2003hs103 Sales PDF

Haystacks
Sales
Michael Vernon Guerrero Mendiola

2003
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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
Sales, 2003 ( 1 )
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. Summon of Ministry of Agrarian Reform does not conclude actuality of sale nor notice of such
sale
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
Sales, 2003 ( 2 )
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
Sales, 2003 ( 3 )
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”
Sales, 2003 ( 4 )
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
Sales, 2003 ( 5 )
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
Sales, 2003 ( 6 )
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. Cross Complaint not founded on conventional rescission but on the failure to deliver the land
sold
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
Sales, 2003 ( 7 )
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.
Sales, 2003 ( 8 )
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
Sales, 2003 ( 9 )
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
Sales, 2003 ( 10 )
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.
Sales, 2003 ( 11 )
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.
Sales, 2003 ( 12 )
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.
Sales, 2003 ( 13 )
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.
Sales, 2003 ( 14 )
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
Sales, 2003 ( 15 )
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 co-
venturer 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.
Sales, 2003 ( 16 )
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
Sales, 2003 ( 17 )
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.
Sales, 2003 ( 18 )
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 P-
10094 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]
Sales, 2003 ( 19 )
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
Sales, 2003 ( 20 )
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. Obligation defined
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code).
2. 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.”
Sales, 2003 ( 21 )
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,
Sales, 2003 ( 22 )
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
Sales, 2003 ( 23 )
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
Sales, 2003 ( 24 )
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
Sales, 2003 ( 25 )
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.
Sales, 2003 ( 26 )
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
Sales, 2003 ( 28 )
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
Sales, 2003 ( 29 )
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
Sales, 2003 ( 30 )
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
Sales, 2003 ( 31 )
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 . . .
Sales, 2003 ( 32 )
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 non-
payment. 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
Sales, 2003 ( 33 )
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
Sales, 2003 ( 34 )
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.
Sales, 2003 ( 35 )
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]
Sales, 2003 ( 36 )
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
Sales, 2003 ( 37 )
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,
Sales, 2003 ( 38 )
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.
Sales, 2003 ( 39 )
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. Calimlim-
Sales, 2003 ( 40 )
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
Sales, 2003 ( 41 )
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
Sales, 2003 ( 42 )
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,
Sales, 2003 ( 43 )
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 re-
hearing, 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
Sales, 2003 ( 44 )
(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
Sales, 2003 ( 45 )
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
Sales, 2003 ( 46 )
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
Sales, 2003 ( 47 )
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
Sales, 2003 ( 48 )
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 ex-
officio 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
Sales, 2003 ( 49 )
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.”
Sales, 2003 ( 50 )
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
Sales, 2003 ( 51 )
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
Sales, 2003 ( 52 )
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-76-
196 (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
Sales, 2003 ( 53 )
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 30-
days 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
Sales, 2003 ( 54 )
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
Sales, 2003 ( 55 )
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.

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. Article 1544 applies in the present case, according to Supreme Court: First in time, stronger in
right
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
Sales, 2003 ( 56 )
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; Breaux-
Renoudet, 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.
Sales, 2003 ( 57 )
[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
Sales, 2003 ( 58 )
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]
Sales, 2003 ( 59 )
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.
Sales, 2003 ( 60 )
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.”
Sales, 2003 ( 61 )
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
Sales, 2003 ( 62 )
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
Sales, 2003 ( 63 )
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
Sales, 2003 ( 64 )
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
Sales, 2003 ( 65 )
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
Sales, 2003 ( 66 )
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
Sales, 2003 ( 67 )
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
Sales, 2003 ( 68 )
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.
Sales, 2003 ( 69 )
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
Sales, 2003 ( 70 )
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
Sales, 2003 ( 71 )
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.
Sales, 2003 ( 72 )
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
Sales, 2003 ( 73 )
Vda. de Reyes in the form of Second Mortgage on a parcel of land owned by her (68,902 sq. ms., TCT T-
36480 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
Sales, 2003 ( 74 )
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
Sales, 2003 ( 75 )
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.
Sales, 2003 ( 76 )
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 co-
heirs, 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
Sales, 2003 ( 77 )
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.
Sales, 2003 ( 78 )
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. Delivery; Execution of formal deed of conveyance in public document equivalent to delivery of

thing
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.]
Sales, 2003 ( 79 )
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
Sales, 2003 ( 80 )
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. Melad’s testimony inconsistent, fails to prove actual delivery of thing sold in the alleged deed of
sale
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.
Sales, 2003 ( 81 )
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
Sales, 2003 ( 82 )
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
Sales, 2003 ( 83 )
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
Sales, 2003 ( 84 )
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
Sales, 2003 ( 85 )
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.
Sales, 2003 ( 86 )
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
Sales, 2003 ( 87 )
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.
Sales, 2003 ( 88 )
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
Sales, 2003 ( 89 )
[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.
Sales, 2003 ( 90 )
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
Sales, 2003 ( 91 )
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 co-
owners 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,
Sales, 2003 ( 92 )
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
Sales, 2003 ( 93 )
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
Sales, 2003 ( 94 )
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. Payment of check intended to extinguish mortgage obligation and not a payment of purchase
price
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.
Sales, 2003 ( 95 )
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 high-
Sales, 2003 ( 96 )
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.

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
Sales, 2003 ( 97 )
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. Asiatic Commercial Corporation vs. Ang; Company not unlawfully deprived of property, sale
valid
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
Sales, 2003 ( 98 )
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 air-
conditioning 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.
Sales, 2003 ( 99 )
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.
Sales, 2003 ( 100 )

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
Sales, 2003 ( 101 )

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
Sales, 2003 ( 102 )

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
Sales, 2003 ( 103 )

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 letter-
complaint 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
Sales, 2003 ( 104 )

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:

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
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;
Sales, 2003 ( 105 )

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.
Sales, 2003 ( 106 )

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
Sales, 2003 ( 107 )

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
Sales, 2003 ( 108 )

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
Sales, 2003 ( 109 )

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.

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.
Sales, 2003 ( 110 )

[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 Cari-
ans, 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 Cari-
ans, having been paid, had no right to resell the subject lots; that the Chuas were purchasers in bad faith; and
Sales, 2003 ( 111 )

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 Cari-
an 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
Sales, 2003 ( 112 )

review; remanded the case to the RTC Negros Occidental (Branch 61) for Escanlar and Holgado and the Cari-
ans 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
Sales, 2003 ( 113 )

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 co-
ownership 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
Sales, 2003 ( 114 )

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.
Sales, 2003 ( 115 )

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 Cari-
ans 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; 1987-
1988; 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
Sales, 2003 ( 116 )

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.
Sales, 2003 ( 117 )

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 co-
owners 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
Sales, 2003 ( 118 )

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
Sales, 2003 ( 119 )

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
Sales, 2003 ( 120 )

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.
Sales, 2003 ( 121 )

[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
Sales, 2003 ( 122 )

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.
Sales, 2003 ( 123 )

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
Sales, 2003 ( 124 )

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
Sales, 2003 ( 125 )

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.
Sales, 2003 ( 126 )

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
Sales, 2003 ( 127 )

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.]

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
Sales, 2003 ( 128 )

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.
Sales, 2003 ( 129 )

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
Sales, 2003 ( 130 )

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.
Sales, 2003 ( 131 )

[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
Sales, 2003 ( 132 )

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.
Sales, 2003 ( 133 )

‘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,
Sales, 2003 ( 134 )

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]
Sales, 2003 ( 135 )

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.
Sales, 2003 ( 136 )

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
Sales, 2003 ( 137 )

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.
Sales, 2003 ( 138 )

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
Sales, 2003 ( 139 )

to Saldana of a little token of what he has paid Legarda Hermanos.
2. Court of Appeal’s ruling fair and just and in accordance with law and equity; Article 1234 vs.
1592
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 1454-
A 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
Sales, 2003 ( 140 )

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.]
Sales, 2003 ( 141 )

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
Sales, 2003 ( 142 )

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
Sales, 2003 ( 143 )

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
Sales, 2003 ( 144 )

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 cross-
examination 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
Sales, 2003 ( 145 )

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
Sales, 2003 ( 146 )

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
Sales, 2003 ( 147 )

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
Sales, 2003 ( 148 )

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.
Sales, 2003 ( 149 )

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
Sales, 2003 ( 150 )

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
Sales, 2003 ( 151 )

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
Sales, 2003 ( 152 )

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.
Sales, 2003 ( 153 )

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
Sales, 2003 ( 154 )

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
Sales, 2003 ( 155 )

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
Sales, 2003 ( 156 )

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
Sales, 2003 ( 157 )

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
Sales, 2003 ( 158 )

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]
Sales, 2003 ( 159 )

Mclaughin v. CA, 144 SCRA 693 (1986)
[63]
Medina v. Collector of Internal Revenue [G.R. No. L-15113. January 28, 1961.]
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 ante-
nuptial 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
Sales, 2003 ( 160 )

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, L-
12259, 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
Sales, 2003 ( 161 )

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
Sales, 2003 ( 162 )

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
Sales, 2003 ( 163 )

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.
Sales, 2003 ( 164 )

[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
Sales, 2003 ( 165 )

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
Sales, 2003 ( 166 )

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.
Sales, 2003 ( 167 )

[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
Sales, 2003 ( 168 )

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
Sales, 2003 ( 169 )

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
Sales, 2003 ( 170 )

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
Sales, 2003 ( 171 )

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 00-09-
16, 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.
Sales, 2003 ( 172 )

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-in-
interest.
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 RO-
15480(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
Sales, 2003 ( 173 )

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).

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
Sales, 2003 ( 174 )

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]
Sales, 2003 ( 175 )

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 34.7-
hectare 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
Sales, 2003 ( 176 )

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
Sales, 2003 ( 177 )

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 34.7-
hectare 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
Sales, 2003 ( 178 )

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.
Sales, 2003 ( 179 )

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.]

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
Sales, 2003 ( 180 )

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. Contract of repurchase arising out of a contract of sale where the seller does not have title not
valid
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
Sales, 2003 ( 181 )

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.’”
Sales, 2003 ( 182 )

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
Sales, 2003 ( 183 )

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
Sales, 2003 ( 184 )

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.
Sales, 2003 ( 185 )

[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
Sales, 2003 ( 186 )

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.
Sales, 2003 ( 187 )

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]
Sales, 2003 ( 188 )

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) Psd-
157841, 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
Sales, 2003 ( 189 )

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
Sales, 2003 ( 190 )

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 RO-
8376; 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,
Sales, 2003 ( 191 )

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
Sales, 2003 ( 192 )

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 co-
owner without the consent of the other co-owners is not null and void. However, only the rights of the co-
owner-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
Sales, 2003 ( 193 )

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 co-
owners 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 non-
payment of any of the liabilities above-mentioned, or upon the failure of the undersigned forthwith, with or
Sales, 2003 ( 194 )

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 18,000-
peso 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
Sales, 2003 ( 195 )

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.”

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.”

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.”

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.

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
Sales, 2003 ( 196 )

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
Sales, 2003 ( 197 )

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
Sales, 2003 ( 198 )

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
Sales, 2003 ( 199 )

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
Sales, 2003 ( 200 )

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
Sales, 2003 ( 201 )

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. Grantee under RA 477 not prohibited to sell the natural/industrial fruits of the land awarded to
him
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
Sales, 2003 ( 202 )

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.
Sales, 2003 ( 203 )

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
Sales, 2003 ( 204 )

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.
Sales, 2003 ( 205 )

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
Sales, 2003 ( 206 )

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
Sales, 2003 ( 207 )

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
Sales, 2003 ( 208 )

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
Sales, 2003 ( 209 )

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.
Sales, 2003 ( 210 )

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.
Sales, 2003 ( 211 )

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
Sales, 2003 ( 212 )

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.
Sales, 2003 ( 213 )

<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
Sales, 2003 ( 214 )

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
Sales, 2003 ( 215 )

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
Sales, 2003 ( 216 )

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
Sales, 2003 ( 217 )

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
Sales, 2003 ( 218 )

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.

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
Sales, 2003 ( 219 )

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
Sales, 2003 ( 220 )

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
Sales, 2003 ( 221 )

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
Sales, 2003 ( 222 )

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.
Sales, 2003 ( 223 )

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
Sales, 2003 ( 224 )

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
Sales, 2003 ( 225 )

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
Sales, 2003 ( 226 )

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 father-
in-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.”
Sales, 2003 ( 227 )

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
Sales, 2003 ( 228 )

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.
Sales, 2003 ( 229 )

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
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
Sales, 2003 ( 230 )

buy and sell’ specifically. In short, the rule requires that a promise to sell to be valid must be supported by a
consideration distinct from the price.
6. Atkins, Kroll and Co. v. Cua Hian Tek

In the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, decided later than Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., the Court saw no distinction between Articles 1324 and 1479 of
the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was
involved, treating such promise as an option which, although not binding as a contract in itself for lack of a
separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance.
7. Option is unilateral
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should
decide to exercise his option within the specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In the present
case, however, upon accepting Rigos’ offer a bilateral promise to sell and to buy ensued, and Sanchez ipso
facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It
was not a mere option then; it was bilateral contract of sale.
8. Option without consideration is a mere offer of a contract of sale, which is not binding until
accepted
If the option is given without a consideration, it is a mere offer of a contract of sale, which is not
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract
of sale, even though the option was not supported by a sufficient consideration. . . . (77 Corpus Juris
Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.) It can be taken for granted that the
option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was
accepted by latter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The
concurrence of both acts — the offer and the acceptance — could at all events have generated a contract, if
none there was before (arts. 1254 and 1262 of the Civil Code; Zayco vs. Serra, 44 Phil. 331.) In other words,
since there may be no valid contract without a cause or consideration, the promisor is not bound by his
promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.
9. Proper construction of conflicting provisions of the same law; Harmonize to implement the
same principle rather than to create exceptions
In line with the cardinal rule of statutory construction that, in construing different provisions of one
and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions
and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its
author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & pacific Co., holding that Art. 1324 (on the general principles on contracts) is
modified by Art. 1479 (on sales) of the Civil Code, in effect, considers the latter as an exception to the former,
and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said 2
articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324,
to an option or promise supported by or founded upon a consideration, strongly suggests that the 2 provisions
intended to enforce or implement the same principle.
10. Atkins, Kroll & Co. case modifies or abandons Southwestern Sugar case insofar as to
inconsistencies
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates
the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar all inconsistent therewith, the view
adhered to in the South western Sugar & Molasses Co. case should be deemed abandoned or modified.
Sales, 2003 ( 231 )

[98]
Siy Cong Bieng and Co. vs. Hongkong and Shanghai Banking Corp. [G.R. No. 34655. March 5, 1932.]
En Banc, Ostrand (J): 6 concur
Facts: Siy Cong Bieng & Co., a corporation engaged in business generally, and Hongkong & Shanghai
Banking Corporation, a foreign bank authorized to engage in the banking business in the Philippines, are
domiciled in the City of Manila. On 25 June 1926, certain negotiable warehouse receipts were pledged by
Otto Ranft to the bank to secure the payment of his preexisting debts to the latter (Siy Cong Bieng as
depositor: 1707, Public Warehouse Co., 27 bales; 133, W.F. Stevenson Co, 67 bales; 1722, Public Warehouse
Co., 60 bales; 1723, W.F. Stevenson Co, 4 bales; 1634, The Philippine Warehouse Company, 99 bales; 1702,
The Philippine Warehouse Company, 39 bales. O. Ranft as depositor: 1918, Public Warehouse Co, 166 bales;
2, Siy Cong Bieng & Co. Inc., 2 bales). The baled hemp covered by the warehouse receipts was worth
P31,635; receipts numbers 1707, 133, 1722, 1723, 1634, and 1702 being endorsed in blank by Siy Cong
Bieng and Otto Ranft, and numbers 1918 and 2, by Otto Ranft alone. On 25 June 1926, Ranft called at the
office of Siy Cong Bieng to purchase hemp (abaca), and he was offered the bales of hemp as described in the
quedans. The parties agreed to the price (P31,645), and on the same date the quedans, together with the
covering invoice, were sent to Ranft, without having been paid for the hemp, but Siy Cong Bieng’s
understanding was that the payment would be made against the same quedans, and it appears that in previous
transactions of the same kind between the bank and Siy Cong Bieng, quedans were paid one or two days after
their delivery to them. In the evening of the day upon which the quedans in question were delivered to the
bank, Ranft died suddenly at his home in the city of Manila, and when Siy Cong Bieng found that such was
the case, it immediately demanded the return of the quedans, or the payment of the value, but was told that the
quedans had been sent to the bank as soon as they were received by Ranft.
Siy Cong Bieng filed a claim for the sum of P31,645 (the value of 464 bales of hemp deposited in certain
bonded warehouses) in the intestate proceedings of the estate of the deceased Otto Ranft, which on an appeal
from the decision of the committee on claims, was allowed by the CFI in case 31372 (City of Manila). In the
meantime, demand had been made by Siy Cong Bieng on the bank for the return of the quedans (warehouse
receipts), or their value, which demand was refused by the bank on the ground that it was a holder of the
quedans in due course. Thereupon Siy Cong Bieng filed its first complaint against the bank, wherein it alleged
that it had “sold” the quedans in question to the deceased Ranft for cash, but that the said Ranft had not
fulfilled the conditions of the sale. Later on, Siy Cong Bieng filed an amended complaint, wherein they
changed the word “sold” referred to in the first complaint to the words “attempted to sell”. Upon trial the
judge of the lower court rendered judgment in favor of Siy Cong Bieng.
The Supreme Court reversed the appealed judgment and absolved the bank from the complaint; Without costs.
1. Circumstances involving the quedans

The quedans in question were negotiable in form. They were pledged by Otto Ranft to the bank to
secure the payment of his preexisting debts to said bank. Such of the quedans as were issued in the name of
Siy Cong Bieng were duly endorsed in blank by Siy Cong Bieng and by Otto Ranft. The two remaining
quedans which were issued directly in the name of Otto Ranft were also duly endorsed in blank by him.
2. Quedans were received by the bank to secure the payment of Ranft’s preexisting debts
When the quedans were negotiated, Otto Ranft was indebted to the Hongkong & Shanghai Banking
Corporation in the sum of P622,753.22, which indebtedness was partly covered by quedans. He was also
being pressed to deposit additional payments as a further security to the bank.
3. No evidence that bank is bound to pay back Ranft the amount of the quedans; On the delivery
of the quedans, indorser does not own property anymore unless he liquidated his debt with the bank
Sales, 2003 ( 232 )

It has been the practice of the bank in its transactions with Ranft that the value of the quedans has
been entered in the current accounts between Ranft and the bank, but there is no evidence to the effect that the
bank was at any time bound to pay back to Ranft the amount of any of the quedans. There is also nothing in
the record to show that the bank has promised to pay the value of the quedans neither to Ranft nor to Siy
Cong Bieng. On the contrary, as stated in the stipulation of facts, the “negotiable warehouse receipts — were
pledged by Otto Ranft to the Hongkong & Shanghai Banking Corporation to secure the payment of his
preexisting debts to the latter”, and taking into consideration that the quedans were negotiable in form and
duly endorsed in blank by Siy Cong Bieng and by Otto Ranft, it follows that on the delivery of the quedans to
the bank they were no longer the property of the indorser unless he liquidated his debt with the bank.
4. No compelling reason to compel bank to investigate indorser

There is nothing in the record which in any manner would have compelled the bank to investigate the
indorser, especially as to his authority to negotiate the quedans. The bank had a perfect right to act as it did,
and its action is in accordance with sections 47, 38, and 40 of the Warehouse Receipts Act (Act 2137).
5. Section 47 of the Warehouse Receipts Act; When negotiation not impaired by fraud, mistake or
duress
Section 47 (When negotiation not impaired by fraud, mistake, or duress) provides that “the validity of
the negotiation of a receipt is not impaired by the fact that such negotiation was a breach of duty on the part of
the person making the negotiation, or by the fact that the owner of the receipt was induced by fraud, mistake,
or duress to intrust the possession or custody of the receipt to such person, if the person to whom the receipt
was negotiated, or a person to whom the receipt was subsequently negotiated, paid value therefor, without
notice of the breach of duty, or fraud, mistake, or duress.”
6. Section 38 of the Warehouse Receipts Act; Negotiation of negotiable receipts by indorsement

Section 38 (Negotiation of negotiable receipts by indorsement) provides that “a negotiable receipt
may be negotiated by the indorsement of the person to whose order the goods are, by the terms of the receipt,
deliverable. Such indorsement may be in blank, to bearer or to a specified person. . . Subsequent negotiation
may be made in like manner.”
7. Section 40 of the Warehouse Receipts Act; Who may negotiate a receipt

Section 40 (Who may negotiate a receipt) provides that “a negotiable receipt may be negotiated “(a)
By the owner thereof, or (b) By any person to whom the possession or custody of the receipt has been
entrusted by the owner, if, by the terms of the receipt, the warehouseman undertakes to deliver the goods to
the order of the person to whom the possession or custody of the receipt has been entrusted, or if at the time
of such entrusting the receipt is in such form that it may be negotiated by delivery.”
8. Rights of bank over the quedans after indorsement; Section 41 of the Warehouse Receipts Act
The rights the bank acquired over the quedans after indorsement and delivery to it by Ranft are
covered by Section 41 of the Warehouse Receipt Act. Section 41 (Rights of person to whom a receipt has been
negotiated) provides that “a person to whom a negotiable receipt has been duly negotiated acquires thereby:
(a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a
purchaser in good faith for value, and also such title to the goods as the depositor of person to whose order the
goods were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith
for value.”
9. Use of warehouse receipts as documents of title; Intrusting receipts more than delivery, it is to
intrust title to the goods; Purchasers for value entitled to rely on representation despite breach of trust
and agreement
In the case of the Commercial National Bank of New Orleans vs. Canal-Louisiana Bank & Trust
Co. (239 U. S., 520), it was observed that “one who takes by trespass or a finder is not included within the
Sales, 2003 ( 233 )

description of those who may negotiate.” (Report of Commissioner on Uniform State Laws, January 1, 1910,
p. 204.) Aside from this, the intention is plain to facilitate the use of warehouse receipts as documents of title.
Under Section 40, the person who may negotiate the receipt is either the “owner thereof”, or a “person to
whom the possession or custody of the receipt has been intrusted by the owner” if the receipt is in the form
described. The warehouse receipt represents the goods, but the intrusting of the receipt, as stated, is more than
the mere delivery of the goods; it is a representation that the one to whom the possession of the receipt has
been so intrusted has the title to the goods. By Section 47, the negotiation of the receipt to a purchaser for
value without notice is not impaired by the fact that it is a breach of duty, or that the owner of the receipt was
induced “by fraud, mistake, or duress” to intrust the receipt to the person who negotiated it. And, under
Section 41, one to whom the negotiable receipt has been duly negotiated acquires such title to the goods as the
person negotiating the receipt to him, or the depositor or person to whose order the goods were deliverable by
the terms of the receipt, either had or “had ability to convey to a purchaser in good faith for value.” The clear
import of these provisions is that if the owner of the goods permits another to have the possession or custody
of negotiable warehouse receipts running to the order of the latter, or to bearer, it is a representation of title
upon which bona fide purchasers for value are entitled to rely, despite breaches of trust or violations of
agreement on the part of the apparent owner.
10. Siy Cong Bieng estopped to deny bank had valid title to the quedans
Siy Cong Bieng is estopped to deny that the bank had a valid title to the quedans for the reason that
Siy Cong Bieng had voluntarily clothed Ranft with all the attributes of ownership and upon which the bank
relied.
11. Equitable estoppel; Where one or two innocent persons must suffer a loss, he who by his
conduct made the loss possible must bear it
In the National Safe Deposit vs. Hibbs (229 U. S., 391), certain certificates of stock were pledged as
collateral by the defendant in error to the bank, which certificates were converted by one of the trusted
employees of the bank to his own use and sold by him. The stock certificates were unqualifiedly endorsed in
blank by the defendant when delivered to the bank. The Supreme Court of the United States applied the
familiar rule of equitable estoppel that where one of two innocent persons must suffer a loss he who by his
conduct made the loss possible must bear it. Thus, when the broker obtained the stock certificates, containing
all the indicia of ownership and possible of ready transfer, from one who had possession with the bank’s
consent, and who brought the certificates to him, apparently clothed with the full ownership thereof by all the
tests usually applied by business men to gain knowledge upon the subject before making a purchase of such
property. On the other hand, the bank, for a legitimate purpose, with confidence in one of its own employees,
instrusted the certificates to him, with every evidence of title and transferability upon them. The bank’s
trusted agent, in gross breach of his duty, whether with technical criminality or not is unimportant, took such
certificates, thus authenticated with evidence of title, to one who, in the ordinary course of business, sold
them to parties who paid full value for them. In such case we think the principles which underlie equitable
estoppel place the loss upon him whose misplaced confidence has made the wrong possible.
12. No remedy available to Siy Cong Bieng

Siy Cong Bieng has suffered the loss of the quedans, but there is now no remedy available to it. The
bank is not responsible for the loss; the negotiable quedans wee duly negotiated to the bank and as far as the
record shows, there has been no fraud on the part of the bank.
[99]
Soriano, et. al. v. Bautista, et. al. [G.R. No. L-15752. December 29, 1962.]
Bautista, et. al. v. Soriano, et. al. [G.R. No. L-17457. December 29, 1962.]
En Banc, Makalintal (J): 9 concur
Sales, 2003 ( 234 )

Facts: Spouses Basilio Bautista and Sofia de Rosas are the absolute and registered owners of a parcel of land,
situated in Teresa, Rizal (OCT 3905, Register of Deeds of Rizal). On 30 May 1956, the said spouses for and
in consideration on the sum of P1,800, signed a document entitled “Kasulatan Ng Sanglaan” in favor of
Ruperto Soriano and Olimpia de Jesus. Simultaneously with the signing of the deed, the spouses Bautista and
de Rosas transferred the possession of the said land to Soriano and de Jesus who have been and are still in
possession of the said property and have since that date been and are cultivating the said land and have
enjoyed and are still enjoying the produce thereof to the exclusion of all other persons. Sometimes after 30
May 1956, the spouses Bautista and de Rosas received from Soriano and de Jesus, the sum of P450.00
pursuant to the conditions agreed upon in the document for which no receipt was issued and which was
returned by the spouses sometime on 31 May 1958. On 13 May 1958, a certain Atty. Angel O. Ver wrote a
letter to the spouses Bautista informing the said spouses that his clients Soriano and de Jesus have decided to
buy the parcel of land in question pursuant to paragraph 5 of the document in question (“That it has likewise
been agreed that if the financial condition of the mortgagees will permit, they may purchase said land
absolutely on any date within the two-year term of this mortgage at the agreed price of P3,900.00.”). The
spouses in spite of the receipt of the letter refused to comply with the demand contained therein.
On 31 May 1958, Soriano and de Jesus filed before the Trial Court Civil Case 5023, praying that they be
allowed to consign or deposit with the Clerk of Court the sum of P1,650.00 as the balance of the purchase
price of the parcel of land in question. After due hearing, judgment be rendered ordering Bautista and de
Rosas to execute an absolute deed of sale of the said property in their favor, plus damages.
On 9 June 1958, spouses Bautista and de Rosas filed a complaint against Soriano and de Jesus, which case
after hearing was dismissed for lack of jurisdiction. On 5 August 1959, the spouses Bautista and de Rosas
again filed a case in the CFI against Soriano and de Jesus asking the Court to order Soriano and de Jesus to
accept the payment of the principal obligation and release the mortgage and to make an accounting of the
harvest for the two harvest seasons (1956-1957). The two cases, were by agreement of the parties assigned to
one branch so that they can be tried jointly. On 10 March 1959, the CFI Rizal, after a joint trial of both cases,
ordered Bautista and de Rosas to execute a deed of sale covering the property in question in favor of Soriano
and de Jesus upon payment by the latter of P1,650.00 which is the balance of the price agreed upon, i.e.
P3,900.00, and the amount previously received by way of loan by the said spouses from Soriano and de Jesus,
to pay the sum of P500.00 by way of attorney’s fees, and to pay the costs.
The Supreme Court affirmed the judgment appealed from, with costs.
1. Mortgagors’ right to redeem defeasible due to stipulation on option to buy

While the transaction is undoubtedly a mortgage and contains the customary stipulation concerning
redemption, it carries the added special provision, which renders the mortgagors’ right to redeem defeasible at
the election of the mortgagees. There is nothing illegal or immoral in this. It is simply an option to buy,
sanctioned by Article 1479 of the Civil Code, which states: “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 promisor if the promise is supported by a consideration distinct from
the price.”
2. Promise to sell supported by same consideration of the mortgage, which is distinct from which
would support the sale; Continuing offer
In the present case, the mortgagors’ promise to sell is supported by the same consideration as that of
the mortgage itself, which is distinct from that which would support the sale, an additional amount having
been agreed upon, to make up the entire price of P3,900.00, should the option be exercised. The mortgagors’
promise was in the nature of a continuing offer, non-withdrawable during a period of two years, which upon
acceptance by the mortgagees gave rise to a perfected contract of purchase and sale.
Sales, 2003 ( 235 )

3. Inigo vs. CA case affirms right of appellees for specific performance for the execution of deed of
sale
In the case of Iñigo vs. Court of Appeals (96 Phil., 37; 50 O.G. 11 5281), it was held that a stipulation
in a contract of mortgage to sell the property to the mortgagee does not bind the same but creates only a
personal obligation on the part of the mortgagor. The citation, confirms the position of the appellees, who are
not enforcing any real right to the disputed land but are rather seeking to obtain specific performance of a
personal obligation, namely, the execution of a deed of sale for the price agreed upon, the corresponding
amount to cover which was duly deposited in court upon the filing of the complaint.
4. Tender ineffective as preemptive right to purchase by other party has been exercised
The tender of the sum of P1,800 to redeem the mortgage by Bautista and de Rosas was ineffective for
other purpose intended. Such tender must have been made after the option to purchase had been exercised by
Soriano and de Jesus (Civil Case 99 was filed on 9 June 1958, only to be dismissed for lack of jurisdiction).
Bautista’s and de Rosas’ offer to redeem could be defeated by Soriano’s and de Jesus’ preemptive right to
purchase within the period of 2 years from 30 May 1956. Such right was availed of and Bautista and de Rosas
were accordingly notified by letter dated 13 May 1958, which was received by them on the following May 22.
Offer and acceptance converged and gave rise to a perfected and binding contract of purchase and sale.
[100]
Sta. Ana vs. Hernandez [G.R. No. L-16394. December 17, 1966.]
En Banc, Reyes JBL (J): 8 concur, 1 took no part
Facts: Spouses Jose Santa Ana, Jr. and Lourdes Sto. Domingo, owned a 115,850-sq.m. parcel of land situated
in barrio Balasing, Sta. Maria, Bulacan, and covered by TCT T-3598. On 28 May 1954, they sold two (2)
separate portions of the land for P11,000.00 to Rosa Hernandez. These portions were described in the deed of
sale as the northern lot (N: Maria Perez and Aurelio Perez, S: adjoining lot [Sta. Ana], E: Mariano Flores and
Emilio Ignacio, W: Cornelio Ignacio; 12,500 sq.m.) and eastern lot (N: Rosa Hernandez, E: Domingo and
Antonio Hernandez, S: Sta. Maria-Tigbi Road; W: adjoining lot [Sta. Ana]; 26,500 sq.m.) After the sale (there
were 2 other previous sales to different vendees of other portions of the land), the spouses caused the
preparation of a subdivision plan, of the entire land by a surveyor, whole subdivision plan Psd-43187, was
approved on 13 January 1955 by the Director of Lands. Rosa Hernandez, however, unlike the previous
vendees, did not conform to the plan and refused to execute an agreement of subdivision and partition for
registration with the Register of Deeds of Bulacan; and she, likewise, refused to vacate the areas that she had
occupied. Instead, she caused the preparation of a different subdivision plan, which was approved by the
Director of Lands on 24 February 1955. This plan, Psd-42844, tallied with the areas that Rosa Hernandez had
actually occupied.
On 28 February 1955, the spouses filed suit against Rosa Hernandez in the CFI Bulacan (Civil Case 1036),
claiming that Hernandez was occupying an excess of 17,000 sq. m. in area of what she had bought from them.
Hernandez, on the other hand, claimed that the alleged excess was part of the areas that she bought. The only
question determined is whether or not the spouses had sold two portions without clear boundaries but with
exact areas (12,500 sq. m. and 26.000 sq. m.) at the rate of P0.29 per square meter or two portions, the areas
of which were not definite but which were well defined on the land and with definite boundaries and sold for
the lump sum of P11,000.00. Finding for the spouses, the said court ordered Hernandez, among other things,
to vacate “the excess partitions actually occupied by her and to confine her occupation only to Lots 4-a and 4-
b as shown in the plan of the spouses.
Not satisfied with the judgment, Hernandez appealed to the Court of Appeals. The Court of Appeals (CA-GR
20582-R) dismissed the complaint and declared Rosa Hernandez the owner of lots 4-a and 4-b in her plan,
Psd-42844; in effect reversing the decision of the CFI Bulacan. Hence, the appeal.
Sales, 2003 ( 236 )

The Supreme Court affirmed the decision of the Court of Appeals, with costs against Jose Santa Ana, Jr. and
Lourdes Sto. Domingo.
1. Witness’ testimony: Boundaries prevail over area

Gonzalo V. Ignacio, the notarial officer before whom the contract of sale was executed, testified that
Hernandez complained to him and Sta. Ana to the effect that the areas stated in the contract were less than the
actual areas of the parcels of land being sold. Ignacio assured her that “the area stated in the document will
not be the one to prevail but the one to prevail is the boundary of the land which you already know.” Sta. Ana
being the nephew of Hernandez, and the former’s assurance probably appeased the latter against insisting in
the correction of the areas stated in the contract of sale.
2. Witness’ testimony: Purchase price always lump sums

Two witnesses testified for Hernandez. Jesus Policarpio divulged that the same parcels of land
involved in this case were previously offered to him by Sta. Ana for the single purchase price of P12,000.00.
Julio Hernandez stated that his sister, Rosa Hernandez, had offered P10,000.00 as against Sta. Ana’s price of
P12,000.00, end that he was able to persuade the parties to meet halfway on the price. Furthermore, the
previous conveyances made by Sta. Ana for other portions of the same property are also for lump sums.
3. Parcels of land sold are identified by conspicuous boundaries

Sta. Ana admitted the lands in question were separated from the rest of their property by a long and
continuous ‘pilapil’ or dike, and there is convincing proof to show that the bigger lot (Lot 4-a) was wholly
tenanted for Sta. Ana by Ciriaco Nicolas and Santiago Castillo and the smaller lot (Lot 4-b) was wholly
tenanted for Sta. Ana by Gregorio Gatchalian. These facts support the theory that the two parcels of land sold
to Hernandez were identified by the conspicuous boundaries and the extent or area each tenant used to till or
the vendors. Sta. Ana should not be heard to complain about the deficiency in the area (17,000 sq. m. or ½
total are of two parcels of land) because registered owners and possessors of the entire land since 1949 they
can rightly be presumed to have acquired a good estimate of the value and areas of the portions they
subsequently sold. From the facts, the difference in the lot area does not infer gross mistake on the part of Sta.
Ana.
4. Article 1542 applied

Article 1542 of the new Civil Code provides that “In the sale of real estate, made for a lump sum and
not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the
price, although there be greater or less area or number than that stated in the contract. The same rule shall be
applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries,
which is indispensable in every conveyance of real estate, its area or number should be designated in the
contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds
the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in
the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the
vendee does not accede to the failure to deliver what has been stipulated.”
5. Jurisdiction of the Courts

The credibility of witnesses and the weighing of conflicting evidence are matters within the exclusive
authority of the Court of Appeals, and it is not necessarily bound by the conclusions of the trial court. Both
the Judiciary Act (R.A. 296, section 29) and the Rules of Court (Rule 45, section 2) only allow a review of
decisions of the Court of Appeals on question of law; and numerous decisions of this Court have invariably
and repeatedly held that findings of fact by the Court of Appeals are conclusive and not reviewable by the
Supreme Court (Galang vs. Court of Appeals, L-17248, 29 January 1962; Fonnacier vs. Court of Appeals, 96
Phil. 418, 421; and cases therein cited; Onglengco vs. Ozaeta, 70 Phil. 43; Nazareno vs. Magwagi, 71 Phil.
101). Barring, therefore, a showing that the findings complained of are totally devoid of support in the record,
Sales, 2003 ( 237 )

or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand,
for the Supreme Court is not expected or required to examine and correct the oral and documentary evidence
submitted by the parties. As pointed out by former Chief Justice Moran in his Comments on the Rules of
Court (1963 Ed., Vol. 2, p. 412), the law creating the Court of Appeals was intended mainly to take away from
the Supreme Court the work of examining the evidence, and confine its task for the determination of
questions which do not call for the reading and study of transcripts containing the testimony of witnesses.
6. Corpus centum
The two parcels of land sold to Rosa Hernandez were identified by the conspicuous boundaries,
consisting in a long and continuous pilapil or dike that separated the lands in question from the rest of the
property. On the basis of such findings, it is unquestionable that the sale made was of a definite and identified
tract, a corpus certum, that obligated the vendors to deliver to the buyer all the land within the boundaries,
irrespective of whether its real area should be greater or smaller than what is recited in the deed (Goyena vs.
Tambunting, I Phil. 490; Teran vs. Villanueva, 56 Phil. 677; Azarraga vs. Gay, 52 Phil. 599; Mondragon vs.
Santos, 87 Phil. 471). And this is particularly true where the area given is qualified to be approximate only
“humigit kumulang”, i.e., more or less. It cannot be said that the boundaries are indefinite just because the
deed of sale provides boundaries given as “lupang kasanib.”
7. Requisites to hold buyer to no more than the area recited

To hold the buyer to no more than the area recited on the area, it must be made clear therein that the
sale was made by unit of measure at a definite price for each unit. If the defendant intended to buy by the
meter he should have so stated in the contract” (Goyena vs. Tambunting, supra).
8. La venta a cuerpo cierto; Sale of a certain thing

The ruling of the Supreme Court of Spain, in construing Article 1471 of the Spanish Civil Code
(copied verbatim in Article 1542 of the Civil Code) is highly persuasive that as between the absence of a
recital of a given price per unit of measurement, and the specification of the total area sold, the former must
prevail and determines the applicability of the norms concerning sales for a lump sum.
? The sale of a certain thing is doubtlessly verified when in the contract there is no single nor precise
price by unit of measurement, without neither indicating the global dimensions of the immovable, but it also
verified when even having not indicated a singular price by unit of measurement, nevertheless the total
dimension of immovable, in which ultimately entered contrasting indices, constituted a [by] the lack of a
singular price for a unit of measure, and another by the concretion of the global dimensions of the immovable,
the prevailing law is the first, and presumes that the individualization does not speak of the parts of essential
value that constitutes an overprice, and does not mean that the parts have been agreed that the global price of
the immovable is for the total dimensions, considering that this is an absolute presumption, against any proof
presented by either the buyer or the seller.
? Therefore, neither the buyer nor the seller can try to reduce or provide a price supplement, when the
global dimensions of a larger or smaller immovable results therefrom from the ones indicated in the contract,
unless it can be adduced that they have agreed upon precisely are the dimensions of the thing in the contract.”
(Supreme Court of Spain, Decision of 26, June 1956; Rep. Jurisp. Aranzadi, 2729)
9. Section 58 of Act 496 merely a procedure directive to Registers of Deeds and does not modify
Civil Code Rule as to sales “a cuerpo cierto”
The Civil Code’s rule as to sales “a cuerpo cierto” was not modified by Act 496, section 58
prohibiting the issuance of a certificate of title to a grantee of part of a registered tract until a subdivision plan
and technical description are duly approved by the Director of Lands, and authorizing only the entry of a
memorandum on the grantor’s certificate of title in default of such plan. The latter provision is purely a
procedural directive to Registers of Deeds that does not attempt to govern the rights of vendor and vendee
inter se, that remain controlled by the Civil Code of the Philippines. It does not even bar the registration of the
contract itself to bind the land.
Sales, 2003 ( 238 )

[101]
Suria v. IAC, 151 SCRA 661(1987)
[102]
Tagatac v. Jimenez, 53 OG 3792 (1957)
[103]
Tajanlangit vs. Southern Motors [G.R. No. L-10789. May 28, 1957.]
Second Division, Bengzon (J): 8 concur
Facts: In April 1953 Amador Tajanlangit and his wife Angeles, bought from the Southern Motors Inc. of
Iloilo two tractors and a thresher. In payment for the same, they executed the promissory note whereby they
undertook to satisfy the total purchase price of P24,755.75 in several installments (with interest) payable on
stated dates from 18 May 1953 to 10 December 1955. The note stipulated that if default be made in the
payment of interest or of any installment, then the total principal sum still unpaid with interest shall at once
become demandable etc. The spouses failed to meet any installment.
The spouses were sued (Civil Case 2942), for the amount of the promissory note. The spouses defaulted, and
the court, after listening to the Southern Motors’ evidence entered judgment for it in the total sum of
P24,755.75 together with interest at 12%, plus 10% of the total amount due as attorney’s fees and costs of
collection. Carrying out the order of execution, the sheriff levied on the same machineries and farm
implements which had been bought by the spouses; and later sold them at public auction to the highest bidder,
which turned out to be the Southern Motors itself, for the total sum of P10,000. As its judgment called for
much more, the Southern Motors subsequently asked and obtained, an alias writ of execution; and pursuant
thereto, the provincial sheriff levied attachment on the Tajanlangits’ rights and interests in certain real
properties, with a view to another sale on execution.
To prevent such sale, the Tajanlangits instituted the action in the CFI Iloilo for the purpose among others, of
annulling the alias writ of execution and all proceedings subsequent thereto. They alleged that (1) they had
returned the machineries and farm implements to the Southern Motors Inc., the latter accepted them, and had
thereby settled their accounts; for that reason, said spouses did not contest the action in Civil Case 2942; and
(2) as the Southern Motors Inc. had repossessed the machines purchased on installment (and mortgaged) the
buyers were thereby relieved from further responsibility, in view of the Recto Law, now article 1484 of the
New Civil Code. For answer, the company denied the alleged “settlement and understanding” during the
pendency of Civil Case 2942. It also denied having repossessed the machineries, the truth being that they
were attached by the sheriff and then deposited by the latter in its shop for safekeeping, before the sale at
public auction. The case was submitted for decision mostly upon a stipulation of facts. Additional testimony
was offered together with documentary evidence. The lower court dismissed the complaint, holding that it has
no authority and jurisdiction to declare null and void the order directing the issuance of alias writ of execution
because it was made by another court of equal rank and category.
The spouses reasonably brought the matter to the Court of Appeals, but the latter forwarded the expediente,
being of the opinion that the appeal involved questions of jurisdiction and/or law.
The Supreme Court affirmed the decision dismissing the complaint, with costs against the appellants.
Sales, 2003 ( 239 )

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. Article 1484 (3) does not apply

The spouses invoked the last paragraph of Article 1484, but there has been no foreclosure of the
chattel mortgage nor a foreclosure sale in the present case. Therefore the prohibition against further collection
does not apply.
3. Sale of mortgage chattel

It is the actual sale of the mortgaged chattel in accordance with section 14 Act 1508 that would bar
the creditor (who chooses to foreclose) from recovering any unpaid balance. (Pacific Com. Co. vs. De la
Rama, 72 Phil. 380; Manila Motor Co. vs. Fernandez, 99 Phil., 782.)
4. Option exercised by Southern Motors

It is true that there was a chattel mortgage on the goods sold, but the Southern Motors elected to sue
on the note exclusively, i.e. to exact fulfillment of the obligation to pay. It had a right to select among the
three remedies established in Article 1484. In choosing to sue on the note, it was not thereby limited to the
proceeds of the sale, on execution, of the mortgaged good.
5. Similar situation in Southern Motors vs. Magbanua

In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation arose in connection with
the purchase on installment of a Chevrolet truck by Magbanua. Upon the latter’s default, suit on the note was
filed, and the truck levied on together with other properties of the debtor. Contending that the seller was
limited to the truck, the debtor obtained a discharge of the other properties. This court said that “by praying
that the defendant be ordered to pay the sum of P4,690 together with the stipulated interest at 12% per annum
from 17 March 1954 until fully paid, plus 10% of the total amount due as attorney’s fees and cost of
collection, the plaintiff elected to exact the fulfillment of the obligation and not to foreclose the mortgage on
the truck.As the plaintiff has chosen to exact the fulfillment of the defendant’s obligation, the former may
enforce execution of the judgment rendered in its favor on the personal and real properties of the latter not
exempt from execution sufficient to satisfy the judgment. That part of the judgment depriving the plaintiff of
its right to enforce judgment against the properties of the defendant except the mortgaged truck and
discharging the writ of attachment on his other properties is erroneous.”
6. Cancellation and settlement theory of spouses not heeded as it would contravene decision in
Civil Case 2942
The argument of the spouses (that “upon the return of the same chattels and due acceptance of the
same by the vendor-mortgagee, the conditional sale is ipso facto cancelled, with the right of the vendor-
mortgagee to appropriate whatever down-payment and posterior monthly installments made by the
purchaser”) assumes that acceptance of the goods by the Southern Motors Co. with a view to “cancellation”
of the sale. The company denies such acceptance and cancellation, asserting the goods were deposited in its
shop when the sheriff attached them in pursuance of the execution. Its assertion is backed up by the sheriff, of
whose credibility there is no reason to doubt. The cancellation or settlement theory may not be heeded,
because it would contravene the decision in Civil Case 2942 (it would show the Tajanlangits owned nothing
to Southern Motors Inc.). Such decision is binding upon them, unless and until they manage to set it aside in a
proper proceeding, which is not the present case.
Sales, 2003 ( 240 )

7. Procedural aspect not necessary to deal with as spouses are not entitled to relief demanded
The Court deemed it unnecessary to deal with the procedural aspect, such as the authority of the judge
of one branch of the CFI to enjoin proceedings in another branch of the same court, inasmuch as that, on the
merits, the spouses are not entitled to the relief demanded.
[104]
Tanedo vs. CA [G.R. No. 104482. January 22, 1996.]

Facts: On 20 October 1962, Lazardo Tañedo executed a notarized deed of absolute sale in favor of his eldest
brother, Ricardo Tañedo, and the latter’s wife, Teresita Barera, whereby he conveyed to the latter in
consideration of P1,500, 1 hectare of whatever share he shall have over Lot 191 of the cadastral survey of
Gerona, Tarlac (TCT T-1389 of the Register of Deeds of Tarlac), the said property being his “future
inheritance” from his parents. Upon the death of his father Matias, Lazaro executed an “Affidavit of
Conformity” dated 28 February 1980 to re-affirm respect, acknowledge and validate the sale he made in 1962.
On 13 January 1981, Lazaro executed another notarized deed of sale in favor of Ricardo Tanedo and his wife
covering his undivided 1/12 of a parcel of land known as Lot 191. He acknowledged therein his receipt of
P10,000 as consideration therefor. In February 1981, Ricardo learned that Lazaro sold the same property to
his children, through a deed of sale dated 29 December 1980. On 7 June 1982, Ricardo Tanedo and his wife
recorded the Deed of Sale in their favor in the Registry of Deeds and the corresponding entry was made in
TCT16645.
Belinda Tanedo, for herself and in representation of her brothers and sisters, and Teofila Corpuz Tanedo,
representing her minor daughter, Verna Tanedo, on 16 July 1982 filed a complaint for rescission (plus
damages) of the deeds of sale executed by Lazaro in favor of Ricardo Tanedo and his wife covering the
property inherited by Lazaro from his father with the Regional Trial Court Tarlac (Branch 63, Third Judicial
Region, Tarlac, Tarlac; Civil Case 6328). They claimed that their father, Lazaro, executed an “Absolute Deed
of Sale” dated 29 December 1980, conveying to his 10 children his allotted portion under the extrajudicial
partition executed by the heirs of Matias, which deed included the land in litigation (Lot 191). Ricardo
Tanedo, on the other hand, presented in evidence a “Deed of Revocation of a Deed of Sale” dated 12 March
1981, wherein Lazaro revoked the sale in favor of petitioners for the reason that it was “simulated or fictitious
— without any consideration whatsoever”. Lazaro however executed a sworn statement which virtually
repudiated the contents of the Deed of Revocation of a Deed of Sale and the Deed of Sale in favor of Ricardo
Tenedo, but testified that he sold the property to Ricardo, and that it was a lawyer who induced him to execute
a deed of sale in favor of his children after giving him P5 to buy a “drink.” The trial court decided in favor of
Ricardo Tanedo and his wife, holding that his children failed “to adduce a preponderance of evidence to
support (their) claim.”
On appeal and on 26 September 1991, the Court of Appeals (CA-GR CV 24987) affirmed the decision of the
trial court, ruling that the Deed of Sale dated 13 January 1981 was valid and that its registration in good faith
vested title in Ricardo Tanedo and his wife. The motion for reconsideration was denied on 27 May 1992.
Hence, the petition for review on certiorari under Rule 45 of the Rules of Court by the children.
The Supreme Court denied the petition and affirmed the assailed Decision of the Court of Appeals; without
costs.
1. Errors reviewable by Supreme Court are those committed by the Court of Appeals; Issues
delved into to give parties substantial justice
The “errors” which are reviewable by the Court in the petition for review on certiorari are only those
allegedly committed by the Court of Appeals and not directly those of the trial court, which is not a party. The
Sales, 2003 ( 241 )

“assignment of errors” in the petition are totally misplaced, and for that reason, the petition should be
dismissed. But in order to give the parties substantial justice, the Court decided to delve into the issues as
rephrased. The errors attributed to the trial court would be discussed only insofar as they are relevant to the
appellate court’s assailed Decision and Resolution.
2. Contract upon a future inheritance void unless authorized by law

Pursuant to Article 1347 of the Civil Code, “(n)o contract may be entered into upon a future
inheritance except in cases expressly authorized by law.” The contract made in 1962 is not valid and cannot
be the source of any right nor the creator of any obligation between the parties.
3. Validating contract also useless

The “affidavit of conformity” dated 28 February 1980, insofar as it sought to validate or ratify the
1962 sale, is also useless and “suffers from the same infirmity.”
4. Critical documents in the resolution of the case; documents not infected with infirmities of 1962
sale
The documents that are critical to the resolution of this case are: (a) the deed of sale of 13 January
1981 in favor of Ricardo Tanedo covering Lazaro’s undivided inheritance of 1/12 share in Lot 191, which was
subsequently registered on 7 June 1982; and (b) the deed of sale dated 29 December 1980 in favor of Lazaro’s
children covering the same property. These two documents were executed after the death of Matias (and his
spouse) and after a deed of extra-judicial settlement of his (Matias’) estate was executed, thus vesting in
Lazaro actual title over said property. These dispositions, though conflicting, were no longer infected with the
infirmities of the 1962 sale.
5. Subject matter of sale is the Lazaro’s entire undivided 1/12 share in Lot 191
The subject matter of the 13 January 1981 sale to be the entire undivided 1/12 share of Lazaro in Lot
191 and which is the same property disposed of on 29 December 1980 in favor of Lazaro’s children.

Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple sales. It
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.”
7. Immovable property; First to register has better right

The property in question is land, an immovable. Ownership therefore shall belong to the buyer who in
good faith registers it first in the registry of property. Thus, although the deed of sale in favor of Ricardo
Tanedo was later than the one in favor of the children, ownership would vest in the former because of the
undisputed fact of registration. On the other hand, the Children have not registered the sale to them at all.
8. Registration preferred, even if one without his title registered actually possesses the property
As between two purchasers, the one who 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.
9. Allegation of bad faith a question of fact; Supreme Court not trier of facts
Lazaro’s children (petitioners) alleged that “the respondent Court allegedly ignored the claimed fact
that respondent Ricardo “by fraud and deceit and with foreknowledge” that the property in question had
already been sold to petitioners, made Lazaro execute the deed of 13 January 1981; that there is allegedly
Sales, 2003 ( 242 )

adequate evidence to show that only 1/2 of the purchase price of P10,000 was paid at the time of the
execution of the deed of sale, contrary to the written acknowledgment, thus showing bad faith; that there is
allegedly sufficient evidence showing that the deed of revocation of the sale in favor of petitioners “was
tainted with fraud or deceit”; that there is allegedly enough evidence to show that private respondents “took
undue advantage over the weakness and unschooled and pitiful situation of Lazaro Tañedo” and that Ricardo
Tañedo “exercised moral ascendancy over his younger brother he being the eldest brother and who reached
fourth year college of law and at one time a former Vice-Governor of Tarlac, while his younger brother only
attained first year high school”; and that the respondent Court erred in not giving credence to petitioners’
evidence, especially Lazaro Tañedo’s Sinumpaang Salaysay dated 27 July 1982 stating that Ricardo Tañedo
deceived the former in executing the deed of sale in favor of private respondents.” There are indeed many
conflicting documents and testimonies as well as arguments over their probative value and significance. All
the contentions involve questions of fact, appreciation of evidence and credibility of witnesses, which are not
proper in the present review. The Supreme Court is not a trier of facts. Suffice that the appellate court, in
reviewing the trial court’s findings, refused to overturn the latter’s assessment of the testimonial evidence,
declaring that it was not prepared to set aside the finding of the lower court upholding Ricardo Tañedo’s
testimony, as it involves a matter of credibility of witnesses which the trial judge, who presided at the hearing,
was in a better position to resolve.
10. Only questions of law may be raised in petition for review under Rule 45
In petitions for review under Rule 45 of the Revised Rules of Court, only questions of law may be
raised and passed upon. Absent any whimsical or capricious exercise of judgment, and unless the lack of any
basis for the conclusions made by the lower courts be amply demonstrated, the Supreme Court will not
disturb their findings. At most, it appears that Lazaro’s children have shown that their evidence was not
believed by both the trial and the appellate courts, and that the said courts tended to give more credence to the
evidence presented by Ricardo Tanedo. But this in itself is not a reason for setting aside such findings. The
Court is far from convinced that both courts gravely abused their respective authorities and judicial
prerogatives.
11. Factual findings of trial court as well as Court of Appeals are final and conclusive; Exceptions
As held in Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development
Corp.: “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.”
12. Reassessment and reevaluation of evidence not the function of the Supreme Court
In South Sea Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al., it was held that 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, particularly where the findings of both the trial court and the appellate
court on the matter coincide.
[105]
Torres v. CA [G.R. No. 134559. December 9, 1999.]

Third division, Panganiban (J): 4 concur
Facts: Sisters Antonia Torres and Emeteria Baring entered into a “joint venture agreement” with Manuel
Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a
Sales, 2003 ( 243 )

Deed of Sale covering the said parcel of land in favor of Manuel, who then had it registered in his name. By
mortgaging the property, Manuel obtained from Equitable Bank a loan of P40,000 which, under the Joint
Venture Agreement, was to be used for the development of the subdivision. All 3 of them also agreed to share
the proceeds from the sale of the subdivided lots. The project did not push through, and the land was
subsequently foreclosed by the bank. Antonia and Emeteria alleged that the project failed because of
“Manuel’s lack of funds or means and skills.” They add that Manuel used the loan not for the development of
the subdivision, but in furtherance of his own company, Universal Umbrella Company.On the other hand,
Manuel alleged that he used the loan to implement the Agreement. With the said amount, he was able to
effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council’s approval of the
subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs
and gutters. Likewise, he entered into a contract with an engineering firm for the building of 60 low-cost
housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a
total expense of P85,000. He further claimed that the subdivision project failed because Antonia and
Emeteria and their relatives had separately caused the annotations of adverse claims on the title to the land,
which eventually scared away prospective buyers. Despite his requests, Antonia and Emeteria refused to
cause the clearing of the claims, thereby forcing him to give up on the project.
Antonia and Emeteria filed a criminal case for estafa against Manuel and his wife, who were however
acquitted. Thereafter, they filed the present civil case which, upon Manuel’s motion, was later dismissed by
the trial court in an Order dated 6 September 1982. On appeal, however, the appellate court remanded the case
for further proceedings. Thereafter, the RTC Cebu City (Civil Case R-21208) issued its assailed Decision,
which was affirmed by the CA on 5 March 1998 (CA-GR CV 42378). Reconsideration was denied by the
Court of Appeals through its Resolution of 5 March 1998. Hence, the petition for review on certiorari.
The Supreme Court denied the petition and affirmed the challenged decision; with costs against Antonia and
Emeteria.
1. Partnership exists
A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides that “By the contract of partnership two or more
persons bind themselves to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.” In the present case, Antonia and Emeteria would contribute property
to the partnership in the form of land which was to be developed into a subdivision; while Manuel would
give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership.
2. Parties implemented contract; Partners may contribute not only money or property but also
industry
The parties implemented the contract. Antonia and Emeteria transferred the title to the land to
facilitate its use in the name of Manuel. On the other hand, Manuel caused the subject land to be mortgaged,
the proceeds of which were used for the survey and the subdivision of the land. He developed the roads, the
curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the
property. Manuel’s actions clearly belie Antonia’s and Emeteria’s contention that he made no contribution to
the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property,
but also industry.
3. Contract binds party to stipulations and all necessary consequences thereof

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly
stipulated, but also to all necessary consequences thereof. Article 1315 provides that “Contracts are perfected
by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been
Sales, 2003 ( 244 )

expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law.” It is undisputed that Antonia and Emeteria are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on the provisions they wanted.
4. Courts may not extricate parties from the necessary consequences of their acts
Courts may not extricate parties from the necessary consequences of their acts, and the fact that the
terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations
therein. They cannot now disavow the relationship formed from such agreement due to their supposed
misunderstanding of its terms.
5. Article 1773 must be interpreted in relation to Article 1771; Present case does not prejudice
third parties
The lack of an inventory of real property will not ipso facto release the contracting partners from their
respective obligations to each other arising from acts executed in accordance with their agreement. Article
1773 providing that “a contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public instrument” was
intended primarily to protect third persons. Tolentino states that under the provision which is a complement of
Article 1771, “the execution of a public instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot be subject to inscription in the
Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory is made.” The present case
does not involve third parties who may be prejudiced.
6. Parties cannot adopt inconsistent positions in regard to a contract

Antonia and Emeteria invoke the allegedly void contract as basis for their claim that Manuel should
pay them 60% of the value of the property. They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions
in regard to a contract and courts will not tolerate, much less approve, such practice.
7. Nullity of partnership does not prevent courts from considering Joint Venture Agreement as an
ordinary contract
The alleged nullity of the partnership will not prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the parties’ rights and obligations to each other may be inferred
and enforced.
8. Joint Venture Agreement states consideration

The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of
profits from the subdivision project. Its first stipulation states that Antonia and Emeteria did not actually
receive payment for the parcel of land sold to Manuel. Thus, it cannot be contended that the Joint Venture
Agreement is void under Article 1422 of the Civil Code, because it is the direct result of an earlier illegal
contract, which was for the sale of the land without valid consideration.
9. Consideration or cause may take many forms

Consideration, more properly denominated as cause, can take different forms, such as the prestation
or promise of a thing or service by another. In the present case, the cause of the contract of sale consisted not
in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which
the land was intended to be used. The land was in effect given to the partnership as Antonia’s and Emeteria’s
participation therein. There was therefore a consideration for the sale, Antonia and Emeteria acting in the
expectation that, should the venture come into fruition, they would get 60% of the net profits.
Sales, 2003 ( 245 )

10. Factual issues cannot be resolved on a petition of review under Rule 45; Damages not due
Factual issues cannot be resolved in a petition for review under Rule 45, as in the present case.
Antonia and Emeteria have not alleged, not to say shown, that their petition constitutes one of the exceptions
to this doctrine. The Court of Appeals held that the acts of Antonia and Emeteria did not cause the failure of
the project, nor was Manuel responsible therefore. In imputing the blame solely to him, Antonia and Emeteria
failed to give any reason why the Court should disregard the factual findings of the appellate court relieving
him of fault. Antonia and Emeteria, thus, are not entitled to damages.
[106]
Toyota Shaw v. CA [G.R. No. 116650. May 23, 1995.]

First Division, Davide Jr (J): 3 concur, 1 on leave
Facts: Sometime in June 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller’s
market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contracting Toyota
Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went
to the Toyota Shaw Boulevard, Pasig, Metro Manila. They met Popong Bernardo, a sales representative of
Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his
family, and a balikbayan guest would use it on 18 June 1989 to go Marinduque, his home province, where he
would celebrate his birthday on 19 June. He added that if he does not arrive in his hometown with the new
car, he would become a “laughing stock.” Bernardo assured Sosa that a unit would be ready for pick up at
10:00 a.m. on 17 June 1989. Bernardo then signed a document entitled “Agreements Between Mr. Sosa &
Popong Bernardo of Toyota Shaw, Inc,” stipulating that all necessary documents will be submitted to Toyota
Shaw (Popong Bernardo) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the
unit will be used on the 19 June; that the downpayment of P100,000.00 will be paid by Mr. Sosa on 15 June
1989; and that the Toyota Shaw, Inc. will be released a yellow Lite Ace unit. It was also agreed upon by the
parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for
this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the
application for financing. The next day, Sosa and Gilbert went to Toyota to deliver the downpayment of
P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) 928, on
which Gilbert signed under the subheading “conforme”. This document shows that the customer’s name is
“Mr. Luna Sosa” with home address at 2316 Guijo Street, United Parañaque II; that the model series of the
vehicle is a “Lite Ace 1500” described as “4 Dr minibus”; that payment is by “installment,” to be financed by
“B.A.,” with the initial cash outlay of P100,000.00 (downpayment: P53,148.00; insurance: P13,970.00; BLT
registration fee: P1,067.00; CHMO fee: P2,715.00; Service fee: P500.00; and accessories: P29,000.00) and
the balance to be financed is P274,137.00. The spaces provided for “delivery terms” were not filled-up. It also
contains conditions of sales providing that the sale is subject to the availability of the unit, and that the stated
price is subject to change without prior notice, and that the price prevailing and in effect at time of selling will
apply. Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.
On 17 June (9:30 a.m.), Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up
at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met
Bernardo at the latter’s office. According to Sosa, Bernardo informed them that the Lite Ace was being
readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered
because it was acquired by a more influential person. Toyota contends, however, that the Lite Ace was not
delivered to Sosa because of the disapproval of B.A. Finance of the credit financing application of Sosa. It
further alleged that a particular unit had already been reversed and earmarked for Sosa but could not be
released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the
option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear
that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so
Sales, 2003 ( 246 )

on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, the receipt of
which was shown by a check voucher of Toyota, which Sosa signed with the reservation, “without prejudice
to our future claims for damages.” Thereafter, Sosa sent two letters to Toyota: one on 27 June 1989
demanding the refund, within 5 days from receipt, of the downpayment of P100,000.00 plus interest from the
time he paid it and the payment of damages with a warning that in case of Toyota’s failure to do so he would
be constrained to take legal action; and the other on 4 November 1989 (signed by M.O. Caballes, Sosa’s
counsel) demanding P1M representing interest and damages, again, with a warning that legal action would be
taken if payment was not made within 3 days. Toyota’s counsel answered through as letter dated 27
November 1989 8 refusing to accede to the demands of Sosa.
But even before the answer was made and received by Sosa, the latter filed on 20 November 1989 with the
RTC Marinduque (Branch 38) a complaint against Toyota for damages under Articles 19 and 21 of the Civil
Code in the total amount of P1,230,000.00. After trial on the issue agreed upon during the pre-trial session,
the trial court rendered on 18 February 1992 a decision in favor of Sosa. It ruled that the “Agreement between
Mr. Sosa and Popong Bernardo,” was a valid perfected and contract of sale between Sosa and Toyota which
bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in
selling to another the unit already reserved for him; that Bernardo, as an authorized sales executive of Toyota
Shaw, was the latter’s agent and thus bound Toyota Shaw; that Luna Sosa proved his social standing in the
community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to
be compensated; and thus rendered judgment ordering Toyota Shaw to pay Sosa the sum of P75,000 as moral
damages, P10,000 as exemplary damages, P30,000 as attorney’s fees plus P2,000 lawyer’s transportation fare
per trip in attending to the hearing of the case, P2,000 for Sosa’s transportation fare per trip in attending the
hearing of the case, and to pay the cost of the suit.
Dissatisfied with the trial court’s judgment, Toyota appealed to the Court of Appeals (CA-GR CV 40043). In
its decision promulgated on 29 July 1994, the Court of Appeals affirmed in toto the appealed decision. Hence
the petition for review by certiorari by Toyota Shaw.
The Supreme Court granted the petition, and dismissed the challenged decision of the Court of Appeals and
that of Branch 38 of the Regional Trial Court of Marinduque, and the counterclaim therein; without
pronouncement as to costs.
1. Contract of sale defined; Kinds

Article 1458 of the Civil Code defines a contract of sale as “By the contract of the 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.
2. Contract of sale, when perfected; Effect

Article 1475 of the Civil Code specifically provides when the contract of sale is deemed perfected,
i.e. “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.
3. “Agreement between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” not a contract of sale
The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” executed on 4 June
1989, is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate
thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears
therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale, it could only
refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was
mentioned about the full purchase price and the manner the installments were to be paid. Neither logic nor
Sales, 2003 ( 247 )

recourse to one’s imagination can lead to the conclusion that such agreement is a perfected contract of sale.
4. Definitive price is an essential element in the formation of a binding and enforceable contract of
sale
A definite agreement on the manner of payment of the price is an essential element in the formation
of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment
goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on
the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property.
5. No meeting of the minds

The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” shows the absence of
a meeting of minds between Toyota and Sosa. Sosa did not even sign it. Further, Sosa was well aware from its
title, written in bold letters, and thus knew that he was not dealing with Toyota but with Popong Bernardo and
that the latter did not misrepresent that he had the authority to sell any Toyota vehicle.
6. Prudence and reasonable diligence in inquiring authority of agent

Sosa knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the
latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent
of Bernardo’s authority as an agent in respect of contracts to sell Toyota’s vehicles. A person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the agent.
7. Three stages in the contract of sale

There are three stages in the contract of sale, namely (a) preparation, conception, or generation, which
is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection
of 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.
In the present case, the “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” may be
considered as part of the initial phase of the generation of negotiation stage of a contract sale. The second
phase of the generation or negotiation stage was the execution of the VSP (the downpayment of the purchase
price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance. It is
assumed that B.A Finance was acceptable to Toyota).
8. Financing companies defined

Financing companies are defined in Section 3(a) of RA 5980, as amended by PDs 1454 and 1793, as
“corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance
Commission and the and the Cooperatives Administration Office, which are primarily organized for the
purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises,
either by discounting or factoring commercial papers or accounts receivable, or by buying and selling
contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy
equipment and industrial machinery, business and office machines and equipment, appliances and other
movable property.”
9. Parties in a sale on installment basis financed by a financing company; No meeting of minds as

financing application was disapproved
In a sale on installment basis which is financed by a financing company, 3 parties are thus involved:
(1) the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on
installment, (2) the seller who assigns the notes or discounts them with a financing company, and (3) the
financing company which is subrogated in the place of the seller, as the creditor of the installment buyer.
Since B.A. Finance did not approve Sosa’s application, there was then no meeting of minds on the sale on
installment basis.
Sales, 2003 ( 248 )

10. Toyota’s version of circumstances leading to non-release of vehicle more credible

Toyota’s version that B.A. Finance disapproved Sosa’s application for which reason it suggested to
Sosa that he pay the full purchase price is more credible. When the latter refused, Toyota cancelled the VSP
and returned to him his P100,000.00. Sosa’s version, that the VSP was cancelled because the vehicle was
delivered to another because of a more influential client, is contradicted by paragraph 7 of his complaint
which states that Bernardo “for reasons known only to its representatives, refused and/or failed to release the
vehicle to the plaintiff . Plaintiff demanded for an explanation, but nothing was given.”
11. VSP mere proposal and did not create demandable right in favor of Sosa when it was aborted
The VSP was a mere proposal which was aborted in lieu of subsequent events. Thus, the VSP created
no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause
any legally indemnifiable injury.
12. Award of moral damages without legal basis

The award of moral damages is without legal basis. The only ground upon which Sosa claimed moral
damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite
Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the
van was not delivered. The van became the subject matter of talks during his celebration that he may not have
paid for it, and this created an impression against his business standing and reputation created an impression
against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and
ego. He should not have announced his plan to buy Toyota Lite Ace knowing that he might not be able to pay
the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which
he did not own yet.
13. Award of exemplary damages without basis; Purpose of exemplary damages

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or
compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil
Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated, or compensatory damages.
14. Award of attorney’s fees without basis

For attorney’s fees to be granted the court must explicitly state in the body of the decision, and not
only in the dispositive portion thereof, the legal reason for the award of attorney’s fees. No such explicit
determination thereon was made in the body of the decision of the trial court. Thus, no reason exists for such
award.
[107]
Universal Food Corp. v. CA, 33 SCRA 1 (1970)
[108]
Uy v. CA [G.R. No. 120465. September 9, 1999.]

First Division, Kapunan (J): 3 concur, 1 on leave
Facts: William Uy and Rodel Roxas are agents authorized to sell 8 parcels of land by the owners thereof. By
virtue of such authority, they offered to sell the lands, located in Tuba, Tadiangan, Benguet to National
Housing Authority (NHA) to be utilized and developed as a housing project. On 14 February 1989, the NHA
Board passed Resolution 1632 approving the acquisition of said lands, with an area of 31.8231 hectares, at the
cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute Sale covering
the subject lands. Of the 8 parcels of land, however, only 5 were paid for by the NHA because of the report it
Sales, 2003 ( 249 )

received from the Land Geosciences Bureau of the Department of Environment and Natural Resources
(DENR) that the remaining area is located at an active landslide area and therefore, not suitable for
development into a housing project. On 22 November 1991, the NHA issued Resolution 2352 cancelling the
sale over the 3 parcels of land. The NHA, through Resolution 2394, subsequently offered the amount of
P1.225 million to the landowners as daños perjuicios.
On 9 March 1992, petitioners Uy and Roxas filed before the RTC Quezon City a Complaint for Damages
against NHA and its General Manager Robert Balao. After trial, the RTC rendered a decision declaring the
cancellation of the contract to be justified. The trial court nevertheless awarded damages to plaintiffs in the
sum of P1.255 million, the same amount initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new
one dismissing the complaint. It held that since there was “sufficient justifiable basis” in cancelling the sale,
“it saw no reason” for the award of damages. The Court of Appeals also noted that petitioners were mere
attorneys-in-fact and, therefore, not the real parties-in-interest in the action before the trial court. Their motion
for reconsideration having been denied, petitioners seek relief from the Supreme Court.
The Supreme Court denied the petition.
1. Real party-in-interest defined; Action to be prosecuted in the name of a party whose right is
sought to be enforced
Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in
the name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited or
injured by the judgment or the party entitled to the avails of the suit. “Interest,” within the meaning of the
rule, means material interest, an interest in the issue and to be affected by the decree, as distinguished from
mere interest in the question involved, or a mere incidental interest. Cases construing the real party-in-interest
provision can be more easily understood if it is borne in mind that the true meaning of real party-in-interest
may be summarized as follows: An action shall be prosecuted in the name of the party who, by the substantive
law, has the right sought to be enforced.
2. Action brought by an attorney-in-fact in his name and not in the name of his principal
dismissed
Where the action is brought by an attorney-in-fact of a land owner in his name, (as in our present
action) and not in the name of his principal, the action was properly dismissed (Ferrer vs. Villamor, 60 SCRA
406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the rule is that every action must be prosecuted in
the name of the real parties-in-interest (Section 2, Rule 3, Rules of Court).

Article 1311 of the Civil Code, provides that “Contracts take effect only between the parties, their
assigns, and heirs, except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation, or by provision of law. If a contract should contain some
stipulation in favor of a third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.”
4. Agents rendering service in behalf of parties do not render them parties to the contract of sale
Petitioners are not parties to the contract of sale between their principals and NHA. They are mere
agents of the owners of the land subject of the sale. As agents, they only render some service or do something
in representation or on behalf of their principals. The rendering of such service did not make them parties to
the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties
thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in an action upon that
Sales, 2003 ( 250 )

contract must, generally, either be parties to said contract. Neither has there been any allegation, much less
proof, that petitioners are the heirs of their principals.
5. Assignment of rights
In McMicking vs. Banco Español-Filipino, it was held that the rule requiring every action to be
prosecuted in the name of the real party-in-interest recognizes the assignments of rights of action and also
recognizes that when one has a right of action assigned to him he is then the real party in interest and may
maintain an action upon such claim or right. The purpose is to require the plaintiff to be the real party in
interest, or, in other words, he must be the person to whom the proceeds of the action shall belong, and to
prevent actions by persons who have no interest in the result of the same. Thus, an agent, in his own behalf,
may bring an action founded on a contract made for his principal, as an assignee of such contract.
6. Section 372 (1) of the Restatement of the Law on Agency

Section 372 (1) of the Restatement of the Law on Agency [Agent as Owner of Contract Right]
declares that “Unless otherwise agreed, an agent who has or who acquires an interest in a contract which he
makes on behalf of his principal can, although not a promisee, maintain such action thereon as might a
transferee having a similar interest.”
7. Agent-transferee; Section 372 (1) explained

One who has made a contract on behalf of another may become an assignee of the contract and bring
suit against the other party to it, as any other transferee. The customs of business or the course of conduct
between the principal and the agent may indicate that an agent who ordinarily has merely a security interest is
a transferee of the principal’s rights under the contract and as such is permitted to bring suit. If the agent has
settled with his principal with the understanding that he is to collect the claim against the obligor by way of
reimbursing himself for his advances and commissions, the agent is in the position of an assignee who is the
beneficial owner of the chose in action. He has an irrevocable power to sue in his principal’s name. And,
under the statutes which permit the real party in interest to sue, he can maintain an action in his own name.
This power to sue is not affected by a settlement between the principal and the obligor if the latter has notice
of the agent’s interest. Even though the agent has not settled with his principal, he may, by agreement with the
principal, have a right to receive payment and out of the proceeds to reimburse himself for advances and
commissions before turning the balance over to the principal. In such a case, although there is no formal
assignment, the agent is in the position of a transferee of the whole claim for security; he has an irrevocable
power to sue in his principal’s name and, under statutes which permit the real party in interest to sue, he can
maintain an action in his own name.
8. Petitioners not assignees

Petitioners have not shown that they are assignees of their principals to the subject contracts. While
they alleged that they made advances and that they suffered loss of commissions, they have not established
any agreement granting them “the right to receive payment and out of the proceeds to reimburse themselves
for advances and commissions before turning the balance over to the principals.” Further, it does not appear
that petitioners are beneficiaries of a stipulation pour autrui under the second paragraph of Article 1311 of the
Civil Code. Indeed, there is no stipulation in any of the Deeds of Absolute Sale “clearly and deliberately”
conferring a favor to any third person.
9. Section 372 (2) of the Restatement of the Law on Agency

Section 372 (2) of the Restatement of the Law on Agency (Second) provides that “An agent does not
have such an interest in a contract as to entitle him to maintain an action at law upon it in his own name
merely because he is entitled to a portion of the proceeds as compensation for making it or because he is
liable for its breach.” The fact that an agent who makes a contract for his principal will gain or suffer loss by
the performance or nonperformance of the contract by the principal or by the other party thereto does not
entitle him to maintain an action on his own behalf against the other party for its breach. An agent entitled to
Sales, 2003 ( 251 )

receive a commission from his principal upon the performance of a contract which he has made on his
principal’s account does not, from this fact alone, have any claim against the other party for breach of the
contract, either in an action on the contract or otherwise. An agent who is not a promisee cannot maintain an
action at law against a purchaser merely because he is entitled to have his compensation or advances paid out
of the purchase price before payment to the principal.
10. Failure to obtain commissions due non-performance of contract does not entitle petitioners to
file action against NHA
In Hopkins vs. Ives, the Supreme Court of Arkansas, citing Section 372 (2) above, denied the claim
of a real estate broker to recover his alleged commission against the purchaser in an agreement to purchase
property. In Goduco vs. Court of Appeals, it was held that “granting that appellant had the authority to sell the
property, the same did not make the buyer liable for the commission she claimed. At most, the owner of the
property and the one who promised to give her a commission should be the one liable to pay the same and to
whom the claim should have been directed.” Similarly, in the present case, that petitioners did not obtain their
commissions or recoup their advances because of the non-performance of the contract did not entitle them to
file the action below against NHA. As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under substantive law, possess the right they
seek to enforce.
11. Decision pointless if petitioners are not real parties-in-interest

Petitioners not being the real parties-in-interest, any decision rendered would be pointless since the
same would not bind the real parties-in-interest.
12. Cancellation of contract in present case not rescission under Article 1191
The right of rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is
predicated on a breach of faith by the other party that violates the reciprocity between them. The power to
rescind, therefore, is given to the injured party. Article 1191 states that “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 latter
should become impossible.” In the present case, the NHA did not rescind the contract. Indeed, it did not have
the right to do so for the other parties to the contract, the vendors, did not commit any breach, much less a
substantial breach, of their obligation. Their obligation was merely to deliver the parcels of land to the NHA,
an obligation that they fulfilled. The NHA did not suffer any injury by the performance thereof.
13. Cancellation based on the negation of cause

The cancellation was based on the negation of the cause arising from the realization that the lands,
which were the object of the sale, were not suitable for housing.
14. Cause defined; Distinguished from motive

Cause is the essential reason which moves the contracting parties to enter into it. The cause is the
immediate, direct and proximate reason which justifies the creation of an obligation through the will of the
contracting parties. Cause, which is the essential reason for the contract, should be distinguished from motive,
which is the particular reason of a contracting party which does not affect the other party. For example, in a
contract of sale of a piece of land, such as in this case, the cause of the vendor in entering into the contract is
to obtain the price. For the vendee, it is the acquisition of the land. The motive of the NHA, on the other hand,
is to use said lands for housing.
15. Motives ordinarily affects the contract, unless if it predetermines the cause; motive thus may be
regarded as the cause
Ordinarily, a party’s motives for entering into the contract do not affect the contract. However, when
Sales, 2003 ( 252 )

the motive predetermines the cause, the motive may be regarded as the cause. In Liguez vs. Court of Appeals,
it was noted that “Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and upholding the
inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts from
the rule those contracts that are conditioned upon the attainment of the motives of either party.” The same
view is held by the Supreme Court of Spain, in its decisions of 4 February 1941, and 4 December 1946,
holding that the motive may be regarded as causa when it predetermines the purpose of the contract. In the
present case, it is clear that NHA would not have entered into the contract were the lands not suitable for
housing. The quality of the land was an implied condition for the NHA to enter into the contract. On the part
of the NHA, therefore, the motive was the cause for its being a party to the sale.
16. Report of Land Geosciences Bureau is sufficient basis for the cancellation of the sale
The findings contained in the report of the Land Geosciences Bureau dated 15 July 1991 sufficient
basis for the cancellation of the sale. The report stated that “In Tadiangan, Tuba, the housing site is situated in
an area of moderate topography. There are more areas of less sloping ground apparently habitable. The site is
underlain by thick slide deposits (4-45m) consisting of huge conglomerate boulders mixed with silty clay
materials. These clay particles when saturated have some swelling characteristics which is dangerous for any
civil structures especially mass housing development.
17. Assessment preliminary only insofar as to the ascertainment of geological attributes; otherwise
conclusive
The portion stating that “there is a need to conduct further geottechnical [sic] studies in the NHA
property. Standard Penetration Test (SPT) must be carried out to give an estimate of the degree of compaction
(the relative density) of the slide deposit and also the bearing capacity of the soil materials. Another thing to
consider is the vulnerability of the area to landslides and other mass movements due to thick soil cover.
Preventive physical mitigation methods such as surface and subsurface drainage and regrading of the slope
must be done in the area” mean only that further tests are required to determine the “degree of compaction,”
“the bearing capacity of the soil materials,” and the “vulnerability of the area to landslides,” since the tests
already conducted were inadequate to ascertain such geological attributes. It is only in this sense that the
assessment was “preliminary.”
18. Vendee justified in canceling contract; Requisites of contract

NHA was justified in cancelling the contract. The realization of the mistake as regards the quality of
the land resulted in the negation of the motive/cause thus rendering the contract inexistent. Article 1318 of the
Civil Code states that “There is no contract unless the following requisites concur: (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.
19. Petitioners not entitled to damages

Assuming that petitioners are parties, assignees or beneficiaries to the contract of sale, they would not
be entitled to any award of damages, as the cancellation of the contract is justified.
[109]
Vallarta vs. CA [G.R. No. L-40195. May 29, 1987.]

En Banc, Cortes (J): 11 concur, 1 on leave
Facts: Rosalinda Cruz and Victoria Vallarta are long time friends and business acquaintances. On 20
November 1968, Cruz entrusted to Vallarta 7 pieces of jewelry. In December 1968, Vallarta decided to buy
some items, exchanged one item with another, and issued a post-dated check in the amount of P5,000 dated
30 January 1969. Cruz deposited said check with the bank. However, upon presentment, the check was
dishonored and Cruz was informed that Vallarta’s account had been closed. Cruz apprised Vallarta of the
Sales, 2003 ( 253 )

dishonor and the latter promised to give another check. Later, Vallarta pleaded for more time. Still later, she
started avoiding Cruz. Hence, the criminal action was instituted.
Based on the foregoing facts, both the trial court and the Court of Appeals found Vallarta guilty beyond
reasonable doubt of the crime of estafa. Vallarta seeks reversal of the CA’s decision of 13 December 1974.
The Supreme Court denied the petition initially but granted a motion for reconsideration and gave the petition
due course.
The Supreme Court affirmed the assailed decision of the Court of Appeals, with costs against Vallarta.
1. Estafa: Article 315 (2d) as amended by RA 4885

Vallarta is charged under Art. 315 (2) (d) as amended by RA 4885, of the Revised Penal Code, which
penalizes any person who shall defraud another “by postdating a check, or issuing a check in payment of an
obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to
cover the amount of the check.” By virtue of RA 4885, “the failure of the drawer of the check to deposit the
amount necessary to cover his check within 3 days from receipt of notice from the bank and or the payee or
holder that said check has been dishonored for lack or insufficiency of funds” is deemed prima facie evidence
of deceit constituting false pretense or fraudulent act. To constitute estafa under this provision the act of
postdating or issuing a check in payment of an obligation must be the efficient cause of defraudation, and as
such it should be either prior to, or simultaneous with the act of fraud. The offender must be able to obtain
money or property from the offended party because of the issuance of a check whether postdated or not. That
is, the latter would not have parted with his money or other property were it not for the issuance of the check.
Likewise, the check should not be, issued in payment of a pre-existing obligation (People v. Lilius, 59 Phil.
339 [1933]).
2. Sale perfected December 1968 and not 20 November 1968

Vallarta changed the ruby ring because it was not acceptable to her, and chose another ring. Likewise,
the price to be paid for the jewelry was finally agreed upon only in December 1968. Thus, there was a
meeting of the minds between the parties as to the object of the contract and the consideration therefore only
in December 1968, the same time that the check was issued. The delivery made on 20 November 1968 was
only for the purpose of enabling Vallarta to select what jewelry she wanted.
3. “Sale on approval” and not a “sale or return”

The transaction entered into by Cruz and Vallarta was not a “sale or return” but a “sale on approval”
(also called “sale on acceptance,” “sale on trial,” or “sale on satisfaction” [CIVIL CODE, art. 1502]). In a
“sale or return,” the ownership passes to the buyer on delivery (CIVIL CODE, art. 1502). (The subsequent
return of the goods reverts ownership in the seller [CIVIL CODE, art. 1502]). Delivery, or tradition, as a
mode of acquiring ownership must be in consequence of a contract (CIVIL CODE, art, 712), e.g. sale. It was
a “sale on approval” since ownership passed to the buyer on December 1967, the date when the check was
issued, when Vallarta signified her approval or acceptance to the seller, Cruz, and the price was agreed upon.
4. Check was not payment of a pre-existing obligation

When the check which later bounced was issued, it was not in payment of a pre-existing obligation.
Instead the issuance of the check was simultaneous with the transfer of ownership over the jewelry. There
was no meeting of the minds on 20 November 1968, and thus, as of that date, there was yet no contract of sale
which could be the basis of delivery or tradition. The delivery made on 20 November 1968 was not a delivery
for purposes of transferring ownership — the prestation incumbent on the vendor. Ownership passed to the
buyer on December 1967, the date when the check was issued, when Vallarta signified her approval or
acceptance to the seller, Cruz, and the price was agreed upon.
5. Prima facie evidence of deceit established in RA 4885
Sales, 2003 ( 254 )

RA 4885, amending Art. 315 (2) (d), Revised Penal Code, establishes a prima facie evidence of deceit upon
proof that the drawer of the check failed to deposit the amount necessary to cover his check within three (3)
days from receipt of notice of dishonor for lack or insufficiency of funds. Admittedly, (1) the check was
dishonored as Vallarta’s account had been earlier closed; (2) she was notified by Cruz of the dishonor: and, (3)
Vallarta failed to make it good within three days. Deceit is therefore presumed.
6. Absence of deceit cannot be based on social position

It cannot be suggested that in light of a person’s social standing, he or she cannot be guilty of deceit,
at least in so far as issuing bouncing checks is concerned. This reasoning does not merit serious consideration
for if accepted, it could result in a law that falls unequally on persons depending on their social position.
7. Jewelry obtained because of issuance of check

Vallarta was able to obtain the jewelry because she issued the check, not solely because Cruz knew
Vallarta to be rich. Her failure to deposit the necessary amount to cover it within three days from notice of
dishonor created the prima facie presumption established by the amendatory law, RA 4885, which she failed
to rebut.
8. Presumption of deceit under RA 4885 rebuttable

The presumption of deceit under RA 4885 is not conclusive. It is rebuttable. For instance, in the case
of People v. Villapando (56 Phil. 31[1931]), good faith is a defense to a charge of estafa by postdating a
check, as when the drawer, foreseeing his inability to pay the check at maturity, made an arrangement with his
creditor as to the manner of payment of the debt. RA 4885 is not unconstitutional as it does not violate the
constitutional presumption of innocence.
9. Constitutionality of laws providing contrary presumption on innocence

“There is no constitutional objection to the passage of a law providing that the presumption of
innocence may be overcome by a contrary presumption founded upon the experience of human conduct, and
enacting what evidence shall be sufficient to overcome such presumption of innocence” (People v. Mingoa,
92 Phil. 856 [1953] at 858-59, citing I Cooley, A Treatise on the Constitutional Limitations, 639-641). The
“legislature may enact that when certain facts have been proved they shall be prima facie evidence of the
existence of the guilt of the accused and shift the burden of proof provided there be a rational connection
between the facts proved and the ultimate fact presumed so that the inference of the one from proof of the
others is not unreasonable and arbitrary because of lack of connection between the two in common
experience” (People v. Mingoa, supra. See also US v. Luling, 34 Phil. 725 [1916]).
10. Art. 315 (2d) characterize fraudulent act or false pretense

“Postdating or issuing of a check in payment of an obligation when the offender had no funds in the
bank, or his funds deposited therein were not sufficient to cover the amount of the check, “ is a false pretense
or a fraudulent act. It is so characterized by Art. 315 (2) (d), Revised Penal Code. RA 4885 does nothing more
than limit the period within which the drawer/issuer must pay the creditor.
11. RA 4885 still pursues criminal fraud or deceit in the issuance of a check and not the non-
payment of the debt
In People v. Sabio (No. L-45490, November 20, 1978, 86 SCRA 568), the Court ruled that RA 4885
has not changed the rule established in Art. 315 (2) (d) prior to the amendment; that RA 4885 merely
established the prima facie evidence of deceit, and eliminated the requirement that the drawer inform the
payee that he had no funds in the bank or the funds deposited by him were not sufficient to cover the amount
of the check. Thus, even with the amendment introduced by RA 4885 it is still criminal fraud or deceit in the
issuance of a check which is made punishable under the Revised Penal Code, and not the non-payment of the
debt.
Sales, 2003 ( 255 )

[110]
Vasquez vs. CA [G.R. No. 83759. July 12, 1991.]

Third Division, Gutierrez Jr. (J): 4 concur
Facts: On 21 September 1964, Vallejera and Olea sold the lot to Vasquez and Gayaleno under a Deed of Sale
for the amount of P9,000.00. The Deed of Sale was duly ratified and notarized. On the same day and along
with the execution of the Deed of Sale, a separate instrument, denominated as Right to Repurchase, was
executed by the parties granting the Vallejera and Olea the right to repurchase the lot for P12,000.00, said
document was likewise duly ratified and notarized. By virtue of the sale, the Vasquez and Gayaleno secured
TCT T-58898 in their name. On 2 January 1969, Vallejera and Olea sold the same lot to Benito Derrama, Jr.,
after securing Vasquez and Gayaleno’s title, for the sum of P12,000.00. Upon the protestations of Vasquez and
Gayaleno, assisted by counsel, the said second sale was cancelled after the payment of P12,000.00 by
Vasquez and Gayaleno to Derrama.
On 15 January 1975, Spouses Martin Vallejera and Apolonia Olea filed an action against Spouses Cirpriano
Vasquez and Valeriana Gayaleno seeking to redeem Lot 1860 of the Himamaylan Cadastre which was
previously sold by the former to the latter on 21 September 1964. Said lot was registered in the name of
Vallejera and Olea. On October 1959, the same was leased by them to Vasquez and Gayalleno up to crop year
1966-67, which was extended to crop year 1968-69. After the execution of the lease, Vasquez and Gayaleno
took possession of the lot, up to now and devoted the same to the cultivation of sugar. Vasquez and Gayeleno
resisted the action for redemption on the premise that the Right to Repurchase is just an option to buy since it
is not embodied in the same document of sale but in a separate document, and since such option is not
supported by a consideration distinct from the price, said deed for right to repurchase is not binding upon
th
them. After trial, the RTC Himamaylan, Negros Occidental (6 Judicial Region, Branch 56, Civil Case 839)
rendered judgment against Vasquez and Gayeleno, ordering them to resell lot 1860 of the Himamaylan
Cadastre to Vallejera and Olea for the repurchase price of P24,000.00, which amount combines the price paid
for the first sale and the price paid by the former to Benito Derrama, Jr. Vallejera and Gayeleno moved for,
but were denied reconsideration. Excepting thereto, they appealed.
The Court of Appeals affirmed the decision of the RTC Himamaylan, Negros Occidental in Civil Case 839. In
addition, the appellate court ordered Vasquez and Gayeleno to pay the amount of P5,000.00 as necessary and
useful expenses in accordance with Article 1616 of the Civil Code. Hence, the petition.
The Supreme Court granted the petition, reversed and set aside the questioned decision and resolution of the
Court of Appeals , and dismissed the complaint in Civil Case 839 of the then CFI Negros Occidental 12th
Judicial District Branch 6; without costs.
1. Right of repurchase not supported by a consideration distinct from the price; Burden of proof
In the present case, it is clear that the right to repurchase was not supported by a consideration distinct
from the price. The rule is that the promisee has the burden of proving such consideration. Unfortunately, the
promises (Vallejera) in the right to repurchase failed to prove such consideration. They did not even allege the
existence thereof in their complaint. (See Sanchez v. Rigos supra).
2. Application of Sanchez vs. Rigos case

In order that the Sanchez case can be applied, the evidence must show that the Vallejera and Olea
accepted the right to repurchase. The record, however, does not show that they accepted the “Right to
Repurchase” the land in question.
3. Annotation and registration of right to repurchase not an acceptance but for the purpose of
Sales, 2003 ( 256 )

binding purchasers of such registered land

The annotation and registration of the right to repurchase at the back of the certificate of title of
Vasquez and Gayeleno can not be considered as acceptance of the right to repurchase. Annotation at the back
of the certificate of title of registered land is for the purpose of binding purchasers of such registered land. In
the case of Bel Air Village Association, Inc. v. Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino
(154 SCRA 1 [1987]), and Constantino v. Espiritu (45 SCRA 557 [1972]), it was ruled that purchasers of a
registered land are bound by the annotations found at the back of the certificate of title covering the subject
parcel of land. In effect, the annotation of the right to repurchase found at the back of the certificate of title
over the subject parcel of land of Vasquez and Gayeleno only served as notice of the existence of such
unilateral promise of Vasquez and Gayeleno to resell the same to Vallejera and Olea. This, however, can not
be equated with acceptance of such right to repurchase.
4. Signature in the document called “right to repurchase” does not signify acceptance of right to
repurchase
Neither can the signature of Vasquez and Gayeleno in the document called “right to repurchase”
signify acceptance of the right to repurchase, as Vallejera and Olea did not sign the offer. Acceptance should
be made by the promisee and not the promisors. It would be absurd to require the promisor of an option to
buy to accept his own offer instead of the promisee to whom the option to buy is given.
4. Actions of Vallejera and Olea cannot be considered as acceptance; Sending of letters without
tender of redemption price falls short of requirement to repurchase
The actions of the private respondents — (a) filing a complaint to compel re-sale and their demands
for resale prior to filing of the complaint cannot be considered acceptance. As stated in Vda. de Zulueta v.
Octaviano (121 SCRA 314 [1983]), mere sending of letters by the vendor expressing his desire to repurchase
the property without accompanying tender of the redemption price fell short of the requirements of law. (Lee
v. Court of Appeals, 68 SCRA 197 [1972]). Neither did a judicial consignation of the repurchase price made
within the agreed period.
5. Contract of sale with right of repurchase

In a contract of sale with a right of repurchase, the redemptioner who may offer to make the
repurchase on the option date of redemption should deposit the full amount in court . . . (Rumbaoa v. Arzaga,
84 Phil. 812 [1949]).’
6. Right of vendor a retro to repurchase

To effectively exercise the right to repurchase the vendor a retro must make an actual and
simultaneous tender of payment or consignation.’ (Catangcatang v. Legayada, 84 SCRA 51 [1978]).
7. Refusal to sell parcel of land a withdrawal of the option to buy

The ineffectual acceptance of the option to buy validated the vendor’s refusal to sell the parcel which
can be considered as a withdrawal of the option to buy.
8. Conventional redemption, when occurs

Conventional redemption takes 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. (Article 1601, Civil Code).
9. Right of repurchase not granted in a subsequent document but in the same instrument of sale
As held in Villarica v. Court of Appeals (26 SCRA 189 [1968]), ‘The right of repurchase is not a right
granted the vendor by the vendee in 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
Sales, 2003 ( 257 )

vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy.
10. Applicability of the Zulueta case as to the transaction being not a option to repurchase but an
option to buy
As in the present case, the option to repurchase involved in the Zulueta case was executed in a
separate document but on the same date that the deed of definite sale was executed. While it is true that the
Court in the Zulueta case found Zulueta guilty of laches, this, however, was not the primary reason why the
Court disallowed the redemption of the property by Zulueta. It is clear from the decision that the ruling in the
Zulueta case was based mainly on the finding that the transaction between Zulueta and Octaviano was not a
sale with right to repurchase and that the “option to repurchase was but an option to buy or a mere promise on
the part of Octaviano to resell the property to Zulueta. In the present case, since the transaction between the
petitioners and private respondents was not a sale with right to repurchase, the private respondents cannot
avail of Article 1601 of the Civil Code which provides for conventional redemption.
[111]
Vda. De Gordon v. CA [G.R. No. L-37831. November 23, 1981.]

First Division, Teehankee (J): 4 concur, 1 took no part
Facts: Two parcels of land belong to Restituta V. Vda. De Gordon (covered by TCT 12204 and 12205). For
the years 1953 to 1963, inclusive, the taxes against said parcels of land remained unpaid. The combined
assessed value of the parcels of land is P16,800 and the residential house on the land was assessed at P45,580.
The City Treasurer of Quezon City, upon warrant of a certified copy of the record of such delinquency,
advertised for sale the parcels of land to satisfy the taxes, penalties and costs for a period of 30 days prior to
the sale on 3 December 1964, by keeping a notice of sale posted at the main entrance on the City Hall and in a
public and conspicuous place in the district where the same is located and by publication of said notice once a
week for 3 weeks in the “Daily Mirror”, a newspaper of general circulation in Quezon City, the advertisement
stating the amount of taxes and penalties due, time and place of sale, name of the taxpayer against whom the
taxes are levied, approximate area, lot and block number, location by district, street and street number of the
property. The public sale on 3 December 1964, the parcels of land were sold to Rosario Duazo for the amount
of P10,500.00 representing the tax, penalty and costs. The certificate of sale executed by the City Treasurer
was duly registered on 28 December 1964 in the office of the Register of Deeds of Quezon City. Upon the
failure of the registered owner to redeem the parcels of land within the 1-year period prescribed by law, the
City Treasurer of Quezon City executed on 4 January 1966 a final deed of sale of said lands and the
improvements thereon. Said final deed of sale was also registered in the Office of the Register of Deeds of
Quezon City on 18 January 1966.
Later on, Duazo filed a petition for consolidation of ownership. <Case facts involving proceedings in lower
court absent; It may be implied however that lower court denied the petition as it cited the case of Director of
Lands v. Abarca in its decision>
The appellate court upheld the tax sale of the real properties at which Duazo acquired the same and her
ownership upon vda. de Gordon’s failure to redeem the same, having found the sale to have been conducted
“under the direction and supervision of the City Treasurer of Quezon City after the proper procedure and legal
formalities had been duly accomplished.” <It appears that the appellate court reversed the lower court’s
decision, with Gordon appealing therefrom>
The Supreme Court affirmed the appellate court’s decision under review; Without costs.
1. (CA Decision) Material averments admitted

The opposition [to Duazo’s petition for consolidation of ownership] has not controverted by specific
Sales, 2003 ( 258 )

denials the material averments in the petition. Hence, the material averments in the petition are deemed
admitted. (Section 1, Rule 9, Revised Rules of Court)
2. (CA Decision) Issue on the irregularity of public sale of parcels of land waived
The opposition has not raised the issue of irregularity in the public sale of the two parcels of land in
question. This defense is deemed waived. (Section 2, Rule 9, id.)
3. (CA Decision) Price in auction sale not grossly inadequate to be shocking to the conscience of
court
Noting that the 1961 assessment of the combined value of the two parcels of land is P16,800, and the
residential house on the land is P45,580; that the present value of the house would be much less considering
the depreciation for over 10 years; and that while the price of P10,500 is less than the total assessed value of
the land and the improvement thereon, said price cannot be considered so grossly inadequate as to be
shocking to the conscience of the court.
4. (CA Decision) Director of Lands v. Abarca: Price inadequate to shock conscience of court
In Director of Lands vs. Abarca (61 Phil. 70), the Supreme Court considered the price of P877.25 as
so inadequate to shock the conscience of the court because the assessed value of the property in question was
P60,000.00. The assessed value of the land was more than 60 times the price paid at the auction sale. In the
present case, the price of P10,500.00 is about 1/6 of the total assessed value of the two parcels of land in
question and the residential house thereon. The finding of the lower court that the house and land in question
have a fair market value of not less than P200,000.00 has no factual basis. It cannot be said, therefore, that the
price of P10,500.00 is so inadequate as to be shocking to the conscience of the court.
5. (CA Decision) Mere inadequacy of price not ground to annul public sale, unlike in ordinary
sale; Inadequacy of price an advantage in relation to owner’s right to redeem
Mere inadequacy of the price alone is not sufficient ground to annul the public sale. (Barrozo vs.
Macaraeg, 83 Phil. 378) In Velasquez vs. Coronel (5 SCRA 985, 988), it was held that “while in ordinary
sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when
such inadequacy shocks one’s conscience as to justify the courts to interfere, such does not follow when the
law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the
lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: ‘When there is
the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire
the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of
the price obtained at the auction sale.”
6. (CA Decision) Public Sale governed by Section 40 of CA 470

The public sale is governed by Section 40 of Commonwealth Act 470 which gives the delinquent
taxpayer a period of 1 year from the date of the sale within which to repurchase the property sold. In case the
delinquent taxpayer does not repurchase the property sold within the period of 1 year from the date of the
sale, it becomes a mandatory duty of the provincial treasurer to issue in favor of the purchaser a final deed of
sale. (Velasquez vs. Coronel)
7. No lack of personal notice of tax sale

The alleged lack of personal notice of the tax sale is negated by her own averments in her own
opposition filed in the lower court a quo that “the Oppositor in the petition is a woman 80 years of age. She
was not aware of the auction sale conducted by the City Treasurer of Quezon City on 3 December 1964 or if
there was any notice sent to her, the same did not reach her or it must have escaped her mind considering her
age. “
8. Quezon City Charter (CA 502), not RA 1275, controlling on length of redemption period;
Sales, 2003 ( 259 )

Special law prevails over general law

The period for redemption is not the 2-year period provided in RA 1275, since the specific law
governing tax sales of properties in Quezon City is the Quezon City Charter, Commonwealth Act 502 which
provides in section 31 thereof for a 1-year redemption period. The special law covering Quezon City
necessarily prevails over the general law. In the present case, since the filing of Duazo’s brief in 1974, Vda.
De Gordon had not sought to exercise her alleged right of redemption or make an actual tender thereof.
9. Gross inadequacy of purchase price not material if owner has right to redeem
As held in Velasquez vs. Coronel, alleged gross inadequacy of price is not material “when the law
gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser
the price the easier it is for the owner to effect the redemption.”
10. Laws on tax sales for delinquent taxes necessary as taxes essential to life of Government
As stressed in Tajonera vs. Court of Appeals, the law governing tax sales for delinquent taxes may be
“harsh and drastic, but it is a necessary means of insuring the prompt collection of taxes so essential to the life
of the Government.”
[112]
Vda. De Jomoc vs. CA [G.R. No. 92871. August 2, 1991.]

Lim Leong Hong vs. So [G.R. No. 92860. August 2, 1991.]
Third Division, Gutierrez Jr. (J): 4 concur
Facts: The subject lot in Cagayan de Oro City forms part of the estate of the late Pantaleon Jomoc. Because it
was fictiously sold and transferred to third persons, Maria P. Vda. Jomoc, as administratrix of the estate and in
behalf of all the heirs, filed suit to recover the property before the trial court of Misamis Oriental in Civil Case
4750. Mariano So, the last of the transferees and the husband of Maria So, intervened. The case was decided
in favor of Jomoc and was accordingly appealed by Mariano So and one Gaw Sur Cheng to the Court of
Appeals. In February 1979, pending the appeal, Jomoc executed a Deed of Extrajudicial Settlement and Sale
of Land with Maria So for P300,000. The document was not yet signed by all the parties nor notarized but in
the meantime, Maura So had made partial payments amounting to P49,000. In 1983, Mariano So, the
appellant in the recovery proceeding, agreed to settle the case by executing a Deed of Reconveyance of the
land in favor of the heirs of Pantaleon Jomoc. The reconveyance was in compliance with the decision in the
recovery case and resulted in the dismissal of his appeal. On 28 February 1983, the heirs of Jomoc executed
another extrajudicial settlement with absolute sale in favor of intervenors Lim Leong Kang and Lim Pue
King. Later, Maura So demanded from the Jomoc family the execution of a final deed of conveyance. They
ignored the demand.
Maria So sued the heirs for specific performance to compel them to execute and deliver the proper registrable
deed of sale over the lot (Civil Case 8983). So then filed a notice of lis pendens with the Register of Deeds on
28 February 1983. It was on the same date, allegedly upon the Jomocs’ belief that Maura So had backed out
from the transaction that the Jomocs executed the other extrajudicial settlement with sale of registered land in
favor of the spouses Lim for a consideration of P200,000.00 part of which amount was allegedly intended to
be returned to Maura So as reimbursement. The spouses Lim, however, registered their settlement and sale
only on 27 April 1983. The lower court, finding that there was no sufficient evidence to show complainant-
respondents’ withdrawal from the sale, concluded that: (1) the case is one of double sale; (2) the spouses-
intervenors are registrants in bad faith who registered their questioned deed of sale long after the notice of lis
pendens of Civil Case 8983 was recorded.
On appeal, the trial court decision was affirmed except for the award of moral and exemplary damages and
attorney’s fees and expenses for litigation. Hence, the petitions.
Sales, 2003 ( 260 )

The Supreme Court dismissed the petitions, and affirmed the decision of the Court of Appeals dated 13
September 1989 and its resolution dated 2 April 1990.
1. Valid and existent, and partially executed (thus enforceable) contract

The heirs do not deny the existence of Exhibit “A”; including its terms and contents, notwithstanding
the incompleteness in form. The meeting of the minds and the delivery of sums as partial payment is clear and
this is admitted by both parties to the agreement. Hence, there was already a valid and existing contract, not
merely perfected as the trial court saw it, but partly executed. It is of no moment whether or not it is
enforceable under the Statute of Frauds, which rule is not applicable because of partial payment of the
vendee’s obligation and its acceptance by the vendors-heirs. The contract of sale of real property even if not
complete in form, so long as the essential requisites of consent of the contracting parties, object, and cause of
the obligation concur and they were clearly established to be present, is valid and effective as between the
parties. Under Article 1357 of the Civil Code, its enforceability is recognized as each contracting party is
granted the right to compel the other to execute the proper public instrument so that the valid contract of sale
of registered land can be duly registered and can bind third persons. The complainant-respondent correctly
exercised such right simultaneously with a prayer for the enforcement of the contract in one complaint.
2. Continuing interest by Maura So; Parole evidence cannot reform intention of parties
Maura So did not subsequently abandon her intention of purchasing the subject lot. The facts reveal
an agreement between the contracting parties to Exhibit “A” to the effect that “the consideration of P300,000
or whatever balance remains after deducting the advanced payments thereon, shall be paid upon the
termination of (Mariano So’s) appeal in the case involving the property in question.” (GR 92871). Even if the
sums paid by Maura So were allegedly intended to expedite the dismissal of the appeal of Mariano So, such
payment only indicates interest in acquiring the subject lot. In addition, the claim by the defendants-
petitioners that the payments were for the gathering of the several heirs from far places to sign Exhibit “A”
confirms Maura So’s continuing interest. The terms of Exhibit “A” and the actual intention of the parties are
clear and no reform requiring parole evidence is being sought to elucidate the intention further. The oral
evidence offered by defendants-petitioners to show a subsequent refusal to proceed with the sale cannot be
considered to reverse the express intention in the contract.
3. Issue of double sale material to determination whether So is entitled to reliefs prayed for
The issue of double sale had to be resolved to determine whether or not complainant Maura So was
entitled to the reliefs prayed for. There was no hard evidence to show that the vinculum or contractual relation
between petitioners-heirs and Maura So had been cut-off. Yet, petitioners-heirs sold the same lot to spouses
Lim. The case requires the discernment of who has the better right to the property.
4. Article 1544, NCC; So has better right of ownership

Article 1544 of the Civil Code provides that “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.” In view of
this provision, the spouses Lim do not have a better right. They purchased the land with full knowledge of a
previous sale to Maura So and without requiring from the vendors-heirs any proof of the prior vendee’s
revocation of her purchase.
5. Lim spouses not buyers in good faith

The spouses Lim cannot be said to be buyers in good faith as they should have exercised extra caution
in their purchase especially if at the time of the sale, the land was still covered by TCT 19648 bearing the
name of Mariano So and was not yet registered in the name of the heirs of Pantaleon Jomoc, although it had
been reconveyed to said heirs. When they registered the sale on 27 April 1983 after having been charged with
notice of lis pendens annotated as early as 28 February 1983, they did so in bad faith or on the belief that a
registration may improve their position being subsequent buyers of the same lot. Under Article 1544, mere
Sales, 2003 ( 261 )

registration is not enough to acquire new title. Good faith must concur. (Bergado v. Court of Appeals, 173
SCRA 497 [1989]; Concepcion v. Court of Appeals, G.R. No. 83208, February 6, 1991)
[113]
Vda. De Quiambao vs. Manila Motor Company [G.R. No. L-17384. October 31, 1961.]
En Banc, Reyes JBL (J): 8 concur, 1 took no part
Facts: On 7 March 1940, Gaudencio R. Quiambao, deceased husband of Nestora Rigor Vda. de Quiambao
and father of the other petitioners, bought from Manila Motor Company, Inc. 1 Studebaker car on the
installment plan. Upon default in the payment of a number of installments, the company sued Gaudencio
Quiambao in Civil Case 58043 of the CFI Manila. On 4 December 1940, judgment was entered in said case,
awarding in favor of the company the sum of P3,054.32, with interest thereon at 12% per annum, and P300.00
attorneys’ fees. On 14 July 1941, the court issued a writ of execution directed to the Provincial Sheriff of
Tarlac, who thereupon levied on and attached two parcels of land covered by TCT 18390 of the Office of the
Register of Deeds for Tarlac. On 27 August 1941, Attorney Felix P. David, then counsel for the Manila Motor
Company, accompanied by the sheriff, personally apprised Gaudencio Quiambao of the levy. The latter
pleaded to have the execution sale suspended and begged for time within which to satisfy the judgment debt,
proposing that in the meanwhile, he would surrender to the company the Studebaker car. This proposition was
accepted; accordingly, Gaudencio Quiambao delivered the car to the company, and Attorney David issued a
receipt therefore. On 16 October 1941, Gaudencio Quiambao remitted to the company, on account of the
judgment, the sum of P500.00; he, however, failed to make further payments, thus leaving a balance still
unsettled of P1,952.47, with interest thereon at 12% per annum from 6 March 1940.
In the meantime, the Pacific war broke out, and when the Japanese forces occupied the country shortly
thereafter, the invaders seized all the assets of the Manila Motor Company, Inc. as enemy property. After the
war, the company filed with the Philippine War Damage Commission, among other things, a claim for its
mortgage lien on the car of Gaudencio Quiambao and was awarded the sum of P780.47, P409.75 of which
amount had already been paid. On 12 October 1949, the company addressed a letter to Gaudencio Quiambao
asking him to fill a blank form relative to the lost car. Quiambao having since died, his widow, Nestora Rigor
Vda. de Quiambao, returned the form with the statement that the questioned car was surrendered to the
company for storage. On 18 May 1953, a demand was made on the widow to settle the deceased’s unpaid
accounts, but in view of her refusal, the company urged the Provincial Sheriff of Tarlac to carry out the pre-
war writ of execution issued in Civil Case 58043. Although the records of that case had been lost during the
war, and have not been reconstituted, a copy of said writ of execution kept on file by the provincial sheriff
was saved. Accordingly, the latter advertised for sale at public auction the properties levied upon.
Notified of the sheriff’s action, the heirs of the deceased Quiambao filed the suit to annul and set aside the
writ of execution and to recover damages. Judgment was rendered by the CFI in favor of the Quiambaos, but
on appeal to the Court of Appeals (CA-GR 17031-R), the decision was reversed and another entered
dismissing the complaint. Hence, the appeal by writ of certiorari.
The Supreme Court affirmed the judgment of the Court of Appeals appealed from, with costs against the
Quiambaos.
1. Heacock case does not apply; Delivery of car to company did not produce effect of rescinding or
annulling the contract of sale; Buyer surrendered car to postpone satisfaction of the judgment amount
Unlike the situation that arose in the H. E. Heacock Company case (66 PHIL 245-246) wherein the
vendor demanded the return of the thing sold, and thereby indicated an unequivocal desire on its part to
rescind its contract with the vendee, here it was the buyer (deceased Gaudencio Quiambao) who offered
indeed pleaded, to surrender his car only in order that he might be given more time within which to satisfy the
Sales, 2003 ( 262 )

judgment debt, and suspend the impending execution sale of the properties levied upon. The very receipt
issued then by the company, and accepted without objection by the deceased (Gaudencio Quiambao),
indicated that the car was received “pending settlement of the judgment in Civil Case 58043.” Other
circumstances that militate against the Quiambaos’ theory of rescission or annulment of the contract of sale
and waiver of the judgment debt and, conversely, strengthen the proposition that the delivery of the car to the
company was merely to postpone the satisfaction of the judgment amount, are that the deceased still paid the
further sum of P500.00 on account of his indebtedness about two months after the car was surrendered, and
that despite the company’s acceptance of the car, the company made repeated demands against the petitioners
to settle the deceased’s unpaid accounts.
2. Receipt of car not for appropriation but as security to satisfaction of judgment credit; Does not
amount to foreclosure of chattel mortgage
Since the company did not receive the car for the purpose of appropriating the same, but merely as
security for the ultimate satisfaction of its judgment credit, the situation under consideration could not have
amounted to a foreclosure of the chattel mortgage.
3. Payment of war damage compensation does not produce same and equal legal effect as formal
foreclosure
Having been the party who was last in possession of the lost car, the company was well within its
rights, or better still, under obligation, to protect the interest of the car owner, as well as its own, by claiming,
as it did, the corresponding war damage compensation for the car. Such action of the company cannot
reasonably be construed as a constriction of its rights under the pre-war judgment.
4. Scenario barring recovery of any unpaid balance

In Manila Motor Company, Inc., vs. Fernandez (52 OG 16, 6883, 6885), it was held that “it is the
actual sale of the mortgaged chattel in accordance with section 14 of Act 1508 that would bar the creditor
(who chooses to foreclose) from recovering any unpaid balance (Pacific Commercial Company vs. De la
Rama, 72 Phil, 380).”
5. Suit filed was for specific performance and not for rescission or cancellation of contract of sale
The best reason why respondent company may not be construed as having rescinded or cancelled the
contract of sale or foreclosed the mortgage on the automobile is precisely because it brought suit for specific
performance, and won, in the pre-war Civil Case 58043.
6. Pre-war judgment has not prescribed; Period covered by moratorium law and closure of
regular courts at the outbreak of war deducted
The pre-war judgment was entered on 4 December 1940, and on 14 July 1941, a writ of execution
was issued. The company took no further step to enforce the judgment until 19 May 1954, on which date,
Manila Motors scheduled 2 parcels of land owned by the Quiambaos for sale at public auction pursuant to the
writ of 14 July 1941. From the entry of the judgment to 19 May 1954, a period of 13 years, 5 months and 15
days had elapsed.
From this term, the period covered by the debt moratorium under Executive Order 32 (which applied
to all debts payable within the Philippines), from the time the order took effect on 10 March 1945, until it was
partially lifted by RA 342 on 26 July 1948 must be deducted. Deducting the period during which EO 32 was
in force, which is 3 years, 4 months and 16 days, from 13 years, 5 months and 15 days, the period covered
from the entry of the pre-war judgment to the time the company attempted to sell the levied properties at
auction, there is still left a period of 10 years and 29 days.
But as held in Talens vs. Chuakay & Co., G.R. No. L-10127, June 30, 1958, the Court took judicial
notice of the fact that regular courts in Luzon were closed for months during the early part of the Japanese
occupation until they were reconstituted by order of the Chairman of the Executive Commission on 30
January 1942. This interruption in the functions of the courts has also been held to interrupt the running of the
Sales, 2003 ( 263 )

prescriptive period (see also Palma vs. Celda, 81 Phil. 416). That being the case, respondent company could
not be barred by prescription from proceeding with the execution sale pursuant to the levy and writ of
execution issued under the pre-war judgment, considering that even the minimum period of from 8 December
1941, the outbreak of the Pacific War, to 30 January 1942 is already a term of 1 month and 23 days.
7. Pre-war writ of execution and levy may still be enforced by sale of the levied property after the
lapse of the 5-year period within which a judgment may be executed by motion
A valid execution issued and levy made within the period provided by law may be enforced by a sale
thereafter. The sale of the property by the sheriff and the application of the proceeds are simply the carrying
out of the writ of execution and levy which when issued were valid. This rests upon the principle that the levy
is the essential act by which the property is set apart for the satisfaction of the judgment and taken into
custody of the law, and that after it has been taken from the defendant, his interest is limited to its application
to the judgment, irrespective of the time when it may be sold (Southern Cal. L. Co. vs. Hotel Co., 94 Cal. 217,
222; Government of P.I. vs. Echaus, 71 Phil. 318). Thus, a valid judgment may be enforced by motion within
5 years after its entry, and by action after the lapse of said period but before the same shall have been barred
by any statute of limitations, and that a valid execution issued and levy made within the 5-year period after
entry of the judgment may be enforced by sale of the property levied upon thereafter, provided the sale is
made within 10 years after the entry of the judgment.
8. Ansaldo vs. Fidelity not in point

The case of Ansaldo vs. Fidelity and Surety Company of the Philippine Islands, G.R. No. L-2378,
April 27, 1951, is not in point, for there the judgment creditor attempted to carry out the writ of execution 10
years after the entry of judgment.
9. Amount received from the Philippine War Damage Commission must be credited to the
Quiambaos’ account
The Quiambaos should be credited the amount of P409.75 which the Manila Motors actually received
from the Philippine War Damage Commission on account of the car of Gaudencio Quiambao that had been
seized from it by the enemy occupant during the war. This should reduce the principal amount still due Manila
Motors from the Quiambaos to the sum of P1,542.72.
[114]
Velasco v. CA [G.R. No. L-31018. June 29, 1973.]

First Division, Castro (J):3 concur, 1 concurs with reservation, 2 dissents, 1 concurring with a dissent, 1 took
no part
Facts: A suit for specific performance filed by Lorenzo Velasco against the Magdalena Estate (Civil Case
7761) on the allegation that on 29 November 1962, Velasco and the Magdalena Estate had entered into a
contract of sale by virtue of which Magdalena Estate offered to sell Velasco, to which the latter agreed to buy,
a parcel of land with an area of 2,059 sq.ms. (Lot 15, Block 7, Psd-6129,) located at No. 39 corner 6th Street
and Pacific Avenue, New Manila, Quezon City, for the total purchase price of P100,000.00. Velasco alleged
that he was to give a down payment of P10,000.00 to be followed by P20,000.00 and the balance of
P70,000.00 would be paid in installments, the equal monthly amortization of which was to be determined as
soon as the P30,000.00 down payment had been completed. He further alleged that he paid the downpayment
on 29 November 1962 (Receipt 207848) and that when on 8 January 1964 he tendered to the payment of the
additional P20,000.00 to complete the P30,000.00, Magdalena Estate refused to accept and that eventually it
likewise refused to execute a formal deed of sale obviously agreed upon. Velasco demanded P25,000.00
exemplary damages, P2,000.00 actual damages and P7,000.00 attorney’s fees. Magdalena Estate denied that
it has had any direct-dealings, much less, contractual relations with the Lorenzo Velasco regarding the
property in question, and contends that the alleged contract described in the document attached to the
Sales, 2003 ( 264 )

complaint is entirely unenforceable under the Statute of Frauds; that the truth of the matter is that a portion of
the property in question was being leased by a certain Socorro Velasco who, on 29 November 1962, went to
the office of Magdalena Estate indicated her desire to purchase the lot; that the latter indicated its willingness
to sell the property to her at the price of P100,000.00 under the condition that a down payment of P30,000.00
be made, P20,000.00 of which was to be paid on 31 November 1962, and that the balance of P70,000.00
including interest at 9% per annum was to be paid on installments for a period of 10 years at the rate of
P5,381.32 on June 30 and December of every year until the same shall have been fully paid; that on 29
November 1962, Socorro Velasco offered to pay P10,000.00 as initial payment instead of the agreed
P20,000.00 but because the amount was short of the alleged P20,000.00 the same was accepted merely as
deposit and upon request of Socorro Velasco the receipt was made in the name of her brother-in-law ,Lorenzo
Velasco; that Socorro Velasco failed to complete the down payment of P30,000.00 and neither has she paid
any installments on the balance of P70,000.00 up to the present time; that it was only on 8 January 1964 that
Socorro Velasco tendered payment of P20,000.00, which offer Magdalena Estate refused to accept because it
had considered the offer to sell rescinded on account of her failure to complete the down payment on or
before 31 December 1962. On 3 November 1968, the CFI Quezon City rendered a decision, dismissing the
complaint filed by Lorenzo and Socorro Velasco against the Magdalena Estate, Inc. for the purpose of
compelling specific performance by Magdalena Estate of an alleged deed of sale of a parcel of residential
land in favor of the Velascos. The basis for the dismissal of the complaint was that the alleged purchase and
sale agreement “was not perfected.”
On 18 November 1968, after the perfection of their appeal to the Court of Appeals, the Velascos received a
notice from the said court requiring them to file their printed record on appeal within 60 days from receipt of
said notice. This 60-day term was to expire on 17 January 1969. Allegedly on 15 January 1969, the Velascos
allegedly sent to the CA and to counsel for Magdalena Estate, by registered mail allegedly deposited
personally by its mailing clerk, one Juanito D. Quiachon, at the Makati Post Office, a “Motion For Extension
of Time To File Printed Record on Appeal.” The extension of time was sought on the ground “of mechanical
failures of the printing machines, and the voluminous printing job now pending with the Vera Printing Press.”
On 10 February 1969, the Velascos filed their printed record on appeal in the CA. Thereafter, the Velascos
received from Magdalena Estate a motion filed on 8 February 1969 praying for the dismissal of the appeal on
the ground that the Velascos had failed to file their printed record on appeal on time. The CA, on 25 February
1969, denied the Magdalena Estate’s motion to dismiss, granted the Velasco’s motion for 30-day extension
from 15 January 1969, and admitted the latter’s printed record on appeal. On 11 March 1969, Magdalena
Estate prayed for a reconsideration of said resolution. The Velascos opposed the motion for reconsideration
and submitted to the CA the registry receipts (0215 and 0216), both stamped 15 January 1969, which were
issued by the receiving clerk of the registry section of the Makati Post Office covering the mails for the
disputed motion for extension of time to file their printed record on appeal and the affidavit of its mailing
clerk. After several other pleadings and manifestations relative to the motion for reconsideration and on 28
June 1969, the CA promulgated a resolution granting the motion for reconsideration and ordered Atty.
Patrocinio Corpuz (Velasco’s counsel) to show cause within 10 days from notice why he should not be
suspended from the practice of his profession for deceit, falsehood and violation of his sworn duty to the
Court, and directed the Provincial Fiscal of Rizal to conduct the necessary investigation against Juanito D.
Quiachon of the Salonga, Ordoñez, Yap, Sicat & Associates Law Office and Flaviano O. Malindog, a letter
carrier at the Makati Post Office, and to file the appropriate criminal action against them (it appears that
Malindog postmark the letters 15 January 1969 on 7 February 1969 at the request of Quiachon). On 5
September 1969, the CA promulgated another resolution, denying the motion for reconsideration of the
Velascos but, at the same time, accepting as satisfactory the explanation of Atty. Corpuz why he should not be
suspended from the practice of the legal profession.
On 20 September 1969, the First Assistant Fiscal of Rizal notified the Court of Appeals that he had found a
prima facie case against Malindog and would file the corresponding information for falsification of public
documents against him, but dismissed the complaint against Quiachon for lack of sufficient evidence.
Sales, 2003 ( 265 )

A petition for certiorari and mandamus was filed by the Velascos against the resolution of the Court of
Appeals dated 28 June 1969 in CA-GR 42376, which ordered the dismissal of the appeal interposed by them
from a decision of the CFI Quezon City on the ground that they had failed seasonably to file their printed
record on appeal.
The Supreme Court denied the instant petition; without pronouncement as to costs.
1. Issues raised by Velascos; Some issues are subject of appeal on certiorari under Rule 45 rather
than that of certiorari under Rule 65
The Velascos contend that the Court of Appeals acted without or in excess of jurisdiction, or with
such whimsical and grave abuse of discretion as to amount to lack of jurisdiction, because (a) it declared that
the motion for extension of time to file the printed record on appeal was not mailed on 15 January 1969,
when, in fact, it was mailed on the said date as evidenced by the registry receipts and the post office stamp of
the Makati Post Office; (b) it declared that the record on appeal was filed only on 10 February 1969, beyond
the time authorized by the appellate court, when the truth is that the said date of filing was within the 30-day
extension granted by it; (c) the adverse conclusions of the appellate court were not supported by the records of
the case, because the said court ignored the affidavit of the mailing clerk of the petitioners’ counsel, the
registry receipts and postmarked envelopes and, instead, chose to rely upon the affidavit of the mail carrier
Malindog, which affidavit was prepared by counsel for Magdalena Estate at the affiant himself so declared at
the preliminary investigation at the Fiscal’s office which absolved the Velascos’ counsel mailing clerk
Quiachon from any criminal liability; (d) section 1, Rule 50 of the Rules of Court, which enumerates the
grounds upon which the Court of Appeals may dismiss an appeal, does not include as a ground the failure to
file a printed record on appeal; (e) the said section does not state either that the mismailing of a motion to
extend the time to file the printed record on appeal, assuming this to be the case, may be a basis for the
dismissal of the appeal; (f) the Court of Appeals has no jurisdiction to revoke the extension of time to file the
printed record on appeal it had granted to the petitioners based on a ground not specified in section 1, Rule 50
of the Rules of Court; and (g) the objection to an appeal may be waived as when the appellee has allowed the
record on appeal to be printed and approved. Some of the objections raised by the Velascos to the questioned
resolution of the Court of Appeals are obviously matters involving the correct construction of our rules of
procedure and, consequently, are proper subjects of an appeal by way of certiorari under Rule 45 of the Rules
of Court, rather than a special civil action for certiorari under Rule 65. The petitioners, however, have
correctly appreciated the nature of its objections and have asked this Court to treat the instant petition as an
appeal by way of certiorari under Rule 45 “in the event that the Supreme Court should deem that an appeal is
an adequate remedy” The nature of the present case permits a disquisition of both types of assignments.
2. Date stamped on receipts and envelopes; Henning and Caltex cases do not apply
While it is true that stamped on the registry receipts 0215 and 0216 as well as on the envelopes
covering the mails in question is the date 15 January 1969, this, by itself, does not establish an unrebuttable
presumption of the fact or date of mailing. The Henning and Caltex cases are not in point because the specific
adjective issue resolved in those cases was whether or not the date of mailing a pleading is to be considered as
the date of its filing, The issue in the present case is whether or not the motion of the petitioners for extension
of time to file the printed record on appeal was, in point of fact, mailed (and, therefore, filed) on 15 January
1969.
3. Certification of postmasters and Malindog’s sworn declaration believable; Malindog induced to

issue false registry receipts for the Velasco’s counsel
The certifications issued by the two postmasters of Makati, Rizal and the sworn declaration of the
mail carrier Malindog describing how the said registry receipts came to be issued, are worthy of belief. It will
be observed that the said certifications explain clearly and in detail how it was improbable that the registry
receipts in question could have been issued to Velascos’ counsel in the ordinary course of official business,
Sales, 2003 ( 266 )

while Malindog’s sworn statement, which constitutes a very grave admission against his own interest,
provides ample basis for a finding that where official duty was not performed it was at the behest of a person
interested in the Velascos’ side of the action below. That at the preliminary investigation at the Fiscal’s office,
Malindog failed to identify Quiachon as the person who induced him to issue falsified receipts, contrary to
what he declared in his affidavit, is of no moment since the findings of the inquest fiscal as reflected in the
information for falsification filed against Malindog indicate that someone did induce Malindog to make and
issue false registry receipts to the counsel for the Velascos.
4. Right to appeal a statutory privilege and not a natural right nor a part of due process
In Bello vs. Fernando, it was held that the right to appeal is not a natural right nor a part of due
process; it is merely a statutory privilege. and may he exercised only in the manner provided by law.
5. Duty of appellant to file printed record on appeal with CA within 60 days from receipt of notice
The Rules of Court expressly makes it the duty of an appellant to file a printed record on appeal with
the Court of Appeals within 60 days from receipt of notice from the clerk of that court that the record on
appeal approved by the trial court has already been received by the said court. Section 5 of Rule 46 (Duty of
appellant upon receipt of notice) states that “It shall be the duty of the appellant within 15 days from the date
of the notice referred to in the preceding section, to pay the clerk of the Court of Appeals the fee for the
docketing of the appeal, and within 60 days from such notice to submit to the court 40 printed copies of the
record on appeal, together with proof of service of 15 printed copies thereof upon the appellee.”
6. Appellate court did not abuse its discretion

After a careful study and appraisal of the pleadings, admissions and denials respectively adduced and
made by the parties, it is clear that the Court of Appeals did not gravely abuse its discretion and did not act
without or in excess of its jurisdiction. As the Velascos failed to comply with the duty to file the printed record
on appeal within 60 days from receipt of notice which the Rules of Court enjoins, and considering that there
was a deliberate effort on their part to mislead the said Court in granting them an extension of time within
which to file their printed record on appeal, it stands to reason that the appellate court cannot be said to have
abused its discretion or to have acted without or in excess of its jurisdiction in ordering the dismissal of their
appeal.
7. Jurisprudence replete with cases where Court dismissed appeal on grounds not mentioned
specifically in Rule 50, Section 1
Jurisprudence is replete with cases in which this Court dismissed an appeal on grounds not mentioned
specifically in Section 1, Rule 50 of the Rules of Court. (See, for example, De la Cruz vs. Blanco, 73 Phil.
596 (1942); Government of the Philippines vs. Court of Appeals. 108 Phil. 86 (1960); Ferinion vs. Sta.
Romana, L-25521, February 28, 66, 16 SCRA 370, 375).
8. Motion for extension of period must be made before the expiration of the period to be extended
Inasmuch as the motion for extension of the period to file the printed record on appeal was belatedly
filed, then, it is as though the same were non-existent. In Baquiran vs. Court of Appeals, it was stated that
“the motion for extension of the period for filing pleadings and papers in court must be made before the
expiration of the period to be extended.” The soundness of this dictum in matters of procedure is self-evident.
For, were the doctrine otherwise, the uncertainties that would follow when litigants are left to determine and
redetermine for themselves whether to seek further redress in court forthwith or take their own sweet time
will result in litigations becoming more unbearable than the very grievances they are intended to redress.
9. Objection to appeal not waived

Magdalena Estate did file a motion in the Court of Appeals on 8 February 1969 praying for the
dismissal of the appeal on the ground that up to the said date the Velascos had not yet filed their record on
appeal and, therefore, must be considered to have abandoned their appeal. The objection to an appeal was thus
Sales, 2003 ( 267 )

not waived, contrary to Velasco’s argument that it was waived when the appellee allows the record on appeal
to be printed and approved/
10. No contract of sale perfected because the minds of the parties did not meet in regard to the
manner of payment
No contract of sale was perfected because the minds of the parties did not meet “in regard to the
manner of payment.” The material averments contained in Velasco’s complaint themselves disclose a lack of
complete “agreement in regard to the manner of payment” of the lot in question. The complaint states
pertinently “that plaintiff and defendant further agreed that the total down payment shall be P30,000.00,
including the P10,000.00 partial payment mentioned in paragraph 3 hereof, and that upon completion of the
said down payment of P30,000.00, the balance of P70,000.00 shall be paid by the plaintiff to the defendant in
10 years from November 29, 1962; and that the time within which the full down payment of the P30,000.00
was to be completed was not specified by the parties but the defendant was duly compensated during the said
time prior to completion of the down payment of P30,000.00 by way of lease rentals on the house existing
thereon which was earlier leased by defendant to the plaintiff’s sister-in-law, Socorro J. Velasco, and which
were duly paid to the defendant by checks drawn by plaintiff.” The Velascos themselves admit that they and
Magdalena Estate still had to meet and agree on how and when the down payment and the installment
payments were to be paid. Such being the situation, it cannot be said that a definite and firm sales agreement
between the parties had been perfected over the lot in question.
11. Definite agreement on the matter of payment of purchase price an essential element to form
binding and enforceable contract of sale
A definite agreement on the manner of payment of the purchase price is an essential element in the
formation of a binding and enforceable contract of sale. In the present case, the Velascos delivered to
Magdalena Estate the sum of P10,000 as part of the downpayment that they had to pay cannot be considered
as sufficient proof of the perfection of any purchase and sale agreement between the parties under article 1482
of the new Civil Code, as the Velascos themselves admit that some essential matter (the terms of payment)
still had to be mutually covenanted.
[115]
Villaflor v. CA [G.R. No. 95694. October 9, 1997.]

Third Division, Panganiban (J): 3 concur, 1 took no part
Facts: On 16 January 1940, Cirilo Piencenaves, in a Deed of Absolute Sale, sold to Vicente Villafor, a parcel
of agricultural land (planted to Abaca) containing an area of 50 hectares, more or less. The deed states that the
land was sold to Villaflor on 22 June 1937, but no formal document was then executed, and since then until
the present time, Villaflor has been in possession and occupation of the same. Before the sale of said property,
Piencenaves inherited said property form his parents and was in adverse possession of such without
interruption for more than 50 years. On the same day, Claudio Otero, in a Deed of Absolute Sale sold to
Villaflor a parcel of agricultural land (planted to corn), containing an area of 24 hectares, more or less;
Hermogenes Patete, in a Deed of Absolute Sale sold to Villaflor, a parcel of agricultural land (planted to
abaca and corn), containing an area of 20 hectares, more or less. Both deed state the same details or
circumstances as that of Piencenaves’. On 15 February 1940, Fermin Bocobo, in a Deed of Absolute Sale sold
to Villaflor, a parcel of agricultural land (planted with abaca), containing an area of 18 hectares, more or less.
On 8 November 1946, Villaflor leased to Nasipit Lumber Co., Inc. a parcel of land, containing an area of 2
hectares, together with all the improvements existing thereon, for a period of 5 years (from 1 June 1946) at a
rental of P200.00 per annum to cover the annual rental of house and building sites for 33 houses or buildings.
The lease agreement allowed the lessee to sublease the premises to any person, firm or corporation; and to
build and construct additional houses with the condition the lessee shall pay to the lessor the amount of 50
Sales, 2003 ( 268 )

centavos per month for every house and building; provided that said constructions and improvements become
the property of the lessor at the end of the lease without obligation on the part of the latter for expenses
incurred in the construction of the same. On 7 July 1948, in an “Agreement to Sell” Villaflor conveyed to
Nasipit Lumber, 2 parcels of land. Parcel 1 contains an area of 112,000 hectares more or less, divided into lots
5412, 5413, 5488, 5490, 5491, 5492, 5850, 5849, 5860, 5855, 5851, 5854, 5855, 5859, 5858, 5857, 5853, and
5852; and containing abaca, fruit trees, coconuts and thirty houses of mixed materials belonging to the Nasipit
Lumber Company. Parcel 2 contains an area of 48,000 more or less, divided into lots 5411, 5410, 5409, and
5399, and containing 100 coconut trees, productive, and 300 cacao trees. From said day, the parties agreed
that Nasipit Lumber shall continue to occupy the property not anymore in concept of lessee but as prospective
owners.
On 2 December 1948, Villaflor filed Sales Application V-807 with the Bureau of Lands, Manila, to purchase
under the provisions of Chapter V, XI or IX of CA 141 (The Public Lands Act), as amended, the tract of
public lands. Paragraph 6 of the Application, states: ‘I understand that this application conveys no right to
occupy the land prior to its approval, and I recognize that the land covered by the same is of public domain
and any and all rights I may have with respect thereto by virtue of continuous occupation and cultivation are
hereby relinquished to the Government. On 7 December 1948, Villaflor and Nasipit Lumber executed an
“Agreement,” confirming the Agreement to Sell of 7 July 1948, but with reference to the Sales Application
filed with the Bureau of Land. On 31 December 1949, the Report by the public land inspector (District Land
Office, Bureau of Lands, in Butuan) contained an endorsement of the said officer recommending rejection of
the Sales Application of Villaflor for having leased the property to another even before he had acquired
transmissible rights thereto. In a letter of Villaflor dated 23 January 1950, addressed to the Bureau of Lands,
he informed the Bureau Director that he was already occupying the property when the Bureau’s Agusan River
Valley Subdivision Project was inaugurated, that the property was formerly claimed as private property, and
that therefore, the property was segregated or excluded from disposition because of the claim of private
ownership. Likewise, in a letter of Nasipit Lumber dated 22 February 1950 addressed to the Director of
Lands, the corporation informed the Bureau that it recognized Villaflor as the real owner, claimant and
occupant of the land; that since June 1946, Villaflor leased 2 hectares inside the land to the company; that it
has no other interest on the land; and that the Sales Application of Villaflor should be given favorable
consideration. On 24 July 1950, the scheduled date of auction of the property covered by the Sales
Application, Nasipit Lumber offered the highest bid of P41.00 per hectare, but since an applicant under CA
141, is allowed to equal the bid of the highest bidder, Villaflor tendered an equal bid, deposited the equivalent
of 10% of the bid price and then paid the assessment in full.
On 16 August 1950, Villaflor executed a document, denominated as a “Deed of Relinquishment of Rights,” in

favor on Nasipit Lumber, in consideration of the amount of P5,000 that was to be reimbursed to the former
representing part of the purchase price of the land, the value of the improvements Villaflor introduced
thereon, and the expenses incurred in the publication of the Notice of Sale; in light of his difficulty to develop
the same as Villaflor has moved to Manila. Pursuant thereto, on 16 August 1950, Nasipit Lumber filed a Sales
Application over the 2 parcels of land, covering an area of 140 hectares, more or less. This application was
also numbered V-807. On 17 August 1950 the Director of Lands issued an “Order of Award” in favor of
Nasipit Lumber; and its application was entered in the record as Sales Entry V-407.
On 27 November 1973, Villafor wrote a letter to Nasipit Lumber, reminding the latter of their verbal
agreement in 1955; but the new set of corporate officers refused to recognize Villaflor’s claim. In a formal
protest dated 31 January 1974 which Villaflor filed with the Bureau of Lands, he protested the Sales
Application of Nasipit Lumber, claiming that the company has not paid him P5,000.00 as provided in the
Deed of Relinquishment of Rights dated 16 August 1950. On 8 August 1977, the Director of Lands found that
the payment of the amount of P5,000.00 in the Deed and the consideration in the Agreement to Sell were duly
proven, and ordered the dismissal of Villaflor’s protest.
Sales, 2003 ( 269 )

On 6 July 1978, Villaflor filed a complaint in the trial court for “Declaration of Nullity of Contract (Deed of
Relinquishment of Rights), Recovery of Possession (of two parcels of land subject of the contract), and
Damages” at about the same time that he appealed the decision of the Minister of Natural Resources to the
Office of the President. On 28 January 1983, he died. The trial court ordered his widow, Lourdes D. Villaflor,
to be substituted as petitioner. After trial in due course, the then CFI Agusan del Norte and Butuan City,
Branch III, dismissed the complaint on the grounds that: (1) petitioner admitted the due execution and
genuineness of the contract and was estopped from proving its nullity, (2) the verbal lease agreements were
unenforceable under Article 1403 (2)(e) of the Civil Code, and (3) his causes of action were barred by
extinctive prescription and/or laches. It ruled that there was prescription and/or laches because the alleged
verbal lease ended in 1966, but the action was filed only on 6 January 1978. The 6-year period within which
to file an action on an oral contract per Article 1145 (1) of the Civil Code expired in 1972. Nasipit Lumber
was declared the lawful owner and actual physical possessor of the 2 parcels of land (containing a total area
of 160 hectares). The Agreements to Sell Real Rights and the Deed of Relinquishment of Rights over the 2
parcels were likewise declared binding between the parties, their successors and assigns; with double costs
against Villaflor.
The heirs of petitioner appealed to the Court of Appeals which, however, rendered judgment against them via
the assailed Decision dated 27 September 1990 finding petitioner’s prayers — (1) for the declaration of
nullity of the deed of relinquishment, (2) for the eviction of private respondent from the property and (3) for
the declaration of petitioner’s heirs as owners — to be without basis. Not satisfied, petitioner’s heirs filed the
petition for review dated 7 December 1990. In a Resolution dated 23 June 1991, the Court denied this petition
“for being late.” On reconsideration, the Court reinstated the petition.
The Supreme Court dismissed the petition.
1. Doctrine of primary jurisdiction; Court does not interfere if question is within jurisdiction of an
administrative tribunal
Underlying the rulings of the trial and appellate courts is the doctrine of primary jurisdiction; i.e.,
courts cannot and will not resolve a controversy involving a question which is within the jurisdiction of an
administrative tribunal, especially where the question demands the exercise of sound administrative discretion
requiring the special knowledge, experience and services of the administrative tribunal to determine technical
and intricate matters of fact. In cases where the doctrine of primary jurisdiction is clearly applicable, the court
cannot arrogate unto itself the authority to resolve a controversy, the jurisdiction over which is initially lodged
with an administrative body of special competence.
2. Doctrine of primary jurisdiction; may apply even to questions which are judicial character
It has been the jurisprudential trend to apply the doctrine to cases involving matters that demand the
special competence of administrative agencies even if the question involved is also judicial in character. It
applies “where a claim is originally cognizable in the courts, and comes into play whenever enforcement of
the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the
special competence of an administrative body; in such case, the judicial process is suspended pending referral
of such issues to the administrative body for its view.”
3. Doctrine of primary jurisdiction; cases

In Machete vs. Court of Appeals, the Court upheld the primary jurisdiction of the Department of
Agrarian Reform Adjudicatory Board (DARAB) in an agrarian dispute over the payment of back rentals
under a leasehold contract. In Concerned Officials of the Metropolitan Waterworks and Sewerage System
vs. Vasquez, the Court recognized that the MWSS was in the best position to evaluate and to decide which bid
for a waterworks project was compatible with its development plan. In the present case, the questions on the
identity of the land in dispute and the factual qualification of private respondent as an awardee of a sales
application require a technical determination by the Bureau of Lands as the administrative agency with the
Sales, 2003 ( 270 )

expertise to determine such matters. Because these issues preclude prior judicial determination, it behooves
the courts to stand aside even when they apparently have statutory power to proceed, in recognition of the
primary jurisdiction of the administrative agency.
4. Interpretation of contracts and determination of private rights no longer uniquely judicial

function
One thrust of the multiplication of administrative agencies is that the interpretation of contracts and
the determination of private rights thereunder is no longer a uniquely judicial function, exercisable only by
our regular courts.
5. Primary jurisdiction of director of lands and minister or natural resources regarding identity of
disputed land and qualification of awardee of a sales patent
The primary jurisdiction of the director of lands and the minister of natural resources over the issues
regarding the identity of the disputed land and the qualification of an awardee of a sales patent is established
by Sections 3 and 4 of CA 141, also known as the Public Land Act. Section 3 of said act provides that “the
Secretary of Agriculture and Commerce (now Secretary of Natural Resources) shall be the executive officer
charged with carrying out the provisions of this Act through the Director of Lands, who shall act under his
immediate control.” Section 4 provides that “subject to said control, the Director of Lands shall have direct
executive control of the survey, classification, lease, sale or any other form of concession or disposition and
management of the lands of the public domain, and his decision as to questions of fact shall be conclusive
when approved by the Secretary of Agriculture and Commerce.” Sections 3 and 4 of the Public Land Law
mean that the Secretary of Agriculture and Natural Resources shall be the final arbiter on questions of fact in
public land conflicts (Heirs of Varela vs. Aquino, 71 Phil 69; Julian vs. Apostol, 52 Phil 442). The Supreme
Court has recognized that the Director of Lands is a quasi-judicial officer who passes on issues of mixed facts
and law (Ortua vs. Bingson Encarnacion, 59 Phil 440).
6. Finding of fact by administrative agency accorded great respect

Reliance by the trial and the appellate courts on the factual findings of the Director of Lands and the
Minister of Natural Resources is not misplaced. By reason of the special knowledge and expertise of said
administrative agencies over matters falling under their jurisdiction, they are in a better position to pass
judgment thereon; thus, their findings of fact in that regard are generally accorded great respect, if not finality,
by the courts. The findings of fact of an administrative agency must be respected as long as they are supported
by substantial evidence, even if such evidence might not be overwhelming or even preponderant. It is not the
task of an appellate court to weigh once more the evidence submitted before the administrative body and to
substitute its own judgment for that of the administrative agency in respect of sufficiency of evidence.
7. Finding of fact by administrative agency accorded great respect ; Exception to the rule
The rule that factual findings of an administrative agency are accorded respect and even finality by
courts admits of exceptions. This is true also in assessing factual findings of lower courts. It is incumbent on
the petitioner to show that the resolution of the factual issues by the administrative agency and/or by the trial
court falls under any of the exceptions. Otherwise, this Court will not disturb such findings.
8. Public land; Lack of Technical description does not prove that the findings lacked substantial
evidence
The lack of technical description did not prove that the finding of the Director of Lands lacked
substantial evidence. The evidence adduced by petitioner to establish his claim of ownership over the subject
area consists of deeds of absolute sale executed in his favor. However, an examination of the technical
descriptions of the tracts of land subject of the deeds of sale will disclose that said parcels are not identical to,
and do not tally with, the area in controversy.
9. Public land; Property admitted to be public, cannot now be claimed otherwise
Sales, 2003 ( 271 )

The provision of the law is specific that public lands can only be acquired in the manner provided for
therein and not otherwise (Sec. 11, CA. No. 141, as amended). In his sales application, petitioner expressly
admitted that said property was public land. This is formidable evidence as it amounts to an admission against
interest. The records show that Villaflor had applied for the purchase of lands in question with this Office
(Sales Application V-807) on 2 December 948. There is a condition in the sales application to the effect that
he recognizes that the land covered by the same is of public domain and any and all rights he may have with
respect thereto by virtue of continuous occupation and cultivation are relinquished to the Government of
which Villaflor is very much aware. It also appears that Villaflor had paid for the publication fees appurtenant
to the sale of the land. He participated in the public auction where he was declared the successful bidder. He
had fully paid the purchase price thereof. It would be a height of absurdity for Villaflor to be buying that
which is owned by him if his claim of private ownership thereof is to be believed. The area in dispute is not
the private property of the petitioner.
10. Lands belong to the state, unless alienated

It is a basic assumption of public policy that lands of whatever classification belong to the state.
Unless alienated in accordance with law, it retains its rights over the same as dominus. (Santiago vs. de los
Santos, L-20241, November 22, 1974, 61 SCRA 152). No public land can be acquired by private persons
without any grant, express or implied from the government. It is indispensable then that there be showing of
title from the state or any other mode of acquisition recognized by law. (Lee Hong Hok, et al. vs. David, et al.,
L-30389, December 27, 1972, 48 SCRA 379).
11. Filing of sales application acknowledges that the land is not the private property of the
applicant
As such sales applicant manifestly acknowledged that he does not own the land and that the same is a
public land under the administration of the Bureau of Lands, to which the application was submitted, all of its
acts prior thereof, including its real estate tax declarations, characterized its possessions of the land as that of
a “sales applicant”. And consequently, as one who expects to buy it, but has not as yet done so, and is not,
therefore, its owner. (Palawan Agricultural and Industrial Co., Inc. vs. Director of Lands, L-25914, March
21, 1972, 44 SCRA 15).
12. Rule on the interpretation of contracts is used in affirming, not negating, their validity
The rule on the interpretation of contracts (Article 1371) is used in affirming, not negating, their
validity. Article 1373, which is a conjunct of Article 1371, provides that, if the instrument is susceptible of
two or more interpretations, the interpretation which will make it valid and effectual should be adopted. In
this light, it is not difficult to understand that the legal basis urged by petitioner does not support his allegation
that the contracts to sell and the deed of relinquishment are simulated and fictitious.
13. Simulation not existing in the present case

Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act
which does not exist or is different from that which was really executed. Such an intention is not apparent in
the agreements. The intent to sell, on the other hand, is as clear as daylight. The fact, that the agreement to sell
(7 December 1948) did not absolutely transfer ownership of the land to private respondent, does not show that
the agreement was simulated. Petitioner’s delivery of the Certificate of Ownership and execution of the deed
of absolute sale were suspensive conditions, which gave rise to a corresponding obligation on the part of the
private respondent, i.e., the payment of the last installment of the consideration mentioned in the Agreement.
Such conditions did not affect the perfection of the contract or prove simulation.
14. Nonpayment of the consideration does not prove simulation

Nonpayment, at most, gives the vendor only the right to sue for collection. Generally, in a contract of
sale, payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or, in
Sales, 2003 ( 272 )

case of a substantial breach, to rescind the contract under Article 1191 of the Civil Code. However, failure to
pay is not even a breach, but merely an event which prevents the vendor’s obligation to convey title from
acquiring binding force.
15. Burden of proof rests upon the party who asserts the affirmative of an issue
Prior to the amendment of the rules on evidence on March 14, 1989, Section 1, Rule 131, states that
each party must prove his or her own affirmative allegations. Thus, the burden of proof in any cause rested
upon the party who, as determined by the pleadings or the nature of the case, asserts the affirmative of an
issue and remains there until the termination of the action. Although nonpayment is a negative fact which
need not be proved, the party seeking payment is still required to prove the existence of the debt and the fact
that it is already due. Petitioner showed the existence of the obligation with the presentation of the contracts,
but did not present any evidence that he demanded payment from private respondent. The demand letters
dated January 2 and 5, 1974, adduced in evidence by petitioner, were for the payment of back rentals,
damages to improvements and reimbursement of acquisition costs and realty taxes, not payment arising from
the contract to sell.
16. Lack of Notice of the Award not a suppression of evidence

The lack of notice for petitioner (not listed as one of the parties to furnished a copy by the Director of
Lands) can be easily explained. Petitioner was not entitled to said notice of award from the Director of Lands,
because by then, he had already relinquished his rights to the disputed land in favor of private respondent. In
the heading of the order, he was referred to as sales applicant-assignor. In paragraph number 4, the order
stated that, on 16 August 1950, he relinquished his rights to the land subject of the award to private
respondent. From such date, the sales application was considered to be a matter between the Bureau of Lands
and private respondent only. Considering these facts, the failure to give petitioner a copy of the notice of the
award cannot be considered as suppression of evidence. Furthermore, this order was in fact available to
petitioner and had been referred to by him since 31 January 1974 when he filed his protest with the Bureau of
Lands.
17. Requirement for a sales application under CA 141

The requirements for a sales application under the Public Land Act are: (1) the possession of the
qualifications required by said Act (under Section 29) and (2) the lack of the disqualifications mentioned
therein (under Sections 121, 122, and 123). Section 121 of the Act pertains to acquisitions of public land by a
corporation from a grantee: The private respondent, not the petitioner, was the direct grantee of the disputed
land. Sections 122 and 123 disqualify corporations, which are not authorized by their charter, from acquiring
public land; the records do not show that private respondent was not so authorized under its charter.
18. Determination of qualification of applicant included in the powers to dispose public lands
In Espinosa vs. Makalintal, the Court ruled that, by law, the powers of the Secretary of Agriculture
and Natural Resources regarding the disposition of public lands — including the approval, rejection, and
reinstatement of applications — are of executive and administrative nature. (Such powers, however, do not
include the judicial power to decide controversies arising from disagreements in civil or contractual relations
between the litigants.) Consequently, the determination of whether private respondent is qualified to become
an awardee of public land under CA 141 by sales application is included therein.
19. Prohibition of 1973 Constitution against the holding of public alienable lands by corporation
not retroactive
In Ayog vs. Cusi, Jr., the Court ruled that the constitutional prohibition of the 1973 Constitution
against the holding of alienable lands of the public domain by corporations had no retroactive effect and could
not prevail over a vested right to the land. Vested rights have to be respected. It could not be abrogated by the
new Constitution. Section 2, Article XIII of the 1935 Constitution allowed private corporations to purchase
public agricultural lands not exceeding 1,024 hectares. Action for prohibition is barred by the doctrine of
Sales, 2003 ( 273 )

vested rights in constitutional law.
20. Vested right

A right is vested when the right to enjoyment has become the property of some particular person or
persons as a present interest. It is the privilege to enjoy property legally vested, to enforce contracts, and
enjoy the rights of property conferred by existing law or some right or interest in property which has become
fixed and established and is no longer open to doubt or controversy (Downs vs. Blount, 170 Fed. 15, 20, cited
in Balboa vs. Farrales, 51 Phil, 498, 502). Generally, the term “vested right” expresses the concept of present
fixed interest, which in right reason and natural justice should be protected against arbitrary State action, or an
innately just and imperative right which an enlightened free society, sensitive to inherent and irrefragable
individual rights, cannot deny (16 C.J.S. 1174, Note 71, No. 5, citing Pennsylvania Greyhound Lines, Inc. vs.
Rosenthal, 192 At. 2nd 587).
21. Due process prohibits annihilation of vested rights

The due process clause prohibits the annihilation of vested rights. A state may not impair vested rights
by legislative enactment, by the enactment or by the subsequent repeal of a municipal ordinance, or by a
change in the constitution of the State, except in a legitimate exercise of the police power.
22. Vested interest in sales application; Opinions of the Secretary of Justice

In Opinion 64, series of 1973, the Secretary of Justice held that where the applicant, before the
Constitution took effect, had fully complied with all his obligations under the Public Land Act in order to
entitle him to a sales patent, there would seem to be no legal or equitable justification for refusing to issue or
release the sales patent. In Opinion 140, series of 1974, the Secretary of Justice held that as soon as the
applicant had fulfilled the construction or cultivation requirements and has fully paid the purchase price, he
should be deemed to have acquired by purchase the particular tract of land and to him the area limitation in
the new Constitution would not apply. In Opinion 185, series of 1976, the Secretary of Justice held that where
the cultivation requirements were fulfilled before the new Constitution took effect but the full payment of the
price was completed after 17 January 1973, the applicant was, nevertheless, entitled to a sales patent.
23. Executive construction given great respect

A contemporaneous construction of the constitutional prohibition by a high executive official carries
great weight and should be accorded much respect. It is a correct interpretation of section 11 of Article XIV.
24. Implementation of DOJ Opinion 64, s. 1973; Sales application for fishponds and for
agricultural use
Implementing Opinion 64, the then Secretary of Agriculture and Natural Resources issued a
memorandum, dated 18 February 1974, providing that sales application of private individuals covering areas
in excess of 24 hectares and those of corporations, associations, or partnership which fall under any of the
following categories shall be given due course and issued patents, to wit: Sales application for fishponds and
for agricultural purposes (SFA, SA and IGPSA) wherein prior to 17 January 1973, the land covered thereby
was awarded; cultivation requirements of law were complied with as shown by investigation reports
submitted prior to 17 January 1973; land was surveyed and survey returns already submitted to the Director of
Lands for verification and approval; and purchase price was fully paid.
[116]
Villamor vs. CA [G.R. No. 97332. October 10, 1991.]

First Division, Medialdea (J): 2 concur, 1 took no part
Facts: Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City
(TCT [18431] 18938, Register of Deeds of Rizal). In July 1971, Macaria sold a portion of 300 sq. ms. of the
Sales, 2003 ( 274 )

lot to the Spouses Julio and Marina Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed
P2,000.00 from the spouses which amount was deducted from the total purchase price of the 300 sq. m. lot
sold. The portion sold to the Villamor spouses is now covered by TCT 39935 while the remaining portion
which is still in the name of Macaria Labingisa- is covered by TCT 39934. On 11 November 1971, Macaria
executed a “Deed of option” in favor of Villamor in which the remaining 300 sq. m. portion (TCT No. 39934)
of the lot would be sold to Villamor under the conditions stated therein. According to Macaria, when her
husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold by them to the Villamor
spouses but Marina Villamor refused and reminded them instead that the Deed of Option in fact gave them the
option to purchase the remaining portion of the lot. The Villamors, on the other hand, claimed that they had
expressed their desire to purchase the remaining 300 sq. m. portion of the lot but the Reyes had been ignoring
them.
On 13 July 1987, after conciliation proceedings in the barangay level failed, the Villamors filed a complaint
for specific performance against the Reyes before the RTC Caloocan City (Branch 121, Civil Case C-12942).
On 26 July 1989, judgment was rendered by the trial court in favor of the Villamor spouses, ordering the
Reyeses to sell the land to the Villamors, to pay the the latter the sum of P3,000 as attorney’s fees, and to pay
the cost of suit. The court dismissed the counterclaim for lack of merit.
Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals (CA-GR
CV 24176). On 12 February 1991, the Court of Appeals rendered a decision reversing the decision of the trial
court and dismissing the complaint. The reversal of the trial court’s decision was premised on the finding of
respondent court that the Deed of Option is void for lack of consideration. The Villamor spouses brought the
petition for review on certiorari before the Supreme Court.
The Supreme Court denied the petition, affirmed the decision of the appellate court for reasons cited in the
decision, and dismissed the complaint in Civil Case C-12942 on the ground of prescription and laches.
1. Consideration defined
As expressed in Gonzales v. Trinidad (67 Phil. 682), consideration is “the why of the contracts, the
essential reason which moves the contracting parties to enter into the contract.” In the present case, the cause
or the impelling reason on the part of private respondent in executing the deed of option as appearing in the
deed itself is the Villamors’ having agreed to buy the 300 sq. m. portion of Reyes spouses’ land at P70.00 per
sq. m. “which was greatly higher than the actual reasonable prevailing price.” This cause or consideration is
clear from the deed which stated “that the only reason why the spouses-vendees Julio Villamor and Marina V
Villamor agreed to buy the said one-half portion at the above stated price of about P70.00 per square meter, is
because I, and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half
portion still owned by me . . .” It must be noted that in 1969 the Villamor spouses bought an adjacent lot from
the brother of Macaria Labing-isa for only P18.00 per square meter, such fact not being rebutted by Macaria.
Thus, expressed in terms of money, the consideration for the deed of option is the difference between the
purchase price of the 300 sq. m. portion of the lot in 1971 (P70.00 per sq. m.) and the prevailing reasonable
price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of
option, was ascertainable. Villamors’ allegedly paying P52.00 per square meter for the option may, as opined
by the appellate court, be improbable but improbabilities does not invalidate a contract freely entered into by
the parties.
2. Option contract defined

An optional contract is a privilege existing in one person, for which he had paid a consideration and
which gives him the right to buy, for example, certain merchandise or certain specified property, from another
person, if he chooses, at any time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37
Phil. 982).
Sales, 2003 ( 275 )

3. Deed of option unique; grants option to sell to both the Villamors and the Reyeses
The “deed of option” entered into by the parties in the present case had unique features. The first part
covered the statement on the sale of the 300 sq. m. portion of the lot to Spouses Villamor at the price of P70
per sq. m. ‘which was higher than the actual reasonable prevailing value of the lands in that place at that time
(of sale).” The second part stated that the only reason why the Villamor spouses agreed to buy the said lot at a
much higher price is because the vendor (Reyes) also agreed to sell to the Villamors the other half-portion of
300 square meters of the land. Had the deed stopped there, there would be no dispute that the deed is really an
ordinary deed of option granting the Villamors the option to buy the remaining 300 sq. m.-half portion of the
lot in consideration for their having agreed to buy the other half of the land for a much higher price. But, the
“deed of option” went on and stated that the sale of the other half would be made “whenever the need of such
sale arises, either on our (Reyes) part or on the part of the Spouses Julio Villamor and Marina V. Villamor. It
was not only the Villamors who were granted an option to buy for which they paid a consideration. The Reyes
as well were granted an option to sell should the need for such sale on their part arise.
4. Offer and Acceptance

In the present case, the option offered by the Reyeses had been accepted by the Villamors, the
promises, in the same document. The acceptance of an offer to sell for a price certain created a bilateral
contract to sell and buy and upon acceptance, the offered, ipso facto assumes obligations of a vendee (See
Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948).
5. Perfection of contract of sale; Demandability

A contract of sale is, under Article 1475 of the Civil Code, “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.” Since there was, between the parties, a meeting of minds upon the object and the price, there was
already a perfected contract of sale. What was, however, left to be done was for either party to demand from
the other their respective undertakings under the contract. In Sanchez v. Rigos, No. L-25494, June 14, 1972,
45 SCRA 368, 376, it was held that “ since there may be no valid contract without a cause of consideration,
the promisor is not bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal,
his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.” In the present case, demandability may be exercised at any time after the
execution of the deed. The Reyeses may compel the Villamors to pay for the property or that the latter may
compel the former to deliver the property.
6. Deed of Option does not provide for period for both parties to demand performance of
undertaking, renders contract ineffective
The Deed of Option did not provide for the period within which the parties may demand the
performance of their respective undertakings in the instrument. The parties could not have contemplated that
the delivery of the property and the payment thereof could be made indefinitely and render uncertain the
status of the land. The failure of either parties to demand performance of the obligation of the other for an
unreasonable length of time renders the contract ineffective.
7. Prescription of actions upon written contracts

Under Article 1144 (1) of the Civil Code, actions upon a written contract must be brought within 10
years. The Deed of Option was executed on 11 November 1971. The acceptance, as already mentioned, was
also accepted in the same instrument. The complaint in this case was filed by the Villamors on 13 July 1987,
17 years from the time of the execution of the contract. Hence, the right of action had prescribed. There were
allegations by the Villamors that they demanded from the Reyeses as early as 1984 the enforcement of their
rights under the contract. Still, it was beyond the 10 year period prescribed by the Civil Code. (See also
Santos vs. Genayo, L-31854, 9 September 1982, 116 SCRA 431: bar by laches)
Sales, 2003 ( 276 )

8. Court in exercise of its equity jurisdiction

It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To
allow the petitioner to demand the delivery of the property subject 13 years or 17 years after the execution of
the deed at the price of only P70 per sq. m. is inequitous. For reasons also of equity and in consideration of
the fact that the Reyeses have no other decent place to live, the Court, in the exercise of its equity jurisdiction
is not inclined to grant Villamor’s prayer.
[117]
Villonco Realty vs. Bormaheco Inc. [G.R. No. L-26872. July 25, 1975.]
En Banc, Aquino (J): 9 concur, 1 on leave
Facts: Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the owners of Lots 3, 15 and
16 located at 245 Buendia Avenue, Makati, Rizal with a total area of 3,500 sq.ms. (TCTs 43530, 43531 and
43532). The lots were mortgaged to the Development Bank of the Philippines (DBP) on 21 April 1959 as
security for a loan of P441,000. The mortgage debt was fully paid on 10 July 1969. Cervantes is the president
of Bormaheco, Inc., a dealer and importer of industrial and agricultural machinery. The entire three lots are
occupied by the building, machinery and equipment of Bormaheco, Inc. and are adjacent to the property of
Villonco Realty Company situated at 219 Buendia Avenue. [Negotiations] In the early part of February 1964
there were negotiations for the sale of the said lots and the improvements thereon between Romeo Villonco of
Villonco Realty Company “and Bormaheco, Inc., represented by its president, Francisco N. Cervantes,
through the intervention of Edith Perez de Tagle, a real estate-broker”. In the course of the negotiations, the
brothers Romeo and Teofilo Villonco conferred with Cervantes in his office to discuss the price and terms of
the sale. Later, Cervantes “went to see Villonco for the same reason until some agreement” was arrived at. On
a subsequent occasion, Cervantes, accompanied by Edith Perez de Tagle, discussed again the terms of the sale
with Villonco. During the negotiations, Villonco Realty Company assumed that the lots belonged to
Bormaheco and that Cervantes was duly authorized to sell the same. Cervantes did not disclose to the broker
and to Villonco Realty that the lots were conjugal properties of himself and his wife and that they were
mortgaged to the DBP. Bormaheco, through Cervantes, made a written offer dated 12 February 1964, to
Romeo Villonco for the sale of the property (stipulating price at P400/sq.m., deposit of P100,000 in earnest
money, consummation pending Bormaheco’s purchase of property in Sta. Ana Manila, the final negotiations
on both properties known after 45 days). The property mentioned in Bormaheco’s letter was the land of the
National Shipyards & Steel Corporation (Nassco), with an area of 20,000 sq.ms., located at Punta, Sta. Ana,
Manila. At the bidding held on 17 January 1964 that land was awarded to Bormaheco, the highest bidder, for
the price of P552,000. The Nassco Board of Directors in its resolution of 18 February 1964 authorized the
General Manager to sign the necessary contract. On 28 February 1964, the Nassco Acting General Manager
wrote a letter to the Economic Coordinator, requesting approval of that resolution. The Acting Economic
Coordinator approved the resolution on 24 March 1964. Meanwhile, Bormaheco and Villonco Realty
continued their negotiations for the sale of the Buendia Avenue property. Cervantes and Teofilo Villonco had a
final conference on 27 February 1964. As a result of that conference Villonco Realty, in its letter of 4 March
1964 made a revised counter-offer (Romeo Villonco’s first counter-offer was dated 24 February 1964) for the
purchase of the property. [Perfection] The counter-offer was accepted by Cervantes (stipulating interest of
10% of the amount tendered in case the Sta. Ana purchase does not push through, downpayment at P650,000
and the balance payable every 3 months in 4 payments [P100,000, P125,000, P212,500, and P212,500]).
Enclosed to it was a MBTC Check worth P100,000 as earnest money. The check for P100,000 was delivered
by Perez de Tagle to Bormaheco on 4 March 1964 and was received by Cervantes. In the voucher-receipt
evidencing the delivery the broker indicated in her handwriting that the earnest money was “subject to the
terms and conditions embodied in Bormaheco’s letter” of February 12 and Villonco Realty Company’s letter
of 4 March 1964. [Rescission] Unexpectedly, in a letter dated 30 March 1964, Cervantes returned the earnest
money, with interest amounting to P694.24 (at 10% per annum). Cervantes cited as an excuse the
circumstance that “despite the lapse of 45 days from 12 February 1964 there is no certainty yet” for the
Sales, 2003 ( 277 )

acquisition of the Punta property. Villonco Realty Company refused to accept the letter and the checks of
Bormaheco. Cervantes sent them by registered mail. When he rescinded the contract, he was already aware
that the Punta lot had been awarded to Bormaheco. Edith Perez de Tagle, the broker, in a letter to Cervantes
dated 31 March 1964 articulated her shock and surprise at Bormaheco’s turnabout. Cervantes in his letter of 6
April 1964, a reply to Miss Tagle’s letter, alleged that the 45 day period had already expired and the sale to
Bormaheco, Inc. of the Punta property had not been consummated. Cervantes said that his letter was a
“manifestation that we are no longer interested to sell” the Buendia Avenue property to Villonco Realty. The
latter was furnished with a copy of that letter. In a letter dated 7 April 1964 Villonco Realty Company
returned the two checks to Bormaheco, Inc., stating that the condition for the cancellation of the contract had
not arisen and at the same time announcing that an action for breach of contract would be filed against
Bormaheco.
On that same date, 7 April 1964 Villonco Realty filed the complaint (dated April 6) for specific performance
against Bormaheco. A notice of lis pendens was annotated on the titles of the said lots. Bormaheco in its
answers dated 5 May and 25 May 1964 pleaded the defense that the perfection of the contract of sale was
subject to the conditions “that final acceptance or not shall be made after 45 days” and that Bormaheco
“acquires the Sta. Ana property”.
On 2 June 1964 or during the pendency of this case, the Nassco Acting General Manager wrote to
Bormaheco, Inc., advising it that the Board of Directors and the Economic Coordinator had approved the sale
of the Punta lot to Bormaheco and requesting the latter to send its duly authorized representative to the
Nassco for the signing of the deed of sale. The deed of sale for the Punta land was executed on 26 June 1964.
Bormaheco was represented by Cervantes.
In view of the disclosure in Bormaheco’s amended answer that the 3 lots were registered in the names of the
Cervantes spouses and not in the name of Bormaheco, Villonco Realty on 21 July 1964 filed an amended
complaint impleading the said spouses as defendants. Bormaheco and the Cervantes spouses filed separate
answers. As of 15 January 1965 Villonco Realty had paid to the Manufacturers’ Bank & Trust Company the
sum of P8,712.25 as interests on the overdraft line of P100,000 and the sum of P27.39 as interests daily on the
same loan since 16 January 1965. (That overdraft line was later settled by Villonco Realty on a date not
mentioned in its manifestation of 19 February 1975). Villonco Realty had obligated itself to pay the sum of
P20,000 as attorney’s fees to its lawyers. It claimed that it was damaged in the sum of P10,000 a month from
24 March 1964 when the award of the Punta lot to Bormaheco was approved. On the other hand, Bormaheco
claimed that it had sustained damages of P200,000 annually due to the notice of lis pendens which had
prevented it from constructing a multistory building on the 3 lots. Miss Tagle testified that for her services
Bormaheco, through Cervantes, obligated itself to pay her a 3% commission on the price of P1,400,000 or the
amount of P42,000. After trial, the lower court rendered a decision ordering the Cervantes spouses to execute
in favor of Bormaheco a deed of conveyance for the 3 lots and directing Bormaheco to convey the same lots
to Villonco Realty, to pay the latter, as consequential damages, the sum of P10,000 monthly from 24 March
1964 up to the consummation of the sale, to pay Edith Perez de Tagle the sum of P42,000 as broker’s
commission and to pay P20,000 as attorney’s fees
Bormaheco, Inc. and the Cervantes spouses appealed. The Supreme Court took cognizance of the appeal
because the amount involved is more than P200,000 and the appeal was perfected before RA 5440 took effect
on 9 September 1968.
The Supreme court modified the trial court’s decision by ordering the spouses Cervantes, within 10 days from
the date they receive notice from the clerk of the lower court that the records of the case have been received
from the Supreme Court, to execute a deed conveying to Bormaheco their 3 lots covered by TCT 43530,
43531 and 43532 of the Registry of Deeds of Rizal; ordering Bormaheco, within 5 days from the execution of
such deed of conveyance, to execute in favor of Villonco Realty a registerable deed of sale for the said 3 lots
Sales, 2003 ( 278 )

and all the improvements thereon, free from all lien and encumbrances, at the price of P400 per sq.m.,
deducting from the total purchase price the sum of P100,000 previously paid by Villonco Realty Company to
Bormaheco, Inc.; and obligating Villonco Realty, upon the execution of such deed of sale, to pay Bormaheco
the balance of the price in the sum of P1,300,000; and ordering Bormaheco to pay Villonco Realty P20,000 as
attorney’s fees and to pay Edith Perez de Tagle the sum of P42,000 as commission; with costs against
Villonco Realty.
1. Contract of sale
By the contract of sale one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determining thing, and the other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional (Art. 1458, Civil Code).
2. Perfection of a contract of sale; Present case

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.). In the
present case, Bormaheco’s acceptance of Villonco Realty’s offer to purchase the Buendia Avenue property, as
shown in Teofilo Villonco’s letter dated 4 March 1964 indubitably proves that there was a meeting of minds
upon the subject matter and consideration of the sale. Therefore, on that date the sale was perfected.
(Compare with McCullough vs. Aenlle & Co., 3 Phil. 285; Goyena vs. Tambunting, 1 Phil. 490)
3. Perfection of contracts; Effect

Contracts are perfected by mere consent, and from that 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 (Art. 1315, Civil Code).
4. Consent: Offer, counter-offer, acceptance

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).
5. Present contract conditionally consummated or partly executed

Bormaheco’s acceptance of the part payment of P100,000 shows that the sale was conditionally
consummated or partly executed subject to the purchase by Bormaheco, Inc. of the Punta property. The non-
consummation of that purchase would be a negative resolutory condition (Taylor vs. Uy Tieng Piao, 43 Phil.
873).
6. Borhameco’s bid already accepted by Nassco

On 18 February 1964 Bormaheco’s bid for the Punta property as already accepted by the Nassco
which had authorized its General Manager to sign the corresponding deed of sale. What was necessary only
was the approval of the sale by the Economic Coordinator and a request for that approval was already pending
in the office of that functionary on 4 March 1964.
7. Revised counter offer not material but are merely clarifications of what was agreed upon
There is no evidence as to what changes were made by Cervantes in Villonco’s revised offer, and
there is no evidence that Villonco Realty did not assent to the supposed changes and that such assent was
never made known to Cervantes. The alleged changes or qualifications made by Cervantes were approved by
Villonco Realty and that such approval was duly communicated to Cervantes or Bormaheco by the broker as
shown by the fact that Villonco Realty paid, and Bormaheco accepted, the sum of P100,000 as earnest money
or down payment. That crucial fact implies that Cervantes was aware that Villonco Realty had accepted the
Sales, 2003 ( 279 )

modifications which he had made in Villonco’s counter-offer. Had Villonco Realty not asserted to those
insertions and annotations, then it would have stopped payment on its check for P100,000. The fact that
Villonco Realty allowed its check to be cashed by Bormaheco signifies that the company was in conformity
with the changes made by Cervantes and that Bormaheco was aware of that conformity. Had those insertions
not been binding, then Bormaheco would not have paid interest at the rate of 10% per annum on the earnest
money of P100,000. The truth is that the alleged changes or qualifications in the revised counter-offer are not
material or are mere clarifications of what the parties had previously agreed upon.
8. Amendment of “another” instead of “Nassco” in paragraph 3 of counter-offer is trivial

Cervantes allegedly crossed out the word “Nassco” in paragraph 3 of Villonco’s revised counter-offer
and substituted for it the word “another” so that the original phrase “Nassco’s property in Sta. Ana”, was
made to read as “another property in Sta. Ana”. That change is trivial. What Cervantes did was merely to
adhere to the wording of paragraph 3 of Bormaheco’s original offer which mentions “another property located
at Sta. Ana” His obvious purpose was to avoid jeopardizing his negotiation with the Nassco for the purchase
of its Sta. Ana property by unduly publicizing it. It is noteworthy that Cervantes, in his letter to the broker
dated 6 April 1964 or after the Nassco property had been awarded to Bormaheco alluded to the “Nassco
property”. At that time, there was no more need of concealing from the public that Bormaheco was interested
in the Nassco property.
9. Insertion of letters “PA” not a major alteration, alternative contemplation to be monthly or

semi-annually would be usurious
Cervantes’ alleged insertion of the letters “PA” (per annum) after the word “interest” in that same
paragraph 3 of the revised counter-offer could not be categorized as a major alteration of that counter-offer
that prevented a meeting of the minds of the parties. It was understood that the parties had contemplated a rate
of 10% per annum since 10% a month or semi-annually would be usurious.
10. Revised counter-offer merely amplifies original offer; acceptance is not qualified and
conditional
The stipulation “subject to the terms and conditions embodied in Bormaheco’s letter of February 12,
1964 and your (Villonco’s) letter of March 4, 1964" does not make Bormaheco’s acceptance “qualified and
conditional”. There is no incompatibility between Bormaheco’s offer of February 12, 1964 and Villonco’s
counter-offer of March 4, 1964 (Exh. D). The revised counter-offer merely amplified Bormaheco’s original
offer.
11. Payment of earnest money proof of perfection of contract

The controlling fact is that there was agreement between the parties on the subject matter, the price
and the mode of payment and that part of the price was paid. “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” (Art. 1482,
Civil Code).
12. Non-essential changes in terms does not reject offer nor tender a counter offer
It is true that 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., 165 Fed. 2nd 965, citing Sec. 79, Williston on Contracts). Thus, it was held that 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 of a counter-offer (Stuart vs. Franklin Life
Ins. Co., supra).
13. Beaumont vs. Prieto and Zayco vs. Serra do not apply
The present case is not governed by the rulings laid down in Beaumont vs. Prieto, 41 Phil. 670, 985,
Sales, 2003 ( 280 )

63 L. Ed. 770, and Zayco vs. Serra, 44 Phil. 326. In those two cases the acceptance radically altered the offer
and, consequently, there was no meeting of the minds of the parties.
14. Zayco Case: Facts

In the Zayco case, Salvador Serra offered to sell to Lorenzo Zayco his sugar central for P1,000,000 on
condition that the price be paid in cash, or, if not paid in cash, the price would be payable within 3 years
provided security is given for the payment of the balance within three years with interest. Zayco, instead of
unconditionally accepting those terms, countered that he was going to make a down payment of P100,000,
that Serra’s mortgage obligation to the PNB of P600,000 could be transferred to Zayco’s account and that he
(plaintiff) would give a bond to secure the payment of the balance of the price. It was held that the acceptance
was conditional or was a counter-offer which had to be accepted by Serra. There was no such acceptance.
Serra revoked his offer. Hence, there was no perfected contract.
15. Beaumont case: Facts

In the Beaumont case, Benito Valdes offered to sell to W Borck the Nagtahan Hacienda owned by
Benito Legarda, who had empowered Valdes to sell it. Borck was given three months from December 4, 1911
to buy the hacienda for P307,000. On 17 January 1912 Borck wrote to Valdes, offering to purchase the
hacienda for P307,000 payable on 1 May 1912. No reply was made to that letter. Borck wrote other letters
modifying his proposal. Legarda refused to convey the property. It was held that Borck’s January 17th letter
plainly departed from the terms of the offer as to the time of payment and was a counter-offer which
amounted to a rejection of Valdes’ original offer. A subsequent unconditional acceptance could not revive that
offer.
16. Laudico and Harden vs. Arias Rodriguez does not apply
The present case is different from Laudico and Harden vs. Arias Rodriguez, 43 Phil. 270 where the
written offer to sell was revoked by the offeror before the offeree’s acceptance came to the offeror’s
knowledge.
17. 45-day period merrely an estimate and forecast, not a condition or deadline set for corporation
to decide to pursue transaction
The 45-day period was merely an estimate or a forecast of how long it would take Bormaheco to
acquire the Nassco property and it was not “a condition or a deadline set for the defendant corporation to
decide whether or not to go through with the sale of its Buendia property”. The statement “that final
negotiations on both property can be definitely known after 45 days” does not and cannot mean that
Bormaheco should acquire the Nassco property within 45 days from 12 February 1964 as pretended by
Cervantes. It is simply a surmise that after 45 days (in fact when the 45 day period should be computed is not
clear) it would be known whether Bormaheco would be able to acquire the Nassco property and whether it
would be able to sell the Buendia property. Paragraph 5 does not even specify how long after the 45 days the
outcome of the final negotiations would be known. Still, the condition that Bormaheco should acquire the
Nassco property was fulfilled. Assuming that had Cervantes been more assiduous in following up the
transaction, the Nassco property could have been transferred to Bormaheco by 28 March 1964, the supposed
last day of the 45-day period.
18. Cervantes misled parties as to ownership of the lots; Opposition of wife was not raised during
rescission
Cervantes, in rescinding the contract of sale and in returning the earnest money, cited as an excuse the
circumstance that there was no certainty in Bormaheco’s acquisition of the Nassco property. He did not say
that Mrs. Cervantes was opposed to the sale of the three lots. He did not tell Villonco Realty that he could not
bind the conjugal partnership. In truth, he concealed the fact that the three lots were registered “in the name of
Francisco Cervantes, Filipino, of legal age, married to Rosario P. Navarra, as owner thereof in fee simple”. He
certainly led the Villonco brothers to believe that as president of Bormaheco he could dispose of the said lots.
Sales, 2003 ( 281 )

He inveigled the Villoncos into believing that he had untrammelled control of Bormaheco, that Bormaheco
owned the lots and that he was invested with adequate authority to sell the same. The pleadings disclose that
Bormaheco and Cervantes deliberately and studiously avoided making the allegation that Cervantes was not
authorized by his wife to sell the 3 lots or that he acted merely as president of Bormaheco. That defense was
not interposed so as not to place Cervantes in the ridiculous position of having acted under false pretenses
when he negotiated with the Villoncos for the sale of the 3 lots. Bormaheco in its 3 answers, which were
verified by Cervantes, never pleaded as an affirmative defense that Mrs. Cervantes opposed the sale of the 3
lots or that she did not authorize her husband to sell those lots. Likewise, it should he noted that in their
separate answer the Cervantes spouses never pleaded as a defense that Mrs. Cervantes was opposed to the sale
of 3 lots or that Cervantes could not bind the conjugal partnership. The appellants were at first hesitant to
make it appear that Cervantes had committed the skullduggery of trying to sell property which he had no
authority to alienate.
19. Defense waived for not having pleaded

The defense, that Mrs. Cervantes opposed to the sale, must have been an afterthought or was evolved
post litem motam since it was never disclosed in Cervantes’ letter of rescission and in his letter to Miss Tagle.
Moreover, Mrs. Cervantes did not testify at the trial to fortify that defense which had already been waived for
not having been pleaded (See sec. 2, Rule 9, Rules of Court).
20. Plea that Cervantes has no authority to sell the lots strain the rives of credibility
Taking into account the situation of Cervantes vis-a-vis Bormaheco, Inc. and his wife and the fact that
the three lots were entirely occupied by Bormaheco’s building, machinery and equipment and were
mortgaged to the DBP as security for its obligation, and considering that appellants’ vague affirmative
defenses do not include Mrs. Cervantes’ alleged opposition to the sale, the plea that Cervantes had no
authority to sell the lots strains the rivets of credibility (Cf. Papa and Delgado vs. Montenegro, 54 Phil. 331;
Riobo vs. Hontiveros, 21 Phil. 31).
21. Contract is the law between parties

“Obligations arising from contracts have the force of law between the contracting parties and should
be complied with in good faith” (Art. 1159, Civil Code). Inasmuch as the sale was perfected and even partly
executed, Bormaheco, Inc. and the Cervantes spouses, as a matter of justice and good faith, are bound to
comply with their contractual commitments.
22. The necessity of a lawyer in drafting contract to sell

Much misunderstanding could have been avoided had the broker and the buyer taken the trouble of
making some research in the Registry of Deeds and availing themselves of the services of a competent lawyer
in drafting the contract to sell.
23. Damages not specifically pleaded and proven

Stipulation of facts simply means that Villonco Realty Company speculates that it has suffered
damages but it does not mean that the parties have agreed that Villonco Realty Company is entitled to those
damages. The damages in question were not specifically pleaded and proven and were “clearly conjectural
and speculative”.
24. Attorney’s fees due

Under the facts of the case, it is evident that Bormaheco acted in gross and evident bad faith in
refusing to satisfy the valid and just demand of Villonco Realty for specific performance. It compelled
Villonco Realty to insure expenses to protect its interest. Moreover, this is a case where it is just and equitable
that the Villonco Realty should recover attorney’s fees (Art. 2208, Civil Code).
25. Tagle is entitled to broker’s commission
Sales, 2003 ( 282 )

Paragraph 3 of the stipulation of facts and by the documentary evidence proves that Bormaheco
engaged Tagle’s services as a broker in the projected sale of the 3 lots and the improvements thereon. It was
stipulated that Miss Tagle intervened in the negotiations for the sale of the 3 lots. Cervantes in his original
offer of 12 February 1964 apprised Villonco Realty that the earnest money should be delivered to Miss Tagle,
the bearer of the letter-offer.
[118]
Yao Ka Sin Trading v. CA, 209 SCRA 763
[119]
Yu Tek v. Gonzales [G.R. No. 9935. February 1, 1915.]

First Division, Trent (J): 4 concur, 1 dissents
Facts: A written contract was executed between Basilio Gonzalez and Yu Tek and Co., where Gonzales was
st nd
obligated to deliver 600 piculs of sugar of the 1 and 2 grade to Yu Tek, within the period of 3 months (1
January-31 March 1912) at any place within the municipality of Sta. Rosa, which Yu Tek & Co. or its
representative may designate; and in case, Gonnzales does not deliver, the contract will be rescinded and
Gonzales shall be obligated to return the P3,000 received and also the sum of P1,200 by way of indemnity for
loss and damages. No sugar had been delivered to Yu Tek & Co. under this contract nor had it been able to
recover the P3,000. Yu Tek & Co. filed a complaint against Gonzales, and prayed for judgment for the P3,000
and the additional P1,200. Judgment was rendered for P3,000 only, and from this judgment both parties
appealed.
The Supreme Court affirmed the judgment appealed from with the modification allowing the recovery of
P1,200 under paragraph 4 of the contract, without costs.
1. Rights determined by the writing itself

Parties are presumed to have reduced to writing all the essential conditions of their contract. The
rights of the parties must be determined by the writing itself.
2. Parol evidence not admissible as it should not serve to incorporate additional conditions into a
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. In the present case, Gonzales
alleged that the court erred in refusing to permit parol evidence showing that the parties intended that the
sugar was to be secured from the crop which the defendant raised on his plantation, and that he was unable to
fulfill the contract by reason of the almost total failure of his crop. The case appears to be one to which the
rule which excludes parol evidence to add to or vary the terms of a written contract is decidedly applicable.
There is not the slightest intimation in the contract that the sugar was to be raised by Gonzales. In the
contract, Gonzales undertook to deliver a specified quantity of sugar within a specified time. The contract
placed no restriction upon him in the matter of obtaining the sugar, as he was at liberty to purchase it on the
market or raise it himself, notwithstanding that he owned a plantation himself.
3. Cases where parol evidence was denied by the Court

In Pastor v. Gaspar (2 Phil 592) the Court declined to allow parol evidence showing that a party to a
written contract was to become a partner in a firm instead of a creditor of the firm. In Eveland vs. Eastern
Mining Co. (14 Phil 509) a contract of employment provided that the plaintiff should receive from the
Sales, 2003 ( 283 )

defendant a stipulated salary and expenses The defendant in said case sought to interpose as a defense to
recovery that the payment of the salary was contingent upon the plaintiff’s employment redounding to the
benefit of the defendant company. The contract contained no such condition and the court declined to receive
parol evidence thereof.
4. Perfected contract of sale defined; Relief for non-delivery

Article 1450 defines a perfected sale as follows: “The sale shall be perfected between vendor and
vendee and shall be binding on both of them, if they have agreed upon the thing which is the object of the
contract and upon the price, even when neither has been delivered.” Article 1452 provides that “the injury to
or the profit of the thing sold shall, after the contract has been perfected, be governed by the provisions of
articles 1096 and 1182.” There is a perfected sale with regard to the “thing” whenever the article of sale has
been physically segregated from all other articles.
5. Perfected sale; Cases

In McCullough vs. Aenlle & Co. (3 Phil 285), a particular tobacco factory with its contents was held
sold under a contract which did not provide for either delivery of the price or of the thing until a future time.
In Barretto vs. Santa Marina (26 Phil 200), specified shares of stock in a tobacco factory were held sold by a
contract which deferred delivery of both the price and the stock until the latter had been appraised by an
inventory of the entire assets of the company. In Borromeo vs. Franco (5 Phil. Rep., 49) a sale of a specific
house was held perfected between the vendor and vendee, although the delivery of the price was withheld
until the necessary documents of ownership were prepared by the vendee. In Tan Leonco vs. Go Inqui (8
Phil. Rep., 531) the plaintiff had delivered a quantity of hemp into the warehouse of the defendant. The
defendant drew a bill of exchange in the sum of P800, representing the price which had been agreed upon for
the hemp thus delivered. Prior to the presentation of the bill for payment, in said case, the hemp was
destroyed. Whereupon, the defendant suspended payment of the bill. It was held that the hemp having been
already delivered, the title had passed and the loss was the vendee’s. It is our purpose to distinguish the case at
bar from all these cases.
6. Contract in present case merely an executory agreement: a promise of sale and not a sale
The contract in the present case was merely an executory agreement; a promise of sale and not a sale.
As there was no perfected sale, it is clear that articles 1452, 1096, and 1182 are not applicable. The
agreement upon the “thing” which was the object of the contract was not within the meaning of article 1450.
Sugar is one of the staple commodities of this country. For the purpose of sale its bulk is weighed, the
customary unit of weight being denominated a ‘’picul.’’ There was no delivery under the contract. If called
upon to designate the article sold, it is clear that Gonzales could only say that it was “sugar.” He could only
use this generic name for the thing sold. There was no “appropriation” of any particular lot of sugar. Neither
party could point to any specific quantity of sugar.
7. Present case different from cases cited with perfected contracts

The contract in the present case is different from the contracts discussed in the cases referred to. In
the McCullough case, for instance, the tobacco factory which the parties dealt with was specifically pointed
out and distinguished from all other tobacco factories. So, in the Barretto case, the particular shares of stock
which the parties desired to transfer were capable of designation. In the Tan Leonco case, where a quantity of
hemp was the subject of the contract, it was shown that quantity had been deposited in a specific warehouse,
and thus set apart and distinguished from all other hemp.
8. American jurisprudence; Executory contracts

In Witt Shoe Co. vs. Seegars & Co. (122 La., 145; 47 Sou., 444), a contract was entered into by a
traveling salesman for a quantity of shoes, the sales having been made by sample. Since Mitchell was offering
to sell by sample shoes, part of which had not been manufactured and the rest of which were incorporated in
Witt Shoe Co.’s stock in Lynchburg, Va., it was impossible that he and Seegars & Co. should at that time have
Sales, 2003 ( 284 )

agreed upon the specific objects, the title to which was to pass, and hence there could have been no sale.
In State vs. Shields, et al. (110 La., 547, 34 Sou., 673), it was held that in receiving an order for a quantity of
goods, of a kind and at a price agreed on, to be supplied from a general stock, warehoused at another place,
the agent receiving the order merely enters into an executory contract for the sale of the goods, which does
not divest or transfer the title of any determinate object, and which becomes effective for that purpose only
when specific goods are thereafter appropriated to the contract; and, in the absence of a more specific
agreement on the subject, that such appropriation takes place only when the goods as ordered are delivered to
the public carriers at the place from which they are to be shipped, consigned to the person by whom the order
is given, at which time and place, therefore, the sale is perfected and the title passes.”
9. American jurisprudence: Recovery of payment; Applicability to present case

In Larue & Prevost vs. Rugely, Blair & Co. (10 La. Ann., 242), the defendants therein had made a
contract for the sale, by weight, of a lot of cotton, had received $3,000 on account of the price, and had given
an order for its delivery, which had been presented to the purchaser, and recognized by the press in which the
cotton was stored, but that the cotton had been destroyed by fire before it was weighed. It was held that it was
still at the risk of the seller, and that the buyer was entitled to recover the $3,000 paid on account of the price.
Similarly, in the present case, Gonzales having defaulted in his engagement, Yu Tek & Co. is entitled to
recover the P3,000 which it advanced to Gonzales.
10. Contracting parties free to stipulate; Stipulation clear, no room for interpretation; Liquidated
damage
The contract plainly states that if Gonzales fails to deliver the 600 piculs of sugar within the time
agreed on, the contract will be rescinded and 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 the meaning of
this language or the intention of the parties. There is no room for either interpretation or construction. Under
the provisions of article 1255 of the Civil Code contracting parties are free to execute the contracts that they
may consider suitable, provided they are not in contravention of law, morals, or public order. In our opinion
there is nothing in the contract under consideration which is opposed to any of these principles. Thus, this is a
clear case of liquidated damages.
[120]
Yuviengco v. Dacuycuy, 104 SCRA 668 (1981)
[121]
Zayas vs. Luneta Motor Company [G.R. No. L-30583. October 23, 1982.]
First Division, Gutierrez Jr. (J): 5 concur
Facts: Eutropio Zayas, Jr. purchased on installment basis a Ford Thames Freighter with PUH Body (Engine
400E-127738 and Chassis 400E-127738) from Mr. Roque Escaño of the Escaño Enterprises in Cagayan de
Oro City, dealer of Luneta Motor Company (Conditions: Selling price, P 7,500.00; Financing charge,
1,426.82; Total Selling Price, 8,926.82; Payable on Delivery, 1,006.82; Payable in 24 months at 12 % interest
per annum, 7,920.00) The motor vehicle was delivered to the Zayas who paid the initial payment in the
amount of P1,006.82, and executed a promissory note in the amount of P7,920.00, the balance of the total
selling price, in favor of Luneta Motor Company. The promissory note stated the amounts and dates of
payment of 26 installments covering the P7,920.00 debt. Simultaneously with the execution of the promissory
note and to secure its payment, Zayas executed a chattel mortgage on the subject motor vehicle in favor of
Luneta Motors. After paying a total amount of P3,148.00, Zayas was unable to pay further monthly
installments prompting the Luneta Motors to extrajudicially foreclose the chattel mortgage. The motor vehicle
was sold at public auction with the Luneta Motors represented by Atty. Leandro B. Fernandez as the highest
Sales, 2003 ( 285 )

bidder in the amount of P5,000.00.
Since the payments made by Zayas plus the P5,000.00, realized from the foreclosure of the chattel mortgage
could not cover the total amount of the promissory note executed by Zayas in favor of the respondent Luneta
Motors, the latter filed Civil Case 165263 with the City Court of Manila for the recovery of the balance of
P1,551.74 plus interests. After several postponements, the case was set for hearing. As a result of Luneta
Motor’s and its counsel’s non-appearance on the date set for hearing, Zayas, Jr. moved to have the case
dismissed for lack of interest on the part of Luneta Motors. He also asked the court to allow him to discuss the
merits of his affirmative defense as if a motion to dismiss had been filed. The issue raised and argued by
Zayas was whether or not a deficiency amount after the motor vehicle, subject of the chattel mortgage, has
been sold at public auction could still be recovered. Zayas cited the case of Ruperto Cruz v. Filipinas
Investment (23 SCRA 791). Acting on the motion, the case was dismissed without pronouncement as to costs.
Luneta Motor Company filed an “Urgent Motion for Reconsideration,” which the court denied for lack of
merit.
Luneta Motor Company appealed the case to the CFI Manila (Branch XXXI, presided by Judge Juan O.
Reyes; Civil Case 74381). After various incidents, the CFI issued an order remanding the case to the court of
origin for further proceedings at it is in the opinion that the City Court should have not decided the case
merely on the question of law since the presentation of evidence is necessary to adjudicate the questions
involved. Hence, the petition for review by certiorari filed by Zayas.
The Supreme Court granted the petition, annulled the orders remanding the case to the court of origin and
denying the motion for reconsideration of the CFI Manila, directed the CFI to dismiss the appeal in Civil Case
74381, and affirmed the order of the City Court of Manila dismissing the complaint in Civil Case 165263.
1. Escano Enterprises an agent of Luneta Motor Company

The Escaño Enterprises of Cagayan de Oro City was an agent of Luneta Motor Company. A very
significant evidence which proves the nature of the relationship between Luneta Motor Company and Escaño
Enterprises is a certification from the cashier of Escaño Enterprises on the monthly installments paid by Mr.
Eutropio Zayas, Jr. In the certification, the promissory note in favor of Luneta Motor Company was
specifically mentioned. There was only one promissory note executed by Eutropio Zayas, Jr. in connection
with the purchase of the motor vehicle. The promissory note mentioned in the certification refers to the
promissory note executed by Eutropio Zayas, Jr. in favor of Luneta Motor Company. Thus, Escaño
Enterprises, a dealer of Luneta Motor Company, was merely a collecting-agent as far as the purchase of the
subject motor vehicle was concerned. The principal and agent relationship is clear. Luneta Motors’ argument
that Escano Enterprises is a distinct and different entity, that its role in the said transaction was only to finance
the purchase price of the motor vehicle; that in order to protect its interest as regards the promissory note
executed in its favor, a chattel mortgage covering the same motor vehicle was executed by Zayas; and thus
that the contract between the parties was only an ordinary loan removed from the coverage of Article 1484 of
the New Civil Code; is without merit.
2. Nature of transaction remains to be a sale of personal property in installment covered by Article

1484
Even assuming that the “distinct and independent entity” theory of Luneta Motors is valid, the nature
of the transaction as a sale of personal property on installment basis remains. When, therefore, Escaño
Enterprises, assigned its rights vis-a-vis the sale to Luneta Motors, the nature of the transaction involving
Escaño Enterprises and Eutropio Zayas, Jr. did not change at all. As assignee, Luneta Motors had no better
rights than assignor Escaño Enterprises under the same transaction. The transaction would still be a sale of
personal property in installments covered by Article 1484 of the New Civil Code.
Sales, 2003 ( 286 )

Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages over personal property
sold on installment basis, 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: (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. Foreclosure and actual sale of a mortgaged chattel bars further recovery of balance by vendor
The foreclosure and actual sale of a mortgaged 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.’” (Cruz v. Filipinas Investment & Finance Corporation 23 SCRA 791)
5. No need for remand of records to city court

The Court’s findings and conclusions are borne out by the records available to the appellate court.
There was no necessity for the remand of records to the city court for the presentation of evidence on the issue
raised in the case.
Sales, 2003 ( 287 )

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Haystacks

Michael Vernon Guerrero Mendiola

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Acap vs. CA [GR 118114, 7 December 1995] …......... 1

Babasa vs. CA [GR 124045, 21 May 1998] …......... 31

Coronel vs. Ona [GR 10280, 7 February 1916] …......... 68

Dizon vs. CA, 302 SCRA 288 …......... [unavailable]

Estoque vs. Pajimula [GR L-24419, 15 July 1968] …......... 117

Mate vs. CA [G.R, Nos, 120724-25, 21 May 1998] …......... 158

Noel vs. CA [GR 59550, 11 January 1995] …......... 176

Vda, De Gordon vs. CA [GR L-37831, 23 November 1981] …......... 258

This collection contains one hundred three (103)

Berne Guerrero entered AUSL in June 2002

Acap v. CA [G.R. No. 118114. December 7, 1995.]

2. Classes of modes of acquiring ownership

3. Contract of Sale; “Declaration of Heirship and Waiver of Rights” an extrajudicial settlement

4. Sale of hereditary rights and waiver of hereditary rights distinguished

Acap to tenanted land without corresponding proof thereof

Adalin vs. CA [G.R. No. 120191. October 10, 1997.]

4. No legal rationalizing can sanction Palanca’s arbitrary breach of contract

6. Palanca and tenants estopped

7. Subsequent sale clearly made in bad faith

Addison vs. Felix [G.R. No. 12342. August 3, 1918.]

2. “Fulfillment of condition impossible for reason imputable to party” not presented

3. Tradition / Delivery by the vendor of the thing sold

4. Delivery, according to Dalloz

5. Execution of a public instrument, when sufficient

7. Rescission of sale and return of price due to non-delivery of thing sold

8. Possession while land is being registered contemplated in contract

9. Legal interest due as rescission is made by virtue of provisions of law

Adelfa Properties vs. CA [G.R. No. 111238. January 25, 1995.]

2. Intent not to transfer ownership need not be expressed

3. No actual or constructive delivery of property to indicate contract of sale; Circumstances

4. Perfected contract to sell

8. Distinction between an option and a contract of sale

9. Acceptance; formal or informal

10. Contract clear, only performance of obligations required of parties

12. Test to determine contract as a “contract of sale or purchase” or mere “option”

13. Option agreement

14. Contract not an option contract; “Balance”

15. When earnest money given in a contract of sale

17. Article 1590, New Civil Code

22. Rescission in a contract to sell

24. Adelfa estopped

2. Preferential right of first to register

3. Purchaser in good faith

6. Cabautan a purchaser in good faith and for value

7. No evidence of alleged possession by AHDG

8. Casis vs. CA not applicable; Different issues

11. Language of Article 1544 clear; Cabautan deemed owner

Almendra vs. IAC [G.R. No. 75111. November 21, 1991.]

2. No proof that price (P2,000) was grossly inadequate

3. Defendants proved they have means to purchase the properties

5. Paraphernal property; Sale valid

Ang Yu Asuncion, et.al. vs. CA [G.R. No. 109125. December 2, 1994.]

3. Contract as a source of obligation

4. Various stages of a contract: Negotiation, preparation, and consummation

5. Perfection of a contract of sale

6. Contract to sell is conditional; Effect of breach of condition

8. Unconditional mutual promise to buy and sell obligatory on the parties

9. Perfected contract of option

10. Option not the contract of sale itself