G.R. No.
L-47538 June 20, 1941 Whether or not the contract between Arco Amusement and Gonzalo Puyat
GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro
Arco), respondent.
Facts:
Arco Amusement Company is a business engaged in operating
cinematographs. Gonzalo Puyat & Sons, Inc, was acting as exclusive agents
in the Philippines for Starr Piano Company of Indiana, USA, and dealt with
cinematographer equipment and company.
Arco Amusement approached Gonzalo Puyat & Sons entered into an
agreement wherein Gonzalo Puyat will, on behalf of Arco Amusement, order
sound reproducing equipment from Starr Piano Company and that Arco
Amusement will pay Gonzalo Puyat, in addition to the price of equipment, a
10% commission plus all expenses. Starr Piano quoted the list price of
equipment as $1700 without discount to Gonzalo Puyat, which then told Arco
Amusement about it. Being agreeable, the two formalized the transaction and
Arco Amusement duly paid $1700 to Gonzalo Puyat.
Subsequently, Arco Amusement made another order again to Gonzalo Puyat
for the equipment on the same terms as the first order. The order stated that
Gonzalo Puyat would pay for the equipment the amount of $1600 which was
supposed to be the exact price quoted by Starr Piano plus 10% commission
and expenses. Arco Amusement duly paid $1600 plus 10% commission plus
$160 for the expenses; the $160 does not represent actual out-of-pocket
expenses but a mere flat charge and rough estimate made by Arco
Amusement equivalent to 10% of the $1,600 price.
Arco Amusement subsequently discovered that the price quoted to them with
regard to their previous orders were not the net price but rather the list price,
and that the Gonzalo Puyat had obtained a discount from the Starr Piano
Company. Moreover, by reading reviews and literature on prices of
machinery and cinematograph equipment, Arco Amusement was convinced
that the prices charged them were much too high. For these reasons, they
sought to obtain a reduction from Gonzalo Puyat rather than a
reimbursement, and failing in this they filed the complaint.
RTC: Contract between Arco Amusement and Gonzalo Puyat was one of
outright purchase and sale.
CA: Reversed RTC’s ruling; the relation between the two was that of agent
and principal, Gonzalo Puyat acting as agent of Arco Amusement, and
sentenced Gonzalo Puyat to pay the alleged overpayments.
Issue:
was one of purchase and sale, and not agency.
Held:
Yes. There was a contract of sale between the two.
In the first place, 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. The letters
showing that Arco Amusement accepted the prices of $1700 and $1600 for
the sound reproducing equipment subject of its contract with the petitioner,
are clear in their terms and admit no other interpretation that the respondent
in question at the prices indicated which are fixed and determinate.
Whatever unforseen events might have taken place unfavorable to Arco
Amusement, 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 the orders as per specifications, Gonzalo Puyat might still legally
hold Arco Amusement to the prices fixed. This is incompatible with the
pretended relation of agency between the petitioner and the respondent,
because 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 orders which state that the petitioner was to receive ten per cent (10%)
commission does not necessarily make Gonzalo Puyat an agent of Arco
Amusement as this provision is only an additional price which Arco
Amusement bound itself to pay, and which stipulation is not incompatible with
the contract of purchase and sale.
GREGORIO FULE VS CA, CRUZ AND BELARMINO (286 SCRA 698)
Gregorio Fule, a banker and a jeweller, offered to sell his parcel of land to Dr.
Cruz in exchange for P40,000 and a diamond earring owned by the latter. A
deed of absolute sale was prepared by Atty. Belarmino, and on the same day
Fule went to the bank with Dichoso and Mendoza, and Dr. Cruz arrived
shortly thereafter. Dr. Cruz got the earrings from her safety deposit box and
handed it to Fule who, when asked if those were alright, nodded and took the
earrings. Two hours after, Fule complained that the earrings were fake. He
files a complaint to declare the sale null and void on the ground of fraud and
deceit.
Issue:
Whether the sale should be nullified on the ground of fraud
Held:
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. It is evident from the facts of the case that there
was a meeting of the minds between petitioner and Dr. Cruz. As such, they
are bound by the contract unless there are reasons or circumstances that
warrant its nullification.
intended in exchange for his Tanay property, could not sever the juridical tie
that now bound him and Dr. Cruz. The nature and value of the thing he had
taken preclude its return after that supervening period within which anything
could have happened, not excluding the alteration of the jewelry or its being
switched with an inferior kind.
Ownership over the parcel of land and the pair of emerald-cut diamond
earrings had been transferred to Dr. Cruz and petitioner, respectively, upon
the actual and constructive delivery thereof. Said contract of sale being
absolute in nature, title passed to the vendee upon delivery of the thing sold
since there was no stipulation in the contract that title to the property sold has
been reserved in the seller until full payment of the price or that the vendor
has the right to unilaterally resolve the contract the moment the buyer fails to
pay within a fixed period.
While it is true that the amount of P40,000.00 forming part of the
consideration was still payable to petitioner, 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.

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
records, however, are bare of any evidence manifesting that private
respondents employed such insidious words or machinations to entice
petitioner into entering the contract of barter. It was in fact petitioner who
resorted to machinations to convince Dr. Cruz to exchange her jewelry for
the Tanay property.

Furthermore, petitioner was afforded the reasonable opportunity required in

Article 1584 of the Civil Code within which to examine the jewelry as he in
fact accepted them when asked by Dr. Cruz if he was satisfied with the
same. By taking the jewelry outside the bank, petitioner executed an act
which was more consistent with his exercise of ownership over it. This gains
credence when it is borne in mind that he himself had earlier delivered the
Tanay property to Dr. Cruz by affixing his signature to the contract of sale.
That after two hours he later claimed that the jewelry was not the one he

DELPHER TRADES CORPORATION, and DELPHIN PACHECO vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES,
INC.,
G.R. No. L-69259, January 26, 1988
FACTS:
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the
owners of 27,169 square meters of real estate Identified as Lot. No. 1095,
Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of
Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title
No. T-4240 of the Bulacan land registry.
On April 3, 1974, the said co-owners leased to Construction
Components International Inc. the same property and providing that during
the existence or after the term of this lease the lessor should he decide to
sell the property leased shall first offer the same to the lessee and the letter
has the priority to buy under similar conditions.
4 months later, lessee Construction Components International, Inc.
assigned its rights and obligations under the contract of lease in favor of
Hydro Pipes Philippines, Inc. with the signed conformity and consent of
lessors Delfin Pacheco and Pelagia Pacheco.
The contract of lease, as well as the assignment of lease were
annotated at the back of the title, as per stipulation of the parties.
On January 3, 1976, a deed of exchange was executed between
lessors Delfin and Pelagia Pacheco and defendant Delpher Trades
Corporation whereby the former conveyed to the latter the leased property
together with another parcel of land for 2,500 shares of stock of defendant
corporation with a total value of P1,500,000.00
On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, respondent Hydro
Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot.
No. 1095 in its favor under conditions similar to those whereby Delpher
Trades Corporation acquired the property from Pelagia Pacheco and Delphin
Pacheco.
The CFI of Bulacan ruled in favor of the plaintiff.
The IAC affirmed the decision of the CFI.
ISSUE:
Whether or not the "Deed of Exchange" of the properties executed
by the Pachecos on the one hand and the Delpher Trades Corporation on
the other was meant to be a contract of sale which, in effect, prejudiced the
private respondent's right of first refusal over the leased property included in
the "deed of exchange."
ARGUMENTS:
Eduardo Neria, a CPA and son-in-law of the late Pelagia Pacheco
testified that Delpher Trades Corporation is a family corporation and that the
corporation was organized by the children of the two spouses (spouses
Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and
Pilar Angeles in order to perpetuate their control over the property through
the corporation and as a means to avoid taxes.
Under this factual backdrop, the petitioners contend that there was
actually no transfer of ownership of the subject parcel of land since the
Pachecos remained in control of the property. Thus, the petitioners allege:
"Considering that the beneficial ownership and control of Petitioner
Corporation remained in the hands of the original co-owners, there was no
transfer of actual ownership interests over the land when the same was
transferred to Petitioner Corporation in exchange for the latter's shares of
stock. The transfer of ownership, if anything, was merely in form but not in
substance. In reality, Petitioner Corporation is a mere alter ego or conduit of
the Pacheco co-owners
On the other hand, the private respondent argues that Delpher
Trades Corporation is a corporate entity separate and distinct from the
Pachecosn and that there was actual transfer of ownership interests over the
leased property when the same was transferred to Delpher Trades
Corporation in exchange for the latter's shares of stock.
RULING:
No, it was not meant to be a contract of sale.
After incorporation, one becomes a stockholder of a corporation by
subscription or by purchasing stock directly from the corporation or from
individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649,
citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for
their properties, the Pachecos acquired 2,500 original unissued no par value
shares of stocks of the Delpher Trades Corporation. Consequently, the
Pachecos became stockholders of the corporation by subscription "The
essence of the stock subscription is an agreement to take and pay for
original unissued shares of a corporation, formed or to be formed.

It is to be stressed that by their ownership of the 2,500 no par shares

of stock, the Pachecos have control of the corporation. Their equity capital is
55% as against 45% of the other stockholders, who also belong to the same
family group.

In effect, the Delpher Trades Corporation is a business conduit of the

Pachecos. What they really did was to invest their properties and change the
nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties and
at the same time save on inheritance taxes.

The records do not point to anything wrong or objectionable about

this "estate planning" scheme resorted to by the Pachecos. "The legal right of
a taxpayer to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits, cannot be doubted.

The "Deed of Exchange" of property between the Pachecos and

Delpher Trades Corporation cannot be considered a contract of sale. There
was no transfer of actual ownership interests by the Pachecos to a third
party. The Pacheco family merely changed their ownership from one form to
another. The ownership remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first refusal under the lease
contract.

DISPOSITIVE PORTION

WHEREFORE, the instant petition is hereby GRANTED, The

questioned decision and resolution of the then Intermediate Appellate Court
are REVERSED and SET ASIDE. The amended complaint in Civil Case No.
885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No
costs.
 FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS subject matter of the contract, would become the property of the private
G.R. No. 82508 September 29, 1989 respondents. This form of agreement has been criticized as a lease only in
name.
Facts:
Sellers desirous of making conditional sales of their goods, but who do not
Spouses Sy Bang were engaged in the sale of gravel produced from crushed wish openly to make a bargain in that form, for one reason or another, have
rocks and used for construction purposes. In order to increase their frequently resorted to the device of making contracts in the form of leases
production, they looked for a rock crusher which Rizal Consolidated either with options to the buyer to purchase for a small consideration at the
Corporation then had for sale. A brother of Sy Bang, went to inspect the end of term, provided the so-called rent has been duly paid, or with
machine at the Rizal Consolidated’s plant site. Apparently satisfied with the stipulations that if the rent throughout the term is paid, title shall thereupon
machine, the private respondents signified their intent to purchase the same. 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
Since he does not have the financing capability, Sy Bang applied for financial price in installments since the due payment of the agreed amount results, by
assistance from Filinvest Credit Corporation. Filinvest agreed to extend the terms of bargain, in the transfer of title to the lessee.
financial aid on the following conditions: (1) that the machinery be purchased
in the petitioner’s name; (2) that it be leased with option to purchase upon the Indubitably, the device contract of lease with option to buy is at times
termination of the lease period; and (3) that Sy Bang execute a real estate resorted to as a means to circumvent Article 1484, particularly paragraph (3)
mortgage as security for the amount advanced by Filinvest. A contract of thereof.Through the set-up, the vendor, by retaining ownership over the
lease of machinery (with option to purchase) was entered into by the parties property in the guise of being the lessor, retains, likewise, the right to
whereby they to lease from the petitioner the rock crusher for two years. The repossess the same, without going through the process of foreclosure, in the
contract likewise stipulated that at the end of the two-year period, the event the vendee-lessee defaults in the payment of the installments. There
machine would be owned by Sy Bang. arises therefore no need to constitute a chattel mortgage over the movable
sold. More important, the vendor, after repossessing the property and, in
3 months from the date of delivery, Sy Bang claiming that they had only effect, canceling the contract of sale, gets to keep all the installments-cum-
tested the machine that month, sent a letter-complaint to the petitioner, rentals already paid.
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 Even if there was a contract of sale, Filinvest is still not liable because Sy
rocks and stones per hour. They then demanded that the petitioner make Bang is presumed to be more knowledgeable, if not experts, on the
good the stipulation in the lease contract. Sy Bang stopped payment on the machinery subject of the contract, they should not therefore be heard now to
remaining checks they had issued to the petitioner. complain of any alleged deficiency of the said machinery. It was Sy Bang
who was negligent, not Filinvest. Further, Sy Bang is precluded to complain
As a consequence of the non-payment, Filinvest extrajudicially foreclosed the because he signed a Waiver of Warranty.
real estate mortgage.

Issue:

WON the real transaction was lease or sale? SALE ON INSTALLMENTS.

Held:

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 here 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,
Philippine Nacional Bank v Pineda G.R. No. L-46658 13 May 1991 agreement executed by and between PNB and TCC giving the former the
unqualified right to the possession and disposal of all property shipped under
Dation in payment is the delivery and transmission of ownership of a the Letter of Credit until such time as all the liabilities and obligations under
thing by the debtor to the creditor as an accepted equivalent of the said Letter had been discharged. In the case of Vintola vs. Insular Bank of
performance of the obligation. As aforesaid, the repossession of the Asia and America wherein.
machinery and equipment in question was merely to secure the
payment of TCC’s loan obligation and not for the purpose of
The foregoing submission overlooks the nature and mercantile usage of the
transferring ownership thereof to PNB in satisfaction of said loan.
transaction involved. A letter of credit-trust receipt arrangement is endowed
Thus, no dacion en pago was ever accomplished.
with its own distinctive features and characteristics. Under that set-up, a bank
Facts: In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the extends a loan covered by the Letter of Credit, with the trust receipt as a
security for the loan. In other words, the transaction involves a loan feature
Arroyo Spouses), obtained a loan of P580,000.00 from petitioner bank to
represented by the letter of credit, and a security feature which is in the
purchase 60% of the subscribed capital stock, and thereby acquire the
covering trust receipt. Where there is no such transfer of ownership in favor
controlling interest of private respondent Tayabas Cement Company, Inc.
of the creditor, there is no dation in payment.either can said repossession
(TCC). 2 As security for said loan, the spouses Arroyo executed a real estate
mortgage over a parcel of land covered by Transfer Certificate of Title No. amount to dacion en pago. Dation in payment takes place when property is
55323 of the Register of Deeds of Quezon City known as the La Vista alienated to the creditor in satisfaction of a debt in money and the same is
governed by sales. Dation in payment is the delivery and transmission of
property. Thereafter, TCC filed with petitioner bank an application and
ownership of a thing by the debtor to the creditor as an accepted equivalent
agreement for the establishment of an eight (8) year deferred letter of credit
of the performance of the obligation. As aforesaid, the repossession of the
(L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan,
machinery and equipment in question was merely to secure the payment of
to cover the importation of a cement plant machinery and equipment.
The imported cement plant machinery and equipment arrived from Japan TCC’s loan obligation and not for the purpose of transferring ownership
and were released to TCC under a trust receipt agreement. Subsequently, thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever
accomplished.
Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C
as scheduled. TCC, however, failed to remit and/or pay the corresponding
amount covered by the drawings. Thus, on May 19, 1968, pursuant to the
trust receipt agreement, In the meantime, the personal accounts of the
spouses Arroyo, which included another loan of P160,000.00 secured by a
real estate mortgage over parcels of agricultural land known as Hacienda
Bacon located in Isabela, Negros Occidental, had likewise become due. The
spouses Arroyo having failed to satisfy their obligations with PNB, the latter
decided to foreclose the real estate mortgages executed by the spouses
Arroyo in its favor.

Issue: Whether or not the subsequent agreement extinguished the criminal

and civil liability of Pineda

Held: PNB’s possession of the subject machinery and equipment being

precisely as a form of security for the advances given to private respondent
under the Letter of Credit, said possession by itself cannot be considered
payment of the loan secured thereby; payment would legally result only after
PNB has foreclosed on said securities and sold the same, and applied the
proceeds thereof to private respondents’ loan obligation.—We rule for the
petitioner PNB. It must be remembered that PNB took possession of the
imported cement plant machinery and equipment pursuant to the trust receipt
 PHILIPPINE LAWIN BUS, CO., MASTER TOURS & TRAVEL CORP.,
MARCIANO TAN, ISIDRO TAN, ESTEBAN TAN and HENRY TAN,
Petitioners, v. COURT OF APPEALS and ADVANCE CAPITAL
CORPORATION, Respondents.
[G.R. No. 130972. January 23, 2002]
In dacion en pago, property is alienated to the creditor in satisfaction
of a debt in money. It is "the delivery and transmission of ownership of a
thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation."
It extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless
the parties by agreement, express or implied, or by their silence, consider the
thing as equivalent to the obligation, in which case the obligation is totally
extinguished.
Article 1245 of the Civil Code provides that the law on sales shall
govern an agreement of dacion en pago.
The Facts
On 7 August 1990 plaintiff Advance Capital Corporation, a licensed
lending investor, extended a loan to defendant Philippine Lawin Bus
Company (LAWIN), in the amount of P8,000,000.00 payable within a period
of one (1) year. The defendant, through Marciano Tan, its Executive Vice
President, executed Promissory Note No. 003, for the amount of
P8,000,000.00
To guarantee payment of the loan, defendant Lawin executed in
favor of plaintiff the following documents: (1) A Deed of Chattel Mortgage
wherein 9 units of buses were constituted as collaterals; (2) A joint and
several UNDERTAKING of defendant Master Tours and Travel Corporation,
signed by Isidro Tan and Marciano Tan; and (3) A joint and several
UNDERTAKING, executed and signed by Esteban, Isidro, Marciano and
Henry, all surnamed Tan.
Only P1,800,000.00 was paid from the loan. Thus, defendant Bus
Company was able to avail an additional loan of P2,000,000.00 for one (1)
month under Promissory Note 00028. Defendant LAWIN failed to pay the
aforementioned promissory note and the same was renewed under a
separate Promissory Note, 037. Still having not able to pay, defendants offer
for re-structuring for another two months which in turn was still not paid.
Thus, defendants foreclose the buses and as sole bidder attain the sale
which P2, 000, 000 was credited to the account of LAWIN.
Thereafter, identical demand letters were sent to the defendants to
pay their obligation, despite repeated demands, the defendants failed to pay
their indebtedness which totaled of P16,484,992.42
Thus, the suit for sum of money, wherein the plaintiff prays that
defendants solidarily pay plaintiff as of July 31, 1992 the sum of (a)
P16,484,994.12 as principal obligation under the two promissory notes Nos.
003 and 00037, plus interests and penalties along with loss of good will of
business, litigation expenses and exemplary damages. In answer to the
complaint, defendants-appellees assert by way of special and affirmative
defense, that there was already an arrangement as to the full settlement of
the loan obligation by way of:jgc:chanrobles.com.ph
A. Sale of the nine (9) units passenger buses the proceeds
of which will be credited against the loan amount as full payment
thereof; or in the alternative.
B. Plaintiff will shoulder and bear the cost of rehabilitating
the buses, with the amount thereof to be included in the total
obligation of defendant Lawin and the bus operated, with the
earnings thereof to be applied to the loan obligation of defendant
Lawin.
Defendants further assert that the foreclosure sale was in violation of
the aforequoted arrangement and prayed for the nullification of the same and
the dismissal of the complaint.
The Trial court favored the defendants, dismissing the complaint and
declaring the foreclosure as null and void. With their pleaded defenses it also
considered the obligation of indebtedness, extinguished. On appeal, the
Court of appeals reversed the earlier ruling, thus the appeal.
The Issue
The issue raised is whether there was dacion en pago between the parties
upon the surrender or transfer of the mortgaged buses to the Respondent.
The Court’s Ruling
We deny the petition
Nonetheless, we agree with the Court of Appeals that there was no
dacion en pago that took place between the parties.
 In dacion en pago, property is alienated to the creditor in satisfaction
of a debt in money. It is "the delivery and transmission of ownership of a
thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation." It "extinguishes the obligation to the extent of
the value of the thing delivered, either as agreed upon by the parties or as
may be proved, unless the parties by agreement, express or implied, or by
their silence, consider the thing as equivalent to the obligation, in which case
the obligation is totally extinguished.
absolute ownership over the property to respondent, as in a sale.
Thus, in Philippine National Bank v. Pineda 22 we held that where
machinery and equipment were repossessed to secure the payment of a loan
obligation and not for the purpose of transferring ownership thereof to the
creditor in satisfaction of said loan, no dacion en pago was ever
accomplished.

Article 1245 of the Civil Code provides that the law on sales shall
govern an agreement of dacion en pago. A contract of sale is perfected at
the moment there is a meeting of the minds of the parties thereto upon the
thing which is the object of the contract and upon the price.

In Filinvest Credit Corporation v. Philippine Acetylene Co., Inc., we said:

". . . In dacion en pago, as a special mode of payment, the debtor offers

another thing to the creditor who accepts it as equivalent of payment of an
outstanding obligation. The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtor’s debt. As
such, the essential elements of a contract of sale, namely, consent, object
certain, and cause or consideration must be present. In its modern concept,
what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of
sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or novation, to
have the effect of totally extinguishing the debt or obligation.

In this case, there was no meeting of the minds between the parties
on whether the loan of the petitioners would be extinguished by dacion en
pago. The petitioners anchor their claim solely on the testimony of Marciano
Tan that he proposed to extinguish petitioners’ obligation by the surrender of
the nine buses to the respondent acceded to as shown by receipts its
representative made.

However, the receipts executed by respondent’s representative as

proof of an agreement of the parties that delivery of the buses to private
respondent would result in extinguishing petitioner’s obligation do not in any
way reflect the intention of the parties that ownership thereof by respondent
would be complete and absolute. The receipts show that the two buses were
delivered to respondent in order that it would take custody for the purpose of
selling the same. The receipts themselves in fact show that petitioners
deemed respondent as their agent in the sale of the two vehicles whereby
the proceeds thereof would be applied in payment of petitioners’
indebtedness to Respondent. Such an agreement negates transfer of
ANTONIO ENRIQUEZ DE LA CAVADA vs ANTONIO DIAZ (causa) need not pass from one to the other at the time the contract is
G.R. No. L-11668 April 1, 1918 entered into.

FACTS:
Parties entered into a “contract of option” which involves a hacienda at
Pitogo consisting of 100 and odd hectares, owned by respondent. The said
contract stipulated how the price of the property will be paid; for which the
petitioner herein may pay him either the sum of thirty thousand pesos
(P30,000), Philippine currency, in cash, or within the period of six (6) years,
beginning with the date of the purchase, the sum of forty thousand pesos
(P40,000), Philippine currency, at six per cent interest per annum.
After the execution of the contract, defendant filed a petition with the Court of
Land Registration in order to obtain the registration of a part of the hacienda,
which was granted.
Later, and pretending to comply with the terms of said contract, the
defendant offered to transfer to the plaintiff one of said parcels only, which
was a part of said "hacienda." The plaintiff refused to accept said certificate
for a part only of said "hacienda" upon the ground (a) that it was only a part
of the "Hacienda de Pitogo," and (b) under the contract (Exhibits A and B) he
was entitled to a transfer to him all said "hacienda."
The theory of the defendant is that the contract of sale of said "Hacienda de
Pitogo" included only 100 hectares, more or less, of said "hacienda," and that
by offering to convey to the plaintiff a portion of said "hacienda" composed of
"100 hectares, more or less," he thereby complied with the terms of the
contract.
The said contract (Exhibits A and B) was not, in fact, an "optional contract"
as that phrase is generally used. Reading the said contract from its four
corners it is clearly as absolute promise to sell a definite parcel of land for a
fixed price upon definite conditions. The defendant promised to convey to the
plaintiff the land in question as soon as the same was registered under the
Torrens system, and the plaintiff promised to pay to the defendant the sum of
P70,000, under the conditions named, upon the happening of that event. The
contract was not, in fact, what is generally known as 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 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 contract of option is a contract by virtue of the terms of which the parties
thereto promise and obligate themselves to enter into contract at a future
time, upon the happening of certain events, or the fulfillment of certain
conditions.

Lower Court ruled in favor of Petitioner.

ISSUE:

Whether or not the defendant was obliged to convey to the plaintiff all of said
"hacienda."

HELD:

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.) In other words, the consideration
Riviera Filipina Inc. vs. CA terms and conditions to be offered to the buyer holding a right of first refusal
if such right is not to be rendered illusory. Lastly, the basis of the right of first
Facts: refusal must be the current offer to sell of the seller or offer to purchase of
Respondent Reyes executed a ten year renewable Contract of Lease with any prospective buyer. Thus, the prevailing doctrine is that a right of first
Riviera involving a 1,018 square meter parcel of land which was a subject of refusal means identity of terms and conditions to be offered to the lessee and
a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. But all other prospective buyers and a contract of sale entered into in violation of
the loan with Prudential Bank remained unpaid upon maturity so the bank a right of first refusal of another person, while valid, is rescissible.
foreclosed the mortgage thereon and emerged as the highest bidder at the
public auction sale. Reyes decided to sell the property offered it to Reviera.
After seven months, Riviera offered to buy the property but Reyes denied it
and increased the price of the property. Reyes’ counsel informed Riviera that
he is selling the property for P6,000 per square meter and to confirm their
conversation, Riviera sent a letter stating his interest in buying the property
for the fixed and final price of P5,000 per square meters but Reyes did not
accede to said price.

Then Reyes confided to Traballo and the latter expressed interest in buying
the said property for P5,300 per square meter but he did not have enough
amount so he looked for a partner. Despite of the impending expiration of the
redemption period of the foreclosed mortgaged property and the deal
between Reyes and Traballo was not yet formally concluded, Reyes decided
to approach Riviera and requested Atty. Alinea to approach Angeles and find
out if the latter was still interested in buying the subject property and ask him
to raise his offer for the purchase of the said property a little higher but
Riviera said that his offer is P5,000 per square meter so Reyes did not agree.

Cypress and Trading Corporation, were able to come up with the amount
sufficient to cover the redemption money, with which Reyes paid to the
Prudential Bank to redeem the subject property and Reyes executed a Deed
of Absolute Sale covering the subject property. Cypress and Cornhill
mortgaged the subject property to Urban Development Bank. Riviera sought
from Reyes, Cypress and Cornhill a resale of the subject property to it
claiming that its right of first refusal under the lease contract was violated but
his attempts were unsuccessful. Riviera filed the suit to compel Reyes,
Cypress, Cornhill and Urban Development Bank to transfer the disputed title
to the land in favor of Riviera upon its payment of the price paid by Cypress
and Cornhill.

Issue:
Whether or not petitioner can still exercise his “right of first refusal”.

Held:
No. The held that in order to have full compliance with the contractual right
granting petitioner the first option to purchase, the sale of the properties for
the price for which they were finally sold to a third person should have
likewise been first offered to the former. Further, there should be identity of

Visayan Sawmill Company, Inc. vs. The Honorable Court of Appeals
and RJH Trading
G.R. No. 83851 (March 3, 1993)
FACTS:
On May 1, 1983, RJH Trading and Visayan Sawmill Company (VSC) entered
into a sale involving scrap iron located at VSC’s stockyard at Negros
Oriental, subject to the condition that RJH will open a Letter of Credit (LOC)
of P250,000 in favor of VSC on or before May 15, 1983. This is evidenced by
a contract entitled `Purchase and Sale of Scrap Iron’ duly signed by both
parties. On May 17, 1983, RJH through his men started to dig and gather
and scrap iron at the VSC’s premises, proceeding until May 30 when VSC
allegedly directed RJH’s men to desist from pursuing the work in view of an
alleged case filed against RJH by Alberto Pursuelo. VSC denied this, alleging
that on May 23, 1983, they sent a telegram to RJH cancelling the contract of
sale because of the failure of the latter to comply with the conditions thereof.
On May 24, 1983, RJH informed VSC that the LOC was opened May 12,
1983 at BPI main office in Ayala, but then the transmittal was delayed.
On May 26, 1983, VSC received a letter advice from BPI Dumaguete stating
that an irrevocable domestic LOC P250,000 was opened in favor of Ang Tay
c/o VSC on account of Armaco-Armsteel Alloy Corporation. On July 19,
1983, RJH Trading sent a series of telegrams stating that the case filed
against him by Pursuelo had been dismissed and demanding that VSC
comply with the deed of sale, otherwise a case will be filed against them. On
July 20, 1983, VSC informed RJH that they were unwilling to continue with
the sale due to RJH’s failure to comply with essential pre-conditions of the
contract. On July 29, 1983, RJH filed the complaint, praying for judgment
ordering VSC to comply with the contract by delivering to him the scrap iron
subject thereof. VSC insisted that the cancellation of the contract was
justified because of RJH’s noncompliance with essential pre-conditions. The
RTC ruled in RJH’s favor. The CA affirmed. Hence, this appeal.
ISSUE:
Whether or not the reasons or grounds for cancelling the contract valid and
justified.
RULING:
Yes. The reasons or grounds for cancelling the contract are valid and
justified. Both the trial court and the public respondent erred in the
appreciation of the nature of the transaction between the petitioner
corporation and the private respondent. To this Court’s mind, what obtains in
the case at bar is a mere contract to sell or promise to sell, and not a contract
of sale.
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 latter should
become impossible. The Civil Code provides:
Article 1593. With respect to movable property, the rescission of the sale
shall of right take place in the interest of the vendor, if the vendee, upon the
expiration of the period fixed for the delivery of the thing, should not have
appeared to receive it, or, having appeared, he should not have tendered the
price at the same time, unless a longer period has been stipulated for its
payment.
Article 1191. 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.
In this case, there was to be no actual sale until the opening, making or
indorsing of the irrevocable and unconditional LOC. Since what obtains here
is a mere promise to sell, RJH’s failure to comply with the positive
suspensive condition cannot even be considered a breach casual or serious
but simply an event that prevented the obligation of petitioner corporation to
convey title from acquiring binding force. Consequently, the obligation of the
petitioner corporation to sell did not arise; it therefore cannot be compelled by
specific performance to comply with its prestation. In short, Article 1191 of
the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the
Civil Code, the petitioner corporation may totally rescind, as it did in this
case, the contract.
People’s Homesite & Housing Corp. v. Court of Appeals that moment, the parties may reciprocally demand performance, subject to the
law governing the form of contracts.” (Art. 1475, Civil Code).
G.R. No. L-61623, December 26, 1984; Aquino, J.

Under the facts of this case, we cannot say there was a meeting of minds on
Facts: Resolution №.513 of the People’s Homesite & Housing Corp. (PHHC) the purchase of Lot 4 with an area of 2,608.7 square meters at P 21 a square
board of directors awarded to respondent Spouses Rizalino and Adelaida meter. Decision reversed.
Mendoza, subject to the Quezon City Council’s approval of the Consolidation
Subdivison Plan, Lot 4, containing 4, 182.2 sq.m. at a price of P 21 per sq.m.
and that such award is subject to the approval of the OEC (PHHC) Valuation
COmmittee and higher authorities. The city council disapproved the plan with
due notice sent to the respondents. A revised plan which included Lot 4 with
reduced area of 2,608.7 was, however,approved by the same. The PHHC
board recalled all awards of lots to persons who failed to pay deposit or
downpayment including the respondents. The board’s Resolution №. 218
officially withdrew the tentative award of Lot 4 from the respondents and
reawarded said lot jointly and in equal shares to 5 awardees who all made the
initial deposit. Corresponding deeds of sale were executed in their favor and
the subdivision was approved by the city council and Bureau of Lands.
Respondents filed the instant action for specific performance and damages for
the reconsideration of the withdrawal and cancellation of the re-award. The
trial court sustained the withdrawal while the public respondent Court of
Appeals reversed hence, this petition.

Issue: WON there was a perfected sale of Lot 4, with the reduced area, to the
respondents which they can enforce against PHHC via action for specific
performance.

Held: The Court held in the negative. There was no perfected sale of Lot 4 as
it was conditionally or contingently awarded to the respondents subject to the
approvals of the city council and valuation committee and higher authorities.

When the plan with the area of Lot 4 reduced to 2,608.7 square meters was
approved, the Mendozas should have manifested in writing their acceptance
of the award for the purchase of Lot 4 just to show that they were still
interested in its purchase although the area was reduced and to obviate any
doubt on the matter. They did not do so. The PHHC board of directors acted
within its rights in withdrawing the tentative award.

“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
 From that moment, the parties may reciprocally demand performance,
Romulo A. Coronel, et al vs. The Court of Appeals, et al subject to the provisions of the law governing the form of contracts.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the

G.R. No. 103577 (October 7, 1996)
FACTS:
Coronel et al. consummated the sale of his property located in Quezon City
to respondent Alcaraz. Since the title of the property was still in the name of
the deceased father of the Coronels, they agreed to transfer its title to their
name upon payment of the down payment and thereafter an absolute deed
of sale will be executed.
Alcaraz’s mother paid the down payment in behalf of her daughter and as
such, Coronel made the transfer of title to their name. Notwithstanding this
fact, Coronel sold the property to petitioner Mabanag and rescinded its prior
contract with Alcaraz.
ISSUE:
Whether or not the contract between the petitioner and the respondent was a
contract to sell subject to a suspensive condition.
extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
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. In fact,
the Court significantly notes that this suspensive condition was fulfilled. Thus,
the conditional contract of sale between petitioners and private respondent
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.
What may be perceived from the respective undertakings of the parties to the
contract is that petitioners had already agreed to sell the house and lot they
inherited from their father, completely willing to transfer ownership of the
subject house and lot to the buyer if the documents were then in order. It just
so happened, however, that the transfer certificate of title was then still in the
name of their father.

RULING:

No. The agreement could not have been a contract to sell because the
sellers herein made no express reservation of ownership or title to the
subject parcel of land. Unlike in a contract to sell, petitioners in the case at
bar 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 change to their names and immediately thereafter, to execute the written
deed of absolute sale.

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly
applies to the case.

Art. 1475. 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.
 had no right to ask for the annotation of a lis pendens notice on the title of the
property.
Delfin Tan v. Erlinda Benolirao, et. al.

G.R. №. 153820 , October 16, 2009; Brion, J.
Facts: A 689 sq.m. parcel of land in Tagaytay City with TCT №. 26432, co-
owned by respondent spouses Lamberto and Erlinda Benolirao and spouses
Reynaldo and Norma Taningco, was the subject of a Deed of Conditional
Sale in favor of petitioner Delfin Tan for P 1,378,000. Pursuant to the deed,
petitioner paid the P 200,000 downpayment. Then, Lamberto Benolirao died
and an extrajudicial settlement of his estate was executed which caused the
issuance of a new certificate of title over the property (TCT №. 27355) with a
corresponding annotation in accordance with Section 4, Rule 74 of the Rules
of Court. Despite a second extension, petitioner failed to comply with his
obligation to pay the remaining balance due. In response to the demand letter
subsequently sent by the vendors, petitioner demanded the return of his
downpayment, contending that the annotation on the title was an
encumberance on the property that would prevent the vendors from delivering
a clear title to him. When the vendors refused, petitioner filed a complaint for
specific performance and caused the annotation of a notice of lis pendens on
the title. Respondents filed a motion for cancellation of the notice of lis
pendens and was granted. The lower court, after due proceedings, ruled that
the forfeiture was proper while the Court of Appeals affirmed in toto hence,
the present petition.
Jurisprudence has established that where the seller promises to execute a
deed of absolute sale upon the completion by the buyer of the payment of the
price, contract is only a contract to sell.
An annotation is placed on new certificates of title issued pursuant to the
distribution and partition of a decedent’s real properties to warn third persons
on the possible interests of excluded heirs or unpaid creditors in these
properties. The annotation, therefore, creates a legal encumbrance or lien
on the real property in favor of the excluded heirs or creditors. Where a
buyer purchases the real property despite the annotation, he must be
ready for the possibility that the title could be subject to the rights of
excluded parties.
The remedy of rescission under Art. 1191 cannot apply to mere contracts to
sell. In a contract to sell, the vendor remains the owner for as long as the
vendee has not complied fully with the condition of paying the purchase price.
If the vendor should eject vendee for failure to meet the condition precedent,
he is enforcing the contract and not rescinding it. (Termination is the proper
remedy.)

Unless time is of the essence to the contract, slight delay is not a ground for
Issue: WON an annotation made pursuant to Section 3, Rule 74 of the ROC rescission.
on a COT conveying real property considered an encumberance on the
property?

Held: Court ruled in the affirmative. The litigation subject of a notice of lis
pendens must directly involve a specific property which is necessarily affected
by the judgment. While the deed does have real property for its object,
petitioner’s complaint is an in personam action since it asks the court to
compel the respondent to do something — either to rescind or reform the
contract — and enforces his personal rights against the respondent, not
against the property subject of the deed.

The contract between the parties was merely a contract to sell where the
vendor retained title and ownership to the property until petitioner has fully
paid the purchase price. Since he had no claim of ownership or title yet, he
 G.R. No. 196251 July 9, 2014
OLIVAREZ REALTY CORPORATION and DR. PABLO R.
OLIVAREZ, Petitioner,
vs.
BENJAMIN CASTILLO, Respondent.
Facts:
Castillo was the owner of a parcel of land covered by TCT 19972. The
Philippine Tourism Authority allegedly claimed ownership of the same parcel
of land based on TCT 18493.
Castillo and Olivarez Realty Corporation, represented by Dr. Pablo Olivarez,
entered into a contract of conditional sale over the property. The details
were as follows:
1. Under the deed of conditional sale, Castillo agreed to sell his property to
Olivarez Realty; with Olivarez Realty delivering the downpayment and the
rest to be paid in 30 equal monthly installments every 8th of the month
beginning in the month that the parties would receive a decision voiding the
PTA’s title to the property.
2. Under the same deed, Olivarez Realty will file the action against PTA with
full assistance of Castillo; and that should the petition be denied, Castillo
shall reimburse all the amounts paid by Olivarez Realty.
3. Under the same contract, Olivarez Realty undertook to pay the legitimate
tenants of the land disturbance compensation, while Castillo undertook to
clear the land of the tenants within 6 months from the signing of the deed;
that should Castillo fail to clear the land within 6 months, Olivarez Realty may
suspend its monthly downpayment until the tenants vacate the property.
4. The parties agreed that Olivarez Realty Corporation may immediately
occupy the property upon signing of the deed. Should the contract be
cancelled, Olivarez Realty Corporation agreed to return the property’s
possession to Castillo and forfeit all the improvements it may have
introduced on the property.
Olivarez Realty failed to comply with the conditions, to wit: a) pay the full
purchase price; b) failed to file any action against PTA; c) failed to clear the
land of the tenants nor paying them disturbance compensation. For
breaching the contract, Castillo prayed for rescission of contract under Art.
1191 of Civil Code, plus damages.
In their defense, Olivarez Realty alleged that Castillo failed to fully assist in
filing the action against PTA; that Castillo failed to clear the property of the
tenants within 6 months from the signing of the deed. Thus, they had all the
legal right to withhold the subsequent payments to fully pay the purchase
price.
Both RTC and CA ruled that Olivarez Realty breached the contract and
ordered the rescission of the sale plus damages.
Issue #1:
What is the nature of obligations undertaken by both parties?
Held #1:
Olivarez Realty’s obligation to pay the disturbance compensation is a pure
obligation, and hence, demandable at once. With respect to Castillo’s
obligation to clear the land of the tenants within six months from the signing
of the contract, his obligation was an obligation with a resolutory period. The
obligation to clear the land of the tenants took effect at once, specifically,
upon the parties’ signing of the deed of conditional sale. Castillo had until
October 2, 2000, six months from April 5, 2000 when the parties signed the
deed of conditional sale, to clear the land of the tenants. Olivarez Realty
Corporation, therefore, had no right to withhold payments of the purchase
price. As the trial court ruled, Olivarez Realty Corporation “can only claim
non-compliance of the obligation to clear the land of the tenants in October
2000.
Issue #2:
Whether or not rescission of the contract is proper.
Held #2: NO.
SC characterized the contract as a contract to sell, not a contract of
conditional sale. In a contract of conditional sale, the buyer automatically
acquires title to the property upon full payment of the purchase price. This
transfer of title is “by operation of law without any further act having to be
performed by the seller.” In a contract to sell, transfer of title to the
prospective buyer is not automatic. “The prospective seller must convey title
to the property through a deed of conditional sale.” The distinction is
important to determine the applicable laws and remedies in case a party
does not fulfill his or her obligations under the contract. In contracts of
conditional sale, our laws on sales under the Civil Code of the Philippines
apply. On the other hand, contracts to sell are not governed by our law on
sales but by the Civil Code provisions on conditional obligations.
Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal
obligations does not apply to contracts to sell. Failure to fully pay the
purchase price in contracts to sell is not the breach of contract under Art.
1191. Failure to fully pay the purchase price is merely an event which
prevents the seller’s obligation to convey title from acquiring binding force.
This is because there can be no rescission of an obligation that is still
nonexistent, the suspensive condition (the condition of having the buyer pay
the full purchase price) having not happened.
In this case, Castillo reserved his title to the property and undertook to
execute a deed of absolute sale upon Olivarez Realty Corporation’s full
payment of the purchase price. Since Castillo still has to execute a deed of
absolute sale to Olivarez Realty Corporation upon full payment of the
purchase price, the transfer of title is not automatic. As this case involves a
contract to sell, Article 1191 of the Civil Code of the Philippines does not
apply. The contract to sell is instead cancelled, and the parties shall stand as
if the obligation to sell never existed.

SC cancelled the deed of conditional sale. Olivarez Realty was ordered to

return to Castillo the possession of property, together with all improvements
that it introduced. Olivarez Realty was also ordered to pay moral damages,
exemplary damages, and attorney’s fees to Castillo.
Romero vs. CA G.R. No. 107207, November 23, 1995

FACTS:

Petitioner Virgilio Romero a civil engineer together with his foreign partners
wants to put up a Central Warehouse in Metro Manila. Alfonso Flores and his
wife accompanied by a broker, offered a parcel of land measuring 1,952
square meters, owned by the private respondent Enriqueta Chua vda. De
Ongsiong. The two entered into a “Conditional deed of Sale”. The petitioner
paid in advance in the sum of P50,000.00 for the eviction of squatters.
Although successful, private respondent sought the return of the advance
payment she received because she could not get rid of the squatters.

ISSUE:

1. May the vendor demand the rescission of a contract of sale of a parcel of

land for a cause traceable to his own failure to evict the squatters?
2. Is the condition of the contract valid?

RULING:

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 a
party thereto. When ownership is retained until the fulfillment of a positive
condition the breach of the condition will simply prevent the duty to convey
title from acquiring an obligatory force. If the condition is imposed upon the
obligation of a party thereto when ownership is retained until the fulfillment of
a positive 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. 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. The right of resolution
of a party to an obligation is predicted on a breach of faith by the other party
that violates the reciprocity between them. It is private respondent who has
failed in her obligation under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the expense of the execution
of the judgment in the ejectment case and to make arrangements with the
sheriff to effect such execution.
Yu Tek & Co. v. Gonzales (3) The contract plainly states that if the defendant fails to deliver the 600
piculs of sugar within the time agreed on, the contract will be rescinded and
Facts: he will be obliged to return the P3,000 and pay the sum of P1,200 by way of
indemnity for loss and damages. There cannot be the slightest doubt about
A contract was executed between the herein parties, whereby Mr. Basilio
the meaning of this language or the intention of the parties. There is no room
Gonzales acknowledges the receipt of P3,000 from Yu Tek & Co., and that in
for either interpretation or construction. Under the provisions of article 1255
consideration of which he obligates himself to deliver to the latter 600 piculs
of the Civil Code contracting parties are free to execute the contracts that
of sugar of the first and second grade, according to the result of polarization,
they may consider suitable, provided they are not in contravention of law,
within 3 months. There is a stipulation providing for rescission with P1,200
morals, or public order. In our opinion there is nothing in the contract under
penalty in case of failure to deliver. No sugar was delivered, so plaintiff filed a
consideration which is opposed to any of these principles.
case praying for the judgment of P3,000 plus P1,200. P3,000 was awarded,
thus, both parties appealed.

Issues:

(1) Whether compliance of the obligation to deliver depends upon the

production in defendant’s plantation

(2) Whether there is a perfected sale

(3) Whether liquidated damages of P1,200 should be awarded to the plaintiff

Held:

(1) There is not the slightest intimation in the contract that the sugar was to
be raised by the defendant. Parties are presumed to have reduced to writing
all the essential conditions of their contract. While parol evidence is
admissible in a variety of ways to explain the meaning of written contracts, it
cannot serve the purpose of incorporating into the contract additional
contemporaneous conditions which are not mentioned at all in the writing,
unless there has been fraud or mistake. It may be true that defendant owned
a plantation and expected to raise the sugar himself, but he did not limit his
obligation to his own crop of sugar. Our conclusion is that the condition which
the defendant seeks to add to the contract by parol evidence cannot be
considered. The rights of the parties must be determined by the writing itself.

(2) We conclude that the contract in the case at bar was merely an executory
agreement; a promise of sale and not a sale. At there was no perfected sale,
it is clear that articles 1452, 1096, and 1182 are not applicable. The
defendant having defaulted in his engagement, the plaintiff is entitled to
recover the P3,000 which it advanced to the defendant, and this portion of
the judgment appealed from must therefore be affirmed.