, or their peso equivalent. San Jose elevated his case before the Court of Appeals. On 18 February 1992, the appellate court reversed the decision of the trial court and dismissed Schuback’s complaint. It ruled that there was no perfection of contract since there was no meeting of the minds as to the price between the last week of December 1981 and the first week of January 1982. Hence, the petition for review on certiorari. The Supreme Court granted the petition, and reinstated the decision of the trial court dated 13 June 1988 with modification. 1. Perfection of a contract of sale
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A “contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.” 2. Consent manifested: Offer and acceptance Article 1319 of the Civil Code provides that “consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer.” In the present case, the facts indicate that consent on both sides has been manifested. The offer was manifested on 17 December 1981 when Schuback submitted its proposal containing the item number, quantity, part number, description, the unit price and total to San Jose. On 24 December 1981, San Jose informed Schuback of his desire to avail of the prices of the parts at that time and simultaneously enclosed its PO 0101 dated 14 December 1981. At this stage, a meeting of the minds between vendor and vendee has occurred, the object of the contract being the spare parts and the consideration, the price stated in Schuback’s offer dated 17 December 1981 and accepted by San Jose on 24 December 1981. 3. Quantity is immaterial to the perfection of a sales contract Although the quantity to be ordered was made determinate only on 29 December 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of 24 December 1981, these essential elements had already concurred. Thus, perfection of the contract took place, not on 29 December 1981, but rather on 24 December 1981. 4. Letter of credit only a mode of payment, not an essential requirement of sale The opening of a letter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the Civil Code, the absence of any of which will prevent the perfection of the contract from taking place. In the present case, when San Jose failed to open an irrevocable letter of credit without recourse in favor of Schuback Hamburg, such did not prevent the perfection of the contract between the parties, for the opening of a letter of credit is not to be deemed a suspensive condition. Schuback did not reserve title to the goods until San Juan had opened a letter of credit. Schuback did not incorporate any provision declaring their contract of sale without effect until after the fulfillment of the act of opening a letter of credit. To adopt the Court of Appeals’ ruling that the contract of sale was dependent on the opening of a letter of credit would be untenable from a pragmatic point of view because San Jose would not be able to avail of the old prices which were open to him only for a limited period of time. [51] Spouses Ladanga v. CA [G.R. No. L-55999. August 24, 1984.] Second Division, Aquino (J): 4 concur, 1 took no part, 1 reserved vote Facts: Clemencia A. Aseneta, a spinster who retired as division superintendent of public schools at 65 in 1961, had a nephew named Bernardo S. Aseneta, the child of her sister Gloria, and a niece named Salvacion, the daughter of her sister Flora. She legally adopted Bernardo in 1961. On a single date, 6 April 1974, she 9then 78 years old) signed 9 deeds of sale in favor of Salvacion, for various real properties. One deed of sale concerned the said Paco property (166 sq. m. lot located at 1238 Sison Street Paco Manila and administered by the Ladanga spouses, Agustin and Salvacion) which purportedly was sold to Salvacion for P26,000. The total price involved in the 9 deeds of sale and in the 10th sale executed on 8 November 1974 was P92,200. The deed of sale for the Paco property was signed in the office of the Quezon City registry of deeds. In May 1975, Bernardo, as guardian of Clemencia, filed an action for reconveyance of the Paco property, accounting of the rentals and damages, with the CFI Manila. Clemencia was not mentally incompetent but she
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was placed under guardianship because she was an easy prey for exploitation and deceit. Clemencia testified and denied having “received even one centavo” of the price of P26,000), much less the P92,000. This testimony was corroborated by Soledad L. Maninang, 69, a dentist with whom Clemencia had lived for more than 30 years in Kamuning, Quezon City. The notary public stated that he did not see Salvacion hand any money to Clemencia for the purported sale when the deed was signed in the registry of deeds. The trial court declared void the sale of the Paco property. Clemencia died on 21 May 1977 at the age of 80. She allegedly bequeathed her properties in a holographic will dated 23 November 1973 to Doctor Maninang. In that will she disinherited Bernardo. The will was presented for probate. The testate case was consolidated with the intestate proceeding filed by Bernardo in the sala of Judge Ricardo L. Pronove at Pasig, Rizal. He dismissed the testate case. He appointed Bernardo as administrator in the intestate case. On appeal, the Court of Appeals affirmed the decision of the CFI, ordered the register of deeds to issue a new title to Clemencia, and ordered the spouses to pay Clemencia’s estate P21,000 as moral and exemplary damages and attorney’s fees and to render to Bernardo an accounting of the rentals of the property from 6 April 1974. The spouses appealed to the Supreme Court. The Supreme Court affirmed the judgment of the Appellate Court with the modification that the adjudication for moral and exemplary damages is discarded; Without costs. 1. Only legal issues may be raised in a review of the decision of the appellate court As a rule, only important legal issues, as contemplated in section 4, Rule 45 of the Rules of Court, may be raised in a review of the Appellate Court’s decision. The present case does not fall within any of the exceptions to that rule (2 Moran’s Comments on the Rules of Court, 1979 Ed. p. 475; Ramos vs. Pepsi-Cola Bottling Co., 125 Phil. 701). 2. Burden of proof Clemencia herself testified that the price of P26,000 was not paid to her; and thus, the burden of the evidence shifted to the Ladanga spouses. They were not able to prove the payment of that amount, thus the sale was fictitious. 3. Void contract in the absence of price being paid; Sale inexistent and cannot be considered consummated A contract of sale is void and produces no effect whatsoever where the price, which appears therein as paid, has in fact never been paid by the purchaser to the vendor (Meneses Vda. de Catindig vs. Heirs of Catalina Roque, L-25777, November 26, 1976, 74 SCRA 83, 88; Mapalo vs. Mapalo, 123 Phil. 979, 987; Syllabus, Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921). Such a sale is inexistent and cannot be considered consummated (Borromeo vs. Borromeo, 98 Phil. 432; Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229). 4. No evidence of intention of vendor to donate the property Clemencia did not intended to donate the Paco property to the Ladangas. Her testimony and the notary’s testimony destroyed any presumption that the sale was fair and regular and for a true consideration. It seemed that the Ladangas abused Clemencia’s confidence and defrauded her of properties with a market value of P393,559.25 when she was already 78 years old. 5. Bernardo’s capacity to sue Bernardo was Clemencia’s adopted son. Moreover, Clemencia, by testifying in this case, tacitly approved the action brought in her behalf. Bernardo had the right to institute the instant action.

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6.

Award of moral damages not sanctioned The moral damages awarded by the trial court is not sanctioned by articles 2217 to 2220 of the Civil Code. Clemencia’s own signature in the deed brought about the mess within which she was entangled. [52] Legarda Hermanos vs. Saldana [G.R. No. L-26578. January 28, 1974.] First Division, Teehankee (J): 5 concur Facts: Felipe Saldana had entered into two written contracts with Legarda Hermanos as subdivision owner, whereby the latter agreed to sell to him Lots 7 and 8 of block 5N of the subdivision with an area of 150 sq. ms. each, for the sum of P1,500.00 per lot, payable over the span of 10 years divided into 120 equal monthly installments of P19.83 with 10% interest per annum, to commence on 26 May 1948, date of execution of the contracts. Saldana faithfully paid for 8 continuous years about 95 (of the stipulated 120) monthly installments totalling P3,582.06 up to the month of February 1956, which as per Legarda Hermanos’ own statement of account, was applied to Saldana’s account (without distinguishing the two lots). After February 1956 up to the filing of the complaint, Saldana did not make further payments. The account shows that he owed Legarda Hermanos the sum of P1,311.72 on account of the balance of the purchase price (principal) of the two lots (in the total sum of P3,000.00), although he had paid more than the stipulated purchase price of P1,500.00 for one lot. Almost 5 years later, on 2 February 1961 just before the filing of the action, Saldana wrote Legarda Hermanos stating that his desire to build a house on the lots was prevented by their failure to introduce improvements on the subdivision as “there is still no road to these lots,” and requesting information of the amount owing to update his account as “I intend to continue paying the balance due on said lots.” Legarda Hermanos replied in their letter of 11 February 1961 that as Saldana had failed to complete total payment of the 120 installments by May 1958 as stipulated in the contracts to sell, “pursuant to the provisions of both contracts all the amounts paid in accordance with the agreement together with the improvements on the premises have been considered as rents paid and as payment for damages suffered by your failure,” and “Said cancellation being in order, is hereby confirmed.” Saldana filed an action in the CFI Manila as a complaint for delivery of two parcels of land in Sampaloc, Manila and for execution of the corresponding deed of conveyance after payment of the balance still due on their purchase price. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and sisters, and the two lots were among those allotted to Jose Legarda, who was included as co-respondent as a result thereof in the case. On 17 July 1963, the trial court sustained Legarda Hermanos’ cancellation of the contracts and dismissing Saldana’s complaint. On appeal and on 27 July 1966, the appellate court rendered its judgment reversing the lower court’s judgment and ordering Legarda Hermanos to deliver to Saldana possession of one of the two lots, at the choice of Legarda Hermanos, and to execute the corresponding deed of conveyance to Saldana for the said lot. Hence, the present petition for review. The Supreme Court affirmed the appealed judgment of the appellate court; without pronouncement as to costs. 1. Application of broad principles of equity and justice by Court of Appeals The Court of Appeals elected to apply the broad principles of equity and justice. Saldana has paid the total sum of P3,582.06 including interests, which is even more than the value of the two lots. And even if the sum applied to the principal alone were to be considered, which was of the total of P1,682.28, the same was already more than the value of one lot, which is P1,500.00. The only balance due on both lots was P1,317.72, which was even less than the value of one lot. The Court considered as fully paid by Saldana at least one of the two lots, at the choice of Legarda Hermanos. This is more in line with good conscience than a total denial
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to Saldana of a little token of what he has paid Legarda Hermanos. 2. 1592 Court of Appeal’s ruling fair and just and in accordance with law and equity; Article 1234 vs.

The appellate court’s judgment finding that of the total sum of P3,582.06 (including interests of P1,889.78) already paid by Saldana (which was more than the value of two lots), the sum applied by petitioners to the principal alone in the amount of P1,682.28 was already more than the value of one lot of P1,500.00 and hence one of the two lots as chosen by Legarda Hermanos would be considered as fully paid, is fair and just and in accordance with law and equity. Even considering that Saldana as having defaulted after February 1956, when he suspended payments after the 95th installment, he had as of the already paid by way of principal (P1,682.28) more than the full value of one lot (P1,500.00). The judgment recognizing this fact and ordering the conveyance to him of one lot of his choice while also recognizing Legarda Hermanos’ right to retain the interests of P1,889.78 paid by him for eight years on both lots, besides the cancellation of the contract for one lot which thus reverts to Legarda Hermanos, cannot be deemed to deny substantial justice to Legarda Hermanos nor to defeat their rights under the letter and spirit of the contracts in question. Further, regardless of the propriety of applying Article 1592 thereto, Legarda Hermanos has not been denied substantial justice, for, according to Article 1234 of the Code: “If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee,” and “that in the interest of justice and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the Code.” 3. Doctrine in JM Tuason & Co. vs. Javier case fully applicable The doctrine in the case of J.M. Tuason & Co. Inc. vs. Javier is fully applicable to the present case, with the buyer being granted lesser benefits, since no rescission of contract was therein permitted. There, where the buyer had likewise defaulted in completing the payments after having religiously paid the stipulated monthly installments for almost 8 years and notwithstanding that the seller had duly notified the buyer of the rescission of the contract to sell, the Court upheld the lower court’s judgment denying judicial confirmation of the rescission and instead granting the buyer an additional grace period of 60 days from notice of judgment to pay all the installment payments in arrears together with the stipulated 10% interest per annum from the date of default, apart from reasonable attorney’s fees and costs, which payments, the Court observed, would have the seller “recover everything due thereto, pursuant to its contract with the defendant, including such damages as the former may have suffered in consequence of the latter’s default.” [53] Levy Hermanos vs. Gervacio [G.R. No. 46306. October 27, 1939.] En Banc, Moran (J): 5 concur Facts: On 15 March 1937, Levy Hermanos, Inc., sold to Lazaro Blas Gervacio, a Packard car. Gervacio, after making the initial payment, executed a promissory note for the balance of P2,400, payable on or before 15 June 1937, with interest at 12% per annum, and to secure the payment of the note, he mortgaged the car to Levy Hermanos. Gervacio failed to pay the note at its maturity; wherefore, Levy Hermanos foreclosed the mortgage and the car was sold at public auction, at which plaintiff was the highest bidder for P800. On 24 February 1938, Levy Hermanos filed a complaint in the CFI Manila for the collection of the balance of P1,600 and interest. Gervacio admitted the allegations of the complaint, and with this admission, the parties submitted the case for decision. The lower court applied the provisions of Act 4122, inserted as articles 1454A of the Civil Code, and rendered judgment in favor of Gervacio. Levy Hermanos appealed. The Supreme Court reversed the judgment, and Gervacio is hereby sentenced to pay Levy Hermanos the sum of P1,600 interest at the rate of 12% per annum from 15 June 1937, and the sum of P52.08 with interest at the
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rate of 6% from the date of the filing of the complaint, with costs in both instances against Gervacio. 1. Article 1454-A of Civil Code Article 1454-A of the Civil Code provides that “In a contract for the sale of personal property payable in installments, failure to pay two or more installments shall confer upon the vendor the right to cancel the sale or foreclose the mortgage if one has been given on the property, without reimbursement to the purchaser of the installments already paid, if there be an agreement to this effect. However, if the vendor has chosen to foreclose the mortgage he shall have no further action agaist the purchaser for the recovery of any unpaid balance owing by the same, and any agreement to the contrary shall be null and void.” 2. Application of Article 1454: Contract of sale of personal property in installment where there is failure to pay 2 or more installments In Macondray & Co. vs. De Santos (33 OG 2170), it was held that “in order to apply the provisions of article 1454-A of the Civil Code it must appear that there was a contract for the sale of personal property payable in installments and that there has been a failure to pay two or more installments.” The contract, in the present case, while a sale of personal property, is not, however, one on installments, but on straight term, in which the balance, after payment of the initial sum, should be paid in its totality at the time specified in the promissory note. The transaction is not, therefore, the one contemplated in Act 4122 and accordingly the mortgagee is not bound by the prohibition therein contained as to its right to the recovery of the unpaid balance. 3. Article 1454; Price payable in several installments; possible miscalculation of ability to pay The law is aimed at those sales where the price is payable in several installments, for, generally, it is in these cases that partial payments consist in relatively small amounts, constituting thus a great temptation for improvident purchasers to buy beyond their means. There is no such temptation where the price is to be paid in cash, or partly in cash and partly in one term, for, in the latter case, the partial payments are not so small as to place purchasers off their guard and delude them to a miscalculation of their ability to pay. 4. Difference exists in actual practice between paying price in 2 installments and paying partly in cash and partly in an installment Theoretically, there is no difference between paying the price in two installments and paying the same partly in cash and partly in one installment, in so far as the size of each partial payment is concerned; but in actual practice the difference exists, for, according to the regular course of business, in contracts providing for payment of the price in two installments, there is generally a provision for initial payment. 5. Law clear, does not require construction The considerations made in the discussion of the decision in the current case are immaterial as the language of the law being so clear as to require no construction at all. 6. Article 1454 does not apply; cash payment not a payment by installment A cash payment cannot be considered as a payment by installment, and even if it can be so considered, still the law does not apply, for it requires non-payment of two or more installments in order that its provisions may be invoked. In the present case, only one installment was unpaid. [54] Lim v. CA, 263 SCRA 569 (1996) [55] Limketkai Sons Milling v. CA [G.R. No. 118509. December 1, 1995.]
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Third Division, Melo (J): 4 concur Facts: On 14 May 1976, Philippine Remnants Co., Inc. constituted the Bank of the Philippine Islands (BPI) as its trustee to manage, administer, and sell its real estate property. One such piece of property placed under trust was the disputed lot, a 33,056-sq.ms. lot at Barrio Bagong Ilog, Pasig (TCT 493122). On 23 June 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the lot for P1,000.00 per sq.m. This arrangement was concurred in by the owners of the Philippine Remnants. Broker Revilla contacted Alfonso Lim of Limketkai Sons Milling (LSM) who agreed to buy the land. On 8 July 1988, LSM’s officials and Revilla were given permission to enter and view the property they were buying (by Rolando V. Aromin, BPI Assistant Vice-President). On 9 July 1988, Revilla formally informed BPI that he had procured a buyer, LSM. On 11 July 1988, LSM’s officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. LSM asked that the price of P1,000.00 per sq.m. be reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per sq.m. to be paid in cash. Since the authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this juncture that there is no dispute over LSM’s being the first comer and the buyer to be first served. Notwithstanding the final agreement to pay P1,000.00 per sq.m. on a cash basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment on terms because in previous transactions, the same had been allowed. It was the understanding, however, that should the term payment be disapproved, then the price shall be paid in cash. It was Albano who dictated the terms under which the installment payment may be approved, and acting thereon, Alfonso Lim, on the same date, 11 July 1988, wrote BPI through Merlin Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 days. 2 or 3 days later, LSM learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI on 18 July 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment. An action for specific performance with damages was thereupon filed on 25 August 1988 by LSM against BPI with the RTC Pasig (Branch 151). In the course of the trial, BPI informed the trial court that it had sold the property under litigation to National Book Store (NBS) on 14 July 1989. The complaint was thus amended to include NBS. On 10 June 1991, the trial court rendered judgment in favor of LSM; holding that there was a perfected contract between LSM and BPI, and thus declared the Deed of Sale involving the lot in Pasig in the name of BPI and in favor of NBS as null and void; ordered the Register of Deeds of the Province of Rizal to cancel the TCT which may have been issued in favor of NBS by virtue of the said deed; ordered BPI upon receipt by it from LSM of the sum of P33,056,000,00 to execute a Deed of Sale in favor of the latter of the said property at the price of P1,000.00 per sq.m. and in default thereof, the Clerk of Court is directed to execute the deed dated 14 July 1989; ordered the Register of Deeds of Pasig, upon registration of the said deed, whether executed by BPI or the Clerk of Court and payment of the corresponding fees and charges, to cancel said TCT 493122 and to issue, in lieu thereof, another transfer certificate of title in the name of LSM; ordered BPI and NBS to pay in solidum to LSM the sums of P10,000,000.00 as actual and consequential damages and P150,000.00 as attorney’s fees and litigation expenses, both with interest at 12% per annum from date of judgment; on the cross-claim by the bank against NBS, ordered NBS to indemnify the bank of whatever BPI shall have paid to LSM; dismissed the counterclaim of both BPI and NBS against LSM and the cross-claim of NBS against BPI; with costs against BPI and NBS. Upon elevation of the case to the Court of Appeals, the decision of the trial court was reversed and the complaint dismissed on 12 August 1994. It was held that no contract of sale was perfected because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. Hence, the petition. The Supreme Court reversed and set aside the questioned judgment of the Court of Appeals, and reinstated the
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10 June 1991 judgment of Branch 151 of the RTC of The National Capital Judicial Region stationed in Pasig, Metro Manila except for the award of P10,000,000.00 damages, which was deleted. 1. Broker given authority to sell and not merely to look for a buyer BPI as trustee of the property of Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per sq.m. Philippine Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot. LSM and Revilla agreed on the former buying the property. BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to inspect the property. BPI was formally informed about the broker having procured a buyer. At the start of the transactions, Revilla by himself already had full authority to sell the disputed lot. The note dated 23 June 1988 states, “this will serve as your authority to sell on an as is, where is basis the property located at Pasig Blvd., Bagong Ilog.” Thus, the authority given to Revilla was to sell and not merely to look for a buyer. Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. 2. BPI Vice Presidents have authority to sell The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record. If BPI could give the authority to sell to a licensed broker, there is no reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage and administer real estate property. Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the head supervising officer of real estate matters. He had been with the BPI Trust Department since 1968 and had been involved in the handling of properties of beneficial owners since 1975. He was in charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment receivables, management fees, quitclaims, and other matters involving real estate transactions. His immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only 1 week but he was present and joined in the discussions with LSM. There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural manner on the transaction before him with not the slightest indication that he was acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling real estate transactions and, as Trust Officer, entering into contracts to sell trust properties. Further, it must be noted that the authority to buy and sell this particular trust property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as alleged, there was no need to withdraw authority which he never possessed. Everything in the record points to the full authority of Aromin to bind the bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But, of course, Aromin’s alleged inefficiency is not proof that he was not fully clothed with authority to bind BPI. 3. Trust Committee does not have to pass on regular transactions On the allegation that sales of trust property need the approval of a Trust Committee made up of top bank officials, it appears from the record that this trust committee meets rather infrequently and it does not have to pass on regular transactions. 4. Bank liable to innocent third persons where representation is made in course of its business even if agent abused his authority In Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021), it was stated that “a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to
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perpetrate a fraud upon his principal or some other person for his own ultimate benefit.” In the present case, the position and title of Aromin alone, not to mention the testimony and documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top official of the bank was personally interested in the sale of the Pasig property and did not like Aromin’s testimony. Aromin was charged with poor performance but his dismissal was only sometime after he testified in court. More than 2 long years after the disputed transaction, he was still Assistant Vice-President of BPI. 5. Meeting of the minds on the price; Manner of payment Asst. Vice-President Aromin admitted that there was a meeting of the minds between the buyer and the bank in respect to the price of P1,000.00 per sq.m. The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying on terms was referred to the Trust Committee but with the mutual agreement that “if the proposed payment on terms will not be approved by our Trust Committee, Limketkai should pay in cash, the amount was no longer subject to the approval or disapproval of the Committee, it is only on the terms.” The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because LSM took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials. Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right within the period given to him and tendered payment in full. The BPI rejected the payment. 6. Stages of the contract The stages of a contracts are (a) preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract (Toyota Shaw Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995). 7. Ang Yu Asuncion; Stages in ordinary contracts (consensual); Real contract: delivery required; Solemn contract: compliance with formalities prescribe by law A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected) The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. 8. Ang Yu Asuncion; Perfected contract of sale Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees (Ang Yu Asuncion). 9. Stages of the contract in the present case The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI
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to sell the lot, followed by the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell the property, the offer to sell to Limketkai, the inspection of the property and the negotiations with Aromin and Albano at the BPI offices. The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for LSM, agreed to buy the disputed lot at P1,000.00 per sq.m.. Aside from this there was the earlier agreement between LSM and the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the cause thereof. 10. Villonco Realty v. Bormaheco; Perfected contract of sale The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.” (Art. 1475 Ibid). 11. Villonco Realty v. Bormaheco; Consent Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer” (Art. 1319, Civil Code). “An acceptance may be express or implied” (Art. 1320, Civil Code). 12. Villonco Realty v. Bormaheco; A contract is formed if offer is accepted, whether request for changes in terms is granted or not; Change does not amount to rejection of offer or a counter-offer An acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer. whether such request is granted or not, a contract is formed. (Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts). The vendor’s change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer.” (Stuart vs. Franklin Life Ins. Co., supra.) 13. Requisite form under Article 1458 merely for greater efficacy or convenience The fact that the deed of sale still had to be signed and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties. If the law requires a document or other special form, as in the sale of real property, the contracting parties may compel each other to observe that form, once the contract has been perfected. Their right may be exercised simultaneously with action upon the contract (Article 1359, Civil Code). 14. Abrenica Rule: Contracts infringing the Statute of Frauds ratified when defense fails to object or asks questions on cross-examination In Abrenica vs. Gonda (34 Phil. 739 [1916]) it was held that contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on cross-examination. The reason for the rule is that “if the answers of those witnesses were stricken out, the cross-examination could have no object whatsoever and if the questions were put to the witnesses and answered by them, they could only be taken into account by connecting them with the answers given by those witnesses on direct examination.” Under said rule (reiterated in a number of cases, among them Talosig vs. Vda. de Nieba, 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same became competent and admissible because of the cross-examination, which elicited evidence proving the evidence of a perfected contract. The crossexamination on the contract is deemed a waiver of the defense of the Statute of Frauds. In the present case, counsel for respondents cross-examined petitioner’s witnesses at length on the contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the litigated
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contract. 15. Written note or memorandum an exception to the unenforceability of contracts pursuant to Statute of Frauds Under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The memorandum may be found in several writings, not necessarily in one document. The memorandum or memoranda is/are written evidence that such a contract was entered into. Thus, the existence of a written contract of the sale is not necessary so long as the agreement to sell real property is evidenced by a written note or memorandum, embodying the essentials of the contract and signed by the party charged or his agent. Such note or memorandum suffices to make the verbal agreement enforceable, taking it out of the operation of the statute. In the present case, while there is no written contract of sale of the Pasig property executed by BPI in favor of LSM, there are abundant notes and memoranda extant in the records of this case evidencing the elements of a perfected contract. 16. Form of memorandum or note No particular form of language or instrument is necessary to constitute a memorandum or note in writing under the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to contents and signature is a sufficient memorandum or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also be filled in on a printed form. (37 C.J.S., 653-654). The note or memorandum required by the statute of frauds need not be contained in a single document, nor, when contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy the statute. Two or more writings properly connected may be considered together, matters missing or uncertain in one may be supplied or rendered certain by another, and their sufficiency will depend on whether, taken together, they meet the requirements of the statute as to contents and the requirements of the statutes as to signature. 17. Demeanor of witnesses as factor for Court to incline to the version of the case by one party The demeanor of the witnesses the parties presented is one important factor that inclined the trial court to believe in the version given by LSM because its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president of the bank, were straight forward, candid and unhesitating in giving their respective testimonies. Upon the other hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their answers to cross examination questions. Moreover, the witnesses for BPI and NBS contradicted each other. 18. Credibility of witnesses where the findings of the trial and appellate courts are contrary to each other; Trial court’s findings given great respect On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears stressing “It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to observe the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof. While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a question of fact not property raised in a petition under Rule 45, the Court has undertaken to do so in exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses.” 19. NBS not an innocent purchaser for value National Bookstore (NBS) is not an innocent purchaser for value, as it acted in bad faith. NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the willingness and
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design of NBS to buy property already sold to another party which led BPI to dishonor the contract with LSM. It is the very nature of the deed of absolute sale between BPI and NBS which clearly negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its title to the land and recognize the right of the vendee against the vendor if the title to the land turns out to be defective as when the land belongs to another person, the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is expressly freed under the contract from any recourse of NBS against it should BPI’s title be found defective. 20. Enumeration of badges of fraud found in Oria v. McMicking cannot cover all indications from 1912 to present and future NBS simply cited the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 (1912]) in its memorandum and argues that the enumeration there is exclusive. The decision in said case plainly states “the following are some of the circumstances attending sales which have been denominated by courts (as) badges of fraud.” There are innumerable situations where fraud is manifested. One enumeration in a 1912 decision cannot possibly cover all indications of fraud from that time up to the present and into the future. 21. Damages; Loss of profits and use of land compensated by appreciation in land value The profits and the use of the land which were denied to LSM because of the non-compliance or interference with a solemn obligation by BPI and NBS is somehow made up by the appreciation in land values. [56] Loyola v. CA [G.R. No. 115734. February 23, 2000.] Second Division, Quisumbing (J): 3 concur, 1 on leave Facts: A parcel of land (Lot 115-A-1 of subdivision plan [LRC] Psd-32117, a portion of Lot 115-A described on Plan Psd-55228, LRC [GLRO] Record 8374, located in Poblacion, Binan, Laguna, and containing 753 sq.m., TCT T-32007) was originally owned in common by the siblings Mariano and Gaudencia Zarraga, who inherited it from their father. Mariano predeceased his sister who died single, without offspring on 5 August 1983, at the age of 97. Victorina Zarraga vda. de Loyola and Cecilia Zarraga, are sisters of Gaudencia and Mariano. The property was subject of Civil Case B-1094 before the then CFI Laguna (Branch 1, Spouses Romualdo Zarraga, et al. v. Gaudencia Zarraga, et al.). Romualdo Zarraga was the plaintiff in Civil Case B-1094. The defendants were his siblings: Nieves, Romana, Guillermo, Purificacion, Angeles, Roberto, Estrella, and Jose, all surnamed Zarraga, as well as his aunt, Gaudencia. The trial court decided Civil Case B-1094 in favor of the defendants. Gaudencia was adjudged owner of the 1/2 portion of Lot 115-A-1. Romualdo elevated the decision to the Court of Appeals and later the Supreme Court. The petition (GR 59529) was denied by the Court on 17 March 1982. On 24 August 1980, nearly 3 years before the death of Gaudencia while GR 59529 was still pending before the Supreme Court. On said date, Gaudencia allegedly sold to the children of Mariano Zarraga (Nieves, Romana, Romualdo, Guillermo, Lucia, Purificacion, Angeles, Roberto, Estrella Zarraga) and the heirs of Jose Zarraga Aurora, Marita, Jose, Ronaldo, Victor, Lauriano, and Ariel Zarraga; first cousins of the Loyolas) her share in Lot 115-A- 1 for P34,000.00. The sale was evidenced by a notarized document denominated as “Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na Lupa.” Romualdo, the petitioner in GR 59529, was among the vendees. The decision in Civil Case B-1094 became final. The children of Mariano Zarraga and the heirs of Jose
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Zarraga (private respondents) filed a motion for execution. On 16 February 1984, the sheriff executed the corresponding deed of reconveyance to Gaudencia. On 23 July 1984, however, the Register of Deeds of Laguna, Calamba Branch, issued in favor of private respondents, TCT T-116067, on the basis of the sale on 24 August 1980 by Gaudencia to them. On 31 January 1985, Victorina and Cecilia filed a complaint, docketed as Civil Case B-2194, with the RTC of Biñan, Laguna, for the purpose of annulling the sale and the TCT. Victorina died on 18 October 1989, while Civil Case B-2194 was pending with the trial court. Cecilia died on 4 August 1990, unmarried and childless. Victorina and Cecilia were substituted by Ruben, Candelaria, Lorenzo, Flora, Nicadro, Rosario, Teresita and Vicente Loyola as plaintiffs. The trial court rendered judgment in favor of complainants; declaring the simulated deed of absolute sale as well as the issuance of the corresponding TCT null and void, ordering the Register of Deeds of Laguna to cancel TCT T-116087 and to issue another one in favor of the plaintiffs and the defendants as co-owners and legal heirs of the late Gaudencia, ordering the defendants to reconvey and deliver the possession of the shares of the plaintiff on the subject property, ordering the defendants to pay P20,000 as attorney’s fees and cost of suit, dismissing the petitioner’s claim for moral and exemplary damages, and dismissing the defendants’ counterclaim for lack of merit. On appeal, and on 31 August 1993, the appellate court reversed the trial court (CA-GR CV 36090). On September 15, 1993, the petitioners (as substitute parties for Victorina and Cecilia, the original plaintiffs) filed a motion for reconsideration, which was denied on 6 June 1994. Hence, the petition for review on certiorari. The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals; with costs against petitioners. 1. Presumption of regularity of notarized document A notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and documents acknowledged before a notary public have in their favor the presumption of regularity. In the present case, the petitioners allege that since the notary public who prepared and acknowledged the questioned Bilihan did not personally know Gaudencia, the execution of the deed was suspect. However, the notary public testified that he interviewed Gaudencia prior to preparing the deed of sale. By their failure to overcome this presumption, with clear and convincing evidence, petitioners are estopped from questioning the regularity of the execution of the deed. 2. Jose Zarraga alive when the sale took place Petitioners charge that one of the vendees, Jose Zarraga, was already dead at the time of the sale. However, the records reveal that Jose died on 29 July 1981. He was still alive on 24 August 1980, when the sale took place. 3. Simulation defined Simulation is “the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different what that which was really executed.” Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. Further, in a simulated contract, the parties have no intention to be bound by the contract. In the present case, perusal of the questioned deed shows that the sale of the property would convert the co-owners to vendors and vendees, a clear alteration of the juridical relationships. This is contrary to the requisite of simulation that the apparent contract was not really meant to produce any legal effect. The parties clearly intended to be bound by the contract of sale, an intention they did not deny. 4. Simulation, requisites The requisites for simulation are: (a) an outward declaration of will different from the will of the
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parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. In the present case, none of these are present in the assailed transaction. 5. Contracts binding only upon parties executing them Contracts are binding only upon the parties who execute them. Article 1311 of the Civil Code clearly covers this situation. In the present case Romualdo had no knowledge of the sale, and thus, he was a stranger and not a party to it. Even if curiously Romualdo, one of those included as buyer in the deed of sale, was the one who questioned Gaudencia’s ownership in Civil Case B-1094, Romana testified that Romualdo really had no knowledge of the transaction and he was included as a buyer of the land only because he was a brother. 6. Fraud is never presumed Fraud is never presumed, but must be both alleged and proved. For a contract to be annulled on the ground of fraud, it must be shown that the vendor never gave consent to its execution. If a competent person has assented to a contract freely and fairly, said person is bound. There also is a disputable presumption, that private transactions have been fair and regular. Applied to contracts, the presumption is in favor of validity and regularity. In the present case, the allegations of fraud was unsupported, and the presumption stands that the contract Gaudencia entered into was fair and regular. 7. Person not incapacitated to contract merely because of advanced age or due to physical infimities A person is not incapacitated to contract merely because of advanced years or by reason of physical infirmities. Only when such age or infirmities impair his mental faculties to such extent as to prevent him from properly, intelligently, and fairly protecting his property rights, is he considered incapacitated. In the present case, petitioners show no proof that Gaudencia had lost control of her mental faculties at the time of the sale. The notary public who interviewed her, testified that when he talked to Gaudencia before preparing the deed of sale, she answered correctly and he was convinced that Gaudencia was mentally fit and knew what she was doing. 8. Undue influence defined, circumstances considered; Article 1337 Article 1337 of the Civil Code provides that “there is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: confidential, family, spiritual, and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress.” 9. Undue influence case-to-case basis; Elements Undue influence depends upon the circumstances of each case and not on bare academic rules. For undue influence to be established to justify the cancellation of an instrument, three elements must be present: (a) a person who can be influenced; (b) the fact that improper influence was exerted; (c) submission to the overwhelming effect of such unlawful conduct. 10. Confidential or fiduciary relationship In the absence of a confidential or fiduciary relationship between the parties, the law does not presume that one person exercised undue influence upon the other. A confidential or fiduciary relationship may include any relation between persons, which allows one to dominate the other, with the opportunity to use that superiority to the other’s disadvantage. Included are those of attorney and client, physician and patient, nurse and invalid, parent and child, guardian and ward, member of a church or sect and spiritual adviser, a person and his confidential adviser, or whenever a confidential relationship exists as a fact. To prove a confidential relationship from which undue influence may arise, the relationship must reflect a dominant, overmastering influence which controls over the dependent person. In the present case, that Gaudencia looked after Romana in her old age is not sufficient to show that the relationship was confidential.
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Petitioners failed to show that Romana used her aunt’s reliance upon her to take advantage or dominate her and dictate that she sell her land. 11. Undue influence cannot be inferred from age, sickness, or debility of body Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains. In the present case. petitioners never rebutted the testimony of the notary public that he observed Gaudencia still alert and sharp. 12. Solicitation, importunity, argument, and persuasion not undue influence In Bañez v. Court of Appeals, (59 SCRA 15 [1974]), it was held that solicitation, importunity, argument, and persuasion are not undue influence. A contract is not to be set aside merely because one party used these means to obtain the consent of the other. In Martinez v. Hongkong and Shanghai Bank (15 Phil. 252 [1910]), that influence obtained by persuasion, argument, or by appeal to the affections is not prohibited either in law or morals, and is not obnoxious even in courts of equity. In the present case, absent any proof that Romana exerted undue influence, the presumption is that she did not. 13. Issue cannot be raised for the first time on appeal Lesion was not an issue raised before the lower courts. An issue which was neither averred in the complaint nor raised in the court below, cannot be raised for the first time on appeal. To do so would be offensive to the basic rules of fair play. 14. Grounds of simulated sale and inadequacy of the price not reconcilable Petitioners seem to be unsure whether they are assailing the sale of Lot 115-A-1 for being absolutely simulated or for inadequacy of the price. These two grounds are irreconcilable. If there exists an actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be, the transaction could not be a “simulated sale.” No reversible error was thus committed by the Court of Appeals in refusing to annul the questioned sale for alleged inadequacy of the price. [57] Luzon Brokerage v. Maritime, 86 SCRA 305 (1978) [58] Macondray vs. Eustaquio [G.R. No. 43683. July 16, 1937.] First Division, Imperial (J): 6 concur Facts: Macondray & Co. Inc. sold Urbano Eustaquio a De Soto car, Sedan, for the price of which, P595, he executed in its favor the note of 22 May 1934. Under the note, Eustaquio undertook to pay the car in 12 monthly installments with 12% interest per annum, likewise agreed that, should he fail to pay any monthly installment together with interest, the remaining installments would become due and payable, and Eustaquio shall pay 20% upon the principal owing as attorney’s fees, expenses of collection which the plaintiff might incur, and the costs. To guarantee the performance of his obligations under the note, Eustaquio on the same date mortgaged the purchased car in favor of Macondray, and bound himself under the same condition stipulated in the note relative to the monthly installments, interest, attorney’s fees, expenses of collection, and costs. The mortgaged deed was registered on 11 June 1934, in the office of the register of deeds of the Province of Rizal. On the 22nd of the same month, Eustaquio paid P43.75 upon the first installment, and thereafter failed to pay any of the remaining installments. In accordance with the terms of the mortgage, Macondray called upon the sheriff to take possession of the car, but Eustaquio refused to yield possession thereof. Whereupon, Macondray brought the replevin sought and thereby succeeded in getting possession of the car. The car was sold at public auction to Macondray for P250, the latter incurring legal expenses in the
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amount of P10.68. Macondray brought the action against Eustaquio to obtain the possession of an automobile mortgaged by the latter, and to recover the balance owing upon a note executed by him, the interest thereon, attorney’s fees, expenses of collection, and the costs (According to the liquidation filed by Macondray, Eustaquio was still indebted in the amount of P342.20, interest at 12% from 20 November 1934, P110.25 as attorney’s fees, and the costs.). Eustaquio was duly summoned, but he failed to appear or file his answer, wherefore, he was declared in default. Still, the CFI Manila dismissed the complaint, without costs. Hence, the appeal by Macondray. The Supreme Court affirmed the appealed judgment, with the costs against Macondray and Co. 1. Non-appearance by defendant does not imply a waiver of rights excepts those of being heard and of presenting evidence in his favor; Court did not err in applying Act 4122 Under section 128 of the Code of Civil Procedure, the judgment by default against a defendant who has neither appeared nor filed his answer does not imply a waiver of rights except that of being heard and of presenting evidence in his favor. It does not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal section requires the latter to adduce his evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant that the plaintiff’s causes of action find support in the law or that the latter is entitled to the relief prayed for. (Chaffin vs. McFadden, 41 Ark., 42; Johnson vs. Pierce, 12 Ark., 599; Mayden vs. Johnson, 59 Ga., 105; Peo. vs. Rust, 292 Ill., 412; Madison County vs. Smith, 95 Ill., 328; Keen vs. Leipold, 211 Ill. A., 163; Chicago etc. Electric R. Co. vs. Krempel, 116 Ill. A., 253.) Thus, the defendant did not waive the application by the court of Act 4122. 2. Act 4122 valid; Conclusion in Manila Trading vs. Reyes sustained In Manila Trading & Supply Co. vs. Reyes (62 Phil., 461), the validity of the Act 4122 was already passed upon when it was questioned for the same reasons advanced, i.e. that it takes property without due process of law, denies the equal protection of the laws, and impairs the obligations of contract, thereby violating the provisions of section 3 of the Act of The United States Congress of 29 August 1916, known as the Jones Law. As Macondray, through counsel, advanced no new arguments which have not already been considered in the Reyes case, there is no reason for reaching a different conclusion. The law seeks to remedy an evil which the Legislature wished to suppress; this legislative body has power to promulgate the law. The law does not completely deprive vendors on the installment basis of a remedy, but requires them to elect among three alternative remedies. The law, on the other hand, does not completely exonerate the purchasers, but only limits their liabilities. Finally, there is no vested right when a procedural law is involved, wherefore the Legislature could enact Act 4122 without violating the organic law. 3. Manila Trading vs. Reyes; Validity of act solely one of constitutional power; Motive or results irrelevant The question of the validity of an act is solely one of constitutional power. Questions of expediency, of motive, or of results are irrelevant. Nevertheless it is not improper to inquire as to the occasion for the enactment of a law. The legislative purpose thus disclosed can then serve as a fit background for constitutional inquiry. 4. Manila Trading vs. Reyes; Purpose of Act 4122 Act 4122 aims to correct a social and economic evil, the inordinate love for luxury of those who, without sufficient means, purchase personal effects, and the ruinous practice of some commercial houses of purchasing back the goods sold for a nominal price besides keeping a part of the price already paid and collecting the balance, with stipulated interest, costs, and attorney’s fees. As a consequence, the vendor does not only recover the goods sold, used hardly 2 months perhaps with only slight wear and tear, but also collects
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the entire stipulated purchase price, probably swelled up 50% including interest, costs, and attorney’s fees. This practice is worse than usurious in many instances. And although, of course, the purchaser must suffer the consequences of his imprudence and lack of foresight, the chastisement must not be to the extent of ruining him completely and, on the other hand, enriching the vendor in a manner which shocks the conscience. The object of the law is highly commendable. 5. Manila Trading vs. Reyes, citing Bachrach Motor vs. Millan; Purpose of amendment The principal object of the amendment was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. The amendment prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness. Under this amendment the vendor of personal property, the purchase price of which is payable in installments, has the right to cancel the sale or foreclose the mortgage if one has been given on the property. Whichever right the vendor elects he need not return to the purchaser the amount of the installments already paid, “if there be an agreement to that effect.” Furthermore, if the vendor avails himself of the right to foreclose the mortgage this amendment prohibits him from bringing an action against the purchaser for the unpaid balance. Under the amendment, in, all proceedings for the foreclosure of chattel mortgages, executed on chattels which have been sold on the installment plan, the mortgagee is limited to the property included in the mortgage. (Bachrach Motor Co. vs. Millan [1935], 61 Phil., 409.) 6. Manila Trading vs. Reyes; US Jurisprudence, 1897 Act passed in State of Washington not controlling In 1897, an Act was passed in the State of Washington which provided “that in all proceedings for the foreclosure of mortgages hereafter executed, or on judgments rendered upon the debt thereby secured, the mortgagee or assignee shall be limited to the property included in the mortgage.” It was held by a divided court of three to two that the statute since limiting the right to enforce a debt secured by mortgage to the property mortgaged, whether realty or chattels, was an undue restraint upon the liberty of a citizen to contract with respect to his property rights. But as is readily apparent, the Washington law and the Philippine law are radically different in phraseology and in effect. (Dennis vs. Moses [1898], 40 L. R. A., 302.) 7. Manila Trading vs. Reyes; US Jurisprudence, Act passed in State of Oregon not controlling In Oregon, in a decision of a later date, an Act abolishing deficiency judgments upon the foreclosure of mortgages to secure the unpaid balance of the purchase price of real property was unanimously sustained by the Supreme Court of that State. The importance of the subject matter in that jurisdiction was revealed by the fact that four separate opinions were prepared by the justices participating, in one of which Mr. Justice Johns, shortly thereafter to become a member of this court, concurred. However, it is but fair to state that one of the reasons prompting the court to uphold the law was the financial depression which had prevailed in that State. While in the Philippines, the court can take judicial notice of the stringency of finances that presses upon the people, there is no reason to believe that this was the reason which motivated the enactment of Act 4122. (Wright vs. Wimberley [1919], 184 Pac., 740). 8. Manila Trading vs. Reyes; US Jurisprudence, Bronzon vs. Kinzie In the case of Bronzon vs. Kinzie [1843], 1 How., 311), decided by the Supreme Court of the United States, the Court had under consideration a law passed in the State of Illinois, which provided that the equitable estate of the mortgagor should not be extinguished for 12 months after sale on decree, and which prevented any sale of the mortgaged property unless 2/3 of the amount at which the property had been valued by appraisers should be bid therefor. The court declared that “Mortgages made since the passage of these laws must undoubtedly be governed by them; for every State has the power to describe the legal and equitable obligations of a contract to be made and executed within its jurisdiction. It may exempt any property it thinks proper from sale for the payment of a debt; and may impose such conditions and restrictions upon the creditor
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as its judgment and policy may dictate. And all future contracts would be subject to such provisions; and they would be obligatory upon the parties in the courts of the United States, as well as in those of the State.” 9. Manila Trading vs. Reyes; US Jurisprudence, Parties have no vested right in particular remedies or modes of procedure Parties have no vested right in particular remedies or modes of procedure, and the legislature may change existing remedies or modes of procedure without impairing the obligation of contracts, provided an efficacious remedy remains for enforcement. But changes in the remedies available for the enforcement of a mortgage may not, even when public policy is invoked as an excuse, be pressed so far as to cut down the security of a mortgage without moderation or reason or in a spirit of oppression. (Brotherhood of American Yeoman vs. Manz [1922], 206 Pac., 403; Oshkosh Waterworks Co. vs. Oshkosh [1908], 187 U. S., 437; W. B. Worthen Co. vs. Kavanaugh [1935], 79 U. S. Supreme Court Advance Opinions, 638.) 10. Manila Trading vs. Reyes; Chattel Mortgage Law does not provide for deficiency judgment upon foreclosure of mortgage In the Philippines, the Chattel Mortgage Law did not expressly provide for a deficiency judgment upon the foreclosure of a mortgage. Indeed, it required decisions of the Court to authorize such a procedure. (Bank of the Philippine Islands vs. Olutanga Lumber Co. [1924], 47 Phil., 20; Manila Trading & Supply Co. vs. Tamaraw Plantation Co., supra.) But the practice became universal enough to acquire the force of direct legislative enactment regarding procedure. To a certain extent the Legislature has now disauthorized the practice, but has left a sufficient remedy remaining. 11. Manila Trading vs. Reyes; Remedies available to vendor who has sold personal property on installment plan; Basis of remedies Three remedies are available to the vendor who has sold personal property on the installment plan. (1) He may elect to exact the fulfillment of the obligation. (Bachrach Motor Co. vs. Millan, supra.) (2) If the vendee shall have failed to pay two or more installments, the vendor may cancel the sale. (3) If the vendee shall have failed to pay two or more installments, the vendor may foreclose the mortgage, if one has been given on the property. The basis of the first option is the Civil Code. The basis of the last two options is Act 4122, amendatory of the Civil Code. And the proviso to the right to foreclose is, that if the vendor has chosen this remedy, he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same. In other words, as we see it, the Act does no more than qualify the remedy. 12. Manila Trading vs. Reyes; Determination of constitutional issues, all doubts resolve in the presumption to their validity Most constitutional issues are determined by the court’s approach to them. The proper approach in cases of this character should be to resolve all presumptions in favor of the validity of an act in the absence of a clear conflict between it and the constitution. All doubts should be resolved in its favor. 13. Manila Trading vs. Reyes; Public policy defined and established by legislature, courts to perpetuate policy The controlling purpose of Act 4122 is revealed to be to close the door to abuses committed in connection with the foreclosure of chattel mortgages when sales were payable in installments. That public policy, obvious from the statute, was defined and established by legislative authority. It is for the courts to perpetuate it. 14. Manila Trading vs. Reyes; Legislature may change judicial methods and remedies for the enforcement of contracts The Legislature may change judicial methods and remedies for the enforcement of contracts, as it has done by the enactment of Act 4122, without unduly interfering with the obligation of the contract, without sanctioning class legislation, and without a denial of the equal protection of the laws.
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15. Interpretation of laws, Intent of legislature; Restriction of meaning of “unpaid balance” should be expressly stated The provision “However, if the vendor has chosen to foreclose the mortgage he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same, and any agreement to the contrary shall be null and void,” is the subject of the interpretation. The paragraph, as its language shows, refers to the mortgage contract executed by the parties, whereby the purchaser mortgages the chattel sold to him on the installment basis in order to guarantee the payment of its price, and the words “any unpaid balance” should be interpreted as having reference to the deficiency judgment to which the mortgagee may be entitled where, after the mortgaged chattel is sold at public auction, the proceeds obtained therefrom are insufficient to cover the full amount of the secured obligations which, in the case at bar as shown by the note and by the mortgage deed, include interest on the principal, attorney’s fees, expenses of collection, and the costs. The fundamental rule which should govern the interpretation of laws is to ascertain the intention and meaning of the Legislature and to give effect thereto. (Sec. 288, Code of Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19 Phil., 134; De Jesus vs. City of Manila, 29 Phil., 73; Borromeo vs. Mariano, 41 Phil., 322; People vs. Concepcion, 44 Phil., 126.) Were it the intention of the Legislature to limit its meaning to the unpaid balance of the principal, it would have so stated. [59] Manila Racing Club vs. Manila Jockey Club [G.R. No. L-46533. October 28, 1939.] En Banc, Avancena (J): 6 concur Facts: On 18 September 1936, Rafael J. Campos entered into a contract with the Manila Jockey Club, an unregistered partnership, whereby he purchased from it the parcel of land described in TCT 8724 with its improvements, the good-will, and certain personal property. The price agreed upon in this transaction is P1,200,000 (P50,000 upon the signing of the contract; P50,000 on or before 28 September 1936; P300,000 on or before 24 December 1936; P200,000 on or before 24 March 1937; and P600,000 on or before 24 September 1937). It was agreed that should the purchaser fail to pay the amount corresponding to each installment in due time, the vendor may rescind the contract and keep the amounts paid for itself. One of the clauses of the deed also states that the purchaser may form a corporation called the Manila Racing Club, Inc., to whom he may transfer all his rights and obligations under the contract. The purchaser Campos made the down payment of P50,000 upon signing the contract and on 28 September 1938 paid the second installment of P50,000. On 22 October 1936, the Manila Racing Club, Inc., was organized and Campos transferred to it all his rights and obligations under his contract with the Manila Jockey Club. As the third installment of P300,000 became due on 24 December 1936, and the purchaser could not pay it, the vendor, on 11 January 1937, declared the contract cancelled and kept the amount of P100,000 already paid. The purchaser was, however, granted an extension until 22 January 1937, to revive the contract by paying the P300,000, but having failed to do this, the partners of the vendor ratified on 23 January 1937, the cancellation of the contract agreed upon by its board of directors and the forfeiture of the P100,000 paid by the purchaser. On 23 March 1937 the Manila Jockey Club, Inc., was organized and to it were transferred all the properties, rights and actions of the Manila Jockey Club. An action was filed by the Manila Racing Club against the Manila Jockey Club and its partners for the recovery from them of the forfeited amount of P100,000 and for the payment of P50,000 as damages. The trial court rendered judgment absolving the Manila Jockey Club and its partners. The Supreme Court affirmed the appealed judgment, with the costs against the Manila Racing Club. 1. Clause referring to forfeiture of amounts paid valid, not contrary to law, morals or public order; Purpose of a penal clause
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The clause regarding the forfeiture of what has been partially paid is valid. It is in the nature of a penal clause which may be legally established by the parties (articles 1152 and 1255 of the Civil Code). In its double purpose of insuring compliance with the contract and of otherwise measuring beforehand the damages which may result from non-compliance, it is not contrary to law, morals or public order because it was voluntarily and knowingly agreed upon by the parties. Viewing concretely the true effects thereof in the present case, the amount forfeited constitutes only 8% of the stipulated price, which is not excessive if considered as the profit which would have been obtained had the contract been complied with. There is evidence that the Manila Jockey Club, because of the contract with Campos, had to reject other propositions to buy the same property. At any rate, the penal clause does away with the duty to prove the existence and measure of the damages caused by the breach. 2. Allegation that Manila Jockey Club responsible for non-compliance with contract not justified The allegation that the Manila Jockey Club was responsible for the non-compliance with the contract is not justified. There is no sufficient evidence that the majority of the members of the Manila Jockey Club promised to subscribe to one-half of the shares of Manila Racing Club, and for failure to live up to this promise, the money to pay the third installment of P300,000 could not be raised. Campos himself attributes the failure to pay the third installment to the fact that the public, due to the state of the stock market, did not respond to the expectations of the incorporators of the Manila Racing Club. But it seems that even this is not the cause of the breach, for on the date the third installment became due, the Manila Racing Club had subscribed shares of its capital stock in the amount of P600,000, paid in part and the remainder payable on demand. The deduction from all this is that the breach of the contract cannot be attributed to the Manila Jockey Club and, much less, to the company which, it is also alleged, the defendants brought into being to defeat the organization of the Manila Racing Club. [60] Mapalo v. Mapalo [G.R. No. L-21489 and L-21628. May 19, 1966.] En Banc, Bengzon JP (J): 10 concur Facts: Spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners of a 1,635 sq.ms. residential land in Manaoag, Pangasinan (OCT 46503). The spouses-owners, out of love and affection for Maximo Mapalo, brother of Miguel who was about to get married, decided to donate the eastern half of the land to him. OCT 46503 was delivered. As a result, however, they were deceived into signing, on 15 October 1936, a deed of absolute sale over the entire land in his favor. Their signature thereto were procured by fraud, i.e. they were made to believe by Maximo Mapalo and the attorney who acted as notary public who “translated” the document, that the same was a deed of donation in Maximo’s favor covering ½ (the eastern half) of their land. Although the document of sale stated a consideration of P500, the spouses did not receive anything of value for the land. The attorney’s misbehavior was the subject of an investigation but its result does not appear on record. Following the execution of the document the spouses immediately built a fence of permanent structure in the middle of their land segregating the eastern portion from its western portion. Said fence still exists. The spouses have always been in continued possession over the western half of the land up to the present. Unknown to them, Maximo Mapalo, on 15 March 1938, registered the deed of sale in his favor and obtained in his name TCT 12829 over the entire land. 13 years later, on 20 October 1951, he sold for P2,500.00 said entire land in favor Evaristo, Petronila, Pacifico and Miguel Narciso. The sale to the Narcisos was in turn registered on 5 November 1951 and TCT 11350 was issued for the whole land in their names. The Narcisos took possession only of the eastern portion of the land in 1951, after the sale in their favor was made. On 7 February 1952 the Narcisos filed suit in the CFI Pangasinan (Civil Case 11991) to be declared owners of the entire land; for possession of its western portion; for damages; and for rentals. It was brought against the Mapalo spouses as well as against Floro Guieb and Rosalia Mapalo Guieb who had a house on the western
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part of the land with the consent of the spouses Mapalo and Quiba. The Mapalo spouses filed their answer with a counterclaim on 17 March 1952, seeking cancellation of the TCT of the Narcisos as to the western half of the land, on the grounds that their signatures to the deed of sale of 1936 were procured by fraud and that the Narcisos were buyers in bad faith. They asked for reconveyance to them of the western portion of the land and issuance of a TCT in their names as to said portion. In addition, the Mapalo spouses filed on 16 December 1957 their own complaint in the CFI Pangasinan (Civil Case U-133) against the the Narcisos and Maximo Mapalo. They asked that the deeds of sale of 1936 and of 1951 over the land in question declared null and void as to the western half of said land. Judge Amado Santiago of the CFI Pangasinan located in the municipality of Urdaneta the two cases jointly. Said court rendered judgment on 18 January 1961 dismissing the complaint in Civil Case 11991, declaring the deed as that of donation only over the eastern half portion of the land, and as null and void with respect to the western half portion thereof, declaring TCT 12829 issued to Maximo Mapalo as regards the western portion of the land null and void and without legal force as well as TCT 11350 subsequently issued to the Narcisos, ordering the Mapalo spouses and the Narcisos to have the land subdivided by a competent land surveyor, the expenses of which to be borne out by the parties pro-rata, ordering the Register of Deed to issue in lieu of TCT 11350 two new titles upon completion of the subdivision plan (one in favor of the Mapalo spouses for the western portion, and one for the Narcisos covering the eastern half), and ordering Maximo Mapalo and the Narcisos to pay the costs. The Narcisos appealed to the Court of Appeals. In its decision on 28 May 1963, the Court of Appeals reversed the Judgment of the CFI, solely on the ground that the consent of the Mapalo spouses to the deed of sale of 1936 having been obtained by fraud, the same was voidable, not void ab initio, and, therefore, the action to annul the same, within 4 years from notice of the fraud, had long prescribed. It reckoned said notice of the fraud from the date of registration of the sale on 15 March 1938. The CFI and the CA are therefore unanimous that the spouses Mapalo and Quiba were definitely the victims of fraud. It was only on prescription that they lost in the Court of Appeals. From said decision of the Court of Appeals, the Mapalo spouses appealed to the Court. The Supreme Court reversed and set aside the decision of the Court of Appeals, and rendered another affirming in toto the judgment of the CFI, with attorneys’ fees on appeal in favor of the Mapalo Spouses in the amount of P1,000.00, plus the costs, both against Maximo Mapalo and the Narcisos. 1. Contract; Requisites Under the Civil Code, either old or the new, for a contract to exist at all, three essential requisites must concur: (1) consent; (2) object, and (3) cause or consideration. 2. Eastern half donated; Finding of the lower court as to the donation not assailed and thus is final As regards the eastern portion of the land, the Mapalo spouses are not claiming the same, it being their stand that they had donated and freely given said half of their land to Maximo Mapalo. And since they did not appeal from the decision of the trial court finding that there was a valid and effective donation of the eastern portion of their land in favor of Maximo Mapalo, the same pronouncement has become final as to them, rendering it no longer proper herein to examine the existence, validity or efficacy of said donation as to said eastern portion. 3. Contracts without a cause void Under the Civil Code, be it the old or the new, is that contracts without a cause or consideration produce no effect whatsoever. 4. Old Civil Code; Contracts with false consideration voidable; Prescription of voidable contracts Under the Old Civil Code, the statement of a false consideration renders the contract voidable, unless it is proven that it is supported by another real and licit consideration. And it is further provided by the Old Civil Code that the action for annulment of a contract on the ground of falsity of consideration shall last 4
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years, the term to run from the date of the consummation of the contract. 5. False consideration a real consideration but not the one stated in the document According to Manresa, what is meant by a contract that states a false consideration is one that has in fact a real consideration but the same is not the one stated in the document. (“The difference between simulation and the contract with fraudulent intention (purpose). This, although illicit is real; but the first is false in fact, although it appears to be real.” [Manresa, Civil Code Volume VIII, vol. II, p. 354]). 6. Only a disturbed man would contract without cause; False cause vitiates consent and annuls contract (Sanchez Roman) The inspection of cause in the contract is necessary, and that without it they are null; it can only be conceived that a disturbed man would, in his reason, contract without cause. For the same reason of the necessity of inspection of cause in the contract, it is precise that such is real and not supposed, as it pretends or appears. The falsification of the cause vitiates the consent and annuls the contract, that is, not only as a doctrine undoubtedly of scientific law, but also of old laws of Castile, that in multitude of laws that declare it.” (Sanchez Roman, Civil Right, Volume IV, p. 206.) 7. No consideration does not mean false consideration for Article 1276 to be applied Where there was in fact no consideration, the statement of one in the deed will not suffice to bring it under the rule of Article 1276 of the Old Civil Code as stating a false consideration. 8. Oceio Perez v. Flores applies; Contract null and void if without cause or consideration The ruling of the Court in Ocejo Perez & Co. vs. Flores (40 Phil. 921), is squarely applicable herein. In that case, it was ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor. 9. Void contract incurable and cannot be subject of prescription The inexistence of a contract is permanent and incurable and cannot be the subject of prescription. The nonexistence is perpetual and irreplaceable not being able to be object of confirmation nor prescription. As held in Eugenio vs. Perdido (97 Phil. 41, 42-43 [1932]), it was stated that “under the existing classification, such contract would be ‘inexistent’ and ‘the action or defense for declaration’ of such inexistence ‘does not prescribe’. (Art. 1410, New Civil Code.) While it is true that this is a new provision of the New Civil Code, it is nevertheless a principle recognized since Tipton vs. Velasco (6 Phil. 67) that ‘mere a lapse of time cannot give efficacy to contracts that are null and void’. 10. Narcisos not purchasers in good faith It has been positively shown by the undisputed testimony of Candida Quiba that Pacifico Narciso and Evaristo Narciso stayed for some days on the western side of the land until their house was removed in 1940 by the spouses Mapalo. Also, Pacifico Narciso admitted in his testimony that when they bought the property, Miguel Mapalo was still in the premises in question (western part) which he is occupying and his house is still standing thereon. Moreover, Pacifico Narciso when presented as a rebuttal and sub-rebuttal witness categorically declared that before buying the land in question he went to the house of spouses Mapalo and asked them if they will permit Maximo Mapalo to sell the property. Further, as the parties in the cases are neighbors (except Maximo Mapalo), it is clear that the Narcisos were aware of the extent of the interest of Maximo Mapalo over the land before and after the execution of the deed of sale. Under the situation, thus, the Narcisos may be considered in value but certainly not as purchasers in good faith. 11. No need to remand case to trial court as facts of trial court sustained by Court of Appeals As the Court of Appeals declared that “on the merits, the appealed decision called have been upheld under Article 1332 of Civil Code and the following authorities: Ayola vs. Valderrama Lumber Manufacturers
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Ca., Inc., 49 OG 980, 982; Trasporte Beltran, 51 OG 1434, 1435; Cortez vs. Cortez, CA- 18451-R, August 8, 1961; Castilllo vs. Laberinto, CA-G.R. No. 18118-R, December 20, 1961; and 13 C. J. 372-373, as well as the several facts and circumstances appreciated by the trial court as supporting the Mapalo spouses’ case,” it thus sustained — barring only its ruling on prescription — the judgment and findings of the trial court, including that of bad faith on the part of the Narcisos in purchasing the land in question. The Supreme Court thus do not see the need to further remand the case to the Court of Appeals for a ruling on the point in the event that the 1936 contract is held to be inexistent as regards the western portion of the land. 12. Bad faith justifies award of attorney’s fees In view of the Narcisos’ bad faith under the circumstances we deem it just and equitable to award, in the Mapalo spouses’ favor, attorneys’ fees on appeal, in the amount of P1,000.00 as prayed for in the counterclaim. [61] Mate v. CA [G.R. Nos. 120724-25. May 21, 1998.] Second Division, Martinez (J): 4 concur Facts: On 6 October 1986 Josefina R. Rey and Inocencio Tan went to the residence of Fernando Mate at Tacloban City. Josie who is a cousin of Mate’s wife solicited his help to stave off her and her family’s prosecution by Tan for violation of BP 22 on account of the rubber checks that she, her mother, sister and brother issued to Tan amounting to P4,432,067.00. She requested Mate to cede to Tan his 3 lots in Tacloban City in order to placate him. On hearing Josie’s proposal, he immediately rejected it as he owed Tan nothing and he was under no obligation to convey to him his properties. Furthermore, his lots were not for sale. Josie explained to him that he was in no danger of losing his properties as he will merely execute a simulated document transferring them to Tan but they will be redeemed by her with her own funds. After a long discussion, he agreed to execute a fictitious deed of sale with right to repurchase covering his 3 lots, subject to the conditions that the amount to be stated in the document is P1,400,000.00 with interest thereon at 5% a month; the properties will be repurchased within 6 months or on or before 4 April 1987; although it would appear in the document that Mate is the vendor, it is Josie who will provide the money for the redemption of the properties with her own funds; and the titles to the properties will be delivered to Tan but the sale will not be registered in the Register of Deeds and annotated on the titles. Josie, to assure Mate that she will redeem the properties, issued him 2 BPI checks both postdated 15 December 1986. One check was for P1,400,000.00 supposedly for the selling price and the other was for P420,000.00 corresponding to the interests for 6 months. Immediately thereafter Mate prepared the Deed of Sale with Right to Repurchase and after it has been signed and notarized, it was given to Tan together with the titles of the properties and the latter did not register the transaction in the Register of Deeds as agreed upon. On 14 January 1987, Mate deposited the check for P1,400,000.00 in his account at the UCPB and the other check for P420,000.00 in his account at MetroBank preparatory to the redemption of his properties. Both of them were dishonored by the drawee bank for having been drawn against a closed account. Realizing that he was swindled, he sent Josie a telegram about her checks and when she failed to respond, he went to Manila to look for her but she could not be found. Mate returned to Tacloban City and filed Criminal Cases 8310 and 8312 against her for violation of BP 22 but the cases were later archived as the accused (Josie) could not be found as she went into hiding. To protect his interest, he filed Civil Case 7396 of the RTC Leyte (Branch VII, Mate vs. Rey and Tan) for Annulment of Contract with Damages. Josie was declared in default and the case proceeded against Tan. But during the trial the RTC court asked Tan to file an action for consolidation of ownership of the properties subject of the sale and pursuant thereto he filed Civil Case 7587 that was consolidated with the case he filed earlier which were later decided jointly by the trial court in favor of Tan and was subsequently appealed to the Court of Appeals. The appellate court, on 29 August 1994 (CA-GR CV 28225-26), affirmed the decision with modification that
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Mate is ordered to pay Tan the sum of P140,000 for and as attorney’s fees; with costs against Mate. Thereupon, Mate filed a motion to reconsider the decision but it was denied. Hence, the petition for review. The Supreme Court affirmed the decision of the Court of Appeals dated 29 August 1994, and denied due course to the petition for review for lack of merit. 1. Consideration exist in the Deed of Sale with Right to Repurchase (Sale with Pacto de Retro) To ensure that he could repurchase his lots, Mate got a check of P1,400,000.00 from Josie. By allowing his titles to be in possession of Tan for a period of 6 months, Mate secured from her another check for P420,000.00. It is thus plain that consideration existed at the time of the execution of the deed of sale with right of repurchase. It is not only Mate’s kindness to Josefina, being his cousin, but also his receipt of P420,000.00 from her which impelled him to execute such contract. While Mate did not receive the P1.4M purchase price from Tan, he had in his possession a postdated check of Josie in an equivalent amount precisely to repurchase the 2 lots on or before the 6th month. 2. No basis to file an action to annul the pacto de retro sale; Proper cause of action is BP 22 against Josie; Filing of criminal case a tacit admission that there is consideration of the pacto de retro sale There is absolutely no basis for Mate to file a complaint against Tan and Josie to annul the pacto de retro sale on the ground of lack of consideration, invoking his failure to encash the two checks. Mate’s cause of action was to file criminal actions against Josie under BP 22, which he did. The filing of the criminal cases was a tacit admission by petitioner that there was a consideration of the pacto de retro sale. Mate knew that he was bound by the deed of sale with right to repurchase, as evidenced by his filing criminal cases against Josie when the two checks bounced. 3. Singson v. Isabela Sawmill does not apply Mate’s reliance on the doctrine in Singson vs. Isabela Sawmill (88 SCRA 633, 643), where the Court said that “where one or two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear consequences” is misplaced. He is not an innocent person. As a matter of fact, he gave occasion for the damage caused by virtue of the deed of sale with right to repurchase which he prepared and signed. Thus, there is the equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 4. Tan incurred no false pretense; Mate has no one to blame but himself for his misfortune; Mate a lawyer Tan did not employ any devious scheme to make the former sign the deed of sale. Tan waived his right to collect from Josie by virtue of the pacto de retro sale. In turn, Josie gave Mate a postdated check in the amount of P1.4M to ensure that the latter would not lose his two lots. Mate, a lawyer, should have known that the transaction was fraught with risks since Josie and family had a checkered history of issuing worthless checks. But had Mate not agreed to the arrangement, Tan would not have agreed to waive prosecution of Josie. Apparently, it was Mate’s greed for a huge profit that impelled him to accede to the scheme of Josie even if he knew it was a dangerous undertaking. When he drafted the pacto de retro document, he threw caution to the winds forgetting that prudence might have been the better course of action. When Josie’s checks bounced, he should have repurchased his lots with his own money. Instead, he sued not only Josie but also Tan for annulment of contract on the ground of lack of consideration and false pretenses on their part. 5. Contracts A contract is a contract. Once agreed upon, and provided all the essential elements are present, it is valid and binding between the parties. [62]

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Mclaughin v. CA, 144 SCRA 693 (1986) [63] Medina v. Collector of Internal Revenue [G.R. No. L-15113. January 28, 1961.] En Banc, Reyes JBL (J): 6 concur Facts: On 20 May 1944, Antonio Medina married Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later, however, Antonio acquired forest concessions in the municipalities of San Mariano and Palanan, Isabela. From 1946 to 1948, the logs cut and removed by the Antonio from his concessions were sold to different persons in Manila through his agent, Mariano Osorio. In 1949, Antonia started to engage in business as a lumber dealer, and up to around 1952, Antonio sold to her almost all the logs produced in his San Mariano concession. Antonia, in turn, sold in Manila the logs bought from her husband through the same agent, Mariano Osorio. The proceeds were either received by Osorio for Antonio or deposited by said agent in Antonio’s current account with the PNB. On the thesis that the sales made by Antonio to his wife were null and void pursuant to the provisions of Article 1490 of the Civil Code of the Philippines, the Collector considered the sales made by Antonia as Antonio’s original sales taxable under Section 186 of the National Internal Revenue Code and, therefore, imposed a tax assessment on Antonio. On 30 November 1963, Antonio protested the assessment; however, the Collector insisted on his demand. On 9 July 1954, Antonio filed a petition for reconsideration, revealing for the first time the existence of an alleged premarital agreement of complete separation of properties between him and his wife, and contending that the assessment for the years 1946 to 1952 had already prescribed. After one hearing, the Conference Staff of the Bureau of Internal Revenue eliminated the 50% fraud penalty and held that the taxes assessed against him before 1948 had already prescribed. Based on these findings, the Collector issued a modified assessment, demanding the payment of only P3,325.68. Antonio again requested for reconsideration, but the Collector, in his letter of 4 April 1955, denied the same. Antonio appealed to the Court of Tax Appeals, which rendered judgment upholding a tax assessment of the Collector of Internal Revenue except with respect to the imposition of so-called compromise penalties, which were set aside. Hence a petition to review the decision of the CTA. The Supreme Court affirmed the appealed decision with cost against the petitioner. 1. No evidence proving pre-marital agreement of absolute separation between the spouses Aside from the material inconsistencies in the testimony of petitioner’s witnesses, the circumstantial evidence is against petitioner’s claim. (1) It appears that at the time of the marriage between the petitioner and his wife, they neither had any property nor business of their own, as to have really urged them to enter into the supposed property agreement. (2) The testimony that the separation of property agreement was recorded in the Registry of Property 3 months before the marriage, is patently absurd, since such a pre-nuptial agreement could not be effective before marriage is celebrated. (3) Despite their insistence on the existence of the antenuptial contract, the couple, strangely enough, did not act in accordance with its alleged covenants; but that even during their taxable years, the ownership, usufruct, and administration of their properties and business were in the husband. (4) Although petitioner already knew that Article 1490 prohibits sales between spouses married under a community system, it was not until July 1954 that the allege the existence of the alleged property separation agreement. (5) The Day Book of the Register of Deeds on which the agreement would have been entered, which was saved from the ravages of war, did not show that the document in question was among those recorded therein. 2. Trial court’s judgment on the degree of credence of witness considered seriously by the Supreme Court
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When the credibility of witnesses is the one at issue, the trial court’s judgment as to their degree of credence deserves serious consideration by this Court (Collector vs. Bautista, et al., G. R. Nos. L-12250, L12259, May 27, 1959). This is all the more true because not every copy of the supposed agreement, particularly the one that was said to have been filed with the Clerk of Court of Isabela, was accounted for as lost; so that, applying the “best evidence rule”, the court did right in giving little or no credence to the secondary evidence to prove the due execution and contents of the alleged document (see Comments on the Rules of Court, Moran, 1957 Ed., Vol. 3, pp. 10-12). 3. Article 7 and 10 of Code of Commerce does not exempt from the prohibition of sale between spouses under Article 1490 of the Civil Code Article 7 and 10 of the Code of Commerce merely state, under certain conditions, a presumption that the wife is authorized to engage in business and for the incidents that flow therefrom when she so engages therein. The transactions permitted therein however are those entered into with strangers, and do not constitute exceptions to the prohibitory provisions of Article 1490 against sales between spouses. 4. Government always an interested party in taxable transactions The government is always an interested party to all matters involving taxable transactions and qualified to question their validity or legitimacy whenever necessary to block tax evasion. It cannot be contended thus that the Collector cannot assail the questioned sales, he being a stranger to said transactions. 5. Contracts violative of Article 1490 null and void Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs. Cantollas, 70 Phil. 55; Uy Coque vs. Sioca, 45 Phil. 43). In the present case, being void transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that considered as the taxable sales those made by the wife through the spouses’ common agent, Mariano Osorio. 6. (?) Illegally obtained documents and papers admissible to evidence; Revenue officers can require production of books of accounts and other records from taxpayers Illegally obtained documents and papers are admissible in evidence, if they are found to be competent and relevant to the case (see Wong & Lee vs. Collector of Internal Revenue, 104 Phil., 469). Petitioner’s imputation, that the documentary evidence is illegally seized, is vehemently denied by him, and relying on Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions of Revenue Regulations No. V-1 and citing this Court’s ruling in U.S. vs. Aviado 38 Phil., 10, the Collector maintains that he and other internal revenue officers and agents could require the production of books of accounts and other records from a taxpayer. [64] Melliza v. Iloilo City [G.R. No. L-24732. April 30, 1968.] En Banc, Bengzon JP (J): 8 concur, 1 on leave Facts: Juliana Melliza during her lifetime owned, among other properties, 3 parcels of residential land in Iloilo City (OCT 3462). Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot 1214 was 29,073 sq. m. On 27 November 1931 she donated to the then Municipality of Iloilo, 9,000 sq. m. of Lot 1214, to serve as site for the municipal hall. The donation was however revoked by the parties for the reason that the area donated was found inadequate to meet the requirements of the development plan of the municipality, the so- called “Arellano Plan.” Subsequently, Lot 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1, with 4,562 sq. m., became known as Lot 1214-B; Lot 1214-B-2, with 6,653 sq. m., was designated as Lot 1214-C; and Lot 1214-B-3, with 4,135 sq. m., became Lot 1214-D. On 15 November 1932, Juliana Melliza executed an instrument
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without any caption providing for the absolute sale involving all of lot 5, 7669 sq. m. of Lot 2 (sublots 2-B and 2-C), and a portion of 10,788 sq. m. of Lot 1214 (sublots 1214-B2 and 1214-B3) in favor of the Municipal Government of Iloilo for the sum of P6,422; these lots and portions being the ones needed by the municipal government for the construction of avenues, parks and City hall site according the “Arellano plan.” On 14 January 1938, Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva (thereafter TCT 18178). Remedios in turn on 4 November 1946 transferred her rights to said portion of land to Pio Sian Melliza (thereafter TCT 2492). Annotated at the back of Pio Sian Melliza’s title certificate was the following “that a portion of 10,788 sq. m. of Lot 1214 now designated as Lots 1412-B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated 15 November 1932.” On 24 August 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site donated consisted of Lots 1214-B, 1214-C and 1214-D, with a total area of 15,350 sq. m., more or less. Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by Pio Sian Melliza, the City did not have funds. The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D. On 10 December 1955 Pio Sian Melizza filed an action in the CFI Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value. After stipulation of facts and trial, the CFI rendered its decision on 15 August 1957, dismissing the complaint. Said court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B, and thus it held that Iloilo City had the right to donate Lot 1214-B to UP. Pio Sian Melliza appealed to the Court of Appeals. On 19 May 1965, the CA affirmed the interpretation of the CFI that the portion of Lot 1214 sold by Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of the case for reception of evidence to determine the area actually taken by Iloilo City for the construction of avenues, parks and for city hall site. Hence, the appeal by Pio San Melliza to the Supreme Court. The Supreme Court affirmed the decision appealed from insofar as it affirms that of the CFI, and dismissed the complaint; without costs. 1. Interpretation of contract involves question of law The interpretation of the public instrument dated 15 November 1932 involves a question of law, since the contract is in the nature of law as between the parties and their successors in interest. 2. Intent of the parties as to the object of the public instrument The paramount intention of the parties was to provide Iloilo municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with its avenues and parks. For this matter, a previous donation for this purpose between the same parties was revoked by them, because of inadequacy of the area of the lot donated. Said instrument described 4 parcels of land by their lot numbers and area; and then it goes on to further describe, not only those lots already mentioned, but the lots object of the sale, by stating that said lots were the ones needed for the construction of the city hall site, avenues and parks according to the Arellano plan. If the parties intended merely to cover the specified lots (Lots 2, 5, 1214-C and 1214-D), there would scarcely have been any need for the next paragraph, since these lots were already plainly and very clearly described by their respective lot number and areas. Said next paragraph does not really add to the clear description that was already given to them in the previous one. It is therefore the more reasonable interpretation to view it as describing those other portions of land contiguous to the lots that, by reference to the Arellano plan, will be found needed for the purpose at hand, the construction of the city hall site. 3. Requirement, that sale must have a determinate thing as object, is fulfilled if object of sale is
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capable of being made determinate at the time of the contract The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site; avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties. 4. Arellano plan in existence since 1928; Area of land needed for the city hall site known The Arellano plan was in existence as early as 1928. Tthe previous donation of land for city hall site on 27 November 1931 was revoked on 6 March 1932 for being inadequate in area under said Arellano plan. The area needed under that plan for city hall site was then already known; that the specific mention of some of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that, therefore, considering the said lots specifically mentioned in the public instrument, and the projected city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site. 5. Lot 1214-B is contiguous to Lot 1214-C and 1214-D, and is in the heart of the city hall site Lot 1214-B is contiguous to Lots 1214-C and 1214-D, admittedly covered by the public instrument. It is stipulated that, after execution of the contract, the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall site. 6. Pio Sian Melliza a notary public and thus aware of the terms of the public instrument Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such registration was annotated at the back of the corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to the public instrument; that furthermore, he should have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his position that the same was not included in the same. 7. Principles of civil law, as well as laches, estoppel and equity applied; Lot included in conveyance For 20 long years, Pio Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City. [65] Mendoza vs. Kalaw [G.R. No. 16420. October 12, 1921.] Second Division, Johnson (J): 4 concur Facts: On 24 September 1919, Federico Cañet sold, under a conditional sale, the parcel of land in question to the Primitivo Kalaw. On 8 November 1919, Cañet made an absolute sale of said parcel of land to Agripino Mendoza. On 12 November 1919, Mendoza entered upon, and took actual possession of, said parcel of land, enclosed it with a fence, and began to clean the same. After doing so, a representative of Kalaw claimed and attempted to obtain possession of said lot, but Mendoza, who was then in possession, refused to deliver the
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possession, upon the ground that he was the owner. On 17 November (18 November) 1919, Kalaw attempted to have his title registered in the registry of deeds of the City of Manila, but such registration was denied by the register of deeds for the reason that there existed some defect in the description of the property, and for the reason that the title of the vendor had not theretofore been registered. The register of deeds, however, did make an “anotacion preventiva.” On 26 November 1919, Agripino Mendoza filed a petition in the CFI Manila for the registration, under the Torrens system, of a piece or parcel of land, particularly described in paragraph A of the petition. The said lot is alleged to have an area of 371.6 square meters. Mendoza alleged that he was the owner in fee simple of said parcel of land for the reason that he had purchased the same of Federico Cañet on 8 November 1919. Accompanying the petition, there was united a plan containing a technical description of the metes and bounds of said parcel of land. To the registration of said parcel of land the oppositor, Primitivo Kalaw, presented his opposition, alleging that he was the owner of the same and that he had acquired it from the said Federico Cañet. Upon the issue thus presented by the petition and opposition, and on 23 January 1920, the Court reached the conclusion that Mendoza was the owner in fee simple of said parcel of land, and ordered it registered in his name in accordance with the provisions of the Land Registration Act. From that decree the oppositor appealed to the Supreme Court. The Supreme Court affirmed the judgment ordering the registration of the parcel of land in question in Mendoza’s name; with costs. 1. Lot sold to Mendoza in absolute sale; Mendoza first in possession; Mendoza actually paid purchase price Federico Cañet made two sales of the same property — one to Kalaw and the other to Mendoza. The first was but a conditional sale while the latter was an absolute sale. While the absolute sale to Mendoza was subsequent to the conditional sale to Kalaw, the former obtained the actual possession of the property first. Reading Exhibits 1 and B, it may be found that Mendoza actually paid to his vendor the purchase price of the property in question, while the payment by Kalaw depended upon the performance of certain conditions mentioned in the contract of sale. 2. Conditional sale hardly said to be a sale of property; Article 1473 of the Civil Code does not apply While there were two sales of the parcel of land in question, that is hardly the fact, because a conditional sale, before the performance of the condition, can hardly be said to be a sale of property, especially where the condition has not been performed or complied with. Thus, article 1473 of the Civil Code can hardly be said to be applicable. 3. Anotacion preventiva creates no advantage; protects rights of person securing it for 30 days The “anotacion preventiva” obtained by Kalaw does not created any advantage in his favor, for the reason that a preventative precautionary notice on the records of the registry of deeds only protects the rights of the person securing it for a period of thirty days. (Par. 2, art. 17, Mortgage Law.) A preventative precautionary notice only protects the interests and rights of the person who secures it against those who acquire an interest in the property subsequent thereto, and then, only for a period of 30 days. It cannot affect the rights or interests of persons who acquired an interest in the property theretofore. (Veguillas vs. Jaucian, 25 Phil., 315; Samson vs. Garcia and Ycalina, 34 Phil., 805.) 4. Anotacion preventiva does not affect right and or interests of persons Mendoza had acquired an absolute deed to the land in question, and had actually entered into the possession of the same, before the preventative precautionary notice was noted in the office of the registry of deeds. Therefore, under the provisions of the Mortgage Law, it could in no way affect the rights or interests of persons, acquired theretofore.
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[66] Mindanao Academy vs. Yap [G.R. No. L-17681. February 26, 1965.] De Nuqui vs. Yap [G.R. No. L-17682. February 26, 1965] En Banc, Makalintal (J): 6 concur, 4 took no part Facts: By deed entitled “Mutual Agreement,” executed on 10 May 1964, Rosenda A. de Nuqui (widow of Sotero Dionisio) and her son Sotero Dionisio, Jr. sold 3 parcels of residential land in Oroquieta, Misamis Occidental, and another parcel in Ozamis City in favor of Ildefonso D. Yap. Included in the sale were certain buildings situated on said lands as well as laboratory equipment, books, furniture and fixtures used by 2 schools established in the respective properties: the Mindanao Academy in Oroquieta and the Misamis Academy in Ozamis City. The aggregate price stated in the deed was P100,700.00, to be paid according to the terms and conditions specified in the contract. Besides Rosenda and her son Sotero, Jr., both of whom signed the instrument, Adelaida Dionisio Nuesa (a daughter of Rosenda, and married to Wilson Nuesa) is also named therein as co-vendor, but actually did not take part either personally or through her uncle and supposed attorney-in-fact, Restituto Abuton. These three (mother and children) are referred to in the deed as the owners pro-indiviso of the properties sold. The truth, however, was that there were other co-owners of the lands, namely, Erlinda D. Diaz (and Antolin Diaz), Ester Aida D. Bas (and Mauricio O. Bas), Rosalinda D. Belleza (and Apolinario Belleza) and Luz Minda D. Dajao (and Elifio C. Dajao), children also of Rosenda by her deceased husband Sotero Dionisio, Sr., and that as far as the school buildings, equipment, books, furniture and fixtures were concerned, they were owned by the Mindanao Academy, Inc., a corporation operating both the Mindanao Academy in Oroquieta and the Misamis Academy in Ozamis City. The buyer, Ildefonso D. Yap, obtained possession of the properties by virtue of the sale, took over the operation of the two schools and even changed their names to Harvardian Colleges. Two actions were commenced in the CFI Misamis Occidental; one for annulment of the sale and recovery of rents and damages (Civil Case 1774, filed 3 May 1955) with the Mindanao Academy, Inc., the five children of Rosenda Nuqui who did not take part in the deed of sale, and several other persons who were stockholders of the said corporation (Pedro N. Abuton, Sy Paoco, Josefa Dignum and Perfecto Velasquez), as plaintiffs, and the parties who signed the deed of sale as defendants; and another for rescission (Civil Case 1907, filed 17 July 1956) with Rosenda Nuqui, Sotero Dionisio, Jr. and Erlinda D. Diaz (and the latter’s husband Antolin Diaz) as plaintiffs, and Ildefonso D. Yap as lone defendant. The other 4 children of Rosenda did not join, having previously ceded and quitclaimed their shares in the litigated properties in favor of their sister Erlinda D. Diaz. The actions were tried jointly and on 31 March 1960 the court rendered judgment, declaring the Mutual Agreement null and void ab initio and ordering Ildefonso Yap to pay the costs of the proceedings in both cases. The Court also ordered Yap, in Civil Case 1907, to restore to the plaintiffs in said case all the buildings and grounds described in the Mutual Agreement together with all the permanent improvements thereon; and to pay to the plaintiffs therein the amount of P300.00 monthly from 31 July 1956 up to the time he shall have surrendered the properties in question to the plaintiffs therein, plus P1,000.00 as attorney’s fees to plaintiffs Antolin and Erlinda D. Diaz. The Court ordered Yap, in Civil Case 1774, to restore to the Mindanao Academy, Inc., all the books, laboratory apparatus, furniture and other equipments described in the Mutual Agreement and specified in the Inventory attached to the Records of this case; or in default thereof, their value in the amount of P23,500.00; to return all the Records of the Mindanao Academy and Misamis Academy; and to pay to the plaintiffs stockholders of the Mindanao Academy, Inc., the amount of P10,000.00 as nominal damages; P3,000.00 as exemplary damages; and P2,000.00 as attorney’s fees. These damages being apportioned to each of the plaintiff-stockholders in proportion to their respective interests in the corporation. Ildefonso D. Yap appealed from the judgment. The Supreme Court affirmed the judgment appealed from but modified it by eliminating therefrom the award of attorney’s fees of P1,000.00 in favor of Erlinda D. Diaz and her husband, and the award of nominal and
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exemplary damages in Civil Case 1774; and making the award of attorney’s fees in the sum of P2,000.00 payable to counsel for the account of the Mindanao Academy, Inc. instead of the plaintiff stockholders; without pronouncement as to costs. 1. Mutual Agreement entirely void and non-existent; Question on rescission not categorically ruled on The mutual agreement dated 10 May 1954 is entirely void and legally non-existent in that the vendors therein ceded to Yap not only their interest, rights, shares and participation in the property sold but also those that belonged to persons who were not parties thereto. This conclusion is premised on two grounds: (a) the contract purported to sell properties of which the sellers were not the only owners, since of the four parcels of land mentioned in the deed their shares consisted only of 7/12, (6/12: Rosenda Nuqui and 1/12 for Sotero, Jr.), while in the buildings, laboratory equipment, books, furniture and fixtures they had no participation at all, the owner being the Mindanao Academy, Inc.; and (b) the prestation involved in the sale was indivisible, and therefore incapable of partial annulment, inasmuch as Yap would not have entered into the transaction except to acquire all of the properties purchased by him. 2. No bad faith committed by co-owners who did not take part in sale The quitclaim, in the form of an extrajudicial partition, was made on 6 May 1956, after the action for annulment was filed, wherein, the plaintiffs were not only Erlinda but also the other co-owners who took no part in the sale and to whom there has been no imputation of bad faith. Further, the trial courts’ finding of bad faith is an erroneous conclusion induced by a manifest oversight of an undisputed fact, namely, that on 10 June 1954, just a month after the deed of sale in question, Erlinda D. Diaz did file an action against Ildefonso D. Yap and Rosenda Nuqui, among others, asserting her rights as co-owner of the properties (Case 1646). Finally, bad faith on the part of Erlinda would not militate against the nullity of the sale, considering that it included not only the lands in common by Rosenda Nuqui and her six children but also the buildings and school facilities owned by the Mindanao Academy, Inc., an entity which had nothing to do with the transaction and which could be represented solely by its Board of Trustees. 3. Vendor and vendee both in bad faith; treated to have acted in good faith vis-à-vis each other Both vendors and vendee in the sale acted in bad faith and therefore must be treated, vis-a-vis each other, as having acted in good faith. The return of the properties by the vendee is a necessary consequence of the decree of annulment. No part of the purchase price having been paid, as far as the record shows, the trial court correctly made no corresponding order for the restitution thereof. Rosenda Nuqui and her son Sotero, it is true, acted in bad faith when they sold the properties as theirs alone; but so did the defendant Yap when he purchased them with knowledge of the fact that there were other co-owners. Although the bad faith of one party neutralizes that of the other and hence as between themselves their rights would be as if both of them had acted in good faith at the time of the transaction, this legal fiction of Yap’s good faith ceased when they sold the properties as theirs alone. 4. Erlinda Diaz entitled to recover share of rents in proportion to her own interest; Possessor in good faith entitled to fruits as long as possession is not legally interrupted Prior to the sale, the Mindanao Academy Inc. was paying P300.00 monthly for its occupancy of the lands on which the buildings are situated. This is the amount the defendant has been ordered to pay to the plaintiffs in Civil Case 1907, beginning 31 July 1956, when he filed his “first pleading” in the case. There can be no doubt that Erlinda D. Diaz is entitled to recover a share of the said rents in proportion to her own interest in the lands and the interest of her four co-owners which she had acquired. A possessor in good faith is entitled to the fruits only so long as his possession is not legally interrupted, and such interruption takes place upon service of judicial summons (Arts. 544 and 1123, Civil Code). 5. Award of attorney’s fees to Erlinda Diaz erroneous; Erlinda had no cause of action for rescission in Civil Case 1907 as she was not party to the agreement
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The award of attorney’s fees to Erlinda D. Diaz and her husband is erroneous. Civil Case 1907, in which said fees have been adjudged, is for rescission (more properly resolution) of the so-called “mutual agreement” on the ground that Yap failed to comply with certain undertakings specified therein relative to the payment of the purchase price. Erlinda Diaz was not a party to that agreement and hence had no cause of action for rescission. The trial court did not decide the matter of rescission because of the decree of annulment it rendered in the other case (Civil Case 1774), wherein the defendants are not only Ildefonso D. Yap but also Rosenda Nuqui and her son Sotero. Erlinda D. Diaz could just as well have refrained from joining as plaintiff in the action for rescission, not being a part to the contract sought to be rescinded and being already one of the plaintiffs in the other action. In other words, it cannot be said with justification that she was constrained to litigate, in Civil Case 1907, because of some cause attributable to the appellant. 6. Builder in bad faith not entitled to reimbursement (New building) Yap claims reimbursement for the value of the improvements he allegedly introduced in the schools, consisting of new building worth P8,000.00 and a toilet costing P800.00, besides laboratory equipment, furniture, fixtures and books for the libraries. It should be noted that the judgment of the trial court specifies, for delivery to the plaintiffs (in Civil Case 1907), only “the buildings and grounds described in the mutual agreement together with all the permanent improvements thereon.” If Yap constructed a new building, he cannot recover its value because the construction was done after the filing of the action for annulment, thus rendering him a builder in bad faith who is denied by law any right of reimbursement. 7. Equipment, books, furniture and fixture brought in by him may be retained by him as they are outside the scope of the judgment In connection with the equipment, books, furniture and fixtures brought in by him, he is not entitled to reimbursement either, because the judgment does not award them to any of the plaintiffs in the two actions. What is adjudged (in Civil Case 1774) is for Yap to restore to the Mindanao Academy, Inc. all the books, laboratory apparatus, furniture and other equipment “described in the Mutual Agreement and specified in the Inventory attached to the records of this case; or in default thereof, their value in the amount of P23,500.00.” In other words, whatever has been brought in by the defendant is outside the scope of the judgment and may be retained by him. 8. Stockholders not entitled to nominal and exemplary damages According to the second amended complaint the stockholders were joined merely pro forma, and “for the sole purpose of the moral damage which has been all the time alleged in the original complaint.” Indeed the interests of the said stockholders, if any, were already represented by the corporation itself, which was the proper party plaintiff; and no cause of action accruing to them separately from the corporation is alleged in the complaint, other than that for moral damages due to “extreme mental anguish, serious anxiety and wounded feelings.” The trial court, however, ruled out the claim for moral damages and no appeal from such ruling has taken. The award for nominal and exemplary damages should be eliminated in toto. 9. Award for attorney’s fees upheld for the corporation but not to stockholders The award for attorney’s fees in the amount of P2,000.00 was upheld, although the same should be for the account of the corporation and not of the plaintiff stockholders of the Mindanao Academy, Inc.; and payable to their common counsel as prayed for in the complaint. 10. Nullity of contract precludes enforcement of its stipulation A warranty clause in the deeds provides that if any claim shall be filed against the properties or any right, share or interest which are in the possession of the party of the vendors which had been hereby transferred, ceded and conveyed unto the vendee the vendor assumes as it hereby holds itself answerable. It is unnecessary to pass upon the question in view of the total annulment of the sale on grounds concerning which both parties thereto were at fault. The nullity of the contract precludes enforcement of any of its stipulations.

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[67] Montilla vs. CA [G.R. No. L-47968. May 9, 1988.] First Division, Narvasa (J): 3 concur Facts: On 27 April 1972, Emilio Aragon Jr. filed an action before the CFI Iloilo to compel Lina Montilla to comply with a verbal contract to sell to him a piece of land situated at Poblacion, Iloilo City, known as Lot 4 of the Consolidated Subdivision plan (LRC) Psc-11605. In his complaint, Aragon claimed that in the last week of June 1969, Montilla had orally offered to sell the lot to him at a price of P57,650.00 (at the rate of P50 per sq. m.), the price being payable at any time within a 3-year period from June, 1969 provided that Aragon constructed on the lot a house of strong materials and paid a nominal monthly rental in the meantime; but despite Aragon’s acceptance of the offer, fulfillment by him of the specified conditions, and his seasonable tender of the purchase price, Montilla had refused to comply with her obligation. In her answer Montilla categorically denied ever having entered into such an agreement, and set up the affirmative defenses of (1) unenforceability of the alleged agreement under the Statute of Frauds; and (2) failure of the complaint to state a cause of action, no allegation having been made therein of any consideration for the promise to sell distinct and separate from the price, as required by Article 1479 of the Civil Code. At Montilla’s instance, a preliminary hearing was had on her affirmative defenses in accordance with Section 6, Rule 16 of the Rules of Court, “as if a motion to dismiss had been filed.” By Order dated 5 December 1972, the Court denied the implicit motion to dismiss. After trial, the Court rendered judgment on 22 August 1974 sentencing Montilla “to execute the requisite deed of conveyance of Lot 4, covered by TCT T-29976 in favor of Aragon upon full payment by him to Montilla of the total consideration thereof in the aggregate sum of P57,650.00; to pay to Montilla P2,000.00 as attorney’s fees, and to pay the costs.” The decision was affirmed by the Court of Appeals. The latter’s adjudgment has, in turn, been duly brought up to the Supreme Court by Montilla, on appeal by certiorari under Rule 45 of the Rules of Court. The Supreme Court reversed and set aside the Decision of the Court of Appeals dated 18 January 1978 and that of the CFI dated 22 August 1974 thereby affirmed, and entered a new one dismissing Aragon’s complaint, with costs against him. 1. No admission by Montilla on the claimed verbal contract to sell; Affirmative defense could not be taken as unconditional and irretrievably binding factual admission It is difficult to see by what process of ratiocination the Trial Court arrived at the conclusion that Montilla’s answer had “admitted the offer to sell” as any such admission is absolutely precluded by the specific and unequivocal denial by Montilla of the claimed verbal contract to sell. She in fact branded the allegations to that effect in the complaint as “outrageously false, fantastically ridiculous and despicable fabrications of plaintiff .” Nor may any admission be inferred from the circumstance that Montilla, apart from unqualifiedly denying the contract to sell, had also asserted in her responsive pleading that the contract was unenforceable because violative of the Statute of Frauds and because not supported by any consideration distinct from the price. For while those defenses imply an acceptance by the pleader of the truth of the agreement at which the defenses are directed, the acceptance is at best hypothetical, assumed only for purposes of determining the validity of the defenses, but cannot in any sense be taken as an unconditional and irretrievably binding factual admission. The import of the answer, couched in language that could not be made any plainer, is that there was no verbal contract to sell ever agreed to by Montilla, but that, even assuming hypothetically, or for the sake of argument that there was, the agreement was unenforceable because in breach of the Statute of Frauds. 2. Res judicata does not apply to interlocutory orders as these cannot become final and executory The Court’s interlocutory order of 5 December 1972 cannot become conclusive, i.e., conclusive on
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Montilla “with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, as the doctrine of res judicata or bar by prior judgment (or, for that matter, conclusiveness of judgment or estoppel by judgment) has relevance to, and will become operative only on the basis of a final judgment or final order, the qualifying term “final” being used in the sense of “final and executory,” i.e., not only final — because finally disposing of the case and leaving nothing more to be done by the adjudging court relative to its merits, but also executory — because the period for appeal has expired without an appeal having been taken, or an appeal having been perfected, the judgment or order has otherwise attained finality. An order such as that rendered on 5 December 1972, being interlocutory, cannot become final and executory in the sense described, and cannot bring the doctrine of res adjudicata into play at all. Indeed, the correctness of such an interlocutory order may subsequently be impugned on appeal by any party adversely affected thereby, regardless of whether or not he had presented a motion for the reconsideration thereof, if he has otherwise made of record his position thereon. 3. Identification of identity of alleged vendor Montilla’s acknowledgment of being the defendant in the case can not in any manner whatsoever be considered an admission that she had gone to see Aragon to offer her property for sale. Non sequitur. Aragon’s disconcerting failure to identify Montilla is cogent confutation of his allegation that he personally knew Montilla and had negotiated with her for his purchase of the property in question, and strongly indicative of the inaccuracy of the testimony of the witnesses who corroborated his dubious tale. 4. Basis of dismissal: Statute of Frauds in relation to Rule 16 of the Rules of Court There being therefore no admission whatever on Montilla’s part of the existence or ratification of the claimed contract to sell, and taking account of her disavowal in her pleadings and in her evidence of that contract, and necessarily of any fulfillment of the terms thereof, it is clear that the action for its enforcement should have been dismissed pursuant to the Statute of Frauds, in relation to Rule 16 of the Rules of Court. 5. Basis of dismissal: Article 1479 The action is also dismissible upon another legal ground. Assuming arguendo veritability of the oral promise to sell by Montilla, the promise was nevertheless not binding upon her in view of the absence of any consideration therefor distinct from the stipulated price. This is the principle laid down by the second paragraph of Article 1479: “An accepted unilateral promise 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.” 6. Document executed by Aragon as to lease; Absent any mention of alleged promise to sell A document, executed by Aragon on 9 July 1969 (some 9 or 10 days after Montilla had supposedly promised to sell the lot in question to him), reveals several things. For one, the lot on which Aragon’s house was being built was obviously part of the “Montilla estate,” and did not as yet belong to any particular heir or person entitled thereto. For another, Aragon had been given permission by the representative of the estate, Mr. Manaloto, to stay on the lot in consideration of a prescribed rental, and he was imploring said Mr. Manaloto and the owners for leave to stay in the premises until his children could finish their schooling, promising to “meet the prescribed rental obligations.” Again, and this is quite significant as regards his claim of a promise to sell by one of the Montillas, since that promise is not referred to or even hinted at in any manner whatsoever, the genuineness of the claim is strongly suspect; for surely, Aragon would never have “implored” for “consideration of the owners and Mr. Manaloto” to stay in the premises until his children could finish their schooling, as lessee, if it be true that he had accepted a promise for the sale thereof to him. The document cannot therefore be interpreted otherwise than as denoting the concession to him of the privilege to build a house on a lot belonging to the Montillas, and a solicitation by him of the owners’ permission to lease the lot to him for a longer, and more or less determinable term, and as an implied, though nonetheless clear, negation of any right on his part to purchase the property. 7. Lot 4 adjudicated to Lina Montilla pursuant to settlement of the Montilla Estate 2 years after
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her alleged offer to sell A Court Order issued on 17 June 1971 in the judicial proceedings for the settlement of the Montilla Estate, obviously the same “Montilla estate” referred to by Aragon in his certification of 9 July 1969 just described, approved the project of partition of said estate, presented on 5 May 1971; and it states that Lot 4 was adjudicated to Lina Montilla on 17 June 1971, more than 2 years after she had supposedly offered to sell the property to Aragon. At the time of the alleged promise to sell, Lot 4 still formed part of the amorphous mass of property constituting the “Montilla estate;” at any rate, that particular lot had not been allotted to Lina Montilla yet. The uncertainty of the eventual ownership of said Lot 4, considered conjointly with the ostensible status of Aragon as a mere supplicant of favors from “the owners of the Montilla estate,” make it very improbable indeed that Montilla would personally go to him and promise to sell the lot to him. [68] National Grains Authority v. IAC [G.R. No. 74470. March 8, 1989.] Third Division, Medialdea (J): 4 concur Facts: National Grains Authority (now National Food Authority, NFA) is a government agency created under PD 4. One of its incidental functions is the buying of palay grains from qualified farmers. On 23 August 1979, Leon Soriano offered to sell palay grains to the NFA, through the Provincial Manager (William Cabal) of NFA in Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-qualifying as a seller, which were processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota noted in the Farmer’s Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA. On 23 and 24 August 1979, Soriano delivered 630 cavans of palay. The palay delivered were not rebagged, classified and weighed. When Soriano demanded payment of the 630 cavans of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a bona fide farmer and the palay delivered by him was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. On 28 August 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans stating that NFA cannot legally accept the said delivery on the basis of the subsequent certification of the BAEX technician (Napoleon Callangan) that Soriano is not a bona fide farmer. Instead of withdrawing the 630 cavans of palay, Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of money with damages on 2 November 1979, against the NFA and William Cabal (Civil Case 2754). Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of palay in question were withdrawn from the warehouse of NFA. On 30 September 1982, the trial court found Soriano a bona fide farmer and rendered judgment ordering the NFA, its officers and agents to pay Soriano the amount of P47,250.00 representing the unpaid price of the 630 cavans of palay plus legal interest thereof (12% per annum, from the filing of complaint on 20 November 1979 until fully paid). NFA and Cabal filed a motion for reconsideration, which was denied by the court on 6 December 1982. Appeal was filed with the Intermediate Appellate Court. On 23 December 1986, the then IACupheld the findings of the trial court and affirmed the decision ordering NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest. The motion for reconsideration of the appellate court’s decision was denied in a resolution dated 17 April 1986. Hence, the present petition for review with the sole issue of whether or not there was a contract of sale in the present case. The Supreme Court dismissed the instant petition for review, and affirmed the assailed decision of the then IAC (now Court of Appeals) is affirmed; without costs. 1. Sale defined
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Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefore a price certain in money or its equivalent. 2. Contract defined; requisites A contract, on the other hand, is a meeting of minds between two (2) persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code of the Philippines). The essential requisites of contracts are: (1) consent of the contracting parties, (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established (Art. 1318, Civil Code of the Philippines.) 3. Present case involves a perfected contract of sale In the present case, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano’s Farmer’s Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano’s farmland and the NFA was to pay the same depending upon its quality. The contention that – since the delivery were not rebagged, classified and weighed in accordance with the palay procurement program of NFA, there was no acceptance of the offer thus – this is a clear case of policitation or an unaccepted offer to sell, is untenable. 4. Quantity being indeterminate does not affect perfection of contract; No need to create new contract The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides that “the fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties.” In the present case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans. 5. Sale a consensual contract; Acceptance is on the offer and not the goods delivered Sale is a consensual contract, “there is perfection when there is consent upon the subject matter and price, even if neither is delivered.” (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560) Article 1475 of the Civil Code provides that “The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.” The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered. 6. Compliance of mutual obligations once a contract of sale is perfected From the moment the contract of sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or “the parties may reciprocally demand performance” thereof. (Article 1475, Civil Code, 2nd par.) [69] Navera vs. CA [G.R. No. L-56838. April 26, 1990.] First Division, Medialdea (J): 4 concur Facts: Leocadio Navera has 5 children, namely: Elena, Mariano, Basilio, Eduarda and Felix, all surnamed Navera. Mariano Navera is the father of petitioner Genaro Navera (married to Emma Amador). Elena Navera, on the other hand has three children by Antonio Nares. Two of them are respondent Arsenio Nares and Felix Nares. The other child, Dionisia is already deceased and has left children. Petitioner and respondents are
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therefore, first cousins. Way back in 1916, Leocadio Navera donated to Fausto Mustar in a private instrument a certain property in consideration of the marriage of the former’s son, Mariano Navera, to the daughter of Fausto Mustar by the name of Restituta Mustar. On 19 July 1927, OCT RO-154(NA) was issued in the name of “Elena Navera, et al.”, covering the land in dispute, namely Lot 1460, situated in the Municipality of Camalig, Albay. Sometime in 1924, Elena Navera died. On 14 May 1947, Eduarda Navera, by means of a public instrument, sold to her nephew, Arsenio Nares, all of her share in Lot 1460, which is titled in the name of “Elena Navera, et al.”. Eduarda Navera’s share in the lot is 1/2 of the total area of Lot 1460 (The other half allegedly owned by Lina Navera, the deceased mother of the buyer, who was the administrator of said half. Arsenio Nares thus take care of the whole property). On 26 June 1948, Eduarda Navera sold for the second time a portion of Lot 1460 to Mariano Navera (50 meters long and 59 meters wide). On 30 January 1953, Arsenio Nares sold to Perpetua Dacillo a portion of Lot 4167 containing an area of 5,726 sq. ms. Perpetua Dacillo thereafter donated the said property to Francisco Dacillo. On 13 August 1955, Mariano Navera, sold to his brother-in-law, Serapio Mustar, the lot which he bought from Eduarda Navera. On 11 February 1956, a deed of sale was supplemented by the following stipulation “(b) as to the property under paragraph (2) thereof, the same pertains to Cadastral Lot No. 1460, containing an area of 1-99-69 square meters, more or less, (in the said document there was clerical error of the area, as previously stated in the total area of 00-0916, which is hereto corrected as 1-90-71 square meters, as the total area sold).” On 7 April 1959, Serapio Mustar later sold to Genaro Navera Lot 1460 which he bought from the latter’s father, Mariano Navera, containing an area of 19,969 sq. ms. more or less. On 3 September 1971, Francisco Dacillo sold to Genaro Navera the land which the former received by way of donation from Perpetua Dacillo. All of the foregoing transfers of Lot 1460 were not annotated and inscribed in the OCT. [Nares complaint] In their complaint dated 14 March 1971 filed with the then CFI Albay (now RTC; Civil Case 4359), Arsenio and Felix Nares, alleged inter alia: that they are the absolute owners of the whole of Lot 1460 covered by OCT No. RO-154(NA), and are entitled to the possession of the same; that Lot 1460 is registered in the name of “Elena Navera, et al.”, the “et al.” being Eduarda Navera; that they acquired the property by inheritance from their deceased mother Elena Navera; that a portion thereof which had been adjudicated to Eduarda Navera was later sold to Arsenio Nares; that sometime in August, 1955, Mariano Navera, without any legal right whatsoever and under the pretense of ownership sold the said property to his brother-in-law Serapio Mustar, who in turn sold the same to Genaro Navera, son of Mariano. They also claimed that all the foregoing sales were sham and manipulated transactions and that Mariano Navera knew fully well that he had no right to sell the property. They admitted however, that they sold a portion of the property containing 6,726 square meters to Perpetua Dacillo, so that the remaining portion still belongs to them. They further contended that Genaro Navera entered the land after the sale to him by Mustar and took possession of the same and acquired the produce thereof since 1957 up to the present time; and that they have exerted earnest efforts toward a compromise but Navera instead challenged them to go to court. [Navera’s counterclaim] Genaro Navera and Emma Amador filed their answer with counterclaim, denying Nares’ claims, and alleging inter alia: that Leocadio Navera is the father of five children, namely, Elena, Mariano, Eduarda, Basilio and Felix; that after deducting 12,415 square meters which Leocadio Navera donated to Fausto Mustar in 1916, the remaining area of Lot 1460 was divided in equal shares among Elena, Mariano and Eduarda, to the extent of 4,860 square meters each; that Basilio and Felix were given their shares in other parcels of land. They also submitted that the “et al.” appearing in the title of the property refers to Fausto Mustar (12,415 sq. ms.), Eduarda Navera (4,860 sq. ms.), Mariano Navera (4,860 sq. ms.) and Elena Navera (4,860 sq. ms.); that Eduarda Navera sold 2,695 sq. ms. of her share to Mariano Navera while the remaining 2,166 sq sq. ms. of her share was sold to Arsenio Nares; that Arsenio’s property totalled 7,026 sq. ms. which he later sold to Perpetua Dacillo. They further contended that they are presently in possession of Lot 1460 and their possession tacked to that of their predecessor-in-interest as early as 1916; that the complaint states no cause of action and that if Nares had any, the same has long prescribed. [Court’s ruling] On 28 February 1978, the trial court rendered a decision declaring Nares owners of the lot described in the OCT RO-15480, except 5,726 sq. ms. which rightfully belongs to Genaro Navera.

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Not satisfied with the decision of the trial court, Navera appealed to the Court of Appeals (CA-GR 63926-R). On 16 December 1980, the appellate court rendered judgment affirming in toto the decision of the trial court. Hence the petition for review on certiorari. The Supreme Court denied the petition but modified the decision of the Court of Appeals dated 16 December 1980 to the effect that as against Genaro Navera and Emma Amador, Arsenio Nares and Felix Nares are declared the rightful owners of the disputed Lot 1460, except with respect to 5,726 square meters thereof which belongs to Genaro Navera, without prejudice however, to whatever rights and interests that the other compulsory heirs of Elena Navera may have in the one-half portion of Lot 1460. The respective rights of respondents to Lot 1460 as between themselves is a matter outside of the controversy and is therefore, beyond the jurisdiction of the Court to pass upon. 1. “Et. al” refer only to Eduarda; Factual finding of courts conclusive upon the Supreme Court The whole of Lot 1460 is titled in the name of “Elena Navera, et al.”, the phrase “et al.” referring only to Eduarda, sister of Elena since the other brothers of Elena and Eduarda namely, Mariano, Basilio and Felix had received their shares from the other properties of their father Leocadio Navera. These factual findings are conclusive upon the Supreme Court. Thus, when Elena Navera died sometime in 1924, her compulsory heirs including Arsenio Nares and Felix Nares acquired Elena’s shares in Lot 1460 by inheritance, which is 1/2of Lot 1460. As to the other half of Lot 1460 owned by Eduarda Navera, the latter sold the same to two vendees, one in favor of Arsenio Nares and the other in favor of Mariano Navera, Genaro Navera’s predecessor-ininterest. 2. Double Sale; Eduarda Navera had no existing right anymore to convey portion of property in a subsequent sale to Mariano Navera On this matter of double sale, all the transfers or conveyances are not inscribed in the OCT RO15480(NA). It would not be amiss to state that the sale of Eduarda Navera to Arsenio Nares, and the sale of Eduarda Navera to Mariano Navera, the property referred to in both sales is the very same property covered by reconstituted title. The sale of Eduarda Navera to Arsenio Nares covered all her portion to the property, thus, she could not possibly sell on 26 June 1948, another portion of the same property to Mariano Navera. Thus, the portion referred to in the sale to Mariano Navera by Eduarda Navera may not be validly transferred by Mariano Navera to Serapio Mustar. It likewise follow that Serapio Mustar may not effectively convey the same to Genaro Navera. It is irremissible to state that the alleged conveyance made by Serapio Mustar in favor of Genaro Navera have no legal effect whatsoever, for the simple reason that Serapio Mustar could not properly convey the portion referred to in the sale of 26 June 1948, by Eduarda Navera in favor of Mariano Navera. In the first place, Eduarda Navera has no existing right to convey another portion of the property because she had already sold all her portion to Arsenio Nares. Thus at the time Eduarda Navera conveyed a portion of the property which she already conveyed to appellee Arsenio Nares, she has no right on the property and the power to dispose it. Mariano Navera therefore never acquired that portion subject of the sale on 26 June 948. Having acquired that portion of the property subject of the sale on 26 June 1948 from Mariano Navera, Serapio Mustar has likewise no existing right and power to dispose of that portion of the property to Genaro Navera. 3. Navera not possessors in good faith; Knowledge of flaw of title Article 526 of the New Civil Code provides that a possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it and a possessor in bad faith is one who possesses in any case contrary to the foregoing. “Every possessor in good faith becomes a possessor in bad faith from the moment he becomes aware that what he believed to be true is not so.” His possession is legally interrupted when he is summoned to trial according to Article 1123 of the New Civil Code (Tacas v. Tabon, 53 Phil. 356).” 4. Conclusions and finding of facts by trial court given great weight
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The conclusions and findings of facts by the trial court are entitled to great weight and will not be disturbed on appeal unless for strong and cogent reasons because the trial court is in a better position to examine real evidence as well as to observe the demeanor of witnesses while testifying on the ease. (Macua vs. Intermediate Appellate Court, No. L-70810, October 26, 1987, 155 SCRA 29). 5. Article 1544 of the Civil Code Article 1544 of the Civil Code provides that “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.” 6. Sales not registered; Ownership vested upon first possessor in good faith The first sale of Eduarda Navera’s share in the said lot to Arsenio Nares was made in a public instrument on 14 May 1947. The second sale of the same property was executed also in a public instrument in favor of Mariano Navera, who is the predecessor in interest of Genaro Navera, on 26 June 1948, or more than a year after the first sale. Since the records show that both sales were not recorded in the Registry of Property, the law clearly vests the ownership upon the person who in good faith was first in possession of the disputed lot. 7. Possession of vendor includes not only the material but also symbolic possession; Vendor does not transmit anything to second vendee The possession mentioned in Article 1544 for determining who has better right when the same piece of land has been sold several times by the same vendor includes not only the material but also the symbolic possession, which is acquired by the execution of a public instrument. This means that after the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not transmit anything to the second vendee, and if the latter, by virtue of this second sale, takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against the rights of the thing lawfully acquired by the first vendee (Quimson vs. Rosete, 87 Phil. 159; Sanchez vs. Ramos, 40 Phil. 614; Florendo vs. Foz, 20 Phil. 388). 8. Constructive delivery in the execution of public instrument The prior sale of the land to Arsenio Nares by means of a public instrument is clearly tantamount to a delivery of the land resulting in the material and symbolic possession thereof by the latter. Further, actual evidence points to the prior actual possession by Nares before he was evicted from the land by Navera and their predecessors in 1957 when the latter entered the disputed property. No other evidence exists on record to show the contrary. 9. Prior est in tempore, potior est in jure Prior est in tempore, potior est in jure (he who is first in time is preferred in right). The priority of possession stands good in favor of Nares. Ownership should therefore be recognized in favor of the first vendee, Arsenio Nares. 10. Prescription must be expressly relied upon in the pleadings; One asserting ownership through adverse possession must prove essential elements of acquisitive prescription Navera alleged that they have been in possession of the lot for more than 46 years. Prescription, as a defense, must be expressly relied upon in the pleadings. It cannot be availed of, unless it is specially pleaded in the answer; and it must be proved or established with the same degree of certainty as any essential allegation in the civil action (Hodges vs. Salas, 63 Phil. 567; Corporacion de PP. Augustinus Recolectos vs. Crisostomo, 32 Phil. 427). In the present case, Navera did not claim acquisitive prescription in their answer in
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the lower court, and even if they did, it cannot be given judicial sanction on mere allegations. The law requires one who asserts ownership by adverse possession to prove the presence of the essential elements of acquisitive prescription (Morales vs. CFI, et al., No. L-52278, May 29, 1980, 97 SCRA 872). 11. Nares evicted, thus Navera is in bad faith; 30-year requirement in adverse possession not met (suit filed 1971, 14 years after dispossession) There is lack of sufficient proof to establish clearly and positively Navera’s claim of acquisitive prescription. The Court is more inclined to believe Nares’ version that he was evicted from the property by Navera sometime in 1957, thereby showing the latter’s bad faith in acquiring the possession of the property until 1971 when the action against Navera was filed. Thus, the ordinary acquisitive prescription of 10 years cannot be considered in favor of Navera in the absence of good faith. Neither is Navera entitled to extraordinary acquisitive prescription, in the absence of sufficient proof of compliance with the thirty-year requirement of possession in case of bad faith. 12. Navera has knowledge of right and interest of cousins in disputed land The law clearly states that “possession has to be in the concept of an owner, public, peaceful and uninterrupted” (Article 1118, Civil Code). A reading of the demand letter from Nares dated 27 May 1970, submitted in evidence by Navera, shows that the dispute over Lot 1460 had been going on for a number of years among them and their families. During the time when Navera bought the land in 1959 and the following years thereafter when the latter possessed the property, they have known or should have known of the rights and interests of their cousins over the disputed land. 13. Navera’s predecessor-in-interest did not declare themselves owner of land for taxation purposes Moreover, the tax declarations for the years 1951 and 1965 showed that Arsenio and Felix Nares were the declared owners. Navera’s predecessors in interest, namely, Mariano Navera and the subsequent purchasers of the lot, had not bothered to declare the land in their own names for purposes of taxation during the time that they were allegedly in possession of the land. It was only in the year 1966 when Genaro Navera started to declare himself owner of the land for taxation purposes. 14. Nares not bound by alleged donation propter nuptias in favor of Mustar; No evidence that donated property was transferred to Mariano Navera Arsenio and Felix Nares are not bound by their alleged knowledge of the previous donation propter nuptias by their ancestor, Leocadio Navera in favor of Fausto Mustar. The donation propter nuptias made by Leocadio Navera sometime in October 1916, should have been at least recorded in the registry of property or inscribed in the Original Certificate of Title or the donee shall have titled the property in his name. The alleged donee Fausto Mustar is not a party to the case nor had he transferred the said donated property to the spouses Mariano Navera in a public instrument or conveyance. Nowhere in the evidence on record would show that the said donated property was ever transferred to Mariano Navera, father of Genaro Navera. 15. Knowledge of alleged donation immaterial; OCT clear without mention of any previous donation of any portion of the land The knowledge of Nares concerning the alleged previous donation is immaterial. The facts are clear that the original certificate of title itself covers the whole of 26,995 square meters of the disputed Lot 1460 in the name of “Elena Navera, et al.”, without any mention of any previous donation of a portion of the said lot to the alleged donee. [70] Nietes v. CA, 46 SCRA 654 [71]
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Noel v. CA [G.R. No. 59550. January 11, 1995.] Mercado v. CA [G.R. No. 60636. January 11, 1995.] First Division, Quiason (J): 4 concur Facts: Gregorio Nanaman and Hilaria Tabuclin were a childless, legally-married couple. Gregorio, however, had a child named Virgilio Nanaman by another woman. Virgilio was reared by the Nanaman spouses since he was two years old. During their marriage, Gregorio and Hilaria acquired certain property including a 34.7hectare land in Tambo, Iligan City on which they planted sugarcane, corn and bananas; where they lived with Virgilio and 15 tenants. On 2 October 1945, Gregorio died. Hilaria then administered the property with the help of Virgilio. Through their tenants, Hilaria and Virgilio enjoyed the produce of the land to the exclusion of Juan Nanaman, the brother of Gregorio, and Esperanza and Caridad Nanaman, Gregorio’s daughters by still another woman. In 1953, Virgilio declared the property in his name for taxation purposes under Tax Declaration 5534. On 1 November 1952, Hilaria and Virgilio, mortgaged the 34.7-hectare land in favor of Jose C. Deleste, in consideration of the amount of P4,800.00. On 16 February 1954, Hilaria and Virgilio executed a deed of sale over the same tract of land also in favor of Deleste in consideration of the sum of P16,000.00. Witnesses to the sale were the wife of Virgilio, Rosita S. Nanaman, Rufo C. Salas (Deleste’s driver), and Remedios Pilotan. The document was notarized on 17 February 1954 and was registered with the Register of Deeds of Iligan City on 2 March 1954. Having discovered that the property was in arrears in the payment of taxes from 1952, Deleste paid the taxes for 1952, 1953 and 1954. From then on, Deleste has paid the taxes on the property. On 15 May 1954, Hilaria died. On 27 October 1954, Esperanza and Caridad Nanaman filed intestate estate proceedings concerning the estate of their father, Gregorio. As only Esperanza, Caridad and Virgilio Nanaman were named as heirs of Gregorio in the petition, Juan Nanaman opposed it. On 26 November 1954, the petition was amended to include the estate of Hilaria with Alejo Tabuclin, Hilaria’s brother, and Julio Tabuclin, a son of Hilaria’s deceased brother, Jose, as additional petitioners. Having been appointed special administrator of the estate of the Nanaman couple, Juan Nanaman included the 34.7-hectare land in the list of the assets of the estate. On 16 June 1956, when Edilberto Noel took over as regular administrator of the estate, he was not able to take possession of the land in question because it was in the possession of Deleste and some heirs of Hilaria. On 18 July 1957, Deleste and the heirs of the Nanaman spouses executed an amicable settlement of the Nanaman estate. In the document, Deleste agreed “to relinquish his rights to ½ of the entire parcel of land in Tambo, Iligan City sold to him by Hilaria Tabuclin, in favor of all the heirs of the intestate estate for the reason that not all of the heirs of Gregorio Nanaman have signed and agreed. The court approved the amicable settlement but when it was questioned by some heirs, the court set aside its approval and declared it null and void. The court thereafter ordered Noel, as regular administrator, to file an action to recover the 34.7-hectare land from Deleste. Consequently, on 30 April 1963, Noel filed an action against Deleste for the reversion of title over the 34.7-hectare land to the Nanaman estate and to order Deleste to pay the rentals and attorney’s fees to the estate. On 14 December 1973, the trial court rendered a decision, holding that the action for annulment of the deed of sale had prescribed in 1958 inasmuch as the sale was registered in 1954 and that Gregorio’s heirs had slept on their rights by allowing Hilaria to exercise rights of ownership over Gregorio’s share of the conjugal property after his death in 1945. Noel appealed to the Court of Appeals. On 18 February 1980, the appellate court ruled that the transaction between Hilaria and Virgilio, and Deleste, was indeed a sale. It found that no fraud, mistake or misrepresentation attended in the execution of the deed of sale and that no proof was shown that the contract was merely a mortgage. The appellate court, however, agreed with Noel that Hilaria could not validly sell the 37.7-hectare land because it was conjugal property, and Hilaria could sell only her ½ share thereof. The Court also ruled that the prescriptive period of 10 years had not yet elapsed when the action to recover the property was filed in 1963.; and held that in the absence of proof of adverse possession by Hilaria, she should be considered as holding the property pursuant to her usufructuary rights over the same
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under the provisions of the Spanish Civil Code of 1889, the law in force at the time of the death of Gregorio. The Court further ordered Deleste to return the land in question to the administrator of the estate, to pay the sum of P2,500 as rental of the ½ interest of the estate from 1957 until the land is returned, and to pay the expenses of litigation and the sum of P3,000 as attorney’s fees. Deleste filed a motion for the reconsideration of said decision praying for the total affirmance of the decision of the trial court. On 14 May 1981, the Court of Appeals promulgated an amended decision. It affirmed its previous decision regarding the due execution of the deed of sale adding that since no fraud attended its execution, there was no basis for the action to annul the sale and therefore there was no starting point in reckoning the prescriptive period of four years. It reconsidered the Decision of 18 February 1980 insofar as it declared Deleste and the estate of Gregorio as co-owners of the 34.7-hectare land. Pinito W. Mercado, as new administrator of the estate, appealed to the Supreme Court, questioning the Court of Appeals’ Amended Decision applying the doctrine of laches and equating the said doctrine with acquisitive prescription (GR 59550). Subsequently, another petition for certiorari to declare the sale to Deleste as an equitable mortgage, was filed by Atty. Bonifacio Legaspi, representing the heirs of Hilaria (GR 60636). The two cases, arising from the same decision of the Court of Appeals, were consolidated in the resolution of 2 September 1991 and were jointly considered. The Supreme Court reversed and set aside the amended decision dated 14 May 1981 of the Court of Appeals, and reinstated and affirmed in toto the Decision dated 18 February 1980. 1. Seemingly inadequate consideration does not render a contract of sale as one of mortgage The contract involving the 34.7-hectare property was one of sale and not of mortgage in the absence of a showing that the findings complained of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion (Andres v. Manufacturers Hanover & Trust Corporation, 177 SCRA 618 [1989]). It should be noted that two contracts had been executed involving said property (the 1 November 1952 mortgage and the 16 February 1954 sale). In the absence of proof of gross inadequacy of the price, that the sale was made with what might appear as an inadequate consideration does not make the contract one of mortgage (Askay v. Cosalan, 46 Phil. 179 [1924]). 2. Succession in the present case governed by the Civil Code of 1889 Gregorio died in 1945 long before the effectivity of the Civil Code of the Philippines on 30 August 1950. Under Article 2263 of the said Code, “rights to the inheritance of a person who died, with or without a will, before the effectivity of this Code, shall be governed by the Civil Code of 1889, by other previous laws, and by the Rules of Court.” Thus, succession to the estate of Gregorio was governed primarily by the provisions of the Spanish Civil Code of 1889. 3. 1889 Civil Code; Wife has full ownership of undivided half-interest and the usufruct over the other; Right to alienate half-interest Under Article 953 thereof, a spouse like Hilaria, who is survived by brothers or sisters or children of brothers or sisters of the decedent was entitled to receive in usufruct the part of the inheritance pertaining to said heirs. Hilaria, however, had full ownership, not merely usufruct, over the undivided half of the estate (Spanish Civil Code of 1889, Art. 493). It is only this undivided half-interest that she could validly alienate. Under the law in force in 1945, the surviving spouse was given the management of the conjugal property until the affairs of the conjugal partnership were terminated. The surviving spouse became the owner of one-half interest of the conjugal estate in his own right. He also became a trustee with respect to the other half for the benefit of whoever may be legally entitled to inherit the said portion. 4. 1889 Civil Code; Virgilio is not a heir of Gregorio, being illegitimate; No right to transfer ownership
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Virgilio was not an heir of Gregorio under the Spanish Civil Code of 1889. Although he was treated as a child by the Nanaman spouses, illegitimate children who were not natural were disqualified to inherit under the said Code (Cid v. Burnaman, 24 SCRA 434 [1968]). Article 998 of the Civil Code of the Philippines, which gave an illegitimate child certain hereditary rights, could not benefit Virgilio because the right of ownership of the collateral heirs of Gregorio had become vested upon his death (Civil Code of the Philippines, Art. 2253; Uson v. Del Rosario, 92 Phil. 530 [1953]). Therefore, Virgilio had no right at all to transfer ownership over which he did not own. 5. Contract of sale; essential that seller is the owner of the property In a contract of sale, it is essential that the seller is the owner of the property he is selling. The principal obligation of a seller is “to transfer the ownership of” the property sold (Civil Code of the Philippines, Art. 1458). This law stems from the principle that nobody can dispose of that which does not belong to him (Azcona v. Reyes, 59 Phil. 446 [1934]; Coronel v. Ona, 33 Phil. 456 [1916]). NEMO DAT QUAD NON HABET . 6. Mistake attended sale of undivided interest in property belonging to the collateral heirs of Gregorio While it cannot be said that fraud attended the sale to Deleste, clearly there was a mistake on the part of Hilaria and Virgilio in selling an undivided interest in the property which belonged to the collateral heirs of Gregorio. 7. Purchaser is a trustee of an implied trust if property is acquired by mistake or fraud The sale, having been made in 1954, was governed by the Civil Code of the Philippines. Under Article 1456 of said Code, an implied trust was created on the one-half undivided interest over the 34.7hectare land in favor of the real owners. Said Article provides that “if the property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.” In Diaz v. Gorricho, 103 Phil. 261 (1958), the Court said that Article 1456 merely expresses a rule recognized in Gayondato v. Insular Treasurer, 49 Phil. 244 (1926). Applying said rule, the Gayondato court held that the buyer of a parcel of land at a public auction to satisfy a judgment against a widow acquired only one-half interest on the land corresponding to the share of the widow and the other half belonging to the heirs of her husband became impressed with a constructive trust in behalf of said heirs. 8. Surviving spouse cannot acquire a title by prescription over said administered half Being a trustee with respect to the other half for the benefit of whoever may be legally entitled to inherit the said portion, the surviving spouse “could therefore no more acquire a title by prescription against those for whom he was administering the conjugal estate than could a guardian against his ward or a judicial administrator against the heirs of an estate. The surviving husband as the administrator and liquidator of the conjugal estate occupies the position of a trustee of the highest order and is not permitted by the law to hold that estate or any portion thereof adversely to those for whose benefit the law imposes upon him the duty of administration and liquidation” (Pamittan v. Lasam, 60 Phil. 908 [1934]). 9. Virgilio’s possession not under the claim of ownership The possession of Virgilio, his registration of the land in his name for tax purposes, his hiring of tenants to till the land, and his enjoyment of the produce of the tenants, appear more as acts done to help Hilaria in managing the conjugal property. There is no evidence to prove indubitably that Virgilio asserted a claim of ownership over the property in his own right and adverse to all including Hilaria. 10. Laches do not apply; Doctrine cannot prejudice the rights of an owner or original transferee The doctrine of laches does not apply. Upon orders of the court in the intestate proceedings, Noel, the administrator of the estate of the Nanaman spouses, immediately filed an action to recover possession and
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ownership of the property. There is no evidence showing any failure or neglect on his part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier (Cristobal v. Melchor, 78 SCRA 175 [1977]). The doctrine of stale demands would apply only where by reason of the lapse of time, “[i]t would be inequitable to allow a party to enforce his legal rights” (Z.E. Lotho, Inc. v. Ice and Cold Storage Industries of the Philippines, Inc., 3 SCRA 744 [1961]). Moreover, this Court, except for very strong reasons, is not disposed to sanction the application of the doctrine of laches to prejudice or defeat the rights of an owner or original transferee (Raneses v. Intermediate Appellate Court, 187 SCRA 397 [1990]). 11. Prescription is ten years in an action to recover the undivided half-interest The action to recover the undivided half-interest of the collateral heirs of Gregorio prescribes in 10 years. The cause of action is based on Article 1456 of the Civil Code of the Philippines, which made Deleste a trustee of an implied trust in favor of the said heirs. Under Article 1144 of the Civil Code of the Philippines, actions based upon an obligation created by law, can be brought within ten years from the time the right of action accrues (Rosario v. Auditor General, 103 Phil. 1132 [1958]). The 10-year prescriptive period within which the collateral heirs of Gregorio could file an action to recover their share in the property sold to Deleste (prescripcion extintiva) accrued only on 2 March 1954, when the deed of sale was registered with the Register of Deeds (Cf. Arradaza v. Court of Appeals, 170 SCRA 12 [1987]). From 2 March 1954 to 30 April 1963, when the complaint for the recovery of the property was filed, less than 10 years had elapsed. Therefore, the action had not been barred by prescription. The 10-year prescriptive period before title to real estate shall vest by adverse possession (prescripcion adquisitiva) is also reckoned in the case of Deleste from 2 March 1954 (Corporacion de PP. Agustinos Recoletos v. Crisostomo, 32 Phil. 427 [1915]). [72] Spouses Nonato vs. IAC [G.R. No. L-67181. November 22, 1985.] Second Division, Escolin (J): 4 concur Facts: On 28 June 1976, spouses Restituto Nonato and Ester Nonato purchased 1 unit of Volkswagen Sakbayan from the People’s Car, Inc., on installment basis. To secure complete payment, they executed a promissory note and a chattel mortgage in favor of People’s Car, Inc. People’s Car, Inc., assigned its rights and interests over the note and mortgage in favor of Investor’s Finance Corporation (IFC). For failure of the spouses to pay two or more installments, despite demands, the car was repossessed by IFC on 20 March 1978. Despite repossession, IFC demanded from the spouses that they pay the balance of the price of the car. On 9 June 1978, IFC filed before the CFI Negros Occidental a complaint against the spouses for the latter to pay the balance of the price of the car, with damages and attorney’s fees. In their answer, the spouses alleged by way of defense that when the company repossessed the vehicle, it had, by that act, effectively cancelled the sale of the vehicle. It is therefore barred from exacting recovery of the unpaid balance of the purchase price, as mandated by the provisions of Article 1484 of the Civil Code. The trial court, however, after due hearing, rendered a decision in favor of IFC, ordering the spouses to pay IFC the amount of P17,537.60 with interest at the rate of 14% per annum from 28 July 1976 until fully paid, 10% of the amount due as attorney’s fees, litigation expenses in the amount of P133.05 plus the costs of the suit; without any pronouncement as to other charges and damages, the same not having been proven to the satisfaction of the Court. On appeal, the appellate court affirmed the judgment. Hence, the petition for review on certiorari. The Supreme Court set aside the judgment of the appellate court in CA-GR 69276-R and dismissed the complaint filed by Investors Finance Corporation against the Nonato spouses in Civil Case 13852; without costs.

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1. Article 1484 of the Civil Code; Remedies available to vendor of personal property in sale payable in installments Article 1484 of the Civil Code (on sale of personal property on installment) provides that “In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee’s failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.” 2. Meaning of Article 1484 The meaning of the provision has been repeatedly enunciated in a long line of cases. Thus; “Should the vendee or purchaser of a personal property default in the payment of two or more of the agreed installments, the vendor or seller has the option to avail of any of these three remedies — either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. These remedies have been recognized as alternative, not cumulative, that the exercise of one would bar the exercise of the others.” 3. Repossession an exercise of canceling the contract of sale not merely to appraise the car’s value It is not disputed that the company had taken possession of the car purchased by the Nonatos on installments. While the Nonatos maintain that the company had, by that act, exercised its option to cancel the contract of sale, the company contends that the repossession of the vehicle was only for the purpose of appraising its value and for storage and safekeeping pending full payment by the Nonatos of the purchasing price. The records show otherwise. The receipt issued by the company to the Nonatos when it took possession of the vehicle states that the vehicle could be redeemed within 15 days. This could only mean that should the spouses fail to redeem the car within the period by paying the balance of the purchase price, the company would retain permanent possession of the vehicle. The assertion that the company repossessed the vehicle merely for the purpose of appraising its current value is untenable, for even after it had notified the Nonatos that the value of the car was not sufficient to cover the balance of the purchase price, there was no attempt at all on the part of the company to return the repossessed car. 4. Cancellation of contract bars company from exacting payment of balance The acts performed by the corporation are wholly consistent with the conclusion that it had opted to cancel the contract of sale of the vehicle. It is thus barred from exacting payment from petitioners of the balance of the price of the vehicle which it had already repossessed. It cannot have its cake and eat it too. [73] Nool v. CA [G.R. No. 116635. July 24, 1997.] Third Division, Panganiban (J): 4 concur Facts: One lot formerly owned by Victorio Nool (TCT T-74950) has an area of 1 hectare. Another lot previously owned by Francisco Nool (TCT T-100945) has an area of 3.0880 hectares. Both parcels are situated in San Manuel, Isabela. Spouses Conchita Nool and Gaudencio Almojera (plaintiffs) alleged that they are the owners of the subject land as they bought the same from Victorio and Francisco Nool, and that as they are in dire need of money, they obtained a loan from the Ilagan Branch of the DBP (Ilagan, Isabela), secured by a real estate mortgage on said parcels of land, which were still registered in the names of Victorino and Francisco Nool, at the time, and for the failure of the plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, the plaintiffs contacted Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the 2 parcels of land in question were transferred to Anacleto; that as
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part of their arrangement or understanding, Anacleto agreed to buy from Conchita the 2 parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, the plaintiffs were to regain possession of the 2 hectares of land, which amounts spouses Anacleto Nool and Emilia Nebre (defendants) failed to pay, and the same day the said arrangement was made; another covenant was entered into by the parties, whereby the defendants agreed to return to plaintiffs the lands in question, at anytime the latter have the necessary amount; that latter asked the defendants to return the same but despite the intervention of the Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling the plaintiffs to come to court for relief. On the other hand, defendants theorized that they acquired the lands in question from the DBP, through negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem the said properties. It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the 1-year redemption period (from 16 March 1982 up to 15 March 1983) and that the mortgagors’ right of redemption was not exercised within this period. Hence, DBP became the absolute owner of said parcels of land for which it was issued new certificates of title, both entered on 23 May 1983 by the Registry of Deeds for the Province of Isabela. About 2 years thereafter, on 1 April 1985, DBP entered into a Deed of Conditional Sale involving the same parcels of land with Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on 8 February 1988. The trial court ruled in favor of the defendants, declaring the private writing to be an option to sell, not binding and considered validly withdrawn by the defendants for want of consideration; ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the legal rate, from the time of filing of defendants’ counterclaim until the same is fully paid; to deliver peaceful possession of the 2 hectares; and to pay reasonable rents on said 2 hectares at P5,000.00 per annum or at P2,500.00 per cropping from the time of judicial demand until the said lots shall have been delivered to the defendants; and to pay the costs. The plaintiffs appealed to the Court of Appeals (CA GR CV 36473), which affirmed the appealed judgment in toto on 20 January 1993. Hence, the petition before the Supreme Court. The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals. 1. valid Contract of repurchase arising out of a contract of sale where the seller does not have title not

A contract of repurchase arising out of a contract of 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. 2. Article 1370 NCC applicable only to valid and enforcement contracts Article 1370 of the Civil Code, which provides that “if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control,” is applicable only to valid and enforceable contracts. 3. A void contract cannot give rise to a valid one A void contract cannot give rise to a valid one. Article 1422 of the Civil Code provides that “a contract which is the direct result of a previous illegal contract, is also void and inexistent.” In the present case. the alleged contract of repurchase being dependent on the validity of the contract of sale, it is itself void. Thus, the principal contract of sale and the auxiliary contract of repurchase are both void. 4. Clarification of “sale of property, when seller is no longer the owner, null and void”; Sale possible even if owner is not owner at time of sale, provided that he acquires title to the property at time of delivery
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In the case of Dignos v. CA, the Court did not cite its basis for ruling that a “sale is null and void” where the sellers “were no longer the owners” of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goods are to be “acquired by the seller after the perfection of the contract of sale,” clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. 5. Void contracts (Article 1409 [5]); those which contemplates an impossible service Article 1459 of the Civil Code provides that “the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered.” Here, delivery of ownership is no longer possible. The sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item 5 of Article 1409 of the Civil Code: “Those which contemplate an impossible service.” 6. Nono dat quod non habet, No one can give what he does not have; Contract of repurchase inoperative thus void Article 1505 of the Civil Code provides that “where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.” Jurisprudence, on the other hand, teaches us that “a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer.” No one can give what he does not have — nono dat quod non habet. In the present case, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Further, the contract of repurchase that the parties entered into presupposes that petitioners could repurchase the property that they “sold” to private respondents. As petitioners “sold” nothing, it follows that they can also “repurchase” nothing. In this light, the contract of repurchase is also inoperative and by the same analogy, void. 7. Right to repurchase presupposes a valid contract of sale One “repurchases” only what one has previously sold. In other words, the right to repurchase presupposes a valid contract of sale between the same parties. Undisputedly, private respondents acquired title to the property from DBP, and not from petitioners. 8. Arguendo, Scenario where the Contract of repurchase distinct from that of sale; Petitions still do not acquire a right to repurchase the property; Unilateral promise to pay only binding if supported by consideration distinct from price Assuming arguendo that the contract of repurchase is separate and distinct from the contract of sale and is not affected by the nullity of the latter, still petitioners do not thereby acquire a right to repurchase the property. In that scenario, the contract of repurchase ceases to be a “right to repurchase” ancillary and incidental to the contract of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code, however, provides that “an accepted unilateral promise to buy or 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 alleged written contract of repurchase is bereft of any consideration distinct from the price. Accordingly, as an independent contract, it cannot bind private respondents. 9. Conventional redemption; Compliance with Article 1616 and other agreed stipulations Article 1601 of the Civil Code provides that “conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon.’”

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10. Right of repurchase a right granted by vendor in the same instrument of sale, not in a subsequent instrument In Villarica v. CA (29 November 1968), the Court ruled that the right of repurchase is not a right granted the vendor by the vendee is a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right (like the option to buy). 11. Sale, without agreement to repurchase, absolute In Ramos, et al. vs. Icasiano, et al. (1927) the Court ruled that “an agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely. and if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. In that case the vendor has not reserved to himself the right to repurchase. 12. Option to repurchase a promise to sell, governed by Article 1479 The Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by Article 1479 of the Civil Code which provides that “a promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 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.” 13. Arguendo, Section 119 of Public Land Act The brothers Victorino and Francisco Noel, together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase the two parcels of land under Section 119 of the Public Land Act which provides that “(e)very conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of 5 years from the date of conveyance.” Assuming the applicability of this statutory provision to the present case, it is indisputable that Anacleto Nool already repurchased from DBP the contested properties. Hence, there was no more right of repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The properties were already owned by an heir of the homestead grantee and the rationale of the provision to keep homestead lands within the family of the grantee was thus fulfilled. 14. Action/Defense for the declaration of an inexistent contract does not prescribe; Validity of a contract cannot be acquired through estoppel The private respondents cannot be estopped from raising the defense of nullity of contract, specially in this case where they acted in good faith, believing that indeed petitioners could sell the two parcels of land in question. Article 1410 of the Civil Code mandates that “the action or defense for the declaration of the inexistence of a contract does not prescribe.” It is a well-settled doctrine that “as between parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is against public policy. It is not within the competence of any citizen to barter away what public policy by law seeks to preserve.” Thus, it is immaterial that private respondents initially acted to implement the contract of sale, believing in good faith that the same was valid. A contract void at inception cannot be validated by ratification or prescription and certainly cannot be binding on or enforceable against private respondents. 15. Petitioners required to return sum of P30,000 with interest and to pay rent The balance of P14,000.00 under the void contract of sale may not be enforced. Petitioners are the ones who have an obligation to return what they unduly and improperly received by reason of the invalid contract of sale. Since they cannot legally give title to what they “sold,” they cannot keep the money paid for the object of the sale. It is basic that “every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal
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ground, shall return the same.” Thus, if a void contract has already “been performed, the restoration of what has been given is in order.” 16. Interest runs from the time tolerance ceased upon counterclaim Interest to the amount will run only from the time of private respondents’ demand for the return of this amount in their counterclaim, for the petitioners’ possession and cultivation of the two hectares are anchored on private respondents’ tolerance. The latter’s tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to posses and cultivate the land ipso facto ceased. [74] Northern Motors vs. Sapinoso [G.R. No. L-28074. May 29, 1970.] En Banc, Villamor (J): 7 concur, 1 concur in result, 1 on leave of absence Facts: On 4 June 1965, Casiano Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car for the price of P12,171.00, making a down payment and executing a promissory note for the balance of P10,540.00 payable in installments with interest at 12% per annum, as follows: P361.00 on 5 July 1965, and P351.00 on the 5th day of each month beginning August 1965, up to and including December, 1967. To secure the payment of the promissory note, Sapinoso executed in favor of Northern Motors, Inc. a chattel mortgage on the car. The mortgage contract provided, among others, that upon default by the mortgagor in the payment of any part of the principal or interest due, the mortgagee may elect any of the following remedies: (a) sale of the car by the mortgagee; (b) cancellation of the contract of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary civil action to exact fulfillment of the mortgage contract. It was further stipulated that “[w]hichever remedy is elected by the mortgagee, the mortgagor expressly waives his right to reimbursement by the mortgagee of any and all amounts on the principal and interest already paid by him.” Sapinoso failed to pay the first installment of P361.00 due on 5 July 1965, and the second, third, fourth and fifth installments of P351.00 each due on the 5th day of August, September, October and November, 1965, respectively. Several payments were, however, made by Sapinoso, to wit: P530.52 on 21 November 1965, P480.00 on 21 December 1965, and P400.00 on 30 April 1966. The first and third payments aforesaid were applied to accrued interest up to 17 April 1966, while the second payment was applied partly (P158.10) to interest, and partly (P321.90) to the principal, thereby reducing the balance unpaid to P10,218.10. Sapinoso having failed to make further payments, Northern Motors, Inc. filed a complaint on 22 July 1966, against Sapinoso and a certain person whose name, identity and address were still unknown to Northern Motors, hence denominated in the complaint as “John Doe.” In its complaint, Northern Motors, Inc. stated that it was availing itself of the option given it under the mortgage contract of extrajudicially foreclosing the mortgage, and prayed that a writ of replevin be issued upon its filing of a bond for the seizure of the car and for its delivery to it; that after hearing, it be adjudged to have the rightful possession and ownership of the car; that in default of delivery, Sapinoso and “Doe” be ordered to pay Northern Motors the sum of P10,218.10 with interest at 12% per annum from 18 April 1966, until full payment of the said sum, as well as an amount equivalent to 25% of the sum due as and for attorney’s fees and expenses of collection, and the costs of the suit. Northern Motors also prayed for such other remedy as might be deemed just and equitable in the premises. Subsequent to the commencement of the action, but before the filing of his answer, Sapinoso made 2 payments on the promissory note, the first on 22 August 1966, for P500.00, and the second on 27 September 1966, for P750.00. In the meantime, on 9 August 1966, upon Northern Motor’s filing of a bond, a writ of replevin was issued by the court. On 20 October 1966, copies of the summons, complaint and annexes thereto were served on Sapinoso by the sheriff who executed the seizure warrant by seizing the car from Sapinoso on the same date, and turning over its possession to the plaintiff on 25 October 1966. After trial and on 4 April 1967, the trial court held that Sapinoso having failed to pay more than 2 installments, Northern Motors acquired the right to foreclose the chattel mortgage, which it could avail of by filing an action of replevin to secure possession of the mortgaged car as a preliminary step to the foreclosure sale contemplated in the
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Chattel Mortgage Law; and that the foreclosure of the chattel mortgage and the recovery of the unpaid balance of the price are alternative remedies which may not be pursued conjunctively, so that in availing itself of its right to foreclose the chattel mortgage, Northern Mortors thereby renounced whatever claim it may have had on the promissory note, and, therefore, it has no more right to the collection of the attorney’s fees stipulated in the promissory note, and should return to Sapinoso the sum of P1,250.00 which Northern Motors had received from the latter after having filed the present case on 22 July 1966, and elected to foreclose the chattel mortgage. Direct appeal was made by Northern Motors on questions of law from the portion of the judgment of the CFI Manila, Branch XXII (Civil Case 66199), ordering Northern Motors to pay Sapinoso the sum of P1,250.00. The Supreme Court modified the judgment appealed from by setting aside the portion thereof which orders Northern Motors to pay Sapinoso the sum of P1,250.00, with costs in this instance against Sapinoso. 1. Replevin as a preliminary step to the foreclosure sale In issuing a writ of replevin, and, after trial, in upholding Northern Motors’ right to the possession of the car, and ratifying and confirming its delivery to the aforementioned, the trial court correctly considered the action as one of replevin to secure possession of the mortgaged vehicle as a preliminary step to the foreclosure sale contemplated in Section 14 of Act 1508 (Bachrach Motor Co. vs. Summers, 42 Phil., 3; Seño vs. Pestolante, G.R. No. L-11755, April 23, 1958). 2. Replevin does not bar seller from accepting further payments on the promissory note The trial court erred in concluding that the legal effect of the filing of the action was to bar Northern Motors from accepting further payments on the promissory note. 3. Fact of foreclosure and actual sale of mortgage chattel one that bars recovery of outstanding balance That the ultimate object of the action is the foreclosure of the chattel mortgage, is of no moment, for it is the fact of foreclosure and actual sale of the mortgaged chattel that bar further recovery by the vendor of any balance on the purchaser’s outstanding obligation not satisfied by the sale (Manila Motor Co., Inc. vs. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. vs. Millan, 61 Phil., 409; Manila Trading & Suppy Co. vs. Reyes, 62 Phil. 461, 471; Cruz et al. vs. Filipinas Investment & Finance Corporation, G.R. No. L-24772, May 27, 1968 [23 SCRA 791, 796].) 4. Article 1484 (3); “Further action” to recover unpaid balance prohibited; Prohibition does not preclude voluntary payments What Article 1484(3) prohibits is “further action against the purchaser to recover any unpaid balance of the price.” Although the Court has construed the word “action” in said Article 1484 to mean “any judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy” (Cruz, et al. vs. Filipinas Investment & Finance Corporation, supra), there is no occasion at this stage to apply the restrictive provision of the said article, because there has not yet been a foreclosure sale resulting in a deficiency. The payment of the sum of P1,250.00 by Sapinoso was a voluntary act on his part and did not result from a “further action” instituted by Northern Motors. If the mortgage creditor, before the actual foreclosure sale, is not precluded from recovering the unpaid balance of the price although he has filed an action of replevin for the purpose of extra-judicial foreclosure, or if a mortgage creditor who has elected to foreclose but who subsequently desists from proceeding with the auction sale, without gaining any advantage or benefit, and without causing any disadvantage or harm to the vendee-mortgagor, is not barred from suing on the unpaid account (Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563, April 27, 1963 [7 SCRA 804, 807]), there is no reason why a mortgage creditor should be barred from accepting, before a foreclosure sale, payments voluntarily tendered by the debtor-mortgagor who admits a subsisting indebtedness.
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[75] Odyssey Park Inc. v. CA, 280 SCRA 253 (1997) [76] Ong v. CA [G.R. No. 97347. July 6, 1999.] First division, Ynares-Santiago (J): 4 concur Facts: On 10 May 1983, Jaime Ong and spouses Miguel and Alejandra Robles executed an “Agreement of Purchase and Sale” respecting 2 parcels of land situated at Barrio Puri, San Antonio, Quezon (agricultural including rice mill, piggery) for P2M (initial payment of P600,000 broken into P103,499.91 directly paid to seller on 22 March 1983 and P496,500.09 directly paid to BPI to answer for part of seller’s loan with the bank; and balance of 1.4M to be paid in 4 equal quarterly installments of P350,000 the first of which due and demandable on 15 June 1983); binding themselves that upon the payment of the total purchase price the seller delivers a good and sufficient deed of sale and conveyance for the parcels of land free and clear from liens and encumbrances, that seller delivers, surrenders and transfers the parcels of land including all improvements thereon and to transfer the operations of the piggery and rice mill to the buyer; and that all payments due and demandable under the contract effected in the residence of the seller unless otherwise designated by the parties in writing. On 15 May 1983, Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon. Pursuant to the contract, Ong paid the spouses the sum of P103,499.91 2 by depositing it with the UUCPB. Subsequently, Ong deposited sums of money with the BPI, in accordance with their stipulation that petitioner pay the loan of the spouses with BPI. To answer for his balance of P 1.4M, Ong issued 4 post-dated Metro Bank checks payable to the spouses in the amount of P350,000.00 each (Check 137708-157711). When presented for payment, however, the checks were dishonored due to insufficient funds. Ong promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of the spouses with BPI, which ong, as per agreement, should have paid, Ong only managed to dole out no more than P393,679.60. When the bank threatened to foreclose the spouses’ mortgage, they sold 3 transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of Ong. Ong, in return, voluntarily gave the spouses authority to operate the rice mill. He, however, continued to be in possession of the two parcels of land while the spouses were forced to use the rice mill for residential purposes. On 2 August 1985, the spouses, through counsel, sent Ong a demand letter asking for the return of the properties. Their demand was left unheeded, so, on 2 September 1985, they filed with the RTC Lucena City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was still pending with the trial court, Ong introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. These prompted the spouses to ask for a writ of preliminary injunction; which the trial court granted, and thus enjoined Ong from introducing improvements on the properties except for repairs. On 1 June 1989, the trial court rendered a decision in favor of the spouses: ordering the contract entered into by the parties set aside, ordering the delivery of the parcels of land and the improvements thereon to the spouses, ordering the return of the sum of P497,179.51 to Ong by the spouses, ordering Ong to pay the spouses P100,000 for exemplary damages and P20,000 as attorney’s fees and litigation expenses. From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the petition for review on certiorari. The Supreme Court affirmed the decision rendered by the Court of Appeals with the modification that the
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spouses are ordered to return to Ong the sum P48,680.00 in addition to the amounts already awarded; with costs against petitioner Ong. 1. Reevaluation of evidence not the function of the Supreme Court It is not the function of the Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties to an appeal, particularly where the findings of both the trial court and the appellate court on the matter coincide. There is no cogent reason shown that would justify the court to discard the factual findings of the two courts below and to superimpose its own. 2. Rescission as a remedy to secure the reparation of damages caused by a contract; Article 1380 Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone. 3. Rescission applicable to reciprocal obligations under Article 1191 Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. 4. Rescission of reciprocal obligations under Article 1191 distinguished from rescission of contract under Article 1383 Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not entirely identical. While Article 1191 uses the term “rescission,” the original term which was used in the old Civil Code, from which the article was based, was “resolution.” Resolution is a principal action which is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code. 5. Rescissible contract under Article 1381 Article 1381 of the New Civil Code enumerates rescissible contracts as “(1) those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof; (2) those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them; (4) those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) all other contracts specially declared by law to be subject to rescission.” In the present case, the contract entered into by the parties obviously does not fall under any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable. 6. Contract to sell distinguished from contract of sale In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while 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. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.

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7.

“Agreement of Purchase and Sale” is in the nature of contract to sell A careful reading of the parties’ “Agreement of Purchase and Sale” shows that it is in the nature of a contract to sell. The spouses bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2M. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the Ong. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor’s obligation to convey title from acquiring binding force. Hence, the agreement of the parties the present case may be set aside, but not because of a breach on the part of Ong for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of the spouses to convey title from acquiring an obligatory force. 8. Contract was not novated as to the manner and time of payment; Novation not presumed Article 1292 of the New Civil Code states that, “In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.” Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. In the present case, the parties never even intended to novate their previous agreement. It is true that Ong paid the spouses small sums of money amounting to P48,680.00, in contravention of the manner of payment stipulated in their contract. These installments were, however, objected to by the spouses, and ong replied that these represented the interest of the principal amount which he owed them. Records further show that Ong agreed to the sale of MERALCO transformers by the spousess to pay for the balance of their subsisting loan with BPI. Although the parties agreed to credit the proceeds from the sale of the transformers to petitioner’s obligation, he was supposed to reimburse the same later to respondent spouses. This can only mean that there was never an intention on the part of either of the parties to novate petitioner’s manner of payment. 9. Requisites of novation In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. In the present case, the requisites are not found. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. Novation is never presumed, there must be an express intention to novate. 10. Builder in bad faith As regards the improvements introduced by Ong to the premises and for which he claims reimbursement, the Court found no reason to depart from the ruling of the trial court and the appellate court that petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully well that he has not paid the consideration of the contract in full and over the vigorous objections of respondent spouses. Moreover, Ong introduced major improvements on the premises even while the case against him was pending before the trial court. 11. Deletion of award of exemplary damages correct The award of exemplary damages was correctly deleted by the Court of Appeals inasmuch as no moral, temperate, liquidated or compensatory damages in addition to exemplary damages were awarded. [77]

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Ong v. Ong [G.R. No. L-67888. October 8, 1985.] First Division, Relova (J): 5 concur, 1 concur in result Facts: On 25 February 1976, Imelda Ong for and in consideration of P1 and other valuable considerations, executed in favor of Sandra Maruzzo, then a minor, a Quitclaim Deed whereby she transferred, released, assigned and forever quitclaimed to Sandra Maruzzo, her heirs and assigns, all her rights, title, interest and participation in 1/2 undivided portion of a parcel of land (Lot 10-B of the subdivision plan (LRC) Psd157841, a portion of lot 10 Block 18 of PSD-13288 LCR (GLRC) Record 2029, situated in Makati, containing 125 square meters. On 19 November 1980, Imelda Ong revoked the aforesaid Deed of Quitclaim and, thereafter, on 20 January 1982 donated the whole property to her son, Rex Ong Jimenez. On 20 June 1983, Sandra Maruzzo, through her guardian ad litem Alfredo Ong, filed with the RTC Makati an action against Imelda Ong, for the recovery of ownership/possession and nullification of the Deed of Donation over the portion belonging to her and for accounting. Imelda Ong claimed that the Quitclaim Deed is null and void inasmuch as it is equivalent to a Deed of Donation, acceptance of which by the donee is necessary to give it validity. Further, it is averred that the donee, Sandra Maruzzo, being a minor, had no legal personality and therefore incapable of accepting the donation. Upon admission of the documents involved, the parties filed their responsive memoranda and submitted the case for decision. On 12 December 1983, the trial court rendered judgment in favor of Maruzzo and held that the Quitclaim Deed is equivalent to a Deed of Sale and, hence, there was a valid conveyance in favor of the latter. Imelda Ong appealed to the Intermediate Appellate Court. On 20 June 1984, IAC promulgated its Decision affirming the appealed judgment and held that the Quitclaim Deed is a conveyance of property with a valid cause or consideration; that the consideration is P1 which is clearly stated in the deed itself; that the apparent inadequacy is of no moment since it is the usual practice in deeds of conveyance to place a nominal amount although there is a more valuable consideration given. Hence, the petition for review on certiorari. On 15 March 1985, Sandra Maruzzo, through her guardian ad litem Alfredo Ong, filed an Omnibus Motion informing this Court that she has reached the age of majority as evidenced by her Birth Certificate and she prays that she be substituted as private respondent in place of her guardian ad litem. On 15 April 1985, the Court issued a resolution granting the same. The Supreme Court affirmed the appealed decision of the IAC, with costs against Imelda Ong. 1. Consideration or cause is not P1 alone but also other valuable considerations The subject deed reveals that the conveyance of the 1/2 undivided portion of the property was for and in consideration of P1 and the other valuable considerations paid by Sandra Maruzzo, through her representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently, the cause or consideration is not P1 alone but also the other valuable considerations. 2. Cause not stated in contract is presumed existing unless proven to the contrary; Execution of deed a prima facie evidence of existence of valuable consideration Although the cause is not stated in the contract it is presumed that it is existing unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration supporting a contract even if such cause is not stated therein (Article 1354, New Civil Code) This presumption cannot be overcome by a simple assertion of lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration must be shown by preponderance of evidence in a proper action. (Samanilla vs. Cajucom, et al., 107 Phil. 432). The execution of a deed purporting to convey ownership of a realty is in itself prima facie
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evidence of the existence of a valuable consideration, the party alleging lack of consideration has the burden of proving such allegation. (Caballero, et al. vs. Caballero, et al., (CA), 45 O.G. 2536). 3. Acceptance by legal representatives of minor applies to onerous and conditional donations Granting that the Quitclaim deed is a donation, Article 741 of the Civil Code provides that the requirement of the acceptance of the donation in favor of minor by parents of legal representatives applies only to onerous and conditional donations where the donation may have to assume certain charges or burdens (Article 726, Civil Code). The acceptance by a legal guardian of a simple or pure donation does not seem to be necessary (Perez vs. Calingo, CA-40 O.G. 53). Thus, Supreme Court ruled in Kapunan vs. Casilan and CA (109 Phil. 889) that the donation to an incapacitated donee does not need the acceptance by the lawful representative if said donation does not contain any condition. In simple and pure donation, the formal acceptance is not important for the donor requires no right to be protected and the donee neither undertakes to do anything nor assumes any obligation. The Quitclaim in question does not impose any condition. 4. Bad faith and inadequacy of monetary consideration does not render conveyance inexistent, assignor’s liberality may be sufficient cause for a valid contract It is not unusual in deeds of conveyance adhering to the Anglo-Saxon practice of stating that the consideration given is the sum of P1, although the actual consideration may have been much more. Moreover, assuming that said consideration of P1 is suspicious, this circumstance, alone, does not necessarily justify the inference that the vendees were not purchasers in good faith and for value. Neither does this inference warrant the conclusion that the sales were null and void ab initio. Indeed, bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent, for the assignor’s liberality may be sufficient cause for a valid contract (Article 1350, Civil Code), whereas fraud or bad faith may render either rescissible or voidable, although valid until annulled, a contract concerning an object certain entered into with a cause and with the consent of the contracting parties(See Morales Development v. CA, 27 SCRA 484). [78] Pangilinan v. CA, 279 SCRA 590 (1997) [79] Pasagui vs. Villablanca [G.R. No. L-21998. November 10, 1975.] Second Division, Antonio (J): 4 concur, 1 on leave, 1 designated to sit in the Second Division Facts: On 4 February 1963, Calixto Pasagui and Fausta Mosar filed a complaint with the CFI Tacloban City, alleging that on 15 November 1962, for and in consideration of P2,800, they bought from Eustaquia Bocar and Catalina Bocar a parcel of agricultural land with an area of 2.6814 hectares, situated in Hamindangon, Pastrana, Leyte; that the corresponding document of sale was executed, notarized on the same date, and recorded in the Registry of Deeds of Tacloban, Leyte on 16 November 1962; that during the first week of February 1963, spouses Ester T. Villablanca and Zosimo Villablanca, “illegally and without any right, whatsoever, took possession of the property harvesting coconuts from the coconut plantation thereon, thus depriving Pasaqui and Mosar of its possession; that despite demands made by Pasagui and Mosar upon the Villablancas “to surrender to them the property and its possession” the latter failed or refused to return said parcel of land to the former, causing them damage; and that Eustaquia and Catalina Bocar, vendors of the property, are included defendants in the complaint by virtue of the warranty clause contained in the document of sale. On 13 May 1963, the trial court issued an order dismissing the complaint for lack of jurisdiction, it appearing from the allegations in the complaint that the case is one for forcible entry, which belongs to the exclusive jurisdiction of the Justice of the Peace (now Municipal Court) of Pastrana, Leyte. The first Motion for
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Reconsideration was denied on 27 May 1963 and the second was likewise denied on 5 July 1963. From the orders, appeal on a pure question of law was interposed to the Supreme Court. The Supreme Court set aside the order of dismissal, and remanded the case to the court a quo for further proceedings; with costs against the Villablancas and the Bocars. 1. Averments of complaint and character of relief determines jurisdiction of municipal court in a forcible entry case What determines the jurisdiction of the municipal court in a forcible entry case is the nature of the action pleaded as appears from the allegations in the complaint. In ascertaining whether or not the action is one of forcible entry within the original exclusive jurisdiction of the municipal court, the averments of the complaint and the character of the relief sought are the ones to be consulted. In the present case, the complaint does not allege that Pasagui and Mosar were in physical possession of the land and have been deprived of that possession through force, intimidation, threat, strategy, or stealth. In order that an action may be considered as one for forcible entry, it is not only necessary that the plaintiff should allege his prior physical possession of the property but also that he was deprived of his possession by any of the means provided in section 1, Rule 70 of the Revised Rules of Court, namely: force, intimidation, threats, strategy and stealth. For, if the dispossession did not take place by any of these means, the courts of first instance, not the municipal courts, have jurisdiction. The bare allegation in the complaint that the plaintiff has been “deprived” of the land of which he is and has been the legal owner for a long period has been held to be insufficient. Though it is true that the mere act of a trespasser in unlawfully entering the land, planting himself on the ground and excluding therefrom the prior possessor would imply the use of force, no such inference could be made as Pasagui and Mosar had not claimed that they were in actual physical possession of the property prior to the entry of the Villablancas. 2. Execution of deed of absolute sale in public instrument equivalent to delivery of land, unless there is impediment The execution of the deed of absolute sale in a public instrument is equivalent to delivery of the land subject of the sale. This presumptive delivery only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. It can be negated by the reality that the vendees actually failed to obtain material possession of the land subject of the sale. In the present case, Pasagui and Mosar had not acquired physical possession of the land since its purchase on 12 November 1962. As a matter of fact, their purpose in filing the complaint in Civil Case 3285 is precisely to “get the possession of the property.” 3. Case is not an action of forcibly entry The case is, not the summary action of forcible entry within the context of the Rules; as Pasagui and Mosar are not only seeking to get the possession of the property, but as an alternative cause of action, they seek the return of the price and payment of damages by the vendors “in case of eviction or loss of ownership” of the said property. [80] Paulmitan vs. CA [G.R. No. 61584. November 25, 1992.] Third Division, Romero (J): 4 concur Facts: From her marriage with Ciriaco Paulmitan, deceased, Agatona Sagario Paulmitan begot two legitimate children, Pascual and Donato Paulmitan. Agatona Sagario Paulmitan died sometime in 1953 and left the 2 parcels of land located in the Province of Negros Occidental (Lot 757 with an area of 1,946 sq.ms., OCT RO8376; and Lot 1091 with an area of 69,080 sq.ms., OCT RO-11653). Pascual Paulmitan also died in 1953, apparently shortly after his mother passed away, leaving his children, namely: Alicio, Elena, Abelino, Adelina,
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Anita, Baking and Anito, all surnamed Paulmitan. Until 1963, the estate of Agatona Sagario Paulmitan remained unsettled and the titles to the two lots remained in the name of Agatona. However, on 11 August 1963, Donato Paulmitan executed an Affidavit of Declaration of Heirship, extrajudicially adjudicating unto himself Lot 757 based on the claim that he is the only surviving heir of Agatona Sagario. The affidavit was filed with the Register of Deeds of Negros Occidental who, on 20 August 1963, cancelled OCT RO-8376 in the name of Agatona Sagario and issued TCT 35979 in Donato’s name. As regards Lot 1091, Donato executed on 28 May 1974 a Deed of Sale over the same in favor of Juliana P. Fanesa, his daughter (married to Rodolfo Fanesa). In the meantime, sometime in 1952, for non-payment of taxes, Lot 1091 was forfeited and sold at a public auction, with the Provincial Government of Negros Occidental being the buyer. A Certificate of Sale over the land was executed by the Provincial Treasurer in favor of the Provincial Board of Negros Occidental. On 29 May 1974, Juliana P. Fanesa redeemed the property from the Provincial Government of Negros Occidental for the amount of P2,959.09. On learning of these transactions, the children of the Late Pascual Paulmitan filed on 18 January 1975 with th the CFI Negros Occidental (12 Judicial District, Branch IV, Bacolod City, Civil Case 11770) a Complaint against Donato and Juliana to partition the properties plus damages. Donato and Juliana set up the affirmative defense of prescription (complaint being filed 11 years after the issuance of the title) with respect to Lot 757. The trial court issued an order dated 22 April 1976 dismissing the complaint as to the said property upon finding merit in Donato’s and Juliana’s affirmative defense. This order became final after Pascual’s children failed to appeal therefrom. Trial proceeded with respect to Lot 1091. In a decision dated 20 May 1977, the trial court decided in favor of Pascual’s children as to Lot 1091. According to the trial court, the respondents, as descendants of Agatona Sagario Paulmitan were entitled to ½ of Lot 1091, pro indiviso. The sale by Donato Paulmitan to his daughter, Juliana Fanesa, did not prejudice their rights; and the repurchase by Juliana of the land from the Provincial Government of Negros Occidental did not vest in Juliana exclusive ownership over the entire land but only gave her the right to be reimbursed for the amount paid to redeem the property. The trial court ordered the partition of the land and directed Donato and Juliana to pay pascual’s Children certain amounts representing the latter’s share in the fruits of the land. On the other hand, the children were directed to pay P1,479.55 to Juliana as their share in the redemption price paid by Fanesa to the Provincial Government of Negros Occidental. On appeal and on 14 July 1982 (CA-GR 62255-R), the Court of Appeals affirmed the trial court’s decision. Hence the petition for review on certiorari. The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. 1. Pascual predecease mother, precludes operation of provisions on right of representation Pascual did not predecease his mother, decedent Agatona Sagario Paulmitan, thus precluding the operation of the provisions in the Civil Code on the right of representation with respect to his seven children. 2. Rights of succession transmitted at the moment of the decedent’s death; Both Pascual and Donato entitled to ownership When Agatona Sagario Paulmitan died intestate in 1952, her two (2) sons Donato and Pascual were still alive. Since it is well-settled by virtue of Article 777 of the Civil Code that “[t]he rights to the succession are transmitted from the moment of the death of the decedent,” the right of ownership, not only of Donato but also of Pascual, over their respective shares in the inheritance was automatically and by operation of law vested in them in 1953 when their mother died intestate. At that stage, the children of Donato and Pascual did not yet have any right over the inheritance since “[i]n every inheritance the relative nearest in degree excludes the more distant ones.” Donato and Pascual excluded their children as to the right to inherit from Agatona
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Sagario Paulmitan, their mother. 3. Heirs own in common the estate of the decedent before its partition From the time of the death of Agatona Sagario Paulmitan to the subsequent passing away of her son Pascual in 1953, the estate remained unpartitioned. Donato and Pascual Paulmitan were co-owners of the estate left by their mother as no partition was ever made, pursuant to Article 1078 of the Civil Code, which provides that “where there are two or more heirs, the whole estate of the decedent is, before its partition, owned in common by such heirs, subject to the payment of debts of the deceased.” 4. Pascual’s children succeeded him in the co-ownership of the property when he died intestate When Pascual Paulmitan died intestate in 1953, his children succeeded him in the co-ownership of the disputed property. Pascual Paulmitan’s right of ownership over an undivided portion of the property passed on to his children, who, from the time of Pascual’s death, became co-owners with their uncle Donato over the disputed decedent estate. 5. Fanesa’s claim of ownership Juliana P. Fanesa, Donato’s daughter, claims ownership over Lot 1091 by virtue of two transactions, namely: (a) the sale made in her favor by her father Donato Paulmitan; and (b) her redemption of the land from the Provincial Government of Negros Occidental after it was forfeited for non-payment of taxes. 6. Sale of Lot 1091 by Donato to Juliana did not prejudice rights of Pascual’s children over the ½ undivided share When Donato Paulmitan sold on 28 May 1974 Lot 1091 to his daughter Juliana P. Fanesa, he was only a co-owner with Pascual’s children and as such, he could only sell that portion which may be allotted to him upon termination of the co-ownership. The sale did not prejudice the rights of the children to ½ undivided share of the land which they inherited from their father. It did not vest ownership in the entire land with the buyer but transferred only the seller’s pro indiviso share in the property and consequently made the buyer a co-owner of the land until it is partitioned. 7. Effect of sale of property by one co-owner without the consent of all co-owners; Article 493: Only the rights of the seller are transferred, buyer becomes co-owner In Bailon-Casilao v. Court of Appeals, the Court outlined the effects of a sale by one co-owner without the content of all the co-owners. The rights of a co-owner of a certain property are clearly specified in Article 493 of the Civil Code which provides that “each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or mortgage, with respect to the co owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.” Even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other co-owners who did not consent to the sale [Punsalan v. Boon Liat, 44 Phil. 320 (1923)]. This is because under the codal provision, the sale or other disposition affects only his undivided share and the transferee gets only what would correspond to his grantor in the partition of the thing owned in common. [Ramirez v. Bautista, 14 Phil. 528 (1909)]. Thus, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one coowner without the consent of the other co-owners is not null and void. However, only the rights of the coowner-seller are transferred, thereby making the buyer a co-owner of the property.” Thus, in the present case, the sale by Donato Paulmitan of the land to his daughter did not give to the latter ownership over the entire land but merely transferred to her the ½ undivided share of her father, thus making her the co-owner of the land in question with her first cousins. 8. Redemption does not terminate the co-ownership nor give her title to the entire land The redemption of the land made by Fanesa did not terminate the co-ownership nor give her title to
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the entire land subject of the co-ownership. Speaking on the same issue, the Court, in Adille v. Court of Appeals, resolved the same by holding that the right of repurchase may be exercised by a co-owner with respect to his share alone (CIVIL CODE, art. 1612; CIVIL CODE (1889), art. 1514.). While the records show that the property was redeemed in its entirety, the plaintiff shouldering the expenses therefor, that did not make him the owner of all of it. In other words, it did not put to end the existing state of co-ownership (Supra, art. 489). There is no doubt that redemption of property entails a necessary expense. 9. Right to compel other co-owners to contribute to expenses of preservation of thing owned in common; Payer in redemption holds lien upon the subject property until reimbursed Article 488 of the Civil Code provides that “each co-owner shall have a right to compel the other coowners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes. Any one of the latter may exempt himself from this obligation by renouncing so much of his undivided interest as may be equivalent to his share of the expenses and taxes. No such waiver shall be made if it is prejudicial to the co-ownership.” Thus, although Fanesa did not acquire ownership over the entire lot by virtue of the redemption she made, nevertheless, she did acquire the right to be reimbursed for half of the redemption price she paid to the Provincial Government of Negros Occidental on behalf of her co-owners. Until reimbursed, Fanesa holds a lien upon the subject property for the amount due her. 10. Lease issue not passed on as it is a factual issue; Factual findings of lower courts final and conclusive upon the Supreme Court Donato and Juliana dispute the order of the trial court, which the Court of Appeals affirmed, for them to pay Pascual’s children P5,000.00 per year from 1966 until the partition of the estate which represents the latter’s share in the fruits of the land. According to the former, the land is being leased for P2,000.00 per year only. This assigned error, however, raises a factual question. The settled rule is that only questions of law may be raised in a petition for review. As a general rule, findings of fact made by the trial court and the Court of Appeals are final and conclusive and cannot be reviewed on appeal. [81] Philippine Trust Company vs. PNB [G.R. No. 16483. December 7, 1921.] First Division, Johns (J): 7 concur Facts: The Philippine Trust company and the Philippine National Banks are corporations organized under the laws of the Philippine Islands and domiciled in the city of Manila. Salvador Hermanos was a copartnership and during the month of January 1919, executed to PNB 8 promissory notes aggregating P156,000, payable on demand, and each secured by a quedan, or warehouse receipt, issued by the firm of Nieva, Ruiz & Company. Each note recites that it is payable on demand after date, for value received, and that the firm has deposited “with the said bank as collateral security for the payment of this note, or any note given in extension or renewal thereof, as well as for the payment of any other liability or liabilities of the undersigned to the said bank, due or to become due, whether now existing or hereafter arising, the following property owned by the undersigned.” The note then specifies the number of the quedan and the amount of copra in piculs, and states that the quedan was issued by Nieva, Ruiz & Company. The note for P8,000, dated 18 January 1919, was secured by warehouse Receipt 30; for P20,000, dated 22 January 1919, was secured by Receipt 35; for P20,000, dated 24 January 1919, was secured by Receipt 38; for P20,000, dated 27 January 1919, was secured by Receipt 41; for P14,000, dated 28 January 1919, was secured by Receipt 42; for P18,000, dated 21 January 1919, was secured by Receipt 33; for P18,000, dated 23 January 1919, was secured by Receipt 36; and for P18,000, dated 25 January 1919, was secured by Receipt 39, making a total of 16,051.10 piculs of copra, covered by the warehouse receipts of the firm of Nieva, Ruiz & Company issued to the firm of Salvador Hermanos, and by that firm pledged as collateral to PNB to secure the payment of the eight notes. Each of them further recites that “on the nonperformance of this promise, or upon the nonpayment of any of the liabilities above-mentioned, or upon the failure of the undersigned forthwith, with or
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without notice, to furnish satisfactory additional securities in case of decline, as aforesaid, then and in either such case, this note and all liabilities of the undersigned, or any of them, shall forthwith become due and payable, without demand or notice, and full power and authority are hereby given to said bank to sell, assign transfer and deliver the whole of the said securities, or any part thereof, or any substitutes therefor or any additions thereto, or any other securities or property given unto or left in the possession of or hereafter given unto or left in the possession of the said bank by the undersigned for safe keeping or otherwise, at any brokers’ board or at public or private sale, at the option of said bank or of its president or secretary, without either demand, advertise mentor notice of any kind, which are hereby expressly waived. At any such sale, the said bank may itself purchase the whole or any part of the property sold, free from any right of redemption on the part of the undersigned, which is hereby waived and released.” Stamped in red ink across the face of each quedan are the words “Negotiable Warrant,” and each of them was in the usual form of warehouse receipts. On 10 February 1919, the firm of Salvador Hermanos withdrew from the bank, by and with its consent, warehouse receipts 33, 36, and 39, which the bank was holding as collateral security for each of the 3 18,000peso notes amounting to P54,000. The total amount of copra evidenced by the receipts withdrawn was 6,024.55 piculs, the declared value of which, shown on the face of such receipts, was P90,368.25. At the time of the withdrawal, the firm executed a writing, promising to return to the bank the warehouse receipts on or before the 27 January, the receipts being guaranteed by the attached certificate of existence of the effects issued by the firm on 8 February 1919. Neither writing was in any manner authenticated by a notary or by a competent public official. The writing of February 10 is in form a receipt from the firm of Salvador Hermanos to the PNB of the quedans, or warehouse receipts, for the copra. The one of February 8 is, in legal effect, the certificate of Salvador Hermanos “that there exist the following articles in our bodegas as follows:” That is to say, that the firm certifies that the property described is in the warehouse of the firm. On 21 April 1919, Salvador Hermanos filed a petition of insolvency in the CFI Manila. On 3 May 1919, Gregorio Salvador, a member of the firm of Salvador Hermanos, delivered certain goods, wares, and merchandise to and in the warehouse of Nieva, Ruiz & Company, and requested that firm to issue its receipt therefor to and in favor of the PNB, and that, pursuant to such request, that firm did issue 8 quedans to the bank (161 for 32 bales of hemp; 162 for 953 bundles of rattan; 165 for 72 bundles of empty sacks; 167 for 136 sacks of gum; 168 for 1,461 bales of kapok; 175 for 288 packages of Talcum Powder; 176 for 35 packages of cardboard; and 185 for 134 bundles of empty sacks). On and between 6 May 1919 and 7 August 1919, acting under the terms and provisions of its respective notes, the bank sold all of the personal property for which it held warehouse receipts, or which had been surrendered to it by the Hermanos firm, save and except the property described in the three warehouse receipts, which were released and surrendered to that firm on 10 February 1919. Based upon its insolvency petition, and in the ordinary course of business, the firm of Salvador Hermanos was adjudged insolvent, and on 19 July 1919, the Philippine Trust Company was elected assignee of said firm and duly qualified. On 13 September 1919, as such assignee, it made a demand upon the bank for the surrender and delivery of the property described in all of the above receipts. Upon the bank’s refusal, Philippine Trust Company commenced this action to recover its value alleged to be P242,579.61, claiming that on 21 April 1919, the firm of Salvador Hermanos was the sole and exclusive owner of the property, and that, as to the copra, about 28 June 1919, and after the filing of the insolvency petition, the bank unlawfully seized and converted the copra to its own use, the value of which was P192,260. For a second cause of action, Philippine Trust alleged that, as such assignee, it was the owner of the remaining personal property, and that, after the insolvency petition was filed, the bank unlawfully seized and converted such property to its own use, and that it was of the value of P50,319.61. For answer, the bank makes a general denial, as to each cause of action, of all of the material allegations of the complaint. The Supreme Court, on the first cause of action, held that in January 1919, the bank became and remained the owner of the 5 quedans 30, 35, 38, 41, and 42; that they were in form negotiable, and that, as such owner, it was legally entitled to the possession and control of the property therein described at the time the insolvency petition was filed and had a right to sell it and apply the proceeds of the sale to its promissory notes, including
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the 3 notes of P18,000 each, which were formerly secured by the 3 quedans 33, 36, and 39, which the bank surrendered to the firm. That is to say, the bank had a legal right to apply the Proceeds from the property described in the five remaining quedans to the payment of its eight promissory notes. The Court, however reversed the judgment of the lower court as to the second cause of action, and one entered in favor of the Philippine Trust Company and against the PNB, for P40,742.62, the declared value of the property described in quedans Nos. 161 to 185, inclusive, and for the further sum of P7,631.40, the value of the gasoline sold in May, 1919, or a total of P48,374.02, with interest thereon from September 22, 1919, at the rate of 6 per cent per annum, and for the costs and disbursements in the Courts. 1. Purpose of Act 1956 or the Insolvency Law Act 1956 of the Philippine Legislature provides for the suspension of payments, the relief of insolvent debtors, the protection of creditors, and the punishment of fraudulent debtors. 2. Section 1 of Act 1956 Section 1 provides that “this Act shall be known and may be cited as The Insolvency Law, and in accordance with its provisions every insolvent debtor may be permitted to suspend payments or be discharged from his debts and liabilities.” 3. Section 2 of Act 1956 Section 2 provides that debtor who possesses sufficient property to cover the debts, be it an individual, firm or corporation, and who is unable to meet them at maturity, “may petition that he be declared in the state of suspension of payments by the court, or the judge thereof in vacation.” 4. Section 3 of Act 1956 Section 3 enacts that upon the filing of the petition, the court shall make an order calling a meeting of creditors specifying the time and place; that notice thereof shall be published in a newspaper, and that “said order shall further contain an absolute injunction forbidding the petitioning debtor from disposing in any manner of his property, except in so far as concerns the ordinary operations of commerce or of industry in which the petitioner is engaged, and, furthermore, from making any payments outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending, and said proceedings for the purposes of this Act shall be considered to have been instituted from the date of the filing of the petition.” 5. Section 14 of Act 1956 Section 14, chapter 3, provides that any person owing debts exceeding P1,000 may apply to be discharged from his debts and liabilities by petition to the Court of First Instance in which he has resided for six months preceding the filing of the petition. 6. Section 18 of Act 1956 Section 18 enacts that upon receiving and filing of the petition, schedule, and inventory, the court, or the judge, shall make an order declaring the petitioner insolvent, and “shall further forbid the payment to the debtor of any debts due to him and the delivery to the debtor, or to any person for him, of any property belonging to him, and the transfer of any property by him, and shall further appoint a time and place for a meeting of the creditors to choose an assignee of the estate.” 7. Quedans recognized to be owned by PNB At the time the eight promissory notes were executed, a given quedan, or warehouse receipt, was described and incorporated in the note as to its number, when and by whom issued, and the property it represented, and each receipt was then delivered by the firm to the defendant bank, all of which was during the month of January, 1919. The bank never had the manual possession or the physical control of any of this property until after the insolvency petition was filed, and it is for such reason that the plaintiff claims that it
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was the property of the firm, and that the defendant should account to the assignee. Each quedan, or warehouse receipt, was specifically described in a given note, and was made a part of it, and the note recites that, for any breach of its terms or conditions, the bank has full power and authority “to sell, assign, transfer and deliver the whole of the said security, or any part thereof, etc.,” and that “at any such sale, the said bank may itself purchase the whole or any part of the property sold, free from any right of redemption on the part of the undersigned, which is hereby waived and released.” In addition, the quedan itself was delivered to and held by the bank, and the warehouseman recognized the bank as the owner of the property. Legally speaking, the owner of the quedans, or warehouse receipts, was the owner of the property described in them, and the quedans were given as collateral to secure promissory notes, which, for value received, were executed to the bank. 8. The execution of the notes, the physical possession of the negotiable quedan, or warehouse receipt, and the recognition of ownership by the warehouseman, legally carries with it both the title to, and the possession of, the property The execution of the notes, the physical possession of the negotiable quedan, or warehouse receipt, and the recognition of ownership by the warehouseman, legally carries with it both the title to, and the possession of, the property. In such a case, title is not founded on a public instrument which should be authenticated by a notary or by a competent public official. Legally speaking, the execution of the promissory notes and the pledging of the quedans, or warehouse receipts, as collateral, and the describing of them in the notes, and the manual delivery of the quedan, or warehouse receipt itself, carries with it not only the title, but the legal possession of the property. In other words, as to the property described in the quedans, or warehouse receipts, which were pledged, as collateral, in January, 1919, to secure the eight respective promissory notes, both the title and the possession of that property were delivered to and vested in PNB in January 31919. Three of those quedans, or warehouse receipts, were returned to the firm by the bank on 10 February 1919, but the bank still owned and held the notes, which were secured but those warehouse receipts, and no part of the debt itself was paid by or through the surrender of the receipts. 9. Legal effect of the 10 February receipt; Statement of 8 February merely a representation of property inside its warehouse; Writing does not vest ownership of warehoused items to PNB The legal effect of this receipt is a promise on the part of the firm to return the three quedans on or before 27 January 1919, and a statement that such receipts are guaranteed by the attached certificate of the existence in the warehouse of the property described in the certificate. The statement of February 8, recites “we hereby certify that there exist the following articles in our bodegas.” Then follows a description of the property. This is nothing but a statement or representation to the effect that the firm has the property in its warehouse. Nothing more. After describing the property, the certificate then says: “And promise that none of the above articles would be removed without consulting first with the Philippine National Bank.” There is no statement or representation of any kind showing when or from whom the property was received, or how it was held, or who was the owner, or when or to whom it would be delivered. When analyzed, this writing is nothing more than a certificate of the firm that the described property was then in its warehouse, and a promise that none of the “articles would be removed without consulting first with the Philippine National Bank.” Such a writing would not transfer the title of the property to the bank, or give it possession, either actual or constructive. It will be noted that both the receipt of February 10 and the certificate and promise of February 8, are signed by the firm of Salvador Hermanos, and that the certificate says that the property was then in the firm’s warehouse, and that neither instrument was in any manner authenticated by a notary or a competent public official, as provided by article 1216 of the Civil Code, and that the property was in the warehouse of the firm. 10. Article 1863 of the Civil Code; Property not left to the possession of the bank; thus it cannot sell, transfer and deliver the whole or part of said securities Article 1863 of the Civil Code provides “In addition to the requisites mentioned in article 1857, it shall be necessary, in order to constitute the contract of pledge, that the pledge be placed in the possession of
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the creditor or of a third person appointed by common consent.” It appears in the present case however that from the certificate that the property was then in the possession of the firm, who made the certificate, and that it was in the possession of that firm when its insolvency petition was filed on 21 April 1919. It will be noted that the promissory notes executed by the firm to the bank recite that “Full power and authority are hereby given to said bank to sell, assign, transfer and deliver the whole of the said securities, or any part thereof, or any substitutes therefor or any additions thereto, or any other securities or property given unto or left in the possession of or hereafter given unto or left in the possession of the said Bank by the undersigned.” Thus, the power and authority of the bank to sell, assign, or transfer is confined to property which was given unto or left in its possession. None of the property described in the certificate of February 8 was ever given unto or left in the possession of the bank. 11. Capacity of Philippine Trust Company; Although appointed July 19, power and authority was vested on it 21 April 1919 when the insolvency petition was filed The insolvency petition was filed 21 April 1919, and the Philippine Trust Co was duly elected and qualified, as assignee, on 19 July 1919, and, as such, it represents both the creditors and the firm. Although it was not appointed until July 1919, yet when it did qualify its right and title to all the property of the firm related back and became vested as of 21 April 1919, when the insolvency petition was filed, and from that time it alone had the power and authority to act for and represent the firm. Under the terms and provisions of Act 1956 of the Philippine Legislature, after it was filed, the power of the firm or any member of it to deliver possession of the property to secure a preexisting debt was suspended pending final adjudication. That is to say, if the debt was not legally secured before the insolvency petition was filed, no member of the firm had any legal right to secure it after the petition was filed, and any attempt to do so would be null and void. [82] Philippine Trust Co. v. Roldan [G.R. No. L-8477. May 31, 1956.] En Banc, Bengzon (J): 8 concur Facts: 17 parcels located in Guiguinto, Bulacan, were part of the properties inherited by Mariano L. Bernardo from his father, the late Marcelo Bernardo. In view of his minority, guardianship proceedings were instituted, wherein Socorro Roldan, surviving spouse of Bernardo and stepmother to Mariano, was appointed his guardian. On 27 July 1947, Roldan filed in said guardianship proceedings (Special Proceeding 2485, Manila), a motion asking for authority to sell as guardian the 17 parcels for the sum of P14,700 to Dr. Fidel C. Ramos, her brother-in-law, the purpose of the sale being allegedly to invest the money in a residential house, which the minor desired to have on Tindalo Street, Manila. The motion was granted. On 5 August 1947, Roldan, as guardian, executed the proper deed of sale in favor of Ramos, and on 12 August 1947 obtained a judicial confirmation of the sale. On 13 August 1947, Ramos executed in favor of Roldan, a deed of conveyance covering the same 17 parcels, for the sum of P15,000. On 21 October 1947, Roldan sold 4 parcels out of the 17 to Emilio Cruz for P3,000, reserving to herself the right to repurchase. The Philippine Trust Company replaced Roldan as guardian on 10 August 1948. Two months later, the Company, as guardian, filed before the CFI Manila a complaint against Roldan to annul 2 contracts regarding 17 parcels of land claiming that the step-mother in effect, sold to herself, the properties of her ward, and the sale should be annulled for violating Article 1459 of the Civil Code prohibiting the guardian from purchasing the property of her ward. The trial court upheld the contracts but allowing the minor to repurchase all the parcels by paying P15,000, within 1 year. The CA affirmed the judgment. Hence, the appeal. The Supreme Court annulled the 3 contracts of sale in question; declared the minor as the owner of the 17 parcels of land, with the obligation to return to Roldan the price of P14,700 with legal interest from 12 August 1947; ordered Roldan and Emilio Cruz to deliver said parcels of land to the minor; required Roldan to pay him beginning with 1947 the fruits, which her attorney admits, amounted to P1,522 a year; authorized the
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minor to deliver directly to Emilio Cruz, out of the price of P14,700 above mentioned, the sum of P3,000; and charged appellees with the costs. 1. Guardianship is a trust of the highest order; Article 1459 applies Remembering the general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward’s interest and in line with the court’s suspicion whenever the guardian acquires the ward’s property, the Court has no hesitation to declare that, in the eyes of the law, the guardian (Roldan) took by purchase her ward’s parcels (thru Dr. Ramos), and that Article 1459 of the Civil Code applies. 2. Annulment of the transaction, even if no collusion is proved, would uphold equity and justice The guardian may have acted without malice; there may have been no previous agreement between her and Dr. Ramos to the effect that the latter would buy the lands for her but the fact remains that she acquired her protege’s properties, through her brother-in-law. That she planned to get them for herself at the time of selling them to Dr. Ramos, may be deduced from the very short time between the two sales. The temptation which naturally besets a guardian so circumstanced, necessitates the annulment of the transaction, even if no actual collusion is proved (so hard to prove) between such guardian and the intermediate purchaser. This would uphold a sound principle of equity and justice. 3. Rodriguez v. Mactal does not apply; length of time different, sufficient to dispel suspicion In Rodrigues v. Mactal, where the guardian Mactal sold in January 1926 the property of her ward to Silverio Chioco, and in March 1928 she bought it from Chioco, the Court declared the “in order to bring the sale in this case within the part of Article 1459, quoted above, it is essential that the proof submitted establish some agreement between Silverio Chioco and Trinidad Mactal to the effect that Chioco should buy the property for the benefit of Mactal. If there was no such agreement, either express or implied, then the sale cannot be set aside.” The subsequent purchase of Mactal, in said case, cannot be annulled as there was no proof of a previous agreement between Chioco and her. Two years had elapsed between the sales, and such period of time was sufficient to dispel the natural suspicion of the guardian’s motives or actions. In the present case, only 1 week had elapsed. And if we were technical, only 1 day had elapsed from the judicial approval of the sale (August 12), to the purchase by the guardian (August 13). 4. Minor on losing end in the transaction The calculation, that the investment in the Tindalo Street house produces to the minor the rentals of P2,400 yearly while the parcels of land yield for the stepmother an average o P1,522 yearly, does not include the price of the lot on which the house was erected. Estimating such lot at P14,700 only, (ordinarily the city lot is more valuable than the building) the result is that the price paid for the 17 parcels gave the minor an income of only P1,200 a year, whereas the harvest from the seventeen parcels netted his step-mother a yearly profit of P1,522.00. The minor was on the losing end. 5. Three Sales void From both the legal and equitable standpoints these three sales should not be sustained: the first two for violation of article 1459 of the Civil Code; and the third because Roldan could pass no title to Emilio Cruz. The annulment carries with is (Article 1303 Civil Code) the obligation of Roldan to return the 17 parcels together with their fruits and the duty of the minor, through his guardian to repay P14,700 with legal interest. [83] Pichel v. Alonzo [G.R. No. L-36902. January 30, 1982.] First Division, Guerrero (J): 5 concur

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Facts: Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot 21 of Subdivision Plan Psd-32465 of Balactasan, Lamitan, Basilan City in accordance with RA 477. The award was cancelled by the Board of Liquidators on 27 January 1965 on the ground that, previous thereto, Alonzo was proved to have alienated the land to another, in violation of law. In 1972, Alonzo’s rights to the land were reinstated. On 14 August 1968, Alonzo and his wife sold to Pichel through a “deed of sale” all the fruits of the coconut trees which may be harvested in the land for the period, from 15 September 1968 to 1 January 1976, in consideration of P4,200.00. It was further stipulated that the vendor’s right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens and encumbrances and he warrants to the Vendee good title thereto and to defend the same against any and all claims of all persons whomsoever. Even as of the date of sale, however, the land was still under lease to one Ramon Sua, and it was the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by Pichel directly to Ramon Sua so as to release the land from the clutches of the latter. Pending said payment Alonzo refused to allow the Pichel to make any harvest. In July 1972, Pichel for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land. Alonzo filed an action for the annulment of a “Deed of Sale” before the CFI Basilan City. On 5 January 1973, the lower court rendered its decision holding that although the agreement in question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor’s land, it actually is, for all legal intents and purposes, a contract of lease of the land itself; an encumbrance prohibited under RA 477. The court thus held that the deed of sale is null and void, and ordered Alonzo to pay back Pichel the consideration of the sale in the sum of P4,200 with interests from the date of the filing of the complaint until paid, and Pichel to pay the sum of P500.00 as attorney’s fees; with costs against Pichel. Hence, the petition to review on certiorari was raised before the Supreme Court. The Supreme Court set aside the judgment of the lower court and entered another dismissing the complaint; without costs. 1. Vendor grantee under RA 477, and could exercise all the rights pertaining thereto, following ruling in Ras v. Sua In Ras vs. Sua, it was categorically stated that a cancellation of an award granted pursuant to the provisions of RA 477 does not automatically divest the awardee of his rights to the land. Such cancellation does not result in the immediate reversion of the property subject of the award, to the State. Until and unless an appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and possession of the land decreed by a competent court, the grantee cannot be said to have been divested of whatever right that he may have over the same property. In the present case, there is nothing in the record to show that at any time after the supposed cancellation of the award on 27 January 1965, reversion proceedings against Lot 21 were instituted by the State. Instead, the admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the Ras case, therefore, Alonzo is not deemed to have lost any of his rights as grantee of Lot 21 under RA 477 during the period material to the present case, i.e., from the cancellation of the award in 1965 to its reinstatement in 1972. Within said period, Alonzo could exercise all the rights pertaining to a grantee with respect to Lot 21. 2. Court to apply the contract according to its express terms The first and fundamental duty of the courts is the application of the contract according to its express terms, interpretation being resorted to only when such literal application is impossible. 3. Contract clear and unequivocal; Construction or interpretation of document not called for Construction or interpretation of the document in question is not called for. A perusal of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides that “if
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the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.” In the present case, the “Deed of Sale” dated 14 August 1968 is precisely what it purports to be. It is a document evidencing the agreement of herein parties for the sale of coconut fruits of Lot 21, and not for the lease of the land itself. In clear and express terms, the document defines the object of the contract thus: “the herein sale of coconut fruits are for all the fruits on the aforementioned parcel of land during the years from 15 September 1968; up to 1 January 1976.” 4. Contract of sale valid, essential elements valid The document in question expresses a valid contract of sale as it has the essential elements of a contract of sale as defined under Article 1458 of the New Civil Code. Article 1458 provides that “by the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent,” and that “a contract of sale may be absolute or conditional.” The subject matter of the contract of sale are the fruits of the coconut trees on the land during the years from 15 September 1968 up to 1 January 1976, which subject matter is a determinate thing. 5. Things having potential existence may be the object of the contract of sale Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. A valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63). Things of this nature are said to have a potential existence. A man may sell property of which he is potentially and not actually possessed. He may make a valid sale of the wine that a vineyard is expected to produce; or the grain a fieldmay grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon sheep; or what may be taken at the next case of a fisherman’s net; or fruits to grow; or young animals not yet in existence; or the good will of a trade and the like. The thing sold, however, must be specific and identified. They must be also owned at the time by the vendor (Hull vs. Hull, 48 Conn., 250; 40 Am. Rep., 165)” pp. 522-523). Thus, pending crops which have potential existence may be the subject matter of sale (Sibal vs. Valdez, 50 Phil. 512). 6. Contract of sale and lease of things distinguished The essential difference between a contract of sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased. In the present case, the lower court’s holding that the contract in question fits the definition of a lease of things wherein one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite (Art. 1643, Civil Code of the Philippines) is erroneous. 7. Contract of lease, enjoyment of property Article 1543 of the Civil Code defines the contract of lease as the giving or the concession of the enjoyment or use of a thing for a specified time and fixed price, and since such contract is a form of enjoyment of the property, it is evident that it must be regarded as one of the means of enjoyment referred to in said Article 398, inasmuch as the terms enjoyment, use, and benefit involve the same and analogous meaning relative to the general utility of which a given thing is capable. (104 Jurisprudencia Civil, 443; Rodriguez vs. Borromeo, 43 Phil. 479, 490). 8. Transfer of accessory does not transfer principal The possession and enjoyment of the coconut trees cannot be said to be the possession and enjoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to the accessory or improvements (coconut trees) while the second, to the principal (the land). A transfer of the
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accessory or improvement is not a transfer of the principal. It is the other way around, the accessory follows the principal. In the present case, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less extended further to include the lease of the land itself. In cannot be said that the possession and enjoyment of the coconut trees to be the possession and enjoyment of the land itself because the lessee in order to enjoy his right under the contract, he actually takes possession of the land, at least during harvest time, gathers all of the fruits of the coconut trees in the land, and gains exclusive use thereof without the interference or intervention of the lessor. 9. him Grantee under RA 477 not prohibited to sell the natural/industrial fruits of the land awarded to

The grantee of a parcel of land under RA 477 is not prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him, pursuant to the terms of the first paragraph of Section 8. What the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees and plants would fall under the category of permanent improvements, the alienation or encumbrance of which is prohibited by RA 477. While coconut trees are permanent improvements of a land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or otherwise disposed of by the owner of the land. Hence, the grantee of Lot 21 had the right and prerogative to sell the coconut fruits of the trees growing on the property. 10. Purpose of RA 477, and Section 8 thereof By virtue of RA 477, bona fide occupants, veterans, members of guerilla organizations and other qualified persons were given the opportunity to acquire government lands by purchase, taking into account their limited means. It was intended for these persons to make good and productive use of the lands awarded to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual payments to the Government of the purchase price of the lots awarded to them. Section 8 was included to protect the grantees “from themselves and the incursions of opportunists who prey on their misery and poverty.” It is there to insure that the grantees themselves benefit from their respective lots, to the exclusion of other persons. 11. Legislature does not intend to prohibit the grantee from selling natural and industrial fruits of his land The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary, the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and productive, thus making it possible for him and his family to be economically self-sufficient and to lead a respectable life. At the same time, the Government is assured of payment on the annual installments on the land. It could not have been the intention of the legislature to prohibit the grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete sense. 12. Party cannot impugn the validity of the contract after receiving the consideration for the sale The vendor-grantee, after having received the consideration for the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner who contracted in good faith and for a consideration. The vendor cannot claim that he has the “privilege to change his mind and claim it as (an) implied lease,” and he has the “legitimate right” to file an action for annulment “which no law can stop” as there is a perfected and valid contract. 13. Grant of attorney’s fees not justified Article 2208 of the Civil Code provides that “in the absence of stipulation, attorney’s fees and
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expenses of litigation, other than judicial costs, cannot be recovered, except (1) When exemplary damages are awarded; (2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen’s compensation and employer’s liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. In all cases, the attorney’s fees and expenses of litigation must be reasonable.” None of the legal grounds enumerated exists to justify or warrant the grant of attorney’s fees. [84] PNB v. CA, 262 SCRA 464 (1995) [85] Power Commercial and Industrial Corp. vs. CA [G.R. No. 119745. June 20, 1997.] Third Division, Panganiban (J): 3 concur, 1 on leave Facts: Power Commercial & Industrial Development Corporation (PCID), an industrial asbestos manufacturer, needed a bigger office space and warehouse for its products. For this purpose, on 31 January 1979, it entered into a contract of sale with the spouses Reynaldo and Angelita R. Quiambao. The contract involved a 612 sq. m. parcel of land covered by TCT S-6686 located at the corner of Bagtican and St Paul Streets, San Antonio Village, Makati City. The parties agreed that PCID would pay the spouses P108,000.00 as down payment, and the balance of P295,000.00 upon the execution of the deed of transfer of the title over the property. Further, PCID assumed, as part of the purchase price, the existing mortgage on the land. In full satisfaction thereof, he paid P79,145.77 to PNB, the mortgagee. On 1 June 1979, the spouses mortgaged again said land to PNB to guarantee a loan of P145,000.00, P80,000.00 of which was paid to the spouses. PCID agreed to assume payment of the loan. On 26 June 1979, the parties executed a Deed of Absolute Sale With Assumption of Mortgage (P295,000 payment, with assumption of PNB mortgage worth P145,000, pending consent by PNB. The Deed of Sale also provides a clause stating that “We hereby also warrant that we are the lawful and absolute owners of the above described property, free from any lien and/or encumbrance, and we hereby agree and warrant to defend its title and peaceful possession thereof in favor of the said Power Commercial and Industrial Development Corporation, its successors and assigns, against any claims whatsoever of any and all third persons; subject, however, to the provisions hereunder provided to wit.”). On the same date, Mrs. C.D. Constantino, then PCID’s General Manager, submitted to PNB said deed with a formal application for assumption of mortgage. On 15 February 1980, PNB informed the spouses that, for PCID’s failure to submit the papers necessary for approval pursuant to the the spouses’ letter dated 15 January 1980, the application for assumption of mortgage was considered withdrawn; that the outstanding balance of P145,000.00 was deemed fully due and demandable; and that said loan was to be paid in full within 15 days from notice. PCID paid PNB P41,880.45 on 24 June 1980 and P20,283.14 on 23 December 1980, payments which were to be applied to the outstanding loan. On 23 December 1980, PNB received a letter from PCID requesting that its assumption of mortgage be given favorable consideration, and that the title be transferred to its name so that it may undertake the necessary procedures to make use of the lot, in exclusion of people currently in physical occupation of the lot. On 19 February 1982, PNB sent PCID a letter informing PCID that the loan is past due from last maturity with interest arrearages amounting to P25,826.08 as of 19 February 1982, and requesting PCID to remit payments to cover interest, charges, and at least part of the principal in order to place PCID’s account in current form.

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On 17 March 1982, PCID filed Civil Case 45217 against the spouses for rescission and damages before the RTC Pasig, Branch 159. Then, in its reply to PNB’s letter of 19 February 1982, PCID demanded the return of the payments it made on the ground that its assumption of mortgage was never approved. On 31 May 1983, while the case was pending, the mortgage was foreclosed. The property was subsequently bought by PNB during the public auction. Thus, an amended complaint was filed impleading PNB as party defendant. On 12 July 1990, the trial court ruled that the failure of respondent spouses to deliver actual possession to petitioner entitled the latter to rescind the sale, and in view of such failure and of the denial of the latter’s assumption of mortgage, the spouses and PNB was obliged to return the payments made by PCID (P187,144.77 with legal interest of 12% per annum from the date of the filing of the complaint until fully paid by the spouses; and P62,163.59 with 12% from date of judgment until fully paid by the bank). No award of other damages and attorney’s fees were made. The counterclaim of the spouses and PNB were dismissed for lack of merit. On appeal by the spouses and PNB, and on 27 March 1995, the Court of Appeals (in CA-GR CV 32298) reversed the trial court. It held that the deed of sale between the spouses and PCID did not obligate the former to eject the lessees from the land in question as a condition of the sale, nor was the occupation thereof by said lessees a violation of the warranty against eviction. Hence, there was no substantial breach to justify the rescission of said contract or the return of the payments made. Hence, the petition for review on certiorari. The Supreme Court denied the petition, and affirmed the assailed decision. 1. Alleged failure to eject lessee from lot not substantial breach The alleged “failure” of the spouses to eject the lessees from the lot in question and to deliver actual and physical possession thereof cannot be considered a substantial breach of a condition for two reasons: first, such “failure” was not stipulated as a condition — whether resolutory or suspensive — in the contract; and second, its effects and consequences were not specified either. The provision adverted to does not impose a condition or an obligation to eject the lessees from the lot. By his own admission, Anthony Powers, PCID’s General Manager, did not ask its lawyers to stipulate in the contract that the spouses were guaranteeing the ejectment of the occupants, because there was already a proviso in said deed of sale that the sellers were guaranteeing the peaceful possession by the buyer of the land. 2. Obscurity in a contract construed against party causing it Any of obscurity in a contract, if the above-quoted provision can be described, must be construed against the party who caused it. PCID itself caused the obscurity because it omitted this alleged condition when its lawyer drafted said contract. 3. Stipulation similar to Romero vs. CA required in ejecting tenants; What was not intended by parties cannot be a ground for rescission If the parties intended to impose on the spouses the obligation to eject the tenants from the lot sold, it should have included in the contract a provision similar to that referred to in Romero vs. Court of Appeals, where the ejectment of the occupants of the lot sold was the operative act which set into motion the period of buyer’s compliance with his own obligation, i.e., to pay the balance of the purchase price. Failure to remove the squatters within the stipulated period gave the other party the right to either refuse to proceed with the agreement or to waive that condition of ejectment in consonance with Article 1545 of the Civil Code. In the case cited, the contract specifically stipulated that the ejectment was a condition to be fulfilled; otherwise, the obligation to pay the balance would not arise. This is not so in the present case. Absent a stipulation therefor, the parties could not have intended to make its nonfulfillment a ground for rescission. If they did intend this, their contract should have expressly stipulated so. 4. Rescission also not allowed if breach is not substantial and fundament to fulfillment of obligation to sell In Ang vs. C.A., rescission was sought on the ground that the seller had failed to fulfill their
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obligation “to remove and clear” the lot sold, the performance of which would have given rise to the payment of the consideration by buyer. Rescission was not allowed, however, because the breach was not substantial and fundamental to the fulfillment by the petitioners of the obligation to sell. 5. Warranty and not condition; Terms of contract clear The provision adverted to in the contract pertains to the usual warranty against eviction, and not to a condition that was not met. The terms of the contract are so clear as to leave no room for any other interpretation. 6. Delivery an indispensable requisite; Actual or constructive; Symbolic delivery Although most authorities consider transfer of ownership as the primary purpose of sale; delivery remains an indispensable requisite as the law does not admit the doctrine of transfer of property by mere consent. The Civil Code provides that delivery can either be (1) actual (Article 1497) or (2) constructive (Articles 1498-1501). Symbolic delivery (Article 1498), as species of constructive delivery, effects the transfer of ownership through the execution of a public document. Its efficacy can, however, be prevented if the vendor does not possess control over the thing sold, in which case this legal fiction must yield to reality. 7. Requisites for symbolic delivery to produce effect of tradition In order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that . . . its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality — the delivery has not been effected. 8. Delivery effected through execution of deed, allowing PCID to file ejectment suit against occupants Considering that the deed of sale between the parties did not stipulate or infer otherwise, delivery was effected through the execution of said deed. The lot sold had been placed under the control of PCID; thus, the filing of the ejectment suit was subsequently done. It signified that its new owner intended to obtain for itself and to terminate said occupants’ actual possession thereof. Prior physical delivery or possession is not legally required and the execution of the deed of sale is deemed equivalent to delivery. This deed operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of ownership. Nothing more is required. 9. Requisites of Breach of Warranty Against Eviction A breach of this warranty requires the concurrence of the following circumstances: (1) The purchaser has been deprived of the whole or part of the thing sold; (2) This eviction is by a final judgment; (3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and (4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee. In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be declared. 10. Presence of lessee does not constitute encumbrance of land nor deprives control thereof The presence of lessees does not constitute an encumbrance of the land, nor does it deprive PCID of its control thereof. It should be noted that PCID’s deprivation of ownership and control finally occurred when it failed and/or discontinued paying the amortizations on the mortgage, causing the lot to be foreclosed and sold at public auction. But this deprivation is due to PCID’s fault, and not to any act attributable to the spouses.
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11.

Contract presumed to be valid and subsisting Because PCID failed to impugn its integrity, the contract is presumed, under the law, to be valid and subsisting. 12. Application of Solutio Indebiti The doctrine of Solutio Indebiti applies where: (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment, and (2) the payment is made through mistake, and not through liberality or some other cause. Solutio indebiti does not apply in the present case. 13. PCID has duty to pay amortizations PCID was under obligation to pay the amortizations on the mortgage under the contract of sale and the deed of real estate mortgage. Under the deed of sale, both parties agreed to abide by any and all the requirements of PNB in connection with the real estate mortgage. PCID was aware that the deed of mortgage made it solidarily, and, therefore, primarily liable for the mortgage obligation. It was stipulated that “the Mortgagor shall neither lease the mortgaged property nor sell or dispose of the same in any manner, without the written consent of the Mortgagee. However, if not withstanding this stipulation and during the existence of this mortgage, the property herein mortgaged, or any portion thereof, is sold, it shall be the obligation of the Mortgagor to impose as a condition of the sale, alienation or encumbrance that the vendee, or the party in whose favor the alienation or encumbrance is to be made, should take the property subject to the obligation of this mortgage in the same terms and condition under which it is constituted, it being understood that the Mortgagor is not in any manner relieved of his obligation to the Mortgagee under this mortgage by such sale, alienation or encumbrance; on the contrary both the vendor and the vendee, or the party in whose favor the alienation or encumbrance is made shall be jointly and severally liable for said mortgage obligations.” 14. No mistake in the payment of amortization to PNB Even if PCID was a third party in regard to the mortgage of the land purchased (on the insistence that PNB disapproved PCID’s assumption of mortgage after it failed to submit the necessary papers for the approval of such assumption), the payment of the loan by PCID was a condition clearly imposed by the contract of sale. This fact alone disproves PCID’s insistence that there was a “mistake” in payment. On the contrary, such payments were necessary to protect its interest as a “the buyer(s) and new owner(s) of the lot.” 15. No unjust enrichment The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another. The payment of the mortgage was an obligation PCID assumed under the contract of sale. There is no unjust enrichment where the transaction, as in the present case, is quid pro quo, value for value. [86] Puyat & Sons v. Arco Amusement [G.R. No. 47538. June 20, 1941.] First Division, Laurel (J): 4 concur Facts: In the year 1929, the ‘Teatro Arco’, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement Company. About the same time, Gonzalo Puyat & Sons, Inc., in addition to its other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, USA, which dealt in cinematograph equipment and machinery. Arco, desiring to equip its cinematograph with sound reproducing devices, approached Puyat. After some negotiations, it was agreed between the parties, Puyat would, on behalf of Arco Amusement, order sound reproducing equipment from the Star Piano Company and that Arco Amusement would pay Puyat, in addition to the price of the
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equipment, 10% commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the Arco, Puyat sent a cable to the Starr Piano Company, inquiring about the equipment desired and making the said company to quote its price of $1,700 FOB factory Richmond, Indiana. Puyat informed the plaintiff of the price of $1,700, and being agreeable to the price, Arco, in a letter dated 19 November 1929, formally authorized the order. The equipment arrived about the end of the year 1929, and upon delivery of the same to Arco and the presentation of necessary papers, the price of $1,700, plus the 10% commission agreed upon the plus all the expenses and charges, was duly paid by the Arco to Puyat. he following year, another order for sound reproducing equipment was placed by Arco with Puyat, on the same terms as the first order. The equipment under the second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This amount of $160 does not represent actual out-of-pocket expenses paid by Puyat, but a mere flat charge and rough estimate made by Puyat equivalent to 10% of the price of $1,600 of the equipment. Three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against Puyat, the officials of the Arco discovered that the price quoted to them by Puyat with regard to their two orders was not the net price but rather the list price, and that the defendant had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said officials of Arco were convinced that the prices charged them by the defendant were much too high including the charges for out-of-pocket expenses. For these reasons, they sought to obtain a reduction from Puyat or rather a reimbursement. Failing in this they brought an action with the CFI Manila. The trial court held that the contract between the parties was one of the outright purchase and sale, and absolved Puyat from the complaint. The appellate court, however, held that the relation between the parties was that of agent and principal, Puyat acting as agent of Arco in the purchase of the equipment in question, and sentenced Puyat to pay Arco alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. Hence, the petition for the issuance of a writ of certiorari to the Court of Appeals for the purposed of reviewing its decision in civil case GR 1023. The Supreme Court granted the writ of certiorari, reversed the decision of the appellate court, and absolved Puyat & Sons from the complaint in GR 1023, without pronouncement regarding costs. 1. Contract, and those agreed upon, is the law between the parties; What does not appear are regarded as dealer’s or trader’s not binding the parties The contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as “dealer’s” or “trader’s talk”, which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 Ill., 161; Bank v. Palmer, 47 Ill., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters which Arco accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with Puyat, are clear in their terms and admit of no other interpretation than that Arco agreed to purchase from Puyat the equipment in question at the prices indicated which are fixed and determinate. 2. Agency; Agent exempt from all liability in discharge of commission if in accordance with instructions received from principal In agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code). The fact that “whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill
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the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600” is incompatible with the pretended relation of agency between the parties. 3. Commission does not necessarily make one the agent of the other While the letters state that Puyat was to receive 10% commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.) 4. Puyat & Sons already the agent of Starr Piano Company of Richmond, Indiana, in the Philippines To hold the petitioner an agent of Arco in the purchase of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that Puyat is the exclusive agent of Starr Piano in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances indicated to not point to anything but plain ordinary transaction where Arco enters into a contract transaction, a contract of purchase and sale, with Puyat, the latter as exclusive agent of the Starr Piano Company in the United States. 5. Vendor not bound to reimburse difference of cost and sales price A vendor is not bound to the vendee for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middleman would not exist. 6. Not every concealment is fraud, maybe business acumen; Buyer estopped when it agreed to conditions and price It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that Arco sought to limit it to 10%t. Arco is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain. it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. The fact that Puyat obtained more or less profit than Arco calculated before entering into the contract of purchase and sale, is no ground for rescinding the contract of purchase and sale, is no ground for rescinding the contract or reducing the price agreed upon between the parties. Puyat was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers. Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world. [87] Quijada v. CA [G.R. No. 126444. December 4, 1998.] Second Division, Martinez (J): 3 concur Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria, Eulalio, and Warlito) are the children of the late Trinidad Corvera Vda. de Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the 2-hectare parcel of land subject of the case, situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On 5 April 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda. de Sequeña and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation of the 2-hectare parcel of land in favor of the Municipality of Talacogon, the condition being that the parcel of land shall be used solely and exclusively as part of the campus of the proposed provincial high school in
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Talacogon. Apparently, Trinidad remained in possession of the parcel of land despite the donation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcel of land to Regalado Mondejar. Subsequently, Trinidad verbally sold the remaining 1 hectare to Mondejar without the benefit of a written deed of sale and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for forcible entry against Mondejar, which complaint was, however, dismissed for failure to prosecute. In 1987, the proposed provincial high school having failed to materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the 2 hectares of land donated back to the donors. In the meantime, Mondejar sold portions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden, and Ernesto Goloran. On 5 July 1988, the petitioners filed a complaint against private respondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso, Bautista, Macasero and Maguisay) for quieting of title, recovery of possession and ownership of parcels of land with claim for attorney’s fees and damages. The trial court rendered judgment in favor of the petitioners, holding that Trinidad Quijada did not have legal title or right to sell the land to Mondejar as it belongs to the Municipality of Talacogon at that time, and that the deed of sale in favor of Mondejar did not carry the conformity and acquiescence of her children considering that Trinidad was already 63 years old and a widow. The trial court ordered the defendants (private respondents), and any person acting in defendants’ behalf to return and vacate the 2 hectares of land to the plaintiff, and to remove their improvements constructed on the lot; ordered the cancellation of the deed of sale executed by Trinidad to Mondejar, as well as the deeds of sale/relinquishments executed by Mondejar to the other defendants; and ordered the defendants to pay the plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000 as attorney’s fees, expenses of litigation and moral damages, respectively. On appeal, the Court of Appeals reversed and set aside the judgment a quo ruling that the sale made by Trinidad Quijada to respondent Mondejar was valid as the former retained an inchoate interest on the lots by virtue of the automatic reversion clause in the deed of donation. Thereafter, petitioners filed a motion for reconsideration. When the CA denied their motion, petitioners instituted a petition for review to the Supreme Court. The Supreme Court affirmed the assailed decision of the Court of Appeals. 1. Condition valid in donation if not contrary to law, morals, good customs, public order or public policy The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters was subject to the condition that the donated property shall be “used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon.” The donation further provides that should “the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed” the donated property shall automatically revert to the donor. Such condition, not being contrary to law, morals, good customs, public order or public policy was validly imposed in the donation. 2. Donation as mode of acquiring ownership When the Municipality’s acceptance of the donation was made known to the donor, the former became the new owner of the donated property, donation being a mode of acquiring and transmitting ownership, notwithstanding the condition imposed by the donee. The donation is perfected once the acceptance by the donee is made known to the donor. Accordingly, ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled. 3. Condition to construct school is a resolutory condition The resolutory condition, in the present case, is the construction of the school. It has been ruled that when a person donates land to another on the condition that the latter would build upon the land a school, the
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condition imposed is not a condition precedent or a suspensive condition but a resolutory one. So long as the resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his successors-in-interest under the deed of donation. Since no period was imposed by the donor on when must the donee comply with the condition, the latter remains the owner so long as he has tried to comply with the condition within a reasonable period. Such period, however, became irrelevant herein when the donee manifested that it cannot comply with the condition and the same was made known to the donor. Only then, when the non-fulfillment of the resolutory condition was brought to the donor’s knowledge, that ownership of the donated property reverted to the donor as provided in the automatic reversion clause of the deed of donation. 4. Inchoate interest may be subject of contract including a contract of sale; Interest over property under conditional deed of donation, not the land itself The donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract of sale. In the present case, however, what the donor sold was the land itself which she no longer owns. It would have been different if the donor-seller sold her interests over the property under the deed of donation which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the resolutory condition. 5. Laches, elements Laches presupposes failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; “it is negligence or omission to assert a right within a reasonable time, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it.” Its essential elements of (a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (b) Delay in asserting complainant’s right after he had knowledge of the defendant’s conduct and after he has an opportunity to sue; (c) Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and, (d) Injury or prejudice to the defendant in the event relief is accorded to the complainant” are absent in this case. In the present case, petitioners’ cause of action to quiet title commenced only when the property reverted to the donor and/or his successors-in-interest in 1987, not in the 1960’s when they had no interest over the property at that time except under the deed of donation to which private respondents were not privy. Moreover, petitioners had previously filed an ejectment suit against private respondents only that it did not prosper on a technicality. 6. Sale, being a consensual contract, is perfected by mere consent; Seller need not own property when sold but when delivered Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price. Ownership by the seller on the thing sold at the time of the perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid. 7. Seller’s title passes by operation of law to the buyer The consummation of the perfected contract is another matter. It occurs upon the constructive or actual delivery of the subject matter to the buyer when the seller or her successors-in-interest subsequently acquires ownership thereof. In the present case, such circumstance happened in this case when petitioners (Trinidad’s heirs) became the owners of the subject property upon the reversion of the ownership of the land to them. Consequently, ownership is transferred to Mondejar and those who claim their right from him.
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Article 1434 of the New Civil Code supports the ruling that the seller’s “title passes by operation of law to the buyer.” This rule applies not only when the subject matter of the contract of sale is goods, but also to other kinds of property, including real property. 8. Article 1409 (4) does not provide that the properties of a municipality are outside the commerce of man; Objects outside of the commerce of man are those which cannot be appropriated Nowhere in Article 1409 (4) is it provided that the properties of a municipality, whether it be those for public use or its patrimonial property, are outside the commerce of men; so as to render the contract involving the same inexistent and void from the beginning when sold. In the present case, the lots were conditionally owned by the municipality. To rule that the donated properties are outside the commerce of men would render nugatory the unchallenged reasonableness and justness of the condition which the donor has the right to impose as owner thereof. Moreover, the objects referred to as outside the commerce of man are those which cannot be appropriated, such as the open seas and the heavenly bodies. 9. No factual or legal basis for the award of fees and damages There is neither factual nor legal basis for the trial court’s award of attorney’s fees, litigation expenses and moral damages. Attorney’s fees and expenses of litigation cannot, following the general rule in Article 2208 of the New Civil Code, be recovered in the present case, there being no stipulation to that effect and the case does not fall under any of the exceptions. It cannot be said that private respondents had compelled petitioners to litigate with third persons. Neither can it be ruled that the former acted in “gross and evident bad faith” in refusing to satisfy the latter’s claims considering that private respondents were under an honest belief that they have a legal right over the property by virtue of the deed of sale. Moral damages cannot likewise be justified as none of the circumstances enumerated under Articles 2219 27 and 2220 28 of the New Civil Code concur in this case. [88] Quimson v. Rosete [G.R. No. L-2397. August 9, 1950.] En Banc, Tuason (J): 5 concur Facts: The property, i.e. the land, originally belonged to the late Dionisio Quimson, who, on 7 June 1932, executed a deed Exhibit A transferring the same in favor of his daughter Tomasa Quimson, but remaining in continuous possession and enjoyment. It was sold to the spouses Magno Agustin and Paulina Manzano on 3 May 1935, with right to repurchase within the term of six years; and two years after, on 5 April 1937, again was sold to Francisco Rosete, also with pacto de retro within five years, thereafter having verified its repurchase of Agustin and Manzano, with money furnished to him by Rosete, executing in the end the deed Exhibit 1. Since then, Rosete was the one in possession and who enjoys, in a peaceful manner even after the death of Dionisio Quimson, which occurred on 6 June 1939, until January 1943, when Tomasa Quimson filed with the Justice of Peace of San Marcelino, Zambales, intervening in the agreement with Rosete over the said property, whose failure was the reason for the race toward Iba, the capital of Zambales, to acquire priority in the registration and inscription of the deeds of sale Exhibits A and 1 which Dionisio Quimson executed in favor of Tomasa Quimson and Francisco Rosete, respectively, the former arriving one hour earlier, at 9:30 a.m. of 17 February 1943, whereas the latter arrived at 10:30 a.m. of the same day. The Court of First instance of Zambales ruled in favor of Tomasa Quimson and Marcos Santos; the decision being reversed later by the Court of Appeals. Hence, the appeal by certiorari. The Supreme Court set aside the decision of the Court of Appeals, and accepted the trial court’s appraisal of the damages (assessed damages of P180 for the occupation of the land for the agricultural years 1943-44, 1944-45 and 1945-46, and P60 a year thereafter until the possession of the property was restituted); with costs against Rosete.
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1.

Article 1462 and 1473 of the Civil Code Articles 1462 of the Civil Code provides that “The thing sold shall be deemed delivered, when it is placed in the control and possession of the vendee. When the sale is made by means of a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the said instrument the contrary does not appear or may not be clearly inferred.” Article 1473 provides, on the other hand, that “If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who first recorded it in the registry. Should there be no inscription, the ownership shall belong to the person who in good faith was first in the possession; and, in the absence of this, to the person who presents the oldest title, provided there is good faith.” 2. Buencamino vs. Viceo; Execution of notarial document of sale sufficient delivery In the case of Buencamino vs. Viceo (13 Phil., 97), Article 1462 was cited. The provision provides that “Upon a sale of real estate the execution of a notarial document of sale is a sufficient delivery of the property sold.” 3. Florendo vs. Foz: Execution of sale thru public instrument tantamount to conveyance In the case of Florendo vs. Foz (20 Phil., 388), it was ruled that “When the sale is made by means of a public instrument, the execution thereof is tantamount to conveyance of the subject matter, unless the contrary clearly follows or be deduced from such instrument itself, and in the absence of this condition such execution by the vendor is per se a formal or symbolical conveyance of the property sold, that is, the vendor in the instrument itself authorizes the purchaser to use the title of ownership as proof that the latter is thenceforth the owner of the property.” 4. Sanchez vs. Ramos almost on all fours In the case of Sanchez vs. Ramos (40 Phil., 614), it appeared that one Fernandez sold a piece of land to Marcelino Gomez and Narcisa Sanchez under pacto de retro in a public instrument. The purchasers neither recorded their deed in the registry of property nor ever took material possession of the land. Later, Fernandez sold the same property by means of a private document to Ramos who immediately entered upon the possession of it. It was held that, according to article 1473 of the Civil Code, Gomez and Sanchez were the first in possession and, consequently, that the sale in their favor was superior. 5. Interpretation of Article 1473; Material and symbolic possession Possession is acquired by the material occupancy of the thing or right possessed, or by the fact that the latter is subjected to the action of our will, or by the appropriate acts and legal formalities established for acquiring possession (art. 438, Civil Code). By a simple reasoning, it appears that, because the law does not mention to which of these kinds of possession the article (1473) refers, it must be understood that it refers to all of these kinds. The possession mentioned in article 1473 (for determining who has better right when the same piece of land has been sold several times by the vendor) includes not only the material but also the symbolic possession, which is acquired by the execution of a public instrument. 6. Interpretation of Article 1473: in consonance with the principles of justice The Court’s interpretation of article 1473 is more in consonance with the principles of justice. The execution of a public instrument is equivalent to the delivery of the realty sold (art.1462, Civil Code) and its possession by the vendee (art. 438). Under these conditions the sale is considered consummated and completely transfers to the vendee all of the vendor’s rights of ownership including his real right over the thing. The vendee by virtue of this sale has acquired everything and nothing, absolutely nothing, is left to the vendor. From this moment the vendor is a stranger to the thing sold like any other who has never been its owner. As the thing is considered delivered, the vendor has no longer the obligation of even delivering it. If he
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continues taking material possession of it, is simply on account of vendee’s tolerance and, in this sense, his possession is vendor’s possession. And if the latter should have to ask him for the delivery of this material possession, it would not be by virtue of the sale, because this has been already consummated and has produced all its effects, but by virtue of the vendee’s ownership, in the same way as said vendee could require of another person although same were not the vendor. This means that after the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not transmit anything to the second vendee and if the latter, by virtue of this second sale, takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against the rights to the thing lawfully acquired by the first vendee. 7. Spirit or intent of law prevails over its letter The statement of Sr. Manresa (pp. 157, 158, Vol. X, of his treatise on the Spanish Civil Code) expresses the literal meaning of article 1473, for the decision of 24 November 1894 reflects, according to the learned author, the intention of the lawmaker and is in conformity with the principles of justice. Now, under both the Spanish and the Philippine rules of interpretation, the spirit, the intent, of the law prevails over its letter. 8. Deed of conveyance means land was sold, in absence of any qualifying statement The finding that a deed of conveyance was made by Dionisio Quimson in favor of his daughter could have no other meaning, in the absence of any qualifying statement, than that the land was sold by the father to his daughter. The trial court’s explicit finding which was not reversed by the Court of Appeals and stands as the fact of the case. Looking into the document itself, Exhibit A states categorically that the vendor received from the vendee the consideration of sale, P250, and acknowledged before the notary public having executed the instrument of his own free will. 9. Cruzado vs. Escaler, obiter dictum; Prescription The expression in thedecision in the case of Cruzado vs. Escaler (34 Phil., 17), apparently to the effect that physical possession by the purchaser is essential to the consummation of a sale of real estate, is at best obiter dictum; for the court distinctly found that the sale to Cruzado’s father was a sham, executed with the sole purpose of enabling the senior Cruzado to mortgage the property and become procurador. And with reference to the failure of the second vendee, Escaler, to register his purchase, the court disregarded the omission as well as the entry of the first sale in the registry because that entry was made by the son and heir of the first supposed vendee, more than a score years after the alleged transaction, when Cruzado “was no longer or had any right therein (in the land), because it already belonged to the Escaler, its lawful owner.” When Escaler, the second purchaser was sued, he had become the owner of the land by prescription. In the present case, Rosete’s possession fell far short of having ripened into title by prescription when the Quimson commenced her action. [89] Quiroga v. Parsons Hardware [G.R. No. 11491. August 23, 1918.] En Banc, Avancena (J): 5 concur Facts: On 24 January 1911, in Manila, a contract was entered into by and between the Quiroga and J. Parsons (to whose rights and obligations Parsons Hardware later subrogated itself) for the exclusive sale of Quiroga Beds in the Visayan Islands. Quiroga was to furnish the Parson with the beds (which the latter might order, at the price stipulated) and that Parson was to pay the price in the manner stipulated. The price agreed upon was the one determined by Quiroga for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at Quiroga’s request, or in cash, if Parson so preferred, and in these last two cases an additional discount was to be allowed for prompt payment.

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<The case facts are bereft of details regarding the event that led to the controversy of the case, the litigation in the lower courts, up to appeal> Quiroga alleges that Parson violated its obligation not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. None of these, except the obligation to order the beds by the dozen and in no other manner, are expressly set forth in the contract. Quiroga maintains that Parsons is his agent for the sale of his bed in Iloilo, and such obligations implied in a contract of commercial agency. The Supreme Court held that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The Court thus affirmed the judgment appealed from, with costs against the appellant. 1. Essential clauses given due regard to classify a contract; Contract of purchase and sale In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, the clauses, constituting its cause and subject matter, are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of Quiroga to supply the beds, and, on the part of Parson, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between Quiroga and Parson, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. 2. Commission on sale merely a discount, other clauses are not incompatible with contract of purchase and sale The contract by and between the defendant and the plaintiff is one of purchase and sale. Besides the clause made in the basis of a commission on sales, none of the other clauses of the contract is found to substantially support Quiroga’s contention. None of these conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell Quiroga’s beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. 3. Classification of a contract defined by law, and not one called by the parties The agreements contained in the document that has been drafted, constitute a contract of purchase and sale, and not one of commercial agency. In the classification of the contract, it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. 4. Acts subsequent to contract suppletory, not considered when essential agreements are set forth in the contract The acts of the parties merely show that, on the part of each of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. 5. Effect of breach, and effect of subsequent consent to such breach
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In respect to the defendant’s obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. [90] Radiowealth Finance vs. Palileo [G.R. No. 83432. May 20, 1991.] First Division, Gancayco (J): 4 concur Facts: On 13 April 1970, spouses Enrique Castro and Herminia R. Castro sold to Manuelito Palileo, a parcel of unregistered coconut land situated in Candiis, Mansayaw, Mainit, Surigao del Norte. The sale is evidenced by a notarized Deed of Absolute Sale. The deed was not registered in the Registry of Property for unregistered lands in the province of Surigao del Norte. Since the execution of the deed of sale, Manuelito Palileo who was then employed at Lianga, Surigao del Sur, exercised acts of ownership over the land through his mother Rafaela Palileo, as administratrix or overseer. He has continuously paid the real estate taxes on said land from 1971 until the present. On 29 November 1976, a judgment was rendered against Enrique T. Castro, in Civil Case 0103145 by the then CFI Manila, Branch XIX, to pay Radiowealth Finance Company, the sum of P22,350.35 with interest thereon at the rate of 16% per annum from 2 November 1975 until fully paid, and the for the sum of P2,235.03 as attorney’s fees, and to pay the costs. Upon the finality of the judgment, a writ of execution was issued. Pursuant to said writ, the provincial Sheriff Marietta E. Eviota, through Deputy Provincial Sheriff Leopoldo Risma, levied upon and finally sold at public auction the subject land that Castro had sold to Palileo. A certificate of sale was executed by the Provincial Sheriff in favor of Radiowealth Finance Company, being the only bidder. After the period of redemption had expired, a deed of final sale was also executed by the same Provincial Sheriff. Both the certificate of sale and the deed of final sale were registered with the Registry of Deeds. Learning of what happened to the land, Palileo filed an action for quieting of title over the same. After a trial on the merits, the court a quo rendered a decision in his favor. On appeal (CA-GR CV 10788), the decision of the trial court was affirmed. Hence, the petition for review on certiorari. The Supreme Court affirmed the decision of the Court of Appeals; without costs. 1. Article 1544; No ambiguity with respect to lands registered under the Torrens System Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred: (1) to the person acquiring it who in 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 the oldest title, provided there is good faith. There is no ambiguity regarding the application of the law with respect to lands registered under the Torrens System. 2. Section 51 of PD 1529; Registration an operative act to convey or affect registered lands insofar as third persons are concerned Section 51 of Presidential Decree No. 1529 (amending Section 50 of Act No. 496 clearly provides that the act of registration is the operative act to convey or affect registered lands insofar as third persons are concerned. Thus, 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 certificate of title. 3. Purchaser in good faith of registered land under the Torrens system acquires good title
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A purchaser in good faith of registered land (covered by a Torrens Title) acquires a good title as against all the transferees thereof whose right is not recorded in the registry of deeds at the time of the sale. 4. Finding of fact by Court of Appeals conclusive upon the Supreme Court; Notarized deed of sale presumed authentic The findings of fact of the Court of Appeals are conclusive on this Court and will not be disturbed unless there is grave abuse of discretion. The finding of the Court of Appeals that the property in question was already sold to Palileo by its previous owner before the execution sale is evidenced by a deed of sale. Said deed of sale is notarized and is presumed authentic. There is no substantive proof to support petitioner’s allegation that the document is fictitious or simulated. There is no reason to reject the conclusion of the Court of Appeals that Palileo was not a mere administrator of the property. It is undisputed that he exercised acts of ownership through his mother. 5. Levy on land previously sold to Palileo contrary to directive in writ of execution The execution is contrary to the directive contained in the writ of execution which commanded that the lands and buildings belonging to Enrique Castro be sold to satisfy the execution. What the Provincial Sheriff levied upon and sold to Radiowealth Finance is a parcel of land that does not belong to Enrique Castro, the judgment debtor. 6. Bona fide purchaser of registered land at auction sale acquires good title There is no doubt that had the property in question been a registered land, this case would have been decided in favor of Radiowealth Finance since it was Radiowealth that had its claim first recorded in the Registry of Deeds. Therefore, a bona fide purchaser of a registered land at an execution sale acquires a good title as against a prior transferee, if such transfer was unrecorded. 7. Registration affecting unregistered lands without prejudice to third party with a better right Under Act 3344, registration of instruments affecting unregistered lands is “without prejudice to a third party with a better right”. The mere registration of a sale in one’s favor does not give him any right over the land if the vendor was not anymore the owner of the land having previously sold the same to somebody else even if the earlier sale was unrecorded. 8. Carumba vs. CA a case in point The case of Carumba vs. Court of Appeals 6 is a case in point. It was held therein that Article 1544 of the Civil Code has no application to land not registered under Act 496. Similar to the present case, Carumba dealt with a double sale of the same unregistered land. The first sale was made by the original owners and was unrecorded while the second was an execution sale that resulted from a complaint for a sum of money filed against the said original owners. Applying Section 35, Rule 39 of the Revised Rules of Court, it was held that Article 1544 of the Civil Code cannot be invoked to benefit the purchaser at the execution sale though the latter was a buyer in good faith and even if this second sale was registered. It was explained that this is because the purchaser of unregistered land at a sheriff s execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter’s interest in the property sold as of the time the property was levied upon. Applying the principle to the present case, the Court of Appeals correctly held that the execution sale of the unregistered land in favor of petitioner is of no effect because the land no longer belonged to the judgment debtor as of the time of the said execution sale. [91] Republic v. Philippine Development Corp. [G.R. No. L-10141. January 31, 1958.] En Banc, Padilla (J): 10 concur Facts: On 6 May 1955, the Republic of the Philippines in representation of the Bureau of Prisons instituted
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against Macario Apostol and the Empire Insurance Co. a complaint with the CFI Manila (Civil Case 26166). The complaint alleges that Apostol submitted the highest bid in the amount of P450.00 per ton for the purchase of 100 tons of Palawan Almaciga from the Bureau of Prisons; that a contract therefor was drawn and by virtue of which, Apostol obtained goods from the Bureau of Prisons valued P15,878.59; that of said account, Apostol paid only P691.10 leaving a balance obligation of P15, 187.49. The complaint further avers that Apostol submitted the best bid with the Bureau of Prisons for the purchase of 3 million board feet of logs at P88.00 per 1,000 board feet; that a contract was executed between the Director of Prisons and Apostol pursuant to which contract Apostol obtained deliveries of logs valued at P65,830.00; and that Apostol failed to pay a balance account of P18,827.57. All told, the total demand set forth in complaint against Apostol is for P34,015.06 with legal interests thereon from 8 January 1952. The Empire Insurance Company was included in the complaint having executed a performance bond of P10,000.00 in favor of Apostol. In his answer, Apostol interposed payment as a defense and sought the dismissal of the complaint. On 19 July 1955, the Philippine Resources Development Corp. moved to intervene, appending to its motion, the complaint in intervention of even date. The complaint recites that for sometime prior to Apostol’s transactions the corporate had some goods deposited in a warehouse at 1201 Herran, Manila; that Apostol, then the president of the corporation but without the knowledge or consent of the stockholders thereof, disposed of said goods by delivering the same to the Bureau of Prisons in an attempt to settle his personal debts with the latter entity; that upon discovery of Apostol’s act, the corporation took steps to recover said goods by demanding from the Bureau of Prisons the return thereof; and that upon the refusal of the Bureau to return said goods, the corporation sought leave to intervene in Civil Case 26166. The Judge (Magno Gatmaitan) denied the motion for intervention and thereby issued an order to this effect on 23 July 1955. A motion for the reconsideration of said order was filed by the corporation and the same was likewise denied on 18 August 1955. On 3 September 1955, the corporation filed a petition for a writ of certiorari with the Court of Appeals by. On 12 December 1955 the Court of Appeals set aside the order denying the motion to intervene and ordered the trial court to admit the corporation’s complaint-in-intervention, with costs against Macario Apostol. On 9 January 1956 the Government filed a petition under Rule 46 to review the judgment rendered by the appellate court (CA-GR 15767-R) with the Supreme Court. The Government contends that the intervenor has no legal interest in the matter in litigation, because the action brought in the CFI Manila against Macario Apostol and the Empire Insurance Company (Civil Case 26166) is just for the collection from the defendant Apostol of a sum of money, the unpaid balance of the purchase price of logs and almaciga bought by him from the Bureau of Prisons, whereas the intervenor seeks to recover ownership and possession of G.I. sheets, black sheets, M.S. plates, round bars and G.I. pipes that it claims it owns — an intervention which would change a personal action into one ad rem and would unduly delay the disposition of the case. The Supreme Court affirmed the judgment under review, without pronouncement as to costs. 1. Intervenor has legal capacity as it stands to be adversely affected by the judgment of the court It is true that the very subject matter of the original case is a sum of money, but it is likewise true as borne out by the records, that the materials purportedly belonging to the corporation have been assessed and evaluated and their price equivalent in terms of money have been determined; and that said materials for whatever price they have been assessed, have been assigned by Apostol as tokens of payment of his private debts with the Bureau of Prisons. In view of these considerations, it becomes enormously plain in the event the judge decides to credit Macario Apostol with the value of the goods delivered by the latter to the Bureau of Prisons, the corporation stands to be adversely affected by such judgment. The conclusion is inescapable that the corporation possesses a legal interest in the matter in litigation and that such interest is of an actual, material, direct and immediate nature as to entitle the corporation to intervene. 2. Lower court has discretion to allow or disapprove a motion for intervention; Principle
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Section 3 of Rule 13 of the Rules of Court endows the lower court with discretion to allow or disapprove a motion for intervention (Santarromana et al. vs. Barrios, 63 Phil. 456); and that in the exercise of such discretion, the court shall consider whether or not the intervention will unduly delay or prejudice the adjudication of the rights of the original parties and whether or not the intervenor’s rights may be fully protected in a separate proceeding. In the present case, the corporation is positively authorized to file a separate action against any of all the respondents; but considering that the resolution of the issues raised in and joined by the pleadings in the main case, would vitally affect the rights not only of the original parties but also of the corporation; that far from unduly delaying or prejudicing the adjudication of the rights of the original parties or bringing about confusion in the original case, the admission of the complaint in intervention would help clarify the vital issue of the true and real ownership of the materials involved, besides preventing an abhorrent multiplicity of suits. The motion to intervene should be given due course. 3. Article 1458 admits purchaser may pay a price certain in money or its equivalent The Government argues that “Price is always paid in terms of money and the supposed payment being in kind, it is no payment at all,” citing article 1458 of the new Civil Code. However, the same article provides that the purchaser may pay “a price certain in money or its equivalent,” which means that payment of the price need not be in money. Whether the G.I. sheets, black sheets, M.S. plates, round bars and G.I. pipes claimed by the corporation to belong to it and delivered to the Bureau of Prisons by Apostol in payment of his account is sufficient payment therefor, is for the Court to pass upon and decide after hearing all the parties in the case. Should the trial court hold that it is as to credit Apostol with the value or price of the materials delivered by him, certainly the corporation would be affected adversely if its claim of ownership of such sheets, plates, bars and pipes is true. 4. Authority of corporate counsel presumed By virtue of Section 20 of Rule 127, the authority of corporation’s counsel is presumed. Withal, the claim of the counsel for the petitioner that a resolution to proceed against Apostol, had been unanimously adopted by the stockholders of the corporation, has not been refuted. It cannot be said that the counsel is acting merely in an individual capacity without the benefit of a corporate act authorizing him to bring suit. As counsel’s authority to appear for the corporation was never questioned in the CFI, it is to be presumed that he was properly authorized to file the complaint-in intervention and appear for his client. It was only in the Court of Appeals where his authority to appear was questioned. As the Court of Appeals was satisfied that counsel was duly authorized by his client to file the complaint-in-intervention and to appear in its behalf, the resolution of the Court of Appeals should not be disturbed. 5. Corporation has separate personality from president or stockholder; Power to sue lodged in the board of directors and not the president Philippine Resource Corporation is a duly organized corporation with offices at the Samanillo Building and that as such, it is endowed with a personality distinct and separate from that of its president or stockholders. It has the right to bring suit to safeguard its interests and ordinarily, such right is exercised at the instance of the president. However, under the circumstance, such right properly devolves upon the other officers of the corporation as said right is sought to be exercised against the president himself who is the very object of the intended suit. The power of a corporation to sue and be sued in any court is lodged in the board of directors which exercises its corporate powers, and not in the president. 6. Counsel is the secretary-treasurer of the corporation Granting that counsel has not been actually authorized by the board of directors to appear for and in behalf of the corporation, the fact that counsel is the secretary-treasurer of the corporation and a member of the board of directors; and that the other members of the board, namely, Macario Apostol, the president, and his wife Pacita R. Apostol, who should normally initiate the action to protect the corporate properties and interests are the ones to be adversely affected thereby, a single stockholder under such circumtances may sue in behalf of the corporation. Counsel as a stockholder and director of the corporation may sue in its behalf and
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file the complaint-in-intervention in the proper court. [92] Ridad vs. Filipinas Investment [G.R. No. L-39806. January 27, 1983.] Second Division, de Castro (J): 6 concur Facts: On 14 April 1964, Luis and Lourdes Ridad purchased from the Supreme Sales and Development Corporation 2 brand new Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly installments. To secure payment thereof, the Ridads executed on the same date a promissory note covering the purchase price and a deed of chattel mortgage not only on the 2 vehicles purchased but also on another car (Chevrolet) and their franchise or certificate of public convenience granted by the defunct Public Service Commission for the operation of a taxi fleet. Then, with the conformity of the Ridads, the vendor assigned its rights, title and interest to the promissory note and chattel mortgage to Filipinas Investment and Finance Corporation. Due to the failure of the Ridads to pay their monthly installments as per promissory note, the corporation foreclosed the chattel mortgage extrajudicially, and at the public auction sale of the 2 Ford Consul cars, of which the Ridads were not notified, the corporation was the highest bidder and purchaser. Another auction sale was held on 16 November 1965, involving the remaining properties subject of the deed of chattel mortgage since the Ridads’ obligation was not fully satisfied by the sale of the aforesaid vehicles, and at the public auction sale, the franchise of the Ridads to operate 5 units of taxicab service was sold for P8,000 to the highest bidder, the corporation, which subsequently sold and conveyed the same to Jose D. Sebastian, who then filed with the Public Service Commission an application for approval of said sale in his favor. On 21 February 1966, plaintiffs filed an action for annulment of contract before the CFI Rizal (Branch I, Civil Case 9140) with Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose San Agustin, as party-defendants. By agreement of the parties, the case was submitted for decision in the lower court on the basis of the documentary evidence adduced by the parties during the pre-trial conference. Thereafter, the lower court rendered judgment declaring the chattel mortgage null and void insofar as the taxicab franchise and the used Chevrolet car of the plaintiffs are concerned, that the public auction conducted concerning said franchise to be of no legal effect, that the certificate of sale issued by the sheriff concerning the franchise is cancelled and set aside, and that the assignment made by Filipinas Investment in favor of Sebastian was declared void and of no legal effect. Appeal was filed with the Court of Appeals but was subsequently certified to the Supreme Court pursuant to Section 3 of Rule 50 of the Rules of Court, there being no issue of fact involved in the appeal. The Supreme Court affirmed the judgment appealed from, with costs against Filipinas Investment, et. al. 1. Article 1484 of the Civil Code Article 1484 of the Civil Code provides that “In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee’s failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.” 2. Remedies of vendor alternative, not cumulative; If vendor elects tight to foreclose mortgage, law prohibits him from bringing further action to recover balance of debt Under Article 1484 of the Civil Code, the vendor of personal property the purchase price of which is payable in installments, has the right, should the vendee default in the payment of two or more of the agreed
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installments, to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. Whichever right the vendor elects, he cannot avail of the other, these remedies being alternative, not cumulative. Furthermore, if the vendor avails himself of the right to foreclose his mortgage, the law prohibits him from further bringing an action against the vendee for the purpose of recovering whatever balance of the debt secured not satisfied by the foreclosure sale. The precise purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would find himself without the property and still owing practically the full amount of his original indebtedness. 3. FIFC barred from further action as to payment of unpaid balance FIFC elected to foreclose its mortgage upon default by the plaintiffs in the payment of the agreed installments. Having chosen to foreclose the chattel mortgage, and bought the purchased vehicles at the public auction as the highest bidder, it submitted itself to the consequences of the law as specifically mentioned, by which it is deemed to have renounced any and all rights which it might otherwise have under the promissory note and the chattel mortgage as well as the payment of the unpaid balance. 4. Vendor’s right to foreclose chattel mortgage only of the thing sold; not other mortgages; Levy Hermanos case applies The chattel mortgage in question is a nullity insofar as the taxicab franchise and the used Chevrolet car of the Ridads are concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in the present case. There, the same situation occurred wherein the vendees offered as security for the payment of the purchase price not only the motor vehicles which were bought on installment, but also a residential lot and a house of strong materials. This Court sustained the pronouncement made by the lower court on the nullity of the mortgage in so far as it included the house and lot of the vendees, holding that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with the proceeds of the sale at the public auction of the chattels which were sold on installment and mortgaged to him, and having chosen the remedy of foreclosure, he cannot nor should he be allowed to insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ of execution against them concerning other properties which are separate and distinct from those which were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of the law, limiting the vendor’s right to foreclose the chattel mortgage only on the thing sold. 5. Cruz vs. FIFC; Additional mortgaged cancelled as it indirectly subverts protection given by Article 1484 In the case of Cruz v. Filipinas Investment & Finance Corporation, 23 SCRA 791, the Court ruled that the vendor of personal property sold on the installment basis is precluded, after foreclosing the chattel mortgage on the thing sold, from having a recourse against the additional security put up by a third party to guarantee the purchaser’s performance of his obligation on the theory that to sustain the same would overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price, said guarantor will in turn be entitled to recover what he has paid from the debtor-vendee, and ultimately it will be the latter who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him, thereby indirectly subverting the protection given the latter. Consequently, the additional mortgage was ordered cancelled. 6. Ruling in Cruz vs. FIFC reiterated in Pascual vs. United Motors; Vendor precluded from further extrajudicial foreclose of additional security The ruling in Cruz vs. FIFC was reiterated in the case of Pascual v. Universal Motors Corporation, 61 SCRA 121. If the vendor under such circumstance is prohibited from having a recourse against the additional security for reasons therein stated, there is no ground why such vendor should not likewise be precluded from
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further extrajudicially foreclosing the additional security put up by the vendees themselves, it being tantamount to a further action that would violate Article 1484 of the Civil Code, for there is actually no difference between an additional security put up by the vendee himself and such security put up by a third party insofar as how the burden would ultimately fall on the vendee himself is concerned. 7. Southern Motors vs. Moscoso does not apply as remedy availed of if that case is the fulfillment of the obligation and not the foreclosure of the chattel mortgage The ruling in Southern Motors, Inc. v. Moscoso, 2 SCRA 168 – that in sales on installments, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage, hence, the seller-creditor is entitled to a deficiency judgment – does not fortify the stand of the appellants for that case is entirely different from the present case. In that case, the vendor has availed of the first remedy provided by Article 1484 of the Civil Code, i.e., to exact fulfillment of the obligation; whereas in the present case, the remedy availed of was foreclosure of the chattel mortgage. 8. Issue on the validity of auction sale superfluous The disposition of the Court renders superfluous a determination of the other issue raised by the parties as to the validity of the auction sale, insofar as the Ridads’ franchise is concerned, which sale had been admittedly held without any notice to them. [93] Rillo vs. CA [G.R. No. 125347. June 19, 1997.] Second Division, Puno (J): 4 concur Facts: On 18 June 1985, Emiliano Rillo signed a “Contract To Sell of Condominium Unit” with Corb Realty Investment Corporation. Under the contract, Corb Realty agreed to sell to Rillo a 61.5 sq. m. condominium unit located in Mandaluyong, Metro Manila. The contract price was P150,000.00, ½ of which was paid upon its execution, while the balance of P75,000.00 was to be paid in 12 equal monthly installments of P7,092.00 beginning 18 July 1985. It was also stipulated that all outstanding balance would bear an interest of 24% per annum; the installment in arrears would be subject to liquidated penalty of 1.5% for every month of default from due date. It was further agreed that should the buyer default in the payment of 3 or 4 monthly installments, forfeiture proceedings would be governed by existing laws, particularly the Condominium Act. On 18 July 1985, Rillo failed to pay the initial monthly amortization. On 18 August 1985, he again defaulted in his payment. On 20 September 1985, he paid the first monthly installment of P7,092.00. On 2 October 1985, he paid the second monthly installment of P7,092.00. His third payment was on 2 February 1986 but he paid only P5,000.00 instead of the stipulated P7,092.00. On 20 July 1987 or 17 months after Rillo’s last payment, Corb Realty informed him by letter that it is cancelling their contract due to his failure to settle his accounts on time. Corb Realty also expressed its willingness to refund Rillo’s money. Corb Realty, however, did not cancel the contract for on 28 September 1987, it received P60,000.00 from Rillo. Rillo defaulted again in his monthly installment payment. Consequently, Corb Realty informed Rillo through letter that it was proceeding to rescind their contract. In a letter dated 29 August 1988, it requested Rillo to come to its office and withdraw P102,459.35 less the rentals of the unit from 1 July 1985 to 28 February 1989. Again the threatened rescission did not materialize. A “compromise” was entered into by the parties on 12 March 1989 (Restructure Outstanding Balance Down to P50,000.00; Payment @ P2,000.00/Month @ 18% -Monthly- To Compute No. of Installments; To Pay Titling Plus Any Real Estate Tax Due; Installments to start 15 April 1989). Rillo once more failed to honor their agreement. Rillo was able to pay P2,000.00 on 25 April 1989 and P2,000.00 on 15 May 1989. On 3 April 1990, Corb Realty sent Rillo a statement of accounts which fixed his total arrears, including interests and penalties, to P155,129.00. When Rillo failed to pay the amount, Corb Realty filed a complaint for cancellation of the contract to sell
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with the RTC Pasig. In his answer to the complaint, Rillo averred, among others, that while he had already paid a total of P149,000.00, Corb Realty could not deliver to him his individual title to the subject property; that Corb Realty could not claim any right under their previous agreement as the same was already novated by their new agreement for him to pay P50,000.00 representing interest charges and other penalties spread through 25 months beginning April 1989; and that Corb Realty’s claim of P155,129.99 over and above the amount he already paid has no legal basis. After trial, the RTC held that Corb Realty cannot rescind the “Contract to Sell” because Rillo did not commit a substantial breach of its terms. It found that Rillo substantially complied with the “Contract to Sell” by paying a total of P154,184.00. It ruled that the remedy of Corb Realty is to file a case for specific performance to collect the outstanding balance of the purchase price. Corb Realty appealed the decision to the Court of Appeals (CA GR CV 39108), which reversed the decision. It ruled that rescission does not apply as the contract between the parties is not an absolute conveyance of real property but is a contract to sell; that the Condominium Act (RA 4726, as amended by RA 7899) does not provide anything on forfeiture proceedings in cases involving installment sales of condominium units, hence, it is PD 957 (Subdivision and Condominium Buyers Protective Decree) which should be applied to the present case. Under PD 957, the rights of a buyer in the event of failure to pay installment due, other than the failure of the owner or developer to develop the project, shall be governed by RA 6552 or the Realty Installment Buyer Protection Act also known as the Maceda Law (enacted on 14 September 1972). The Court thus declared the contract to sell cancelled and rendered ineffective and ordered Corb Realty to return 50% of P158,184.00 (or P79,092.00) to Rillo who was ordered to vacate the subject premises. Rillo appealed pursuant to Rule 45 of the Rules of Court. The Supreme Court affirmed with modification the decision appealed from, in the sense that the refund of 50% P158,184.00 or P79,092.00 made in favor of Rillo is deleted; without costs. 1. Article 1191 and 1592 do not apply as contract is not an absolute conveyance of real property but a contract to sell; Payment is a positive suspensive condition and not a breach; No rescission of an obligation which is still not existent The appellate court did not err when it did not apply Articles 1191 and 1592 of the Civil Code on rescission to the present case. The contract between the parties is not an absolute conveyance of real property but a contract to sell. In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation of the vendor to convey title from acquiring any obligatory force.” The transfer of ownership and title would occur after full payment of the purchase price. It was held in Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. that there can be no rescission of an obligation that is still non-existent, the suspensive condition not having happened. 2. RA 6552, or Maceda Law, applies Given the nature of the contract of the parties, the appellate court correctly applied RA 6552, also known as the Maceda Law. TA 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments, i.e. “(1) Where he has paid at least 2 years of installments, (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of 1 month grace period for every year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every 5 years of the life of the contract and its extensions, if any; or (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made and, after 5 years of installments, an additional 5% every year but not to exceed 90% of the total payments made: Provided, That the actual
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cancellation of the contract shall take place after cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made”; “(2) Where he has paid less than two years in installments, (Sec. 4) the seller shall give the buyer a grace period of not less than 60 days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.” 3. Rillo not entitled to grace period of 60 days; Corb Realty has right to cancel contract after 30 days of Rillo’s receipt of cancellation Rillo paid less than two years in installment payments, hence, he is only entitled to a grace period of not less than 60 days from the due date within which to make his installment payment. Corb Realty, on the other hand, has the right to cancel the contract after 30 days from receipt by Rillo of the notice of cancellation. The appellate court did not err when it upheld Corb Realty’s right to cancel the subject contract upon repeated defaults in payment by Rillo. 4. Novation not presumed; In absence of express agreement, novation occurs when old and new obligations are incompatible on every point; Contract in present case not novated Article 1292 of the Civil Code provides that “In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.” Novation is never presumed. Parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. In the absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point. In the present case, the parties executed their 12 May 1989 “compromise agreement” precisely to give life to their “Contract to Sell”. It merely clarified the total sum owed by Rillo to Corb Realty with the view that the former would find it easier to comply with his obligations under the Contract to Sell. In fine, the “compromise agreement” can stand together with the Contract to Sell. 5. Rillo not entitled to refund of 50% of payments Under RA 6552, the right of the buyer to a refund accrues only when he has paid at least 2 years of installments. In the present case, Rillo has paid less than 2 years in installments, hence, he is not entitled to a refund. [94] Romero v. CA [G.R. No. 103577. October 7, 1996.] Third division, Vitug (J): 4 concur Facts: Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and process perlite ore. In 1988, Romero and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 sq. m. The project was made known to several freelance real estate brokers. A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 sq. m. Located in Barangay San Dionisio, Parañaque, Metro Manila, the lot was covered by TCT 361402 in the name of Enriqueta Chua Vda. de Ongsiong. Romero visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse. Later, the Flores spouses called on Romero with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, Ongsiong would agree to sell the property for only P800.00 per sq. m. Romero expressed his concurrence. On 09 June 1988, a contract, denominated “Deed of Conditional Sale,” was executed between Romero and Ongsiong. Flores, in behalf of Ongsiong, forthwith received and acknowledge a check for P50,000.00 from Romero.
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Pursuant to this agreement, Ongsiong filed a complaint for ejectment (Civil Case 7579) against Melchor Musa and 29 other squatter families with the MTC Parañaque. A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March 1989. In a letter, dated 07 April 1989, Ongsiong sought to return the P50,000.00 she received from Romero since, she said, she could not “get rid of the squatters” on the lot. Atty. Sergio A.F. Apostol, counsel for Romero, refused the tender, citing the favorable decision and the writ of execution issued pursuant thereto, and expressed Romero’s willingness to underwrite the expenses for the execution of the judgment and ejectment of the occupants chargeable to the purchase price of the land. Meanwhile, the Presidential Commission for the Urban Poor (“PCUD”), through its Regional Director for Luzon (Viloria), asked the MTC Parañaque for a grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly. On 08 June 1989, Atty. Apostol reminded Ongsiong on the expiry of the 45-day grace period and reiterated his client’s willingness to underwrite the expenses for the execution of the judgment and ejectment of the occupants. On 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for Ongsion, advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client’s failure to evict the squatters from the premises within the agreed 60-day period. He added that private respondent had “decided to retain the property.” Meanwhile, on 25 August 1989, the MTC issued an alias writ of execution in Civil Case 7579 on motion of Ongsiong but the squatters apparently still stayed on. On 27 June 1989, Ongsiong prompted by Romero’s continued refusal to accept the return of the P50,000.00 advance payment, filed with the RTC Makati (Branch 133, Civil Case 89-4394) for a rescission of the deed of “conditional” sale, plus damages, and for the consignation of P50,000.00 cash. On 26 June 1990, the RTC rendered decision holding that Ongsiong had no right to rescind the contract since it was she who “violated her obligation to eject the squatters from the subject property” and that Romero, being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The lower court, thus dismissed the complaint and ordered Ongsiong to eject or cause the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon payment of the full purchase price by Romero. Ongsiong appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision, reversed and set aside the decision appealed from and entered another declaring he contract of conditional sale of 9 June 1988 cancelled and ordering Romero to accept the return of the downpayment in the amount of P50,000 deposited with the trial court; without pronouncement as to cost. Failing to obtain a reconsideration, Romero filed his petition for review on certiorari before the Supreme Court. The Supreme Court reversed and set aside the questioned decision of the Court of Appeals, and entered another ordering Romero to pay Ongsiong the balance of the purchase price and the latter to execute the deed of absolute sale in favor of petitioner; without costs. 1. Perfected contract of sale, absolute or conditional A perfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of party thereto. When ownership is retained until the fulfillment of a positive
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condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence. 2. Real character of a contract, substance more significant than title given to it by parties In determining the real character of the contract, the title given to it by the parties is not as much as significant as its substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 3. Condition in the context of a perfected contract of sale The term “condition” in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certain express warranties (which, in the present case is the timely eviction of the squatters on the property). 4. Perfection of a sale; Parties bound to fulfill what is expressly stipulated and all consequences in keeping with good faith, usage and law A sale is at once perfected where a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. In the present cas, under the agreement, Ongsiong is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by Romero of his own obligation, i.e., to pay the balance of the purchase price. 5. Options available under Article 1545 belongs to injured party Ongsiong’s failure to “remove the squatters from the property” within the stipulated period gives Romero the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner (Romero) and not to private respondent (Ongsiong). In contracts of sale particularly, Article 1545 of the Civil Code allows the obligee to choose between proceeding with the agreement or waiving the performance of the condition. Evidently, Romero has waived the performance of the condition imposed on Ongsiong to free the property from squatters. 6. Potestative condition is mixed, and not dependent on the sole will of the debtor; If condition is imposed on the fulfillment of the obligation and not the birth thereof, only the condition is avoided and does not affect obligation itself The undertaking required of private respondent does not constitute a “potestative condition dependent solely on his will” that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a “mixed” condition “dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned.” However, where the so-called “potestative condition” is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected obligation itself. 7. Rescission by non-injured party not warranted; Article 1191 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated
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on a breach of faith by the other party violates the reciprocity between them. In the present case, Ongsiong’s action for rescission was not warranted as she was not the injured party. It was Ongsiong who has failed in her obligation under the contract. Romero did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangement with the sheriff to effect such execution. Parenthetically, this offer to pay, hiring been made prior to the demand for rescission, assuming for the sake of argument that such a demand is proper under Article 1592 of the Civil Code, would likewise suffice to defeat Ongsiong’s prerogative to rescind thereunder. 8. Petitioner, opting to proceed with sale, may not demand the reimbursement of the advance payment When petitioner having opted to proceed with the sale, neither may petitioner demand its reimbursement from private respondent. Further, private respondent may not subject it to forfeiture. [95] Roque v. Lapuz, 96 SCRA 741 (1980) [96] Rubias v. Batiller [G.R. No. L-35702. May 29, 1973.] First Division, Teehankee (J): 8 concur Facts: Francisco Militante claimed ownership of a parcel of land located in the Barrio General Luna, Barotac Viejo, Iloilo, which he caused to be surveyed on 18-31 July 1934, whereby he was issued a plan Psu-99791 (containing an area of 171.3561 hectares.) Before the war with Japan, Militante filed with the CFI Iloilo an application for the registration of title of the land technically described in Psu-99791 opposed by the Director of Lands, the Director of Forestry and other oppositors. However, during the war with Japan, the record of the case was lost before it was heard, so after the war Militante petitioned the Court to reconstitute the record of the case. The record was reconstituted in the CFI Iloilo (Land Case R-695, GLRO Rec. 54852). The CFI heard the land registration case on 11 November 1952, and after trial the Court dismissed the application for registration. Militante appealed to the Court of Appeals (CA-GR 13497-R). Pending the disposal of the appeal or on 18 June 1956, Militante sold to Domingo Rubias, his son-in-law and a lawyer by profession, the land technically described in Psu-99791. The sale was duly recorded in the Office of the Register of Deeds for the Province of Iloilo (Entry 13609) on 14 July 1960. On 22 September 1958, the CA promulgated its judgment confirming the decision of the trial court dismissing the Application for Registration filed by Militante. Domingo Rubias declared the land for taxation purposes under Tax Declaration (TD) 8585 for 1957; TD 9533 and TD 10019 for 1961; TD 9868 for 1964, paying the land taxes under TD 8585 and TD 9533. Militante has also declared the land for taxation purposes under TD 5172 in 1940, under TD T-86 for 1945, under TD 7122 for 1948, and paid the land taxes for 1940, for 1945-46, for 1947, for 1947 & 1948, for 1948, and for 1948 and 1949. TD 2434 in the name of Liberato Demontaño for the land described therein was cancelled by TD 5172 of Militante. Demontaño paid the land tax under TD 2434 on 20 December 1939 for the years 1938 and 1959. Isaias Batiller had declared for taxation purposes Lot 2 of Psu-144241 under TD 8583 for 1957 and a portion of Lot 2 under TD 8584 for 1945. TD 8483 was revised by TD 9498 while TD 9584 was cancelled by TD 9584 both in the name of Batiller. Batiller paid the land taxes for Lot 2 on 9 November 1960 for the year 1945 and 1946, 1950 and 1960 as shown by the certificate of the treasurer.The land claimed by Batiller as his own was surveyed on 6-7 June 1956, and a plan approved by Director of Lands on 15 November 1956 was issued, identified as Psu 155241. On 22 April 1960, Rubias filed a forcible Entry and Detainer case against Batiller in the Justice of the Peace Court of Barotac Viejo, Iloilo. On May 1961 and after trial, the Municipal Court of Barotac Viejo decided the
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case in favor of the Batiller. Rubias appealed from the decision of the Municipal Court of Barotac Viejo to the CFI Iloilo. On 26 November 1964 and after the trial, the CFI decided the case likewise in favor of Batiller, holding that he has “better right to possess the land in question having been in the actual possession thereof under a claim of title many years before Militante sold the land to Rubias. On 31 August 1964, Rubias filed a suit to recover the ownership and possession of certain portions of lot under Psu-99791, bought from his father-in-law, Francisco Militante in 1956, against its present occupant Batiller, who allegedly entered said portions of the lot in 1945 and in 1959. Rubias prayed also for damages and attorney’s fees. On 17 August 1965, the CFI dismissed the case, the court therein practically agreeing that the contract between Rubias and Militante was null and void. Rubias filed a motion for reconsideration, which was likewise denied by the lower court on 14 January 1966. Thereafter, Rubias filed an appeal before the Court of Appeals, which certified said appeal to the Supreme as involving purely legal questions. The Supreme Court affirmed the order of dismissal appealed, with costs against Rubias. 1. Pre-trial practically amounted to a full dress trial when parties agreed and stipulated on facts and submitted their respective documentary exhibits The pre-trial conference held by the trial court at which the parties with their counsel agreed and stipulated on the material and relevant facts and submitted their respective documentary exhibits as referred to in the pre-trial order, practically amounted to a full dress trial which placed on record all the facts and exhibits necessary for adjudication of the case. Rubias’ evidence dealing with the source of the alleged right and title of Militante’s predecessors are already made of record. The chain of Militante’s alleged title and right to the land allegedly tracing back to Demontano in the land registration case and was rejected by the Iloilo land registration court, the decision of which was affirmed by final judgment by the Court of Appeals. Batiller’s evidence dealing with his and his ancestors’ continuous, open, public and peaceful possession in the concept of owner of the land and the Director of Lands’ approval of his survey plan thereof, are likewise already duly established facts of record, in the land registration case as well as in the ejectment case wherein the Iloilo CFI recognized the superiority of Batiller’s right to the land as against Rubias. Therefore, the lower court did not err in dismissing Rubias’ complaint upon Batiller’s motion after the pre-trial. 2. Rubias had no cause of action Rubias complaint, to be declared absolute owner of the land and to be restored to possession thereof with damages, was bereft of any factual or legal basis. The CA’s final judgment affirming the dismissal of Militante’s application of registration made it conclusive that Militante lack rightful claim or title to the land. There was no right or title to the land that could be transferred or sold by Militante’s purported sale in favor of Rubias in 1956. 3. Purchase of a lawyer of a property in litigation prohibited; Contract void and cannot be ratified The purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code (“The following persons cannot acquire any purchase, even at a public or judicial auction, either in person or through the mediation of another xxx [5] Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory their exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.”) and that consequently, Rubias’ purchase of the property in litigation from his client(and fatherin-law) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts “expressly prohibited or declared void by law” are “inexistent and void from the beginning” and that “(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.”
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4.

Wolfson v. Estate of Martinez superceded by case of Director of Lands v. Abagat The 1911 case of Wolfson v. Estate of Martinez which held that a sale of property in litigation to the party litigant’s lawyer “its not void but voidable at the election of the vendor” has been superseded by the 1929 case of Director of Lands vs. Abagat. In this later case of Abagat, the Court expressly cited two antecedent cases involving the same transaction of purchase of property in litigation by the lawyer which was expressly declared invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the Philippines is the counterpart) upon challenge thereof not by the vendor-client but by the adverse parties against whom the lawyer was seeking to enforce his rights as vendee thus acquired. Thus, the Court in Abagat affirmed the invalidity and nullity of the lawyer’s purchase of the land in litigation from his client, ordered the issuance of a writ of possession for the return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and other expenses, and ruled that the purchaser-lawyer is a lawyer and is presumed to know the law. He must, therefore, from the beginning, have been well aware of the defect in his title and is, consequently, a possessor in bad faith. 5. Prohibitions under Article 1491 NCC (Article 1459 Spanish Civil Code) Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property, from acquiring such property in their trust or control either directly or indirectly and “even at a public or judicial auction,” as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and employees; judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by law. 6. Wolfson case decided in line with Manresa’s view In Wolfson, the Court expressly reserved decision on “whether or not the judgment in question actually falls within the prohibition of the article” and held only that the sale’s “voidability can not be asserted by one not a property to the transaction or his representative,” citing from Manresa that “(C)onsidering the question from the point of view of the civil law, the view taken by the code, the Court must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. Now then: As the code does not recognize such nullity by the mere operation of law, the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed by a competent court.” 7. Manresa’s view not applicable under the NCC; Spanish Supreme Court and modern authors have veered away from Manresa on this point The reason given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of the vendor and not void is “that the Code does not recognize such nullity de pleno derecho.” This is no longer true and applicable to the Philippine Civil Code which does recognize the absolute nullity of contracts “whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy” or which are “expressly prohibited or declared void by law” and declares such contracts “inexistent and void from the beginning.” The Supreme Court of Spain and modern authors have likewise veered from Manresa’s view of the Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is based on public policy, that violation of the prohibition contract cannot be validated by confirmation or ratification. The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code (Article 1491 of our Civil Code) as a matter of public order and policy as applied by the Supreme Court of Spain to administrators and agents should certainly apply with greater reason to judges, judicial officers, fiscals and lawyers under paragraph 5 of the codal article. [also see viewpoints of Gullon Ballesteros in Curso de Derecho Civil (Contratos Especiales 1968), of Perez Gonzales, and of Castan] 8. Nullity of prohibited contracts definite and permanent and cannot be cured by ratification; If object has subsequently become legal, such may be subject to second contract
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The nullity of prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. In this aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions, it has been opined that they may be “ratified” by means of and in “the form of a new contract, in which case its validity shall be determined only by the circumstances at the time of execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second contract would then be valid from its execution; however, it does not retroact to the date of the first contract. 9. Who may invoke the inexistence of contract; Proper action to be filed Tolentino, in his treaties on the Civil Code, stated that (as to persons affected) “any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against him. Thus, if there has been a void transfer of property, the transferor can recover it by the accion reivindicatoria; and any possessor may refuse to deliver it to the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has been alienated by the latter under a void contract; a mortgagee can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by the assignee.” He further stated that (as to action on contract) “even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. The judgment, however, will retroact to the very day when the contract was entered into. If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action to enforce it, the other party can simply set up the nullity as a defense.” [97] Sanchez vs. Rigos [G.R. No. L-25494. June 14, 1972.] En Banc, Concepcion (J): 7 concur, 1 took no part, 1 concurs in separate opinion Facts: On 3 April 1961, Nicolas Sanchez and Severina Rigos executed an instrument, entitled “Option to Purchase,” whereby Mrs. Rigos “agreed, promised and committed . . . to sell” to Sanchez, for the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in TCT NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed “terminated and elapsed,” if “Sanchez shall fail to exercise his right to buy the property” within the stipulated period. Inasmuch as several tenders of payment of the sum of P1,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on 12 March 1963, the former deposited said amount with the CFI Nueva Ecija and commenced against the latter the present action, for specific performance and damages. On 11 February 1964, after the filing of defendant’s answer, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on 28 February 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney’s fees, and the costs. Hence, the appeal by Mrs. Rigos to the Court of Appeals, which case was the certified by the latter court to the Supreme Court upon the ground that it involves a question purely of law. The Supreme Court affirmed the decision appealed from, with costs against Severina Rigos.
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1.

Option to purchase not a contract to buy and sell The option did not impose upon Sanchez the obligation to purchase Rigos’ property. The contract denominated as “Option to Purchase” is not a “contract to buy and sell,” it merely granted Sanchez an “option” to buy, and both parties so understood it, as indicated by the caption given by them to said instrument. Under the provisions thereof, Rigos “agreed, promised and committed” herself to sell the land therein described to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration “distinct from the price” stipulated for the sale of the land. 2. Article 1354 applicable to contracts in general, Article 1479 refers to sales in particular Relying upon Article 1354 of the Civil Code, which provides that “when the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised,” the lower court presumed the existence of a consideration distinct from the price. It must be noted however that Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to “sales” in particular, and, more specifically, to “an accepted unilateral promise to buy or to sell.” In other words, Article 1479 is controlling in the present case. Article 1479 provides that “A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 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.” 3. Article 1479 imposes condition for a unilateral promise to be binding; Burden of proof In order that a unilateral promise may be “binding” upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be “supported by a consideration distinct from the price.” Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. In the present case, Sanchez has not even alleged the existence thereof in his complaint. 4. Implied admission of the truth of the other party’s averment if party joins in the petition for a judgment based on the pleadings without introducing evidence In the case of Bauermann v. Casas (14 March 1908), it was held that “one who prays for judgment on the pleadings without offering proof as to the truth of hie own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleading. (La Yebana Company vs. Sevilla, 9 Phil. 210).” This view was reiterated in Evangelista V. De la Rosa and Mercy’s Incorporated v. Herminia Verde. In the present case, Rigos explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, Sanchez has impliedly admitted the truth of said averment in Rigos’ answer. 5. Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. case The Court in the Southwestern Sugar case held that “under article 1479 of the new Civil Code ‘an option to sell,’ or ‘a promise to buy or to sell,’ as used in said article, to be valid must be ‘supported by a consideration distinct from the price.’ This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, ‘an accepted unilateral promise’ can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. The Court held that the general rule regarding offer and acceptance under Article 1324 must be interpreted as modified by the provision of article 1479, which applies to ‘a promise to
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Haystacks (Berne Guerrero)

buy and sell’ specifically. In short, the rule requires that a promise to sell to be valid must be supported by a consid