LAW 103 SALES | PROF.

CHAN 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

LAW 103
SALES LAW
PROF. GERARD L. CHAN
 
 
 
 
 
 
 

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 LAW 103 SALES | PROF. CHAN 2
 
This reviewer is a compilation of the

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I. Introduction
A. Essential Requirements of Contracts
Art. 1305 A contract 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. (1254a)
Art. 1306 The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1255a)
Art. 1318 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;
(3) Cause of the obligation which is established. (1261)
Art. 1356 Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential
requisites for their validity are present. However, when the law
requires that a contract be in some form in order that it may be
valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable. In such
cases, the right of the parties stated in the following article
cannot be exercised. (1278a)
B. Definitions
1. Contract of Sale
Art. 1458 By the contract of sale one of the contracting parties
obligates himself to transfer the ownership 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. (1445a)
Characteristics of a Contract of Sale:
1. Consensual
2. Bilateral - correlative obligations: seller to deliver and
transfer ownership; buyer to pay the price
3. Onerous
4. Commutative - thing sold is considered the equivalent of
the price paid; but can also be aleatory (sweepstakes)
5. Nominate
6. Principal
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Essential Requisites of a Contract of Sale:
1. Consent or meeting of the minds (parties must have legal
capacity)
- Acceptance of payment indicates consent
- Exceptions to consent on the part of the owner of
property:
o Expropriation
o Ordinary execution sale
o Judicial foreclosure
o Extra-judicial foreclosure
Sale of conjugal party requires consent of both
-
husband and wife (absence: void; vitiation: voidable)
2. Object or subject matter
- Determinate or capable of being made determinate
- If seller and buyer differ in regard to the thing sold, no
meeting of minds
- Covers real and personal property
3. Cause or consideration
- Price certain in money or its equivalent (check or
promissory note; does not include goods/merchandise)
- However, "equivalent" has been interpreted to mean
that payment need not be in money; thing given as
payment has been assessed and its price equivalent in
terms of money has been determined
- Price must be real, not fictitious; otherwise, sale is void
and is actually a donation or another contract
Natural and Accidental Elements:
1. Natural - those which are deemed to exist in certain
contracts, in the absence of any contrary stipulations, like
warranty against eviction (Art. 1548) or hidden defects (Art.
1561)
2. Accidental - those which may be present or absent
depending on the stipulations of the parties, like
conditions, interest, penalty, time or place of payment, etc.
Absence of Price/Non-payment of price.
- Where prices are mere estimates, transaction lacks essential
requisite of sale
- Failure to pay price does not by itself dissolve a contract of
sale in the absence of any express agreement that payment
on time is essential
Transfer of Title to Property for a Price, Essence of
Sale.
Payment of price not essential to transfer of ownership so
-
long as property has been delivered; Delivery operates to
divest the vendor of title and can only be regained when
contract is resolved or rescinded
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Kinds of Contract of Sale: Rescission Remedy of rescission Remedy in Art. 1191
1. As to presence or absence of conditions of contract applies (rescission) not applicable;
a. Absolute but act of not informing
- Sale not subject to any condition and title of the buyer in a contract to
property passes to buyer upon actual or sell of his intention to sell
constructive delivery property to other
- Condition must be that which affects the efficacy interested parties if buyer
of the contract of sale or prevents the contract fails to pay balance is
from being in full force and effect sufficient notice for the
b. Conditional cancellation or resolution
- Sale contemplates a contingency and where of contract
contract is subject to certain conditions (e.g.
vendee: full payment; vendor: fulfillment of certain
Contract to Sell vs. Conditional Sale
warranties)
Contract to Sell Conditional Sale
- If condition is imposed on an obligation of a party
not upon the perfection of the contract itself, Transfer Seller explicitly reserves Seller may likewise
which is not complied with, other party may either of title to the transfer of title and reserve title to the
refuse to proceed or waive condition the buyer therefore, does not yet property until
2. Other kinds - As to the nature of the subject matter, manner consent to a transfer of fulfillment of
of payment of price, as to its validity ownership of property. suspensive condition.
Upon fulfillment of If condition not
Contract of Sale vs. Contract to Sell condition (to pay full fulfilled, perfection of
Contract of Sale Contract to Sell price), ownership will not contract is abated; if
automatically transfer fulfilled, it is perfected
Transfer of Title passes to buyer Where it is stipulated that
although property has and if the subject of
title upon delivery ownership in the thing
been previously the sale has already
shall not pass to the
delivered. Seller still has been delivered,
purchaser until he has
to convey title by ownership
fully paid the price,
executing a contract of automatically transfers
ownership is reserved in
absolute sale by operation of law
the seller and is not pass
Sale of There being no previous Upon fulfillment of
until the full payment
subject sale of property, third suspensive condition,
Payment Non-payment is a Full payment is a positive
property person buying such sale becomes
of price negative resolutory suspensive condition,
to a third property despite absolute. A second
condition; remedy is failure of which is not a
person fulfillment of suspensive buyer who knows or
to exact fulfillment or breach but simply an
condition to pay in full, ought to know the
to rescind event that prevents the
cannot be considered as defect in seller's title is
vendor to convey title
a buyer in bad faith. Title not a registrant in
from acquiring binding
of property transfers to good faith. In case title
force (e.g. seller promises
the buyer upon is issued to second
to execute a deed of
registration as there is no buyer, first buyer may
absolute sale upon full
defect in the owner- seek reconveyance of
payment)
seller's title per se. property.
Ownership Vendor has lost and Title remains in the
Prospective buyer cannot
of vendor cannot recover vendor if vendee does not
seek relief of
ownership of the comply with condition
reconveyance of property
thing sold and precedent of making
but may file for damages
delivered, actually or payment at the time
constructively specified

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Other Cases in Contract to Sell:
- Subject matter not determinate or price not certain,
agreement is merely a contract to sell. For purposes of
perfection of contract of sale, there is already a price
certain where the determination of the price is left to the
judgment of specified person/s
- Act of vendor delivering the possession of property to the
vendee contemporaneous with the contract was an
indication that an absolute sale was intended.
Notes from Baviera
CONTRACT OF PURCHASE AND SALE
- One where a contracting party obligates himself to deliver a
determinate thing and the other to pay a certain price
therefor in money or in something representing it (Spanish
Civil Code of 1889)
SALE OF GOODS
- Agreement whereby the seller transfers the property in
goods to the buyer for a consideration called the price
(Uniform Sales Act of 1906)
CONTRACT OF SALE
- Contract where one of the 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 (New Civil Code, 1950)
CONTRACT FOR SALE
- Includes a present sale of goods and a contract to sell
goods at a future time (Uniform Commercial Code of the
US, 1952)
SALE
- Passing of title from seller to the buyer for a price (Uniform
Commercial Code of the US, 1952)
Spouses Herrera v. Caguiat
FACTS:
1. Spouses Onnie and Amparo Herrera are the registered
owners of a lot in Las Piñas
2. Mar. 1990: Godofredo Caguiat offered to buy the lot, and
the spouses agreed to sell it at P1500 per sq. meter
3. Caguiat gave P100,000 as partial payment, and spouses
gave a receipt, stating that Caguiat promised to pay the
balance on or before Mar. 23, 1990
4. Mar. 28, 1990: Caguiat, through counsel Atty. Espiritu,
wrote spouses of his readiness to pay the balance of the
contract price and requested them to prepare the final
deed of sale
5. Apr. 4, 1990: Spouses, through counsel Atty. Lopez, sent a
letter to Caguiat stating that Amparo Herrera is leaving on
or before Apr. 15, 1990, and that they are cancelling the
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transaction; told Caguiat he can recover the earnest money
of P100,000 anytime
6. Apr. 6, 1990: Spouses told Caguiat that they delivered to his
counsel PNB Manager’s Check for P100,000 payable to him
7. Caguiat filed a complaint with RTC Makati, for specific
performances and damages
8. June 27, 1994: TC found there was a perfected contract of
sale, and ordered spouses to execute a final deed of sale
- Cited Art. 1482 – that earnest money paid is proof of
the perfection of the contract
- Caguiat was also first to react to show eagerness to
push through with the sale
- Allegation that it was Caguiat who did not appear on
Mar. 23 (due date of balance) is unavailing
9. Jan. 29, 1999: CA affirmed the TC’s judgment; MR by
spouses denied; this petition
ISSUE/S:
1. WON the document entitled “Receipt for Partial Payment”
signed by both parties is a contract to sell or a contract of
sale
2. WON the SC can disturb the findings of fact of lower courts
HELD:
1. Court held: It is a contract to sell
- PETs: Receipt is NOT a perfected contract, and delivery of
P100,000 cannot be considered as proof of perfection
because there was no clear agreement as to the amount of
consideration
- In San Miguel Properties Philippines, Inc. v. Spouses Huang:
stages of a contract of sale are: (1) negotiation,
covering the period from the time the prospective
contracting parties indicate interest in the contract to the
time the contract is perfected; (2) perfection, which takes
place upon the concurrence of the essential elements of
the sale, which is the meeting of the minds of the parties as
to the object of the contract and upon the price; and (3)
consummation, which begins when the parties perform
their respective undertakings under the contract of sale,
culminating in the extinguishment thereof
- It is a canon in the interpretation of contracts that the words
used therein should be given their natural and ordinary
meaning
- SC: There can be no other interpretation than that they
agreed to a conditional contract of sale,
consummation of which is subject only to the full payment
of the purchase price
- A contract to sell is akin to a conditional sale where the
efficacy or obligatory force of the vendor’s obligation to
transfer title 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 never existed

- The suspensive condition is commonly full payment of the
purchase price
- In Sing Yee v. Santos: In the first case [contract of sale], non-
payment of the price is a negative resolutory condition; in
the second case [contract to sell], full payment is a positive
suspensive condition; … in the second case, the title
remains in the vendor if the vendee does not comply with
the condition precedent
- SC: In a contract to sell, ownership is retained by the seller
and is not to pass to the buyer until full payment of the
price
- SC: “Receipt for Partial Payment” shows that the true
agreement is a contract to sell:
1. Ownership was retained by PETs and was not to pass
to RESP until full payment of the purchase price
- PETs have the right to rescind unilaterally the
moment RESP fails to pay within the fixed period
2. Agreement between parties was not embodied in a
deed of sale and absence of a formal deed is a strong
indication that the parties did not intend the
immediate transfer of ownership, but only a transfer
after full payment of the purchase price
3. PETs retained possession of the certificate of title of
the lot, which is another indication that the agreement
did not transfer to RESP, either by actual or
constructive delivery, ownership of the property
- SC: In this case, the earnest money was given in a contract
to sell, and Art. 1482 does not apply; RESP cannot compel
PETs to transfer ownership of property to him
2. Court held: YES
- Generally, the findings are entitled to great weight; they
shouldn’t be disturbed EXCEPT for cogent reasons
- They cannot be changed on appeal in the absence of a
clear showing that the trial court overlooked, disregarded,
or misinterpreted some facts of weight and significance,
which if considered would have altered the result of the
case
- SC: We find that both the TC and the CA interpreted some
significant facts resulting in an erroneous resolution of the
issue involved
Nabus v. Pacson
FACTS:
a. Spouses Bate and Julie Nabus were the owners of parcels
of land in Pico, La Trinidad, Benguet
b. Said property was mortgaged by the spouses Nabus to
PNB to secure a P30,000 loan
3. Feb. 19, 1977: Spouses Nabus executed a Deed of
Conditional Sale in favor of Spouses Pacson for P170,000,
which was duly notarized
4. Feb. 22, 1977: Spouses Pacson paid PNB the amount of
P12,038.36 (and the balance of P20,744.30 on July 17, 1978)
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- At the time of the transaction, Mr. Marcos Tacloy had a
basket-making shop, and spouses Delfin and Nelita
Flores had a store; both vacated the property after
spouses Pacson paid them P4,000 each
5. Spouses Pacson took possession of the property,
constructed a building and a steel-matting fence for their
truck-body-building shop
6. Dec. 24, 1977: Before payment of the balance, Bate Nabus
died
7. Aug. 17, 1978: His surviving spouse, Julie, and their minor
daughter, Michelle, executed a Deed of Extra Judicial
Settlement, and a title was issued in their names
8. Spouses Pacson continued paying balance over almost 7
years, with a total of 364 receipts of payment, mostly signed
by Julie Nabus, and with a total amount of P112,445.16,
which left a balance of P57,544.84
9. Last week of Jan. 1984: Julie Nabus approached Joaquin
Pacson for full payment of the lot, which he agreed to pay,
but told her to return after 4 days as his daughter would go
over receipts to determine amount
- When Julie returned, Joaquin sent her and his
daughter Catalina to Atty. Rillera for the execution of
deed of absolute sale
- Since Julie was a widow with a minor daughter, she was
required to return in 4 days with the necessary
documents, such as deed of extrajudicial settlement,
TCT in their names, and guardianship papers of
Michelle
- Julie DID NOT RETURN
10. Catalina Pacson went to the Register and asked for a copy
of the title and found it was still in their name
- After a week, she heard a rumor that it was already sold
to Betty Tolero (P)
11. Catalina and Atty. Rillera went to the Register and found
that Nabuses had executed a Deed of Absolute Sale to
Betty Tolero on Mar. 5, 1984, and that the TCT in their
name was cancelled and one issued in Betty’s name
12. Mar. 22, 1984: Gate to the repair shop was padlocked
- Mar. 26, 1984: Catalina Pacson filed an affidavit-
complaint about the padlocking
13. Mar. 26, 2008: REPs Pacson filed with RTC La Trinidad a
complaint for Annulment of Deeds with damages and writ
of preliminary injunction
- Nabuses alleged that Joaquin Pacson did not proceed
with the conditional sale of the property when he
learned there was a pending case, and he proposed he
just lease it
- Julie admitted she sold the property because she was
in need of money, but that she was free to sell it
because the Deed of Conditional Sale was converted
into a contract of lease
- Betty Tolero said she was a purchaser in good faith and
that she knew of the shop of spouses Pacson but not
that there was a Deed of Conditional Sale in their favor

14. TC ruled in favor of RESPs ordering Tolero to execute a
deed of absolute sale in favor of spouses Pacson:
a. Deed of Conditional Sale was not converted into a
contract of lease; it contained reciprocal obligations
- When the spouses Pacson were already ready to
pay the balance, it was the obligation of the
vendors Nabuses to execute the transfer
documents
b. Betty Tolero not a purchaser in good faith because she
had knowledge of the sale
c. The Deed of Conditional Sale contained reciprocal
obligations between the parties
- When the spouses Pacson were ready to pay their
balance, it was the corresponding obligation of
the Nabuses to execute the transfer documents
- Under Art. 1911, CC, an injured party may choose
between fulfillment or rescission; spouses Pacson
opted for the fulfillment, or the execution of the
Deed
15. Pacsons appealed to the CA
- Nov. 28, 2003: CA affirmed the TC’s decision
ISSUE/S:
1. WON the Deed of Conditional Sale was converted into a
contract of lease
2. WON the Deed of Conditional Sale was a contract to sell or
a contract of sale
HELD:
1. Court held: NO, it was not converted into a
contract of lease
- The 364 receipts issued contained the phrases “as partial
payment” or “cash vale (partial payment)” evidencing sale
under the contract and not lease
- Joaquin’s non-signing of the 2nd page of the carbon copy,
was through sheer inadvertence, because he signed the
original contract and other copies of it as well
2. Court held: It was a contract to sell
- PETs: the contract was a contract to sell, not a contract of
sale; it was subject to the suspensive condition of full
payment of the consideration, and since RESPs failed to
pay, the obligation to execute the Deed did not arise and
the subsequent Deed to Betty Tolero was valid
- PETs: RESPs violated the stipulated condition that the
monthly installment was P2,000 (they gave as low as P10)
- PETs: RESPs allegation that Julie’s failure to bring the
pertinent documents necessary for execution of the final
deed was their reason for not having paid the balance was
a lame and shallow excuse for violation of the Deed of
Conditional Sale
- SC: The Court holds that the contract entered into by the
Spouses Nabus and respondents was a contract to sell, not
a contract of sale
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- Art. 1458 defines a contract of sale: 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
- In Ramos v. Heruela (absolute v. conditional): “A contract of
sale is absolute when title to the property passes to the
vendee upon delivery of the thing sold. A deed of sale is
absolute when there is no stipulation in the contract that
title to the property remains with the seller until full
payment of the purchase price. The sale is also absolute if
there is no stipulation giving the vendor the right to cancel
unilaterally the contract the moment the vendee fails to pay
within a fixed period. In a conditional sale, as in a contract
to sell, ownership remains with the vendor and does not
pass to the vendee until full payment of the purchase price.
The full payment of the purchase price partakes of a
suspensive condition, and non-fulfillment of the condition
prevents the obligation to sell from arising.”
- In Coronel v. CA (to sell v. of sale): “Under this definition, a
Contract to Sell may not be considered as a Contract of
Sale because the first essential element is lacking. 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 we shall take as 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-fulfilment 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. xxx
A contract to sell may thus 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.
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.”
- SC: It is not the title of the contract, but its express terms or
stipulations that determine the kind of contract entered
into by the parties. In this case, the contract entitled “Deed
of Conditional Sale” is actually a contract to sell.

- The contract stipulated that “as soon as the full
consideration of the sale has been paid by the vendee, the
corresponding transfer documents shall be executed by the
vendor to the vendee for the portion sold.” – shows that
the vendors reserved title to the subject property until full
payment of the purchase price.
- Where the vendor promises to execute a deed of absolute
sale upon the completion by the vendee of the payment of
the price, the contract is only a contract to sell.
- If the spouses Pacson paid the spouses Nabus in
accordance with the stipulations, the consideration would
have been fully paid in June 1983
- Pacsons should have protected their interest and inquired
why Julie did not return, and then followed through with full
payment and the execution of the deed – they even had
the legal remedy of consigning, but they did not do so
- SC: Since the Deed was merely a contract to sell, the
obligation to sell becomes demandable only upon the
happening of the suspensive condition; full payment of the
purchase price is the positive suspensive condition, 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
- SC: The TC erred in applying Art. 1191
- SC: Julie Nabus validly conveyed the subject property to
Betty Tolero through a contract of absolute sale; spouses
Pacson have the right to reimbursement of their payment to
the Nabuses and the award of nominal damages (because
Julie violated the duty to respect the Pacsons’ right)
Reyes v. Tuparan
FACTS:
1. Mila Reyes alleges she is the registered owner of a 1274 sq.
meter residential and commercial lot in Karuhatan,
Valenzuela, and that she put up a 3-storey commercial
building (RBJ Building) and a residential apartment building
2. Since 1990, she had been operating a drugstore and
cosmetics store no the ground floor, while other areas were
leased and occupied by tenants
3. Dec. 1989: Victoria Tuparan leased a space on the ground
floor for her pawnshop business for a monthly rental of
P4,000, and a close friendship developed (Tuparan invested
in Reyes’ financing/lending business)
4. June 20, 1988: Reyes mortgaged the properties to Farmers
Savings Bank and Loan Bank to secure a loan of P2-M
5. Nov. 15, 1990: Her outstanding account reached
P2,278,078.13, and she decided to sell her real properties
for P6.5-M
- Tuparan offered to conditionally buy for P4.2-M in
installments and to assume the bank loan
- One of the conditions was that Tuparan would
undertake the renewal and payment of the fire
insurance policies
- Reyes verbally accepted
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6. Nov. 26, 1990: Parties and FSL Bank executed the Deed of
Conditional Sale of Real Properties with Assumption of
Mortgage, but did not reduce into writing the other terms
- Tuparan was bound to pay a lump sum of P1.2-M, with
3 fixed installments of P200K (Jan 31, 1991), P200K
(June 30, 1991) and P800K (Dec. 31, 1991)
- Tuparan defaulted on the due dates but paid in small
amounts from time to time
7. Aug. 31, 1992: Tuparan had only paid P395K, with a balance
of P805K as principal and P466,893.25 as unpaid
accumulated interest
- That despite Reyes finding a prospective period, as
agreed, Tuparan reneged on her promise to allow the
cancellation of their deed
Still, Reyes agreed to Tuparan owning the subject
properties because of their friendship
8. Mar. 19, 1992: The residential building was gutted by fire
causing Reyes to lose rental income since April 1992
(Tuparan neglected to renew the fire insurance policy)
- Since Dec. 1990, Tuparan had taken possession of the
real properties and had been continuously collecting
rent without sharing with Reyes
9. Sept. 2, 1992: Tuparan offered the amount of P751K as full
payment of the purchase price and demanded the
corresponding deed of absolute sale
- RESP: the agreement was a pure and absolute contract
of sale with a term, not a conditional sale because it
did not depend upon a future and uncertain event
- RESP: that PET’s claim for the balance was baseless
and unwarranted because the full amount of the
purchase price had been paid
10. Feb. 22, 2006: RTC found that Tuparan failed to pay in full
the P4.2-M purchase price leaving a balance of P805K
- It also considered the Deed as a contract to sell, not a
contract of sale, and that although Reyes was entitled
to rescission, it could not be permitted because non-
payment “may not be considered as substantial and
fundamental breach of the contract”
- It would be more equitable to allow her to pay the
balance plus interest within a given period
11. Feb. 13, 2009: CA affirmed the RTC decision
ISSUE/S:
WON there could be rescission of the Deed of Conditional Sale
with Assumption of Mortgage
HELD: NO rescission, it is a contract to sell
- PET: The deed is a reciprocal obligation, she was rescinding
pursuant to Art. 1191, and there was no slight or casual
breach because there was deliberate failure to comply with
the obligation

- RESP: The deed is a contract to sell and not a contract of
sale, because the title remains with the PET; however,
inability to pay the full balance is not a substantial and
fundamental breach
- SC: It is a contract to sell and not a contract of sale because
title and full ownership remains with the PET until the RESP
fully pays the balance of the purchase price and the
assumed mortgage obligations; thereafter, FSL shall issue
the deed of cancellation of mortgage and PET will issue the
deed of absolute sale
- SC: PET’s obligation to sell the subject properties becomes
demandable only upon the happening of the positive
suspensive condition (RESP’s full payment of the purchase
price); without full payment, there can be no breach
because PET has no obligation yet to turn over the title
- SC: RESP’s failure to pay is not the breach of contract
contemplated under Art. 1191 but rather just an event that
prevents the PET from being bound to convey title
- In Heirs of Atienza v. Espidol: “there can be no rescission of
an obligation (to turn over title) that did not yet exist since
the suspensive condition had not taken place”
- SC: Granting that a rescission can be permitted, the Court
still cannot allow it for the reason that there was only a
slight or casual breach; since RESP paid the substantial
amount of P3.4-M out of the P4.2-M, leaving a balance of
P805K, it is right and just to allow her to settle, within a
reasonable period of time, the balance of the unpaid
purchase price
- SC: RESP showed her sincerity and willingness to comply
with the obligation when she offered to pay the P751K
2. Contract to Sell
Art. 1478 The parties may stipulate that ownership in the thing
shall not pass to the purchaser until he has fully paid the price.
(n)
Ownership of Thing Transferred by Delivery.
1. Necessity of delivery
• Contract is consummated by delivery of thing sold,
either actual, or constructive
2. Purchase on credit
• Ownership passes upon delivery, even if purchase has
been made on credit
3. Non-payment of purchase price
• Payment not essential to the transfer of ownership. It
only creates a right to demand payment, rescind
contract, or criminal prosecution
4. Presence of intention to deliver
• Act of delivery must be couples with intention of
delivering
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Exceptions to the Rule:
1. Contrary stipulation
- Pactum reservati dominii or contractual reservation of
title
- Considered a contract to sell
- Reservation of title merely to secure performance of
buyer of his obligation cannot make seller liable in case
of loss of the goods
- Binding upon the contracting parties, their assigns, and
heirs but not upon third persons without notice
2. Contract to sell
- Condition of full payment is a positive suspensive
condition, failure of which is not a breach, but simply
an event that prevents the obligation of the vendor to
convey title from acquiring binding force
- Free on board stipulation - ownership retained until
after the postdated checks given by buyer are cleared;
loss or destruction of the products during transit is for
the account of the buyer
3. Contract of insurance
- A perfected contract of sale even without delivery vests
in the vendee an equitable title, an existing interest
over the goods sufficient to be the subject of insurance
Notes from Baviera
CONTRACT TO SELL
- Seller promises to execute a deed of absolute sale upon
completing payment of the price
- Ownership is retained by the seller until payment of the
price in full
- Payment is a positive suspensive condition, failure of which
is not a breach but an event that prevented the obligation
of the vendor to convey title in accordance with Art. 1184,
NCC
- Contract whereby the seller agrees to transfer the property
in goods to the buyer for a consideration called the price
(Uniform Sales Act of 1906)
Salazar v. CA
FACTS:
1. Dr. Salazar is the owner of 2 parcels of land with
improvements, located in Makati
2. He offered to sell these to Jonette Borres for P1-M
3. Initial proposal took place at Dimsum Restaurant, Makati,
where the payment would be made within 6 months, but
which was reduced by Dr. Salazar to 3 months
4. May 28, 1989: Jonette Borres, with a certain Emilio Salazar,
went to see Dr. Salazar at his residence in Bataan, bearing a
copy of Deed of Absolute Sale and Deed of Warranty
5. Dr. Salazar refused to sign because Borres did not have the
money ready
6. Dr. Salazar reduced the period to 1 month

7. June 2, 1989: Borres met Dr. Salazar at Ninoy Int’l Airport as
he was about to leave for the US, and she had the Deed of
Absolute Sale
- Dr. Salazar reluctantly agreed to sign provided that
Borres pays ½ (P500K) in cash by June 15 and the
balance payable by June 30
- He emphasized that he needed the money because he
was going to buy a property in the US
- Borres agreed, and Dr. Salazar constituted Teresa
Dizon as custodian of the Deed, with the instruction
not to surrender the documents to Jonette Borres until
payment of full price in cash
8. June 14, 1989: Borres told Dizon that she will be able to pay
the full amount of P1-M on June 15
9. June 15: Borres went to Dizon’s house, and they met at
Metro Bank West to get the documents, then to proceed to
Makati to meet Borres’ business party who allegedly gave
her a check for P1.5-M – they failed to proceed to Makati
10. June 16: Dr. Salazar asked Dizon if Borres had paid, and
Dizon said that Borres had not, so Dr. Salazar ordered
Dizon to stop the sale
11. TC: Deed of Absolute Sale was a contract to sell, and since
Borres failed to pay, the complaint for specific performance
cannot prosper
- The Deed was “reluctantly signed” by Dr. Salazar;
hence, it does not bind Dr. Salazar until the suspensive
condition (downpayment of P500K on June 15 and
balance on June 30) is complied with
- Borres was not financially prepared to buy the parcels
of land on or before June 15 because she was looking
for possible buyers or business partners
12. On appeal from Borres, CA ruled that the Deed is a
perfected contract of sale
- There was no proviso that the title is reserved in the
vendor until full payment or that vendor may
unilaterally rescind the contract the moment the
vendee fails to pay within the fixed period
- Even assuming that Borres failed to pay, such failure
did not convert the contract into one without cause or
consideration as to vitiate the validity of the contract;
neither did such failure ipso facto resolve the contract
in question
- Dr. Salazar may demand specific performance or
rescission, while Borres may demand specific
performance (to accept the price and deliver the title)
- Did not agree with TC that Borres was not in a position
to pay because the check payable to her (from her
business partner) covers the amount of P1.5-M
ISSUE/S:
1. WON the Deed of Absolute Sale is a perfected contract of
sale or a mere contract to sell
2. WON the action for specific performance will lie
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HELD:
1. Court held: It is a contract to sell
- In a contract of sale, the title to the property passes to the
vendee upon the delivery of the thing sold; 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. Otherwise stated, in a contract of sale, the
vendor loses ownership of the property and cannot recover
it until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor
until full payment of the purchase price. In the latter
contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from
becoming effective
- SC: The true agreement between the parties was a contract
to sell in that the true intent of Salazar was to transfer
ownership to Borres only after the latter pays the full
consideration
- From the beginning to end, such intention of Salazar was
unequivocal and manifest:
1. He rejected Borres’ offer to pay within 6 months
2. When she proposed he lend her the certificates of title
to secure a loan from banks in Manila so she would be
able to pay within 3 months, Salazar agreed provided
she would assure him that the title would not pass to
her until he is fully paid
3. Salazar did not sign the Deed of Absolute Sale, and
insisted he be paid the purchase price at the end of
June 1989
4. He signed the Deed only after Borres agreed to pay by
the end of June 1989, but he did not give the Deed of
Absolute Sale to her, so he would know to whom he
would entrust the document and other papers relative
to the property
- The intention of Salazar was seen in Borres’ own testimony
- SC: Notwithstanding Borres’s deliberate characterizations
of the documents, we are convinced that they were
prepared in connection with and in the implementation of
the agreement regarding the lending of the certificates of
title (to obtain a loan)
- Despite the careful wordings and phraseology to make
some distinction between Borres’s right to the ownership or
title over the lots, and her right to possesss or keep the
Deed of Absolute Sale and other documents, the totality of
the Deed manifests an indubitable recognition by Borres of
the intention of Salazar (repetitive statements of Borres
having no legal right to the lots)
- SC: The withholding by Salazar through Dizon of the Deed,
certificates of title, and all other documents, is an additional
indubitable proof that Salazar did not transfer to Borres
either by actual or constructive delivery the ownership of
the two lots

- While generally the execution of a deed of absolute sale
constitutes constructive delivery of ownership, the
withholding by the vendor of that deed under explicit
agreement that it be delivered together with the certificates
of titles to the vendee only upon the latter's full payment of
the consideration amounts to a suspension of the effectivity
of the deed of sale as a binding contract.
- SC: The form of the instrument cannot prevail over the true
intent of the parties
2. Court held: NO, specific performance will not lie
- Since Borres was unable to pay the consideration, which
was a suspensive condition, Salazar cannot be compelled to
deliver to her the deed of sale, certificates of title, and
other documents concerning the two lots. In other words,
no right in her favor and no corresponding obligation on
the part of Salazar were created.
- Even if it was a perfected contract, specific performance will
fail because Borres was not ready to pay the P500K on or
before June 15 because:
1. The check payable to her is a crossed check, and
cannot be paid to anyone except Borres;
2. There was no evidence she encashed the check and
tendered the P500K to Salazar;
3. The check itself was cancelled;
4. The delivery of the check was not unconditional
because encashment “is subject to the verifications as
to the authenticity of documents”
Castillo v. Reyes
FACTS:
1. Nov. 7, 1997: Emmaliza Bohler and spouses Rudy Reyes and
Consolacion Reyes negotiated for the sale of Bohler’s
house located at Poblacion, New Washington, Aklan for a
consideration of P165K
2. Nov. 8: They signed an agreement for a partial payment of
P130K payable that day, and the balance to be paid on or
before Dec. 15, 1997
- Spouses paid P20K in cash and P110K in check, but
Bohler needed the partial payment to be in cash to
redeem the subject property from the bank, so she
demanded its payment up to midnight of Nov. 8
3. Since Spouses Reyes failed to pay in cash, Bohler sold the
property to spouses Nestor Castillo and Rosie Reyes-
Castillo
4. Spouses Reyes tendered the check and asked the bank for
a certification that it was funded
- They consulted their lawyer and a notice of lis pendens
was filed for annulment of sale, specific performance
and damages with the RTC of Kalibo, Aklan
5. Feb. 21, 2003: RTC declared the Nov. 8 agreement a
contract to sell
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- Since no actual sale happened between Bohler and
spouses Reyes, Bohler could validly sell the property to
spouses Castillo
6. Dec. 6, 2005: CA reversed the RTC’s ruling, declared the
agreement a contract of sale, and annulled the subsequent
sale to the spouses Castillo
- The wordings of the agreement and the conduct of the
parties suggest they intended to enter into a contract
of sale
- Ownership was not reserved by the vendor and
nonpayment of the purchase price was not made a
condition for the contract’s effectivity
7. This petition
ISSUE/S:
WON the transaction is a perfected contract of sale or a mere
contract to sell
HELD: It is a contract of sale
- Sale is a consensual contract and is perfected by mere
consent, which is manifested by a meeting of the minds as
to the offer and acceptance thereof on the subject matter,
price and terms of payment of the price.
- SC: The Nov. 8 Agreement clearly indicates that Bohler and
the spouses Reyes had a meeting of the minds on the
subject matter of the contract, the house and lot; on the
price, P165,000.00; and on the terms of payment, an initial
payment of P130,000.00 on the date of execution of the
agreement and the remaining balance on or before
December 15, 1997. At that precise moment when the
consent of both parties was given, the contract of sale was
perfected
- “It cannot be a contract to sell. In a contract of sale, the title
to the property passes to the vendee upon the delivery of
the thing sold; 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. Otherwise
stated, in a contract of sale, the vendor loses ownership
over the property and cannot recover it until and unless the
contract is resolved or rescinded; whereas, in a contract to
sell, title is retained by the vendor until full payment of the
price. In the latter contract, payment of the price is a
positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the
vendor to convey title from becoming effective.”
- SC: The Nov. 8 Agreement cannot be characterized as a
contract to sell because the seller made no express
reservation of ownership or title to the subject house and
lot; instead, it contains all the requisites of a contract of sale

United Muslim and Christian Urban Poor Association, Inc. v.
BRYC-V Development Corporation
FACTS:
1. Sea Foods Corp. is the registered owner of a lot in Lower
Calainan, Zamboanga City
2. 1991: United Muslim and Christian Urban Poor Association,
Inc. (UMCUPAI), an organization of squatters occupying Lot
No. 300, through its President, Carmen Diola, initiated
negotiations for the purchase thereof
- Expressed intention to buy using proceeds of its
pending loan application with Nat’l Home Mortgage
Finance Corp.
3. Parties executed a Letter of Intent to Sell [SFC] and Letter
of Intent to Purchase [UMCUPAI]
- That SFC expressly declares its intention to sell, and
UMCUPAI expressly declares its intention to buy
- That the Absolute Deed of Sale shall be executed
upon full payment of the purchase price
4. UMCUPAI did not secure the loan from NHMF because not
all its members were willing to join the undertaking
- Proposed the subdivision of Lot No. 300 to allow them
to purchase a smaller portion
- Dec. 1994: It was subdivided into 3 parts with sep. titles
5. Jan. 11, 1995: UMCUPAI purchased Lot No. 300-A for
P4.35M and Lot No. 300-B was constituted as a road right
of way, donated by the SFC to the loc gov
- They failed to acquire Lot No. 300-C for lack of funds
6. Mar. 5, 1995: Negotiated with SFC and given another 3
months to purchase Lot No. 300-C
- Sale not consummated because of failure to obtain a
loan from NHMF
7. July 20, 1995: SFC sold Lot No. 300-C to BRYC-V
Development Corp. for P2,547,585
8. UMCUPAI filed with RTC a complaint against SFC and
BRYC seeking to annul the sale and cancel the TCT
because it violated its valid and subsisting agreement with
SFC
- The Letter of Intent granted it a prior, better, and
preferred right over BRYC
- BRYC said that the complaint did not state a cause of
action since UMCUPAI had unequivocally recognized
its ownership by sending a letter imploring BRYC to re-
sell the lot
- SFC said that the Letter of Intent is not, and cannot be
considered, a valid and subsisting contract of sale, and
that the document was drawn and executed merely to
accommodate UMCUPAI and enable it to comply with
loan documentation requirements
- SFC said that the Letter of Intent was subject to a
condition (payment of the acquisition price), which
UMCUPAI failed to do when it did not obtain the loan
from NHMF
- RTC: Dismissed the complaint, found the Letter of
Intent was executed to facilitate the approval of the
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loan and that it was simply SFC’s declaration of
intention to sell, and not a promise to sell; it was
neither a promise, nor an option contract, nor an offer
contemplated under Art. 1319, or a bilateral contract to
sell and buy
9. CA affirmed in toto
ISSUE/S:
1. WON the Letter of Intent to Sell and Letter of Intent to Buy
is a bilateral reciprocal contract under Art. 1479 (1)
2. WON the petition falls under the exceptions necessitating a
reversal of the assailed decision
HELD:
1. Court held: It is NOT a bilateral reciprocal
contract
- UMCUPAI: Letter of Intent is equivalent to a conditional
contract of sale subject only to the suspensive condition of
payment of the purchase price
- SC: The UMCUPAI appears to labor under a cloud of
confusion
- In Coronel v. CA (conditional contract of sale v. bilateral
contract to sell):
“A contract to sell may thus 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.
A contract to sell as defined hereinabove, 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 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. If the
suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated. 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.
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.
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, as in the case
at bench. 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.
In a conditional contract of sale, however, 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.”
- SC: The parties executed a Letter of Intent, which is neither
a contract to sell nor a conditional contract of sale; it was
executed to accommodate UMCUPAI and facilitate its loan
application with NHMF
- Nowhere does it state that SFC relinquishes its title over the
subject property, subject only to the condition of complete
payment of the purchase price; nor does SFC bind itself to
sell the property exclusively to UMCUPAI; the Letter of
Intent is a manifestation of SFC’s intention to sell the
property and UMCUPAI’s intention to acquire the same
- CA (citing RTC) is correct:
1. An intention is a mere idea, goal or plan. It simply
signifies a course of action; it simply indicates what one
proposes to do or accomplish. A mere “intention”
cannot give rise to an obligation
2. It is merely a written preliminary understanding of the
parties wherein they declared their intention to enter
into a contract of sale;
3. It fell short of an “offer” because it is not a certain and
definite proposal to make a contract but merely a
declaration of SFC’s intention to enter into a contract
4. UMCUPAI’s declaration of intention to buy is also not
certain and definite as it is subject to the condition that
UMCUPAI shall endeavor to raise funds to acquire
subject land; the acceptance must be absolute; it must
be plain and unconditional;
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5. It is not an “option contract” because aside from the
fact that it is merely a declaration of intention, and
does not contain a binding promise to sell and buy, it
is not supported by a distinct consideration distinct
from the price of the land … no option was granted to
UMCUPAI to buy the subject land to the exclusion of
all others within a fixed period nor was SFC bound to
sell exclusively to UMCUPAI
6. It is not a bilateral reciprocal contract under Art. 1479
because it does not contain a PROMISE to sell and to
buy, there was no promise or commitment on SFC to
sell to UMCUPAI, but merely a declaration of its
intention to buy the land subject to the condition that
UMCUPAI could raise the funds
2. Court held: NO, it is not one of the exceptions
- Factual findings of the trial court, especially when affirmed
by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties
- Highly meritorious circumstances allowing review of factual
findings:
1. when the findings of a trial court are grounded entirely
on speculation, surmises or conjectures;
2. when a lower court’s inference from its factual findings
is manifestly mistaken, absurd or impossible;
3. when there is grave abuse of discretion in the
appreciation of facts;
4. when the findings of the appellate court go beyond the
issues of the case, or fail to notice certain relevant facts
which, if properly considered, would justify a different
conclusion;
5. when there is a misappreciation of facts;
6. when the findings of fact are conclusions without
mention of the specific evidence on which they are
based, or are premised on the absence of evidence, or
are contradicted by evidence on record.
- SC: None of the exceptions obtain in this instance
3. Conditional Contract of Sale
Art. 1461 Things having a potential existence may be the
object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing will come into
existence.
The sale of a vain hope or expectancy is void. (n)

Sale of things having potential existence.
- A future thing may be the object of sale provided it has a
potential or possible existence, that it is reasonably certain
to come into existence.
- Title will vest in the buyer the moment the thing comes into
existence
- Thing sold must be specific and identified and must be
owned by the vendor at the time
Sale of a mere hope or expectancy.
- Efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing
contemplated or expected will come into existence
- Sale refers to an "expected thing" which is not yet in
existence, and not the hope or expectancy which already
exists, in view of the condition that the thing will come into
existence
- Sale of mere hope and expectancy is valid even if the thing
does not come into existence; unless the hope or
expectancy is vain, in which case the sale is void
Sale of Thing Expected vs. Sale of Hope Itself
Sale of thing expected Sale of hope itself
(Emptio rei speratae) (Emptio sipei)
Sale of a thing not yet in Sale of the hope itself that
existence subject to the the thing will come into
condition that the thing will exist existence, where it is agreed
and on failure of the condition, that the buyer will pay the
contract becomes ineffective price even if the thing does
hence, the buyer has no not eventually exist
obligation to pay the price
Deals with a future thing Deals with a thing that
actually exists - the hope or
expectancy
Sale is subject to the condition Produces effect even
that the thing should exist, so though the thing does not
that if it does not, there will be come into existence
no contract by reason of the because the object of the
absence of an essential element contract is the hope itself
Presumption in case of doubt.
- In case of doubt, presumption is in favor of emptio rei
speratae (more in keeping with the commutative contract)
Art. 1462 The goods which form the subject of a contract of
sale may be either existing goods, owned or possessed by the
seller, or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale, in this Title
called "future goods."
There may be a contract of sale of goods, whose acquisition by
the seller depends upon a contingency which may or may not
happen. (n)
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Goods which may be the subject of a contract of sale.
- Existing goods - goods owned or processed by the seller
- Future goods - goods to be manufactured with the name of
the buyer raised, or acquired
Future goods as the object of sale.
- Valid only as an executory contract to be fulfilled by the
acquisition and delivery of the goods specified
- Future goods cannot be the subject of an executed but
may be the subject contract for the future sale and delivery
thereof, even though the acquisition of the goods depends
upon a contingency which may or may not happen
- Par. 1 does not apply if the goods are to be manufactured
especially for the buyer and not readily saleable to others
(contract must be considered as one for a piece of work)
- Article contemplates a contract of sale of specific goods
- A "futures" contract where the parties merely speculate on
the rise and fall on the price of the goods subject matter of
the transaction is a form of gambling and was declared null
and void
Art. 1465 Things subject to a resolutory condition may be the
object of the contract of sale. (n)
Sale of thing subject to a resolutory condition.
- If the resolutory condition attaching to the object of the
contract, which object may include things as well as rights,
should happen, then the vendor cannot transfer the
ownership of what he sold since there is no object
Art. 1503 When there is a contract of sale of specific goods,
the seller may, by the terms of the contract, reserve the right of
possession or ownership in the goods until certain conditions
have been fulfilled. The right of possession or ownership may be
thus reserved notwithstanding the delivery of the goods to the
buyer or to a carrier or other bailee for the purpose of
transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods
are deliverable to the seller or his agent, or to the order of the
seller or of his agent, the seller thereby reserves the ownership
in the goods. But, if except for the form of the bill of lading, the
ownership would have passed to the buyer on shipment of the
goods, the seller's property in the goods shall be deemed to be
only for the purpose of securing performance by the buyer of his
obligations under the contract.
Where goods are shipped, and by the bill of lading the goods
are deliverable to order of the buyer or of his agent, but
possession of the bill of lading is retained by the seller or his
agent, the seller thereby reserves a right to the possession of
the goods as against the buyer.

Where the seller of goods draws on the buyer for the price and
transmits the bill of exchange and bill of lading together to the
buyer to secure acceptance or payment of the bill of exchange,
the buyer is bound to return the bill of lading if he does not
honor the bill of exchange, and if he wrongfully retains the bill of
lading he acquires no added right thereby. If, however, the bill
of lading provides that the goods are deliverable to the buyer or
to the order of the buyer, or is indorsed in blank, or to the buyer
by the consignee named therein, one who purchases in good
faith, for value, the bill of lading, or goods from the buyer will
obtain the ownership in the goods, although the bill of
exchange has not been honored, provided that such purchaser
has received delivery of the bill of lading indorsed by the
consignee named therein, or of the goods, without notice of the
facts making the transfer wrongful. (n)
When ownership not transferred upon delivery.
- Article deals with specific goods
- General rule: ownership in the goods sold passes to the
buyer upon delivery to the carrier
- Exceptions:
o Contrary intention appears by the terms of the contract
o In the cases provided in the second and third
paragraphs of Article 1523
o In the cases provided in the first, second, and third
paragraphs of Article 1503
Transfer of ownership where goods sold delivered to
carrier.
- General rule: Delivery passes title; delivery to the carrier is
deemed to be a delivery to the buyer
- Risk of loss falls upon the buyer
- Consigning by the seller indicates intention to deliver to the
carrier as bailee for the person named, and authorization of
shipment by that person as a buyer vests ownership in him
- Where right of possession or ownership of specific goods
sold reserved
o If seller directs the carrier to redeliver the goods at
their destination to the seller himself, or to his order, it
indicates intention that the carrier shall be the bailee
for the seller and the ownership wil remain in the latter
Where seller or his agent is consignee.
- Carrier becomes bailee of seller - Where goods are shipped
and by the bill of lading, the goods are deliverable to the
seller or his agent or to the order of the seller or hi agent,
seller thereby reserves the ownership in the goods and the
carrier is a bailee for him and not the buyer; applicable
even if the goods are shipped on the buyer's vessel
- Rights of seller - Seller may not only retain goods until
buyer perform his obligation, he may, even in violation of
the contract, dispose of them to third parties; but he may
be liable for damages
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Where seller's title ony for purpose of security.
- Form of bill of lading no conclusive - Specification in the bill
of lading that the goods are deliverable to the order of the
seller or his agent does not necessarily negate the passing
of title upon delivery to the carrier
- Where ownership would have passed but for the form of bill
of lading - Were it not for the bill of lading, ownership
would have passed this is true when the object of the seller
in reserving ownership is simply to secure the buyer's
performance of his obligation
Significance where title held merely as security.
- Risk of loss on buyer - Buyer subject to risk of loss or
deterioration even though the legal title remains in the
seller. Title does not pass to the buyer until he receives the
order bill of lading properly indorsed
- Buyer's right of action based on ownership
Where buyer or his agent is consignee but seller
retains order bill of lading.
- Seller retains a right to the possession of the goods as
against the buyer
- Effect of retention - Buyer is unable to obtain the goods
without the bill
- Surrender of order bill necessary - carrier cannot be
compelled to surrender possession of the goods until order
bill is surrendered
- Identification of consignee sufficient in case of straight bill -
shipper who issues a straight bill of lading (deliverable to
the consignee) does not require the surrender of the bill in
order to get the goods. Consignee only need to identify
himself
Where a third person who retains the bill is
consignee.
- Third method for retaining a hold upon goods by the seller:
consign goods to a third person (usually a banker)
requesting a letter to retain the bill of lading or goods until
payment of the price
- Immaterial whether bill an order or straight bill - in either
case, buyer needs to obtain order from holder of the bill of
lading
- Legal title vested in third person - title is held merely for the
benefit of the seller if the third person is the seller's agent
only and has not advanced money of his own to the seller
- Risk of loss on buyer

Where bill of lading sent forward with draft attached.
- Where the seller draws on the buyer for the price and
transmits the bill of exchange and the bill of lading
together to the buyer to secure acceptance or payment of
the bill of exchange, the title is regarded as retained in the
seller until the bill of exchange is paid.
- The fact that the bill of lading and a bill of exchange are
attached together indicates that the seller intends to make
delivery of the goods conditional upon the payment or
acceptance of the draft
- Duty of buyer if draft not paid - Buyer is bound to return
the bill of lading if he does not honor the bill of exchange;
it is customary to send the bill of lading with the draft
attached to some other person to ensure payment prior
release of goods
- Effect of buyer obtaining possession of bill of lading
without honoring draft - A purchaser in good faith for value
of the bill of lading or goods from the buyer will obtain the
ownership in the goods although the bill of exchange has
not been honored
Distinctions in regard to the form of the bill of lading:
- Seller named buyer as consignee - property has passed to
the consignee or at least it seems to have been so
- If bill of lading, though naming the seller as consignee, is
indorsed by him to the buyer or bank, possession of the
document by the buyer gives him, if not actual title, at least
an apparent ownership
Notes from Baviera
EXECUTORY CONTRACT
- Seller merely promises to transfer the property at some
future date
- Agreement contemplates the performance of some act or
condition necessary to complete the transfer
- Until the act is performed or the condition fulfilled, which is
necessary to convert the executor into an executed
contract, no title passes to the buyer, as against the seller
or persons claiming under him
People’s Homesite & Housing Corp. v. CA
FACTS:
1. Feb. 18, 1960: PHHC board of directors passed Resolution
No. 513, where it stated that subject to the approval of the
AC Council, of the Consolidation Sub. Plan, Lot 4 is
awarded to spouses Rizalino Mendoza and Adelaida
Mendoza at a price of P21 per sq. meter, subject to the
approval of the OEC (PHHC) Valuation Committee
2. Aug. 20, 1961: The City council disapproved the proposed
consolidation plan, and the spouses were advised by
registered mail; PHHC prepared another subdivision plan
3. Feb. 25, 1964: The city council approved the revised plan
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4. Apr. 26, 1965: PHHC board of directors passed a resolution
recalling all awards of lots to the persons who failed to pay
the deposit or down payment for the lots awarded to them
- Mendozas never paid the price of the lot nor made the
20% initial deposit
5. Oct. 18, 1965: PHHC board of directors passed Resolution
No. 218 withdrawing the tentative award of Lot 4 to the
Mendoza spouses and re-awarding said lot jointly and in
equal shares to Miguela Sto. Domingo, Enrique Esteban,
Virgilio Pinzon, Leonardo Redublo and Jose Fernandez,
under the same price, and they were required to deposit
20% of the total selling price
- The 5 awardees made the initial deposit and the
corresponding deeds of sale were executed in their
favor; The subdivision of Lot 4 into 5 lots was approved
by the city council
6. Mar. 16, 1966: Mendoza spouses asked for reconsideration
of the withdrawal of the previous award and for the
cancellation of the re-award
7. Spouses filed an action for specific performance and
damages
- TC sustained the withdrawal of the award
8. Appellate Court reversed the decision and declared void
the re-award, directed PHHC to sell Lot 4 to the Mendozas
ISSUE/S:
WON there was a perfected sale of Lot 4 to the Mendozas
HELD: NO perfected sale
- SC: We hold that there was no perfected sale of Lot 4; it
was conditionally or contingently awarded to the Mendozas
subject to the approval by the city council of the proposed
consolidation subdivision plan and the approval of the
award by the valuation committee and higher authorities
- The city council did not approve, and the Mendozas were
advised of the disapproval
- When the plan was approved, the Mendozas should have
manifested in writing their acceptance of the award just to
show they were still interested in its purchase although the
area was reduced and to obviate any doubt on the matter
but they did not do so
- SC: The PHHC board of directors acted within its rights in
withdrawing the tentative award
- “The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price” (Art. 1475, CC)
- “In conditional obligations, the acquisition of rights … shall
depend upon the happening of the event which constitutes
the condition” (Art. 1181, CC)
- SC: Under the facts of this case, we cannot say there was a
meeting of minds on the purchase of Lot 4

Lim v. CA
FACTS:
1. Felix, Manuel, and Maria Concepcion Orlino had a parcel of
land which they mortgaged to the Progressive Commercial
Bank (the Bank) for a P100,000 loan
2. Having failed to pay such loan, the property was foreclosed
and was acquired by the Bank through the auction sale.
3. Orlinos still maintained possession of the land and
proposed to the Bank to repurchase the property.
4. The Bank accepted the proposal and responded with the
following terms: (a) the cash consideration shall be
P160,000, payable in full upon signing of the Deed of
Absolute Sale, and (b) additional consideration via the
conveyance of another parcel of land in Caloocan City,
owned by the Orlinos.
5. However, in a span of two years since the Bank proposed
the terms, the sale never pushed through. The Bank had
been reminding the Orlinos, to no avail. Hence, they sold
the property to spouses Enrique and Consuelo Lim
6. The Orlinos then filed a complaint against the Bank and the
spouses Lim, as well as for the annulment of the sale of the
land from the Bank to the spouses. The trial court ruled for
the Orlinos and the CA affirmed.
7. The spouses argue that they have the better right, being
purchases in good faith. Besides, even if there was a sale
between the Bank and the Orlinos, they have a better claim
under NCC Article 1544, with them acquiring the property
in good faith and first recorded it in the Registry of
Property. However, the Court notes that Art 1544 will only
be applicable if there has been a double sale. Hence, there
is a need to identify whether the contract entered into
between the Bank and the Orlinos has been a contract of
sale or a contract to sell.
ISSUE/S:
WON the transaction that took place between the Orlinos and
the Bank was a contract to sell or a contract of sale
- HELD: It was a contract to sell
- There was no immediate transfer of title to the Orlinos, as it
would have been in a proper contract of sale.
- The supposed sale was never registered and the TCT in
favor of PBC was not replaced with another certificate of
title
- In a letter, they acknowledged that the title would remain in
the bank until their transaction shall have been finalized
- The consideration agreed upon by the parties was never
paid by the respondents to convert the agreement into a
contract of sale
- The Orlinos also never complied with the terms set by the
Bank. Their non-action lasted for 3 years, and continued up
to the rendition of the decision of the trial court, despite
reminders from the Bank.
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- As payment of the consideration was a positive suspensive
condition, title to the subject property never passed to the
private respondents
- The land was legally unencumbered when the Bank sold it
to the spouses Lim. The sale to the spouses Lim was
therefore valid.
Pingol v. CA
FACTS:
1. Vicente Pingol is an owner of a parcel of land in Caloocan.
He executed a Deed of Absolute Sale of ½ of the said
parcel in favor of Francisco Donasco. The pertinent part of
Deeds reads as follows: “that for and in consideration of
the sum of TWENTY THOUSAND AND FIVE HUNDRED
THIRTY (P20,530.00) PESOS, Philippine Currency, the
VENDOR hereby these presents SELL, CONVEY AND
CONVEY by way of Absolute Sale the one-half (1/2) portion,
equivalent to Two Hundred Seventy Four and point Fifty
(274.50) square meters, to the VENDEE, the above-
mentioned property, his heirs, assigns and successors-in-
interest;”
2. The payment scheme agreed upon was that Donasco was
to pay a P2,000 downpayment and after which he will pay
the balance in a period of six years. He also committed to
pay interest for any installment that might be in default.
3. Francisco paid the downpayment, took possession of the
land and built a house upon it. He paid the installments
starting Jan 1970 but was only able to pay until 1972. He
passed away later on and was only able to pay about half of
the land’s price, leaving behind P10,161 as balance.
4. His wife and children offered to pay the remaining balance
in full plus interest and in turn, to acquire the final deed of
sale. The Pingols however refused and were now asking for
a larger fee than the one agreed upon. It forced the heirs of
Donasco to file suit, to compel the Pingols to accept the
balance and execute the final deed of sale.
5. The Pingols interposed the following defenses: (1) that the
cause of action for the Donascos had already prescribed, (2)
that the transaction was a conditional contract of sale,
noting that the consideration was to be paid in installment
basis, (3) that the subdivision plan that was prepared for the
land was undertaken on the assumption that the deceased
Francisco would be able to pay the amount stipulated, (4)
that since Francisco was not able to pay the installments,
the sale should be deemed cancelled.
6. The trial court ruled that it was a contract to sell and that
Francisco’s non-payment of the full amount cancelled the
contract. Also, being a contract to sell, ownership did not
pass over to the Donascos. Furthermore, the court held that
their cause of action had already prescribed. However,
upon appeal, the CA reversed and found for the Donascos.
ISSUE/S:
WON the transaction was a contract to sell or a contract of sale
 LAW 103 SALES | PROF. CHAN 18

 
order has not been given (Massachusetts rule, in Inchausti v
HELD: It is a contract of sale Cromwell (1911))
- The terms of the contract itself states that the vendor shall Sale v. Lease of Things (BOC Reviewer)
SELL, CONVEY and CONVEY by way of Absolute Sale the
parcel of land to the Donasco; the Pingols did not make a Sale Lease of Things
reservation to the title until after the full price has been Ownership transferred by No transfer of ownership
paid delivery
- The denomination of the transaction as a Conditional Deed Permanent Temporary
of Sale is of no matter, where there is no such reservation; Seller must be owner at time Lessor need not be owner
the transaction is still by nature a contract of sale. of delivery
- The contract here being one of absolute sale, the
ownership of the subject lot was transferred to the buyer Sale v. Agency to Buy or Sell (Baviera)
upon the actual and constructive delivery thereof Sale Agency to Buy or Sell
- Constructive delivery was made upon execution of the One of the parties obligates Person binds himself to render
deed of sale himself to transfer the some service or to do
- Actual delivery was effected when the Donascos took ownership of and to deliver a something in representation
possession of and constructed a house on the lot determinate thing, and the or on behalf of another, with
- Delivery of the object divested the vendor of the ownership other to pay therefor a price the consent or authority of the
over the same and he cannot recover the title unless the certain in money or its latter
contract is resolved or rescinded pursuant to Art. 1592 equivalent
- Since the Donascos have ownership, their action is that of Plaintiff was to furnish Agent receives the thing to be
an action to quiet title, which is imprescriptible. defendant goods which the sold and does not pay its price
latter might order, at the price but delivers to the principal
Sales and Other Transactions Distinguished stipulated, and defendant was the price he obtains from the
to pay the price in the manner sale of the thing to a third
Sale v. Contract for a Piece of Work (Baviera) stipulated person, and if he does not
Sale Contract For A Piece Of succeed in selling it, he returns
Work the thing
Contract where one of the Contractor binds himself to Whatever unforeseen events Agent is exempted from all
parties obligates himself to execute a piece of work for the might have taken place liability in the discharge of his
transfer the ownership of and employer, in consideration of unfavorable to the defendant commission, provided he acts
to deliver a determinate thing, a certain price or (buyer), such as change in in accordance with the
and the other to pay therefor compensation prices, mistake in quotation, instructions received from the
a price certain in money or its loss of goods not carried by principal, and latter must
equivalent insurance, or failure of indemnify former for all
Seller/vendor Contractor/Independent manufacturer to properly fill damages
Contractor order as per specifications,
Goods, which the vendor, in Goods manufactured specially plaintiff (seller) might still
the ordinary course of his for the customer and upon his legally hold defendant to the
business, manufactures or special order, and not for the price fixed
procures for the general general market Essence: transfer of title or Essence: delivery to the agent
market agreement to transfer it for of the goods not as the latter’s
Article ordered is exactly such Job that requires the use of the price paid or promised property but of the principal
as the plaintiff makes and extraordinary or additional who remains the owner and
keeps on hand for sale to equipment, or involves has the right to control the
anyone, and no change or services not generally sales by the agent, fix the
modification of it is made, performed by it (contractor) price and terms, demand and
even though it may be entirely receive the proceeds of the
made after, and in sales less the agent’s
consequence of, an order commission
- Test is whether the thing transferred is one not in existence - In construing a contract containing provisions characteristic of
and which never would have existed but for the order of the both, the essential clauses of the whole instrument shall be
party desiring to acquire it, or a thing which would have existed considered
and been the subject of sale to some other person, even if the

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Sale v. Barter or Exchange (Baviera) Kinds of Incapacity:
Sale Barter or Exchange - Absolute
One of the parties obligates One of the parties binds - Relative
himself to transfer the himself to give one thing in
ownership of and to deliver a consideration of the other’s Liability for necessaries of minor or other person
determinate thing, and the promise to give another thing without capacity to act.
other to pay therefor a price - Necessaries - needed for sustenance
certain in money or its - Generally, contracts entered into by a minor and other
equivalent incapacitated persons are voidable
- If the consideration consists partly in money, and partly in - BUT, where necessaries are sold and delivered , he must
another thing, the transaction shall be characterized by the pay a reasonable price therefor
manifest intention of the parties - Contract is valid but minor may recover any excess above a
- If no intention clearly appears, it shall be considered as a reasonable value paid by him
barter if the value of the thing given exceeds the amount of the
money or its equivalent Sale by minors.
- If the value of the thing given does not exceed the amount of - When there is misrepresentation (and minor is passed the
the money or its equivalent, it is a sale ages of puberty) he may not be permitted to excuse
themselves from compliance with obligations
Sale v. Dacion en Pago (Baviera)
Sale Dacion en Pago Art. 1490 The husband and the wife cannot sell property to
Obligations are created from Pre-supposes a pre-existing each other, except:
the perfection of the contract debt (obligation)
No previous obligation is Extinguishes the debt (1) When a separation of property was agreed upon in the
extinguished (obligation) marriage settlements; or
Creation of a new obligation Results in a novation of the old
obligation (2) When there has been a judicial separation or property under
Article 191. (1458a)
Sale v. Chattel Mortgage (Baviera)
Sale Chattel Mortgage Relative incapacity of husband and wife.
Contract where one of the Personal property recorded in - Cannot sell to each other
parties obligates himself to the Chattel Mortgage Register - prohibited from making donations except moderate gifts
transfer the ownership of and as a security for the on the occasion of any family rejoicing
to deliver a determinate thing, performance of an obligation - Applies to common law spouses
and the other to pay therefor a
price certain in money or its Persons permitted to question sale.
equivalent - Persons who bear such relation to the parties making the
transfer or to the property itself that such transfer interferes
with their rights or interests
II. Parties to a Contract of Sale

A. Capacity of Parties

Art. 1489 All persons who are authorized in this Code to

obligate themselves, may enter into a contract of sale, saving
the modifications contained in the following articles.

Where necessaries are those sold and delivered to a minor or

other person without capacity to act, he must pay a reasonable
price therefor. Necessaries are those referred to in Article 290.
(1457a)

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Art. 1491 The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through
the mediation of another:
(1) The guardian, the property of the person or persons who
may be under his guardianship;
(2) Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal has
been given;
(3) Executors and administrators, the property of the estate
under administration;
(4) Public officers and employees, the property of the State or of
any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner
whatsoever, take part in the sale;
(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 they 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.
(6) Any others specially disqualified by law. (1459a)
Incapacity by reason of relation to property.
1. Guardians
2. Agents
3. Executors and Administrators
4. Public officers and employees
5. Judicial officers, employees and lawyers
6. Others especially disqualified by law
*Also disqualified to become lessees thereon
Reasons for prohibition.
- Grounded on public policy, in view of the fiduciary
relationship involved or the peculiar control exercised by
these individuals over the properties or rights concerned
- To prevent frauds and minimize temptations to the exertion
of undue and improper influence
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Prohibitions:
1. Guardians
- Intimate relation, complete dependence and great
influence
- Influence is presumed to last while the guardian’s
functions are to any extent still unperformed, while the
property is still under his control and until the accounts
have been finally settled
2. Agents
- Agent and principal form one juridical person
- Agent stands in a fiduciary relation with his principal
- Incapacity is only against buying property he is
required to sell. Agent can buy property after the
termination of agency, or other properties of principal
- Agent may also buy if principal consents
- Power to foreclose by a mortgagee is not an ordinary
agency; prohibition does not apply
3. Executors and Administrators
- Prohibition refers only to properties under the
administration of the executor or administrator.
Executors do not administer hereditary rights (1/10
interest in the estate), hence they can purchase the
same even in cases in which the executor administers
the property pertaining to the estate
4. Public officials and employees
- Prohibition refers to the ff. properties: (1) belonging to
the State; (2) administration of which is entrusted to the
public official
5. Judges, etc., and lawyers
- Prohibition applies only to sale or assignment of
property which is the subject of litigation to the
persons disqualified therein
- “In litigation” – not required that some contest or
litigation should have been tried by the judge. It is
enough that said property was purchased by him
pursuant to an order of execution he issued, for the
prohibition to apply
- Prohibition applies to a lawyer who purchases, in a
foreclosure proceeding and after the finality the
decision, the property mortgaged to him by his client
during the time that the same is in litigation
- Applies to a lawyer member of law firm involved
- Cases not covered:
o Property of client effected before it became
involved in the action
o Assignment of the amount of judgment made by a
person to his attorney in payment of professional
services in other cases
o Sale of a parcel of land, acquired by a client to
satisfy a judgment in his favor, to his attorney as
long as the property was not the subject of the
litigation

6. Other persons especially disqualified
- Aliens who are disqualified to purchase private
agricultural lands
- Unpaid seller having a right of lien or having estopped
the goods in transit, who is prohibited from buying the
goods
- Officer conducting the execution sale or his deputies
Effect of sale in violation of prohibition.
1. Nos. 2 to 3 – voidable, only private interests are involved;
can be cured by ratification of seller
2. Nos. 4 to 6 – null and void, public interests being involved
Art. 1492 The prohibitions in the two preceding articles are
applicable to sales in legal redemption, compromises and
renunciations. (n)
Prohibition extends to sales in legal redemption, etc.
- Compromise - by reciprocal concessions, avoid litigation
- Renunciation - creditor gratuitously abandons his right
against his debtor
- Persons disqualified to buy are also disqualified to become
lessees of the things mentioned therein
B. Absolute Incapacity
Art. 1327 The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not
know how to write. (1263a)
Art. 1328. Contracts entered into during a lucid interval are
valid. Contracts agreed to in a state of drunkenness or during a
hypnotic spell are voidable. (n)
Art. 1397 The action for the annulment of contracts may be
instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot allege
the incapacity of those with whom they contracted; nor can
those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these
flaws of the contract. (1302a)
Art. 1399 When the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is not
obliged to make any restitution except insofar as he has been
benefited by the thing or price received by him. (1304)
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Notes from Baviera
- Minors, insane or demented persons, and deaf-mutes who
do not know how to write can not validly give consent to
contracts
- Generally, persons who could validly give consent to
contracts may enter into a contract of sale
- When necessaries are sold and delivered to a minor or
other person without capacity to act, he must pay a
reasonable price therefor (necessaries are those which are
indispensable for his support, according to the social
position of the family)
C. Relative Incapacity: Married Persons
1. Contract with Third Parties
Art. 73, FC Either spouse may exercise any legitimate
profession, occupation, business or activity without the consent
of the other. The latter may object only on valid, serious, and
moral grounds.
In case of disagreement, the court shall decide whether or not:
(1) The objection is proper; and
(2) Benefit has occurred to the family prior to the objection or
thereafter. If the benefit accrued prior to the objection, the
resulting obligation shall be enforced against the separate
property of the spouse who has not obtained consent.
The foregoing provisions shall not prejudice the rights of
creditors who acted in good faith. (117a)
Art. 96, FC The administration and enjoyment of the
community property shall belong to both spouses jointly. In
case of disagreement, the husband's decision shall prevail,
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.
In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the common
properties, the other spouse may assume sole powers of
administration. These powers do not include disposition or
encumbrance without 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. (206a)

Art. 124, FC The administration and enjoyment of the
conjugal partnership shall belong to both spouses jointly. In
case of disagreement, the husband's decision shall prevail,
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.
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 disposition or
encumbrance without 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)
2. Between Spouses
Art. 1490 The husband and the wife cannot sell property to
each other, except:
(1) When a separation of property was agreed upon in the
marriage settlements; or
(2) When there has been a judicial separation or property under
Article 191. (1458a)
Art. 1492 The prohibitions in the two preceding articles are
applicable to sales in legal redemption, compromises and
renunciations. (n)
Notes from Baviera
- Husband and wife cannot sell property to each other,
except when a separation of property was agreed upon, or
when there has been a judicial separation of property
- This is to protect third persons who may have contracted
with a spouse, believing in the existence of certain
properties, and who could easily by defrauded
- In case of a disagreement between spouses (w/regard to
administration, alienation or encumbrance of community
property or conjugal partnership property), husband’s
decision shall prevail, without prejudice to wife’s remedy of
recourse to the courts within 5 years from execution
- Any alienation or encumbrance by one spouse without the
consent of the other shall render the contract void
- Prohibition of transfer of property between spouses can
only be taken advantage of by persons who bear such a
relationship to the spouses making the transfer of to the
property itself that such transfer interferes with their rights
or interests (ex. Creditor of the husband who became such
after transfer, cannot set up claim of nullity)
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Medina v. CIR
FACTS:
1. Antonio and Antonia Medina married in 1944. Prior to 1946,
neither owned any property nor business of their own. Later
on, however, Antonio was able to acquire a logging
concession in Isabela.
2. From 1946-1948, Antonio sold the logs to different persons
in Manila, via his agent, Mariano Osorio. In 1949, his wife,
Antonia began to engage in lumber dealing. From then on
until 1952, Antonio sold all the logs he cut to his wife’s
business, via the same agent. The proceeds of such
Antonia’s sale of the logs were to be received by Mariano
for Antonio or to be deposited by Mariano to Antonio’s
bank account
3. The Collector believed that the sales were null and void, it
being between husband and wife, and therefore part of the
taxable sales by Antonio’s logging concessionaire business
4. Antonio appealed the assessment by the Collector and
disclosed for the first time that he and his wife had a
complete separation of properties as their property regime,
via a pre-nuptial agreement. However, the Collector denied
the said appeal. Antonio appealed then to the Court of Tax
Appeals.
5. The CTA upheld the collector, noting that there was no pre-
marital agreement about the alleged absolute separation,
and that even if the alleged absolute separation was indeed
in effect, the sales were deemed simulated and fictitious.
6. In Antonio’s appeal to the SC, he stated that the records of
their pre-nuptial agreement were lost in the war.
ISSUE/S:
WON there was an absolute separation of property as their
property regime, thereby making the tax assessment invalid
HELD: There was no absolute separation of property.
- The property regime alleged does not exist between them;
the circumstantial evidence does not point to its existence
- The spouses did not have any property or business before
the marriage, and hence, no reason to enter into such a
property regime.
- A pre-nuptial agreement to have such property regime
cannot be effective until the marriage is celebrated, and
therefore, could not have been recorded.
- The spouses still acted as if they had absolute community
of property; Antonia’s proceeds were to be given to
Antonio’s agent or deposited to Antonio’s bank account.
- The sale of the logs between spouses being violative of Art.
1490, the Collector was correct in disregarding them and
assessing the sales as original sales taxable.

3. Applicability to Common Law Spouses
Art. 133, FC From the common mass of property support shall
be given to the surviving spouse and to the children during the
liquidation of the inventoried property and until what belongs to
them is delivered; but from this shall be deducted that amount
received for support which exceeds the fruits or rents pertaining
to them. (188a)
Art. 147, FC When a man and a woman who are capacitated
to marry each other, live exclusively with each other as husband
and wife without the benefit of marriage or under a void
marriage, their wages and salaries shall be owned by them in
equal shares and the property acquired by both of them
through their work or industry shall be governed by the rules on
co-ownership.
In the absence of proof to the contrary, properties acquired
while they lived together shall be presumed to have been
obtained by their joint efforts, work or industry, and shall be
owned by them in equal shares. For purposes of this Article, a
party who did not participate in the acquisition by the other
party of any property shall be deemed to have contributed
jointly in the acquisition thereof if the former's efforts consisted
in the care and maintenance of the family and of the household.
Neither party can encumber or dispose by acts inter vivos of his
or her share in the property acquired during cohabitation and
owned in common, without the consent of the other, until after
the termination of their cohabitation.
When only one of the parties to a void marriage is in good faith,
the share of the party in bad faith in the co-ownership shall be
forfeited in favor of their common children. In case of default of
or waiver by any or all of the common children or their
descendants, each vacant share shall belong to the respective
surviving descendants. In the absence of descendants, such
share shall belong to the innocent party. In all cases, the
forfeiture shall take place upon termination of the cohabitation.
(144a)
Art. 148, FC In cases of cohabitation not falling under the
preceding Article, only the properties acquired by both of the
parties through their actual joint contribution of money,
property, or industry shall be owned by them in common in
proportion to their respective contributions. In the absence of
proof to the contrary, their contributions and corresponding
shares are presumed to be equal. The same rule and
presumption shall apply to joint deposits of money and
evidences of credit.
If one of the parties is validly married to another, his or her share
in the co-ownership shall accrue to the absolute community or
conjugal partnership existing in such valid marriage. If the party
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who acted in bad faith is not validly married to another, his or
her shall be forfeited in the manner provided in the last
paragraph of the preceding Article.
The foregoing rules on forfeiture shall likewise apply even if
both parties are in bad faith. (144a)
Why It Should Apply to Common-Law Spouses
1. Family Code answer: No consent of the spouse
2. Civil Code answer: Contrary to public policy
Calimlim-Canullas v. Fortun
FACTS:
1. Mercedes and Fernando Canullas were married and living
together with their 5 children in a small house on a
residential land in Pangasinan. Fernando inherited the land
from his father when he passed away.
2. Fernando abandoned the family to live with Corazon
Daguines. They were later on convicted of Concubinage.
3. Later on, Fernando sold the house and lot to Corazon.
Corazon, however, could not take possession of the
property as Mercedes and her children were living on the
house built there. Corazon then filed an action to quiet title
to which Mercedes raised the defense that the house was
conjugal property and without her consent, the sale should
be null and void.
4. The trial court first ruled for Corazon but reversed itself
upon Mercedes’ motion for reconsideration.
ISSUE/S:
1. WON the construction of the conjugal home on the
exclusive property of Fernando gave it a conjugal character
as well
2. WON under the circumstances, the sale of the lot was valid
HELD:
1. Court held: Both the land and the building belong
to the conjugal partnership
- The land became conjugal in character but now the CPG
became indebted to Fernando for the value of the land,
pursuant to Article 158 of the Civil Code. Hence, Fernando
could not have validly disposed of the property to Daguines
without the consent of Mercedes.
2. Court held: The contract of sale was null and void
- The sale is void for being contrary to law, morals, good
customs, public order and public policy, as stated by Art.
1352.
- 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 wife and children lived and from whence
they derived their support
- The sale was subversive of the stability of the family, a basic
social institution which public policy cherishes and protects

- The law emphatically prohibits the spouses from selling
property to each other subject to certain exceptions; this is
so because if transfers or conveyances were allowed during
marriage, that would destroy the system of conjugal
partnership, a basic policy in civil law
- To uphold a sale between common law spouses would be
to place them in a better condition than those under legal
union of marriage.
D. Special Disqualifications
Art. 1491 The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through
the mediation of another:
(1) The guardian, the property of the person or persons who
may be under his guardianship;
(2) Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal has
been given;
(3) Executors and administrators, the property of the estate
under administration;
(4) Public officers and employees, the property of the State or of
any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner
whatsoever, take part in the sale;
(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 they 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.
(6) Any others specially disqualified by law. (1459a)
Art. 1492 The prohibitions in the two preceding articles are
applicable to sales in legal redemption, compromises and
renunciations. (n)
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Notes from Baviera
- (5) Justices … (6) Lawyers (in enumeration in Art. 1491)
- Aside from those in Art. 1491, (7) aliens or private
corporation/associations with respect to lands located
in the Philippines except former natural-born Filipinos who
are allowed to acquire residential lands not exceeding
1,000 square meters, in case of urban land, or one hectare
in case of rural land (Art. XII, Sec. 3, 7, 8 CON)
- (1) to (6) occupy fiduciary relationship with the owner of
the properties mentioned, and to prevent them from being
tempted to take advantage of their position
- Contracts expressly prohibited by law are void and cannot
be ratified
- Right to set up the defense of illegality cannot be waived
1. Guardians, Agents and Administrators
Notes from Baviera
- Executors do not administer the hereditary rights of any
heir; hence, an executor can buy the hereditary rights of an
heir to the estate under his administration
- Guardianship is a trust of the highest order, and the
trustee can not be allowed to have any inducement to
neglect his ward’s interest; whenever the guardian acquires
the ward’s property through an intermediary, he violated
the law, and such transaction and subsequent ones
emanating therefrom shall be annulled
- Where the interval between two sales is sufficiently long as
to dispel a natural suspicion of the guardian’s motives, it
is essential to prove actual collusion between the guardian
and the purchaser to buy the property for the guardian
- Agent’s incapacity to buy his principal’s property rests on
the fact that greed might get the better of the sentiments
of loyalty and disinterestedness which should animate an
administrator or agent
- When the agent has renounced the agency (by filing an
action against his principal for recovery of balance resulting
from liquidation of accounts between them), subsequent
purchase of the principal’s property at public auction is
valid and legal

Philippine Trust Co. v. Roldan
FACTS:
1. Mariano L Bernardo, a minor, inherited from his father,
Marcelo Bernardo 17 parcels of land located in Guiguinto,
Bulacan.
- In view of his minority, guardianship proceedings were
instituted on July 27, 1947, where Socorro Roland,
surviving spouse of Marcelo and step-mother of
Mariano, was appointed as guardian of the latter.
- Also, Socorro filed a motion asking authority to sell as
guardian the 17 parcels for the sum of P14,700 to his
brother-in-law, Dr. Fidel C.Ramos, the purpose of the
sale being allegedly to invest money in a residential
house, which the minor desired to have on Tindalo St.,
Manila. The motion was granted.
2. On August 5, 1947 Socorro, as guardian, then executed the
proper deed of sale in favor of Fidel Ramos and on August
12, 1947, she asked for and obtained judicial confirmation
of the sale.
3. However, on August 13, 1947, Fidel Ramos executed in
favor of Socorro personally, a deed of conveyance covering
the same 17 parcels for the sum of P15,000.
4. And on October 21, 1947Socorro sold 4 out of the 17
parcels to Emilio Cruz for P3,000, reserving herself the right
to repurchase.
5. On August 10, 1948, petitioner Phil. Trust Co. replaced
Socorro as guardian.
- Petitioner filed a complaint to annul two contracts
regarding the 17 parcels of land:
a) the sale thereof by Socorro, as guardian, to Fidel
Ramos; and
b) sale thereof by Fidel Ramos to Socorro personally.
- Petitioner contends that the step-mother in effect, sold
to herself, the properties of her ward thus should be
annulled as it violates Art. 1459 of the Civil Code
prohibiting the guardian from purchasing “either in
person or through the mediation of another” the
property of her ward.
- As to the third conveyance, that Socorro had acquired
no valid title to convey to Cruz.
6. The trial court held that Art 1459 was not controlling as
there was no proof that Ramos was a mere intermediary or
that the latter agreed with Socorro to but the parcels of
land for her benefit. The Court of Appeals affirmed the
judgment, adding that the minor new the particulars of, and
approved the transactions, and that ‘only clear and positive
evidence of fraud and bad faith, and not mere insinuations
and interferences will overcome the presumptions that a
sale was concluded in all good faith for value. Hence, this
petition.
ISSUE/S:
WON the two contracts of sale were valid
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HELD: NO, the contracts were invalid, legally and
equitably.
- The court held that the contracts were invalid even without
proof that Socorro had connived with Fidel Ramos
- 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 we have no
hesitation to declare that in this case, in the eyes of the law,
Socorro Roldan took by purchase her ward's parcels thru
Dr. Ramos, and that Article 1459 of the Civil Code applies.
o The Court found that it was questionable that she
would sell the land at a lower price then buy it back
almost instantly for a higher price. The Court infers that
she did not sell it for the best price, to the detriment of
her ward.
o The short time between the two sales also betray that
she planned to get the land for herself after
discovering its higher value.
o Even the fruits considered, the minor was on the losing
end, as he would be receiving a much smaller amount.
- 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.
- 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
Socorro Roldan could pass no title to Emilio Cruz.
- The annulment carries with it (Article 1303 Civil Code) the
obligation of Socorro 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.
2. Judges and Lawyers
- Notes from Baviera
- Incapacity of a Justice of the SC or the CA extends to
properties or rights in litigation in their territorial jurisdiction
- Law intends to avoid improper interference by a judge in a
thing levied upon or sold by his order
- Prohibition concerning lawyers is intended to curtail any
undue influence of the lawyer on his client on account of
their confidential association
- Any sale to a lawyer is void and cannot be cured by
ratification; public interest and public policy remain
paramount and do not permit of compromise or ratification
- Violation of this prohibition also constitutes a breach of
professional ethics

- Where judgment has been rendered and became final, the
assignment to the lawyer by his client does not violate the
prohibition
- A contingent fee of the lawyer may be annotated as an
adverse claim on the property awarded to his client
- Any person may invoke the inexistence of the contract
whenever judicial effects founded thereon are asserted
against him
Rubias v. Batiller
FACTS:
1. Francisco Militante claimed ownership of a land in Iloilo. He
filed an application for it to be registered under his name
but such application was lost during the war with the
Japanese. He reconstituted the application but was later
overruled by the trial court. He appealed to the CA.
2. While the said appeal was pending, he sold the land in
question to Domingo Rubias, Militante’s son-in-law and the
lawyer for his appeal to the CA
3. Rubias had been including said land in his tax declarations
and had been paying its taxes.
4. Later on, Rubias filed a forcible entry and detainer case
against Batiller. The trial court ruled for Batiller, stating that
Rubias had no cause of action, pursuant to Art. 1491 (5),
prohibiting, among others, lawyers from purchasing
property in litigation handled by them. The CA affirmed this
ruling.
ISSUE/S:
WON the sale by Militante to Rubias was valid
HELD: No, the sale is invalid and deemed null and
void. (Rubias has no cause of action.)
- The sale was made during the time when Militante’s
application for the land was dismissed by the trial court and
under appeal by the CA. When the CA affirmed the
dismissal of the application, Militante, therefore, had no
right nor title to sell to Rubias.
- Art. 1491 (5) was also applied by the CA properly; Rubias
was indeed the counsel of Militante during the appeal of
the application. By virtue of Art. 1409 (7), the sale was
prohibited by law and therefore, inexistent and void ab
initio.
- Manifestly, plaintiff’s complaint against defendant, 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 purchase by a lawyer of the property in litigation from
his clients is categorically prohibited by Art. 1491 (5) CC,
and that consequently, plaintiff’s purchase of the property
in litigation from his client was void and could produce no
legal effect by virtue of Art. 1409 (7) CC, which provides that
contracts “expressly prohibited or declared void by law”
are “inexistent and void from the beginning
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Macariola v. Asuncion
FACTS:
1. On June 8, 1963, respondent Judge Elias Asuncion
rendered a decision in Civil Case 3010 final for lack of an
appeal.
2. Sinforosa Bales, Luz Bakunawa, along with Anacorita,
Ruperto, and Adela (all surnamed Reyes) filed for partition
of some properties against Bernadita Macariola. Said
properties were left by the deceased Francisco Reyes, the
common father of the plaintiff and the defendant. The
presiding judge for this case was Judge Elias Asuncion.
3. On October 16, 1963, a project of partition was submitted
to Judge Asuncion. The project of partition of lots was not
signed by the parties themselves but only by the respective
counsel of plaintiffs and petitioner Bernardita R. Macariola.
The Judge approved it in his order dated October 23, 1963.
- One of the lots in the project of partition was Lot 1184,
which was subdivided into 5 lots denominated as Lot
1184 A – E.
4. Dr. Arcadio Galapon bought Lot 1184-E on July 31, 1964,
who was issued transfer of certificate of Title No, 2338 of
the Register of Deeds of Tacloban City.
5. On March 6, 1965, Galapon sold a portion of the lot to
Judge Asuncion and his wife.
6. On August 31, 1966, spouses Asuncion and Galapon
conveyed their respective shares and interest inn Lot 1184-E
to the Traders Manufacturing & Fishing Industries Inc.
Judge Asuncion was the President and his wife Victoria was
the Secretary.
- The Asuncions and Galapons were also the stockholder
of the corporation.
7. Macariola then filed suit against the judge with 4 causes of
action with two of the more pertinent: (1) the judge violated
NCC Art 1491 (5), the prohibition against judges from
buying property in litigation, (2) that the judge improperly
joined the corporation while he was still a sitting judge, in
violation of the Canon of Judicial Ethics and RA 3019
- "Acts unbecoming a Judge" for violating the following
provisions: Article 1491 (5) NCC, Article 14, par. 1 & 5
of the Code of Commerce, Sec. 3 par H of RA 3019
also known as the Anti-Graft & Corrupt Practice Act.,
Sec. 12, Rule XVIII of the Civil Service Rules and Canon
25 of the Canons of Judicial Ethics.
8. On November 2, 1970 a certain Judge Jose D.
Nepomuceno dismissed the complaints filed against
Asuncion.
ISSUE/S:
WON the purchase by Judge Elias was validly made (YES)
HELD: YES, the purchase was valid, but the Judge is
reminded to be more discreet in his private and
business activities.

- Respondent Judge did not buy the lot 1184-E directly on
the plaintiffs in Civil Case No. 3010 but from Dr. Galapon
who earlier purchased the lot from 3 of the plaintiffs.
o When the Asuncion bought the lot on March 6, 1965
from Dr. Galapon after the finality of the decision which
he rendered on June 8, 1963 in Civil Case No 3010 and
his two orders dated October and November, 1963.
o The said property was no longer the subject of
litigation.
o There was no more pending case involving the
property and therefore, it is available for purchase by
the judge. There was no violation of the provision.
o Its legality notwithstanding, the Court did note that it
was improper for the judge to acquire the property
since he had been involved with in a case (Canon 3).
- In the case at bar, Article 14 of Code of Commerce has no
legal and binding effect and cannot apply to the
respondent.
o Upon the sovereignty from the Spain to the US and to
the Republic of the Philippines, Art. 14 of this Code of
Commerce, which sourced from the Spanish Code of
Commerce, appears to have been abrogated because
whenever there is a change in the sovereignty, political
laws of the former sovereign are automatically
abrogated, unless they are reenacted by Affirmative
Act of the New Sovereign.
- Asuncion cannot also be held liable under the par. H, Sec. 3
of RA 3019, citing that the public officers cannot partake in
any business in connection with this office, or intervened or
take part in his official capacity.
o The Judge and his wife had withdrawn on January 31,
1967 from the corporation and sold their respective
shares to 3rd parties, and it appears that the
corporation did not benefit in any case filed by or
against it in court as there was no case filed in the
different branches of the Court of First Instance from
the time of the drafting of the Articles of Incorporation
of the corporation on March 12, 1966 up to its
incorporation on January 9, 1967.
o The Judge realized early that their interest in the
corporation contravenes against Canon 25.
Director of Lands v. Ababa
FACTS:
1. Atty. Alberto Fernandez was retained by Maximo Abarquez
to be his counsel in a case to annul a sale of land. The case
was decided against Maximo so he appealed to the Court
of Appeals.
2. Being a litigant pauper in the lower court and wanting to
retain the service of Atty. Fernandez, he executed a
document stating to give ½ of whatever he might recover
from the appeal to Atty. Fernandez.
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3. The CA then reversed the trial court and ruled for the
annulment of the sale. This decision became final and
executory.
4. Atty. Fernandez waited for Maximo to deliver the ½ of the
property he regained, as agreed upon. However, Maximo
did not comply and instead offered to sell the whole land to
spouses Juan and Marta Larrazabal.
5. Atty. Fernandez moved to protect his interest in the
property by filing a motion for the court to annotate his
attorney’s lien on the TCT of the property and by notifying
the prospective buyers of his claim. He realized that his
motion was a wrong remedy and so filed an affidavit of
adverse claim for the ½ of the lot. Such claim was
annotated on the TCT of the lot.
6. Despite the annotation, Maximo conveyed the property to
the spouses Larrazabal. They then initiated a cancellation of
the adverse claim by Atty. Fernandez, to which Atty.
Fernandez objected. The trial court ruled in favor of Atty.
Fernandez; the spouses appealed.
ISSUE/S:
WON the adverse claim by Atty. Fernandez is valid or null
HELD: The adverse claim is valid.
- The spouses’ contention that the agreement between
Maximo and Atty. Fernandez was an invalid form of
compensation, the property being in litigation, is
untenable.
- The prohibition in Art. 1491 (5) only applies to sale or
assignment of the property to the lawyer from the client.
- In this case, there was no sale; the ½ of the lot served as the
contingent fee of Atty. Fernandez for his services.
- Besides, in such a contingent fee setup, Atty. Fernandez
would not receive the ½ of the lot until the litigation has
been resolved in their favor.
- Furthermore, the contingent fee agreement is recognized
in the Canons of Professional Ethics; contingent fees
benefit the poor who may not have the sum of money
needed to contract the services of a counsel.
- The spouses, having been informed beforehand of the
adverse claim, via the annotation on the TCT and by Atty.
Fernandez himself, should be considered as purchasers in
bad faith. They are estopped from questioning the validity
of the adverse claim.
3. Public officers
Notes from Baviera
- Prohibition is intended not only to remove any occasion for
fraud but also to surround them (officials) with the prestige
necessary to carry out their functions by freeing them from all
suspicion which, although unfounded, tends to discredit the
institution by putting into question the honor of said
functionaries

Maharlika Publishing v. Tagle
FACTS:
1. GSIS was the registered owner of the subject parcel of land,
it then entered into a conditional contract to sell the parcel
of land to Maharlika Corporation.
- Conditions of the sale
o Maharlika shall pay to GSIS monthly installments
o Failure to pay any monthly installment within 90
days from due date and the contract will be
deemed automatically cancelled
2. Maharlika indeed failed to pay the installments. GSIS then
warned Maharlika that if they are still unable to satisfy their
claims in 15 days, the conditions of the contract will be
enforced. Despite of such, Maharlika still failed to pay. GSIS
finally notified Maharlika that the conditional contract of
sale was annulled and cancelled and required Maharlika to
sign a lease contract. Maharlika refused to vacate the
premises and to sign the lease contract.
3. GSIS published an invitation to bid the property in
question.
4. One day before the scheduled bidding, Maharlika sent to
GSIS a letter-proposal to repurchase their foreclosed
property (subject of the public bidding). Accompanying
this letter-proposal are two checks which are submitted to
the office of the General Manager and received by his
Secretary.
- In reply, the General Manager sent a note
commanding to withhold the bidding and discuss
Maharlika’s letter-proposal to him.
5. However, the scheduled public bidding still pushed
through, wherein Maharlika participated as a bidder.
- Maharlika’s bid was rejected due to its non-compliance
with some requirements. Respondent Luz Tagle won
the bidding.
6. Subsequently, GSIS sent a letter to Maharlika informing
them of the non-acceptance of the bid. The two checks
were also returned.
7. GSIS then executed a Deed of Conditional Sale in favor of
Tagle.
8. Tagle then filed a case against Maharlika due to their
refusal to surrender the possession of the subject property.
- RTC decision – in favor of Tagle, ordered Maharlika to
vacate the property
o Declared the letter-proposal ineffective and
without any binding effect, being imperfect to
create any contractual relation between GSIS and
Maharlika
- CA decision – affirmed RTC decision
o Explained that the mere offer to repurchase the
subject property and the deposit (2 checks) by
Maharlika does not have the effect of reviving the
conditional deed of sale. To revive the said
ocntract, there should have been payment in favor
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of the GSIS of all the installments due and
interests thereon.
o The note written by the General Manager does
not show acceptance of the offer to repurchase.
9. Hence, this petition where Maharlika, for the first time,
raised the argument that the bidding shall be considered
void because the winning bidder, Tagle, is the wife of a
high-ranking GSIS officer
ISSUE/S:
1. WON Tagle’s bid shall be declared void on the ground that
she is the wife of a GSIS official (YES)
2. WON there was a repurchase of the property in question
from the GSIS effected by Maharlika the day before the
public bidding (YES)
HELD:
1. YES, Tagle’s bid shall be declared void
- SC holds that it is a policy of the law that public officers
who hold positions of trust may not bid directly or
indirectly to acquire properties foreclosed by their
offices and sold at public auction.; this policy is without
regard to whatever intention the parties may have,
either it be in good or bad faith, the transaction shall
be declared void.
o Legal bases for this policy are Art. III, Sec. 1, 1987
Constitution and Art. 1491, Civil Code
o Edilberto Tagle, the husband of the winning
bidder, is a division chief of the GSIS and is not an
ordinary employee without influence or authority.
2. YES, there was a repurchase of the property
- Due to the General Manager’s note to hold bidding
and the acceptance of the two checks, there was a
valid inference that GSIS had already accepted
Maharlika’s offer to repurchase. Thus, it created an
agreement of binding nature with Maharlika.
- There is no question to the General Manager’s
capacity to enter into binding contractual obligations
for GSIS without the prior approval of the Board of
Trustees. It has been the practice of GSIS to permit the
General Manager to do acts within the scope of his
apparent authority.
o According to jurisprudence, if a corporation
knowingly permits one of its officers to do acts
within the scope of an apparent authority, and this
holds him out to the public as possessing power to
do those acts, the corporation will be estopped
from denying his authority.

4. Other Disqualifications
Notes from Baviera
- Ancestral domains of ICCs/IPs cannot be sold or disposed of,
except to/among members of the same, subject to their
customary laws and traditions (RA 8371, Sec. 5, 8a)
- Under RA 6731, Sec. 6 (Organic Act for the ARMM) and RA
6766, Sec. 7 (Organic Act for the CAR), lands of ancestral
domain titled or owned by an ICC shall not be disposed of to
non-members, unless authorized by the Regional Assembly
- Public Land Act (Com. Act 141, Sec. 120, as amended by RA
3872; RA 8371) provides that conveyances of lands acquired
under it by illiterate non-Christian or literate non-Christians
where the instrument of conveyance is in a language not
understood by said non-Christians shall not be valid unless duly
approved by National Commission on Indigenous People
Mangayao v. de Guzman
FACTS:
- Petitioners are non-Christian Filipinos of the Subano tribe.
They filed an action for the recovery of property and
eclaration of nullity of contract against the Lasuds in the
CFI.
- CFI decision – in favor of Mangayao. Said decision became
final and executory. Also, by virtue of said decision, the
Mangayaos were placed in possession of the property and
private respondents were reimbursed for Php 5,000.00
- In the meanwhile, an action by respondents was filed for
the annulment of CFI judgment despite its having been
affirmed by the Supreme Court. The respondent Judge
issued an order restraining Mangayao from causing
execution of the decision.
- Hence, this petition wherein respondents raise the
following arguments or issues: the question of
indefensibility of title, unenforceability of contract under the
Statute of Fraduds, the issue of whether the transaction was
a sale or mortgage, prescription of action, intervention of
the rights of an innocent purchases for value
ISSUE/S:
1. WON the CFI decision which has already been final and
executory may be retrained by virtue of respondent judge’s
order (NO)
2. WON Mangayao is indeed entitled to recover the subject
property (YES)
HELD:
1. NO, the CFI decision cannot be restrained
- It is a well-settled doctrine that the Supreme Court, being
the court of last resort, is the final arbiter of all legal
questions properly brought before it and that it decision is
any give case constitutes the law of that particular case.
Once its judgment becomes final it is binding on all inferior
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courts, and hence beyond their power and authority to alter
or modify.
2. YES, Mangayao is entitled to recover the subject
property
- This issue has already been settled in Mangayao vs. Lasud
- In the said case, the conveyance of the property to the
Lasuds is deemed void ab initio for being non-approved by
the proper authorities as required by the Administrative
Code and the Public Land Act.
o The said laws require the approval of the authorities
concerned to deeds of sale by illiterate non-Christians;
such approval is an essential requisite for the validity,
and without it the proposed contract is absolutely void
or inexistent.
o The intent of the laws is to guard the patrimony of
illiterate non-Christians from those who are inclined to
prey upon ignorance or ductility, since it is not to be
expected that the illiterate non-Christians who signs
away his real property for lack of instructions, would
thereafter ask the executive authority to refuse
approval of his contract, nor would the literate buyer
be likely to do so.
De Leon v. CA
FACTS:
1. The case involves part of the Buenavista Estate which had
been purchased by the Republic of the Philippines for
distribution among landless tenants and farmers. A part of
said land was sold to Manuel de Leon by the Dept. of
Agriculture on behalf of the Republic. Another part was
sold also by the Republic, through the Land Authority, to
the heirs of Manuel de Leon. Both Deeds of Sale contained
the following conditions:
- The land shall not be sold, assigned, encumbered,
mortgaged or transferred within 5 years (for the sale to
Manuel de Leon; 15 years for the sale to his heirs) from
the date of sale without first obtaining the written
consent of the Secretary of Agriculture and Natural
Resources (for the sale to Manuel; consent of the Land
Authority for sale to the heirs)
- Except by hereditary succession, it shall not be
conveyed, transferred or assigned in favor of any
person who is not landless and disqualified to acquire
or own land in the Philippines
2. In the same year as the sale to de Leon’s heirs, the
respondents filed a complaint against De Leon (Manuel’s
grandson) for partition of the lands and accounting.
- Respondents allege that they had bought ½ of the
lands from Maria de los Santos, the widow of Manuel
de Leon, by virtue of a “Tuluyang Bilihan” and that de
los Santos failed to deliver possession to the
respondents until her death.

- De Leon argues that the subject properties belonged
to him as the sole heir of Manuel de Leon. He also
alleged that the “Tuluyang Bilihan” was a nullity
because de los Santos had no authority to convey the
properties during the prohibited period without the
written consent of the appropriate authorities
3. RTC decision – in favor of the respondents.
4. CA affirmed RTC decision explaining that the “Tuluyang
Bilihan” was genuine and valid and that the alleged lack of
the stipulated written consent could be invoked only by the
Republic of the Philippines and not by the petitioner since
he is not a party to the contract. CA also said that the
stipulations were not applicable to cases of hereditary
succession, and de los Santos, who sold the lands, was the
heir of Manuel de Leon.
5. Hence, this petition.
ISSUE/S:
1. WON the stipulations in the first deed of sale in favor of
Manuel de Leon were binding on his heirs (YES)
2. WON petitioner may question the “Tuluyang Bilihan” even
if he is not a party to it – Yes
HELD:
1. YES, the stipulations were binding on his heirs
- The heirs were bound directly by the similar stipulations
contained in the second deed of sale (15 years prohibition
and the required consent from the Land Authority)
- The purpose of these stipulations was to keep within the
family the property which the government had sold to the
tenant or farmer for a minimal cost to enable him to acquire
his own land. Therefore, the fulfillment of the conditions is
mandatory and non-compliance shall render the transaction
void ab initio.
- Hence, it was necessary for Maria de los Santos, before
selling the subject properties to the respondents, to first
secure the written consent to such sale of the Sec. of
Agriculture and Natural Resources (in the case of the first
lot) and of the Governor of the Land Authority (in the case
of the 2nd lot)
o Exception: when the land is acquired by or transferred
to another person by hereditary succession
§ Thus, when the lands were inherited by de los
Santos as the surviving spouse of Manuel del
Leon, there was no need for such written consent.
But, such consent was still necessary when, as
transferee of the properties, she later sold them to
respondents.
o The lands were transferred to respondents by virtue of
the “Tuluyang Bilihan” and not by hereditary
succession. To be valid, therefore, the sale needed the
written consent of the officials. Since it was not
complied with, the contract is void ab initio.
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2. YES, he may question the “Tuluyang Bilihan”
- Although the argument that only the Republic may
question the validity of the said ocntract on the ground of
non-compliance with the consent stipulations is supported
with ample jurisprudence, the principles of public policy
must prevail.
- Since the “Tuluyang Bilihan” was null and void, ownership
of the lands was not transferred to the respondents but
remained with Maria de los Santos.
o The Republic, if not the petitioner, may still ask for the
reversion of the properties to the State for violation of
the conditions in the deeds of sale.
- In effect, the petitioner has preferential rights of possession
over the respondents since the repsondents are merely
relying on a void “Tuluyang Bilihan”
- The SC also found it fair that the respondents be allowed to
at least recover the purchase price of the land, with legal
interest from the time of the execution of the Tuluyang
Bilihan until the refund is actually made.
- This is based on the finding of the lower court that although
the contract is deficient for lack of the required consent, it
was still validly executed.
Yap v. Grageda
FACTS:
1. April 1939: Maximo Rico, on behalf of minors Rico,
executed a Deed of Absolute sale over two lots in favor of
Donato Yap, a Chinese National. Respondent Rico in this
case is the eldest of the Ricos.
2. Fifteen years after Yap had TCTs issued in his name, he was
granted Filipino citizenship, took the oath of allegiance,
and was issued a Certificate of Naturalization.
3. Dec. 1967: Yap ceded a portion of one of the lots to his
engineer son, Felix, also a Filipino citizen. Co-heir Rico sold
the final portion of one of th elots to Yap.
4. Yap had been in possession of the lots in question since
1939 – he has one surviving son by first marriage and five
children by his second marriage (23 grandkids total.
5. Ricos asked the lower court to have the deed of sale
declared null and void.
6. RTC:
- Granted prayer for annulment. Deed of sale was
declared null and void.
- Art. XIII, Sec. 5., ’35 Constitution contains an absolute
and unqualified prohibition against transferring private
agricultural land to aliens. Such a conveyance would
not be validated by Yap’s subsequent naturalization.
ISSUE/S:
WON naturalization makes deed of sale to Yap valid (YES)
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HELD: YES, naturalization makes deed of sale valid. Art. 1478 The parties may stipulate that ownership in the thing
- While contracts in violation of the mandatory prohibition shall not pass to the purchaser until he has fully paid the price.
against aliens acquiring land (1935 Constitution) are void ab (n)
initio, Art. 1416 of the Civil Code provides as an exception
the rule on pari delicto – when the agreement is not illegal
Art. 1479 A promise to buy and sell a determinate thing for a
per se but is merely prohibited, and the prohibition by the
price certain is reciprocally demandable.
law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what was sold.
An accepted unilateral promise to buy or to sell a determinate
- A naturalized citizen is constitutionally qualified to own thing for a price certain is binding upon the promissor if the
subject property – if the ban on aliens from acquiring
promise is supported by a consideration distinct from the price.
agriculture/urban lands is to preserve nation’s lands for
(1451a)
future generations of Filipinos, the aim or purpose would
not be thwarted by making lawful the acquisition of real
Art. 1480 Any injury to or benefit from the thing sold, after the
estate by aliens who become Filipino citizens by
contract has been perfected, from the moment of the perfection
naturalization.
of the contract to the time of delivery, shall be governed by
Articles 1163 to 1165, and 1262.

III. Form ation of the Contract of Sale

Art. 1475 The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts. (1450a)
This rule shall apply to the sale of fungible things, made
independently and for a single price, or without consideration of
their weight, number, or measure.
Should fungible things be sold for a price fixed according to
weight, number, or measure, the risk shall not be imputed to the
vendee until they have been weighed, counted, or measured
and delivered, unless the latter has incurred in delay. (1452a)

Art. 1481 In the contract of sale of goods by description or by

Art. 1476 In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is
the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any
bidder may retract his bid; and the auctioneer may withdraw the
goods from the sale unless the auction has been announced to
be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of
the seller, unless otherwise provided by law or by stipulation.
sample, the contract may be rescinded if the bulk of the goods
delivered do not correspond with the description or the sample,
and if the contract be by sample as well as description, it is not
sufficient that the bulk of goods correspond with the sample if
they do not also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the
bulk with the description or the sample. (n)
Art. 1482 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. (1454a)

(4) Where notice has not been given that a sale by auction is
subject to a right to bid on behalf of the seller, it shall not be
lawful for the seller to bid himself or to employ or induce any
person to bid at such sale on his behalf or for the auctioneer, to
employ or induce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or any person
employed by him. Any sale contravening this rule may be
treated as fraudulent by the buyer. (n)
Art. 1483 Subject to the provisions of the Statute of Frauds
and of any other applicable statute, a contract of sale may be
made in writing, or by word of mouth, or partly in writing and
partly by word of mouth, or may be inferred from the conduct of
the parties. (n)

Art. 1477 The ownership of the thing sold shall be transferred

to the vendee upon the actual or constructive delivery thereof.
(n)

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Art. 1484 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. (1454-A-a)
Art. 1485 The preceding article shall be applied to contracts
purporting to be leases of personal property with option to buy,
when the lessor has deprived the lessee of the possession or
enjoyment of the thing. (1454-A-a)
Art. 1486 In the case referred to in two preceding articles, a
stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as the
same may not be unconscionable under the circumstances. (n)
Art. 1487 The expenses for the execution and registration of
the sale shall be borne by the vendor, unless there is a
stipulation to the contrary. (1455a)
Art. 1488 The expropriation of property for public use is
governed by special laws. (1456)
A. Preparatory
Art. 1479 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.
(1451a) (cf. Art. 1324)
Art. 1324 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 a consideration, as something paid
or promised. (n)
- Covers the period from the time the prospective
contracting parties indicate interest in the contract to the
time the contract is perfected
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- Policitation or negotiation stage deals with legal matters
arising prior to the perfection of sale, dealing with concepts
of invitation to make offer, offer, acceptance, right of first
refusal, option contract, supply agreement, mutual
promises to buy and sell or contracts to sell
- Negotiation is formally initiated by an offer which must be
certain
- Unaccepted unilateral promise to buy or sell prior to
acceptance doesn’t give rise to any obligation or right.
These relations, until a contract is perfected, are not
considered binding commitments and any time prior to the
perfection of the contract, either party may stop the
negotiation and walk away without adverse legal
consequences
- During this stage, there is “freedom to contract” which
signifies the right to choose whom to contract and what to
contract
Notes from De Leon
KIND OF PROMISE TREATED IN ARTICLE 1479
1. Accepted unilateral promise to sell – promisee
(acceptor) elects to buy;
2. Accepted unilateral promise to buy – promisee
(acceptor) elects to sell;
3. Bilateral promise to buy and sell – reciprocally
accepted in which either of the parties chooses to exact
fulfillment
EFFECT OF UNACCEPTED UNILATERAL PROMISE
- Policitacion – unaccepted imperfect promise or offer
- Creates no juridical effect or legal bond
- A period may be given to the offeree within which to
accept the offer
EFFECT OF ACCEPTED UNILATERAL PROMISE
- Option – referred to in second paragraph of Art. 1479
- Unilateral promise to sell or to buy a determinate thing for
a price certain does not bind the promissor even if
accepted and may be withdrawn at any time
- It is only if the promise is supported by a consideration
distinct and separate from the price that its acceptance will
give rise to a perfected contract
- Optionee (holder of the option), after accepting the option
and before he exercises it has the right, but not the
obligation, to buy or sell, as the case may be
- Once the option is exercised, i.e., 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
- It would be a breach of the option for the optioner-offeror
to withdraw the offer during the agreed period

- If he 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 since it
has failed to reach its own stage of perfection
- - Offeror renders himself liable for damages for breach of
the option
FULL PAYMENT OF PRICE NOT NECESSARY FOR
EXERCISE OF OPTION TO BUY
- Obligations under an option to buy are reciprocal
obligations
- The party who has an option may validly and effectively
exercise his right by merely notifying the owner of the
former’s decision to buy and expressing his readiness to
pay the stipulated price
- Notice need not be coupled with actual payment of the
purchase price, so long as this is delivered upon the
execution and delivery of the deed of sale
- Payment of the price is contingent upon the deed of sale –
unless and until the owner shall have done this, the buyer
who has the option is not and cannot be held in default
o Since the obligation to pay is not yet due, consignation
is not required
- An option to buy is not a contract of purchase and sale
ARTICLE 1479 AND ARTICLE 1324 COMPARED
- Art. 1324:
o The general rule regarding offer and acceptance (Art.
1319) is that, when the offerer has allowed the offeree a
certain period within which to accept the offer, the
offer may be withdrawn as a matter of right at any time
before acceptance
o If the option is founded upon a separate consideration,
the offerer cannot withdraw his offer, even if the same
has not yet been accepted, before the expiration of the
stipulated period
o Whether it is supported by a consideration or not, the
offer, cannot be withdrawn after acceptance
- Art. 1479 modified Art. 1324
o Applies specifically to a promise “to buy or to sell”
o Rule requires that for a promise to sell to be valid, it
must be supported by a consideration distinct from the
price
o Sanchez v. Rigos:
§ Abandoned the view in Southwestern Sugar &
Mollases Co. v. Atlantic Gulf & Pacific Co., which
holds that an option to sell can still be withdrawn,
even if accepted, if the same is not supported by
any consideration
§ Reaffirmed the doctrine in Atkins, Kroll & Co., Inc.
v. Cua Hian Tek, holding that it could no longer be
withdrawn after acceptance
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- If acceptance is made before withdrawal, it constitutes a
binding contract of sale although the option is given
without consideration
- Before acceptance, the offer may be withdrawn as a matter
of right
- The offerer cannot revoke, before the period has expired, in
an arbitrary or capricious manner the offer without being
liable for damages, under Art. 19
EFFECT OF BILATERAL PROMISE TO BUY AND SELL
- When the promise is bilateral (one party accepts the other’s
promise to buy and the latter, the former’s promise to sell a
determinate thing for a price certain), it has practically the
same effect as a perfected contract of sale since it is
reciprocally demandable
1. Offer
Art. 1475 The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts. (1450a)
Art. 1319 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.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into
in the place where the offer was made. (1262a)
- The offer must be certain. Prior to its acceptance, it is
subject to the complete will of the offeror and may be
withdrawn anytime. If the offer is given for a period, the
expiration of the period without further act or its withdrawal
prior to acceptance would destroy the offer
- Offeror has the right to attach any term or condition he
desires and may fix the time, place, and , manner of
acceptance and the offeree has no authority to treat it as
consisting of separate and distinct parts since he must
accept and comply with all the requirements provided in
the offer
- Offeree has the right to indicate further negotiations by
making a counter-offer, which has the effect of
extinguishing the original offer
- An expired offer cannot be accepted anymore. Conditional
acceptance constitutes a counter-offer

- An offer becomes ineffective upon death, civil interdiction,
insanity, or insolvency of either offeror or offeree before
acceptance
Villonco v. Bormaheco
FACTS:
1. April 1959: Sps. Cervantes mortgaged three lots in Buendia
Ave, Makati to Development Bank of the Philippines as
security for a P441, 000 loan; debt was fully paid in June of
that year.
2. All three lots are occupied by Bormaheco, Inc.’s (BI)
buildings and machinery, of which Cervantes is president.
Villonco Realty Company (VRC) occupies an adjacent
property.
3. Feb 1964: negotiations between Romeo Villonco of VRC and
Francisco Cervantes of VI took place for the sale of the lots
- VRC assumed the subject lots belonged to the Sps C.
- C did not disclose to the broker (Tagle) and to VRC
that the lots were conjugal property and subject to
DBP mortgage.
- In a letter by C to Villonco re: the sale of property, he
referred to the lots as “our property” and that “we”
are offering to sell it at the price of P400 per sq meter
with earnest money of P100k to be deposited, and that
sale is to be consummated only after “I” (i.e.
Cervantes) consummated purchase of another property
in Sta. Ana; and that C would return the P100k deposit
should his negotiations re: the Sta. Ana property not
push through.
4. In a Jan. 1964 public bidding, the Sta. Ana property was
awarded to BI as the highest bidder.
- Nassco (the Sta. Ana property’s former owner)
requested the approval of the resolution from the
Acting Economic Coordinator, who approved it in
March of 1964.
5. On Feb. 27, Cervantes and Teofilo Villonco had a final
conference which resulted in a counter-offer for the
purchase of the property, with the stipulation that the sale
shall be cancelled only if the deal with the Sta. Ana property
shall not be consummated.
6. March 1964: Tagle delivered the check for P100k to
Cervantes, with the voucher-receipt stipulating that the
earnest money was subject to the terms in the negotiation
letters.
- 26 days later, C returned the earnest money, citing that
despite the lapse of 45 days from Feb 12, there is no
certainty that the Punta property could be acquired. He
returned the checks by registered mail and rescinded
the contract, although he knew the Punta lot had
already been awarded to Bormaheco.
- C said his letter was a “manifestation that we are no
longer interested to sell” the subject properties.
- VRC returned the two checks stating the condition for
cancellation of the contract had not arisen.
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7. April 1964: VRC filed a complaint for specific performance
against BI, and a notice of lisp ends was annotated onto the
titles.
8. June 1964: the Board of Directors of Nassco informed BI that
it had approved the sale of the Punta lot. Deed of sale was
executed to BI.
- VRC impleaded the Sps. C upon learning that the lots
were in their name.
ISSUE/S:
1. WON there had been a perfected contract of sale. (YES)
2. WON C’s qualified acceptance constituted a counter-offer,
and when VRC did not accept it, it could be withdrawn by C.
(NO)
3. WON the contract was not perfected because the condition
that BI acquire the Nassco land within 45 days from Feb 12
was not fulfilled. (NO)
4. WON BI cannot be required to sell the lots because they are
conjugal properties of the Sps. C. (NO)
HELD:
1. Yes. BI’s acceptance of VRC’s offer to purchase
the subject property as shown in Villonco’s March
1964 letter proves that there was a meeting of
minds upon the subject matter and consideration
of the sale, thus perfecting the sale on that date
- The non-consummation of the Punta property was a
negative resolutory condition; upon BI’s acceptance of the
P100k earnest money, the sale was conditionally
consummated or partly executed, subject to the
extinguishment of the obligation should the Punta land not
be acquired.
- Feb. 1964 – Naasco had already authrozied its manager to
sign the deed of sale. All that was left was the Economic
Coordinator’s approval.
- Relevant laws:
o "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).
o "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.).
o "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).

o "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).
o "An acceptance may be express or implied" (Art. 1320,
Civil Code).
2. No. There is no evidence that C’s changes were a
revised offer. There is likewise no evidence that
VRC did not assent to the supposed changes. The
controlling fact is that there was agreement
between the parties on the subject matter, the
price and mode of payment, and that part of the
price was paid. 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.
- According to the records, Tagle, the real estate broker, had
acted as intermediary between BI and VRC, and all changes
were communicated and accepted, as seen from the P100k
deposit of earnest money.
- Had VRC not accepted C’s changes, it would have ordered
stop payment on its P100k check.
- The changes made by C were not significant:
o Substituting “Naasco” for “another” in the phrase
“property located in Sta. Ana” was simply meant to
not-publicize which property they were after to prevent
possible jeopardizing of the sale.
o Insertion of “per annum” after the word “interest” Is
not a counter offer; the parties had always intended it
to be per annum anyway, since a 10% monthly rate
would be usurious.
o There is no incompatibility between BI’s first offer letter
and VRC’s counter-offer; the latter simply emphasized
the condition stated in the former.
3. No. The contract was not perfected.
- In C’s Feb 1964 letter, it stated that the sale of the subject
lots would be consummated after he had consummated the
purchase of the Nassco property. He later added that “final
negotiations on both properties can be definitely known
after forty-five days.” The condition thus rested on BI’s
acquisition of the Nassco land, but nothing stated that such
acquisition had to be effected within 45 days from Feb 12.
The condition to acquire the Nassco property was fulfilled
- The term of 45 days was not a part of the condition for
acquiring the Nassco property. It simply surmised that such
a period is how long it would take for BI to know whether it
could acquire the Nassco property.
- BI’s stand is confusing since it said its acceptance of
Villonco’s revised counter offer was conditioned on the
circumstance “that final acceptanceor not shall be made
after 45 days” without specifying what event from which to
count 45 days.
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4. No. BI cannot be required to sell the lots.
- Cervantes did raise the issue of conjugal property to
oppose the sale of the lots. In fact, he concealed the fact
that the lots were registered under their names instead of
BI’s. He led the Villoncos to believe that as president of BI,
he could dispose of the said lots.
- Furthermore, when VRC alleged in its complaint that BI had
made a former offer to sell the property, BI did not deny it;
thus BI’s “ownership” of the property is deemed admitted.
- BI’s basis in its affirmative defense was the 45-day
condition. Such a condition meant that Cervantes, as
president of BI, needed 45 days to “negotiate” with
himself, which is absurd.
- BI also never pleaded as an affirmative defense that Mrs. C
had opposed the sale of the three lots, nor did she
authorize her husband to sell these. The defense was an
afterthought, brought to light only during the May1965 trial.
- Because obligations arising from contracts have the force of
law between the parties, inasmuch as the sale was
perfected and even partly executed, the Sps. C are bound
to comply with their commitments.
1.a. Forms of Offer
Art. 1319 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.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into
in the place where the offer was made. (1262a)
Art. 1325 Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere invitations to
make an offer. (n)
Art. 1326 Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (n)
- The offer must be certain. Prior to its acceptance, it is
subject to the complete will of the offeror and may be
withdrawn anytime. If the offer is given for a period, the
expiration of the period without further act or its withdrawal
prior to acceptance would destroy the offer
- Offeror has the right to attach any term or condition he
desires and may fix the time, place, and manner of
acceptance and the offeree has no authority to treat it as
consisting of separate and distinct parts since he must
accept and comply with all the requirements provided in
the offer

- Offeree has the right to indicate further negotiations by
making a counter-offer, which has the effect of
extinguishing the original offer
- An expired offer cannot be accepted anymore. Conditional
acceptance constitutes a counter-offer
- An offer becomes ineffective upon death, civil interdiction,
insanity, or insolvency of either offeror or offeree before
acceptance
Zayco v. Serra
FACTS:
1. Nov. 1918: Lorenzo Zayco (Zayco) and Salvador Serra (Serra)
entered into a contract with the ff clauses:
- Serra shall give Zayco the option to buy Palma Central
for P1M
- Should Palma Central’s purchase push through and
Zayco cannot pay the whole price in cash, he shall be
given a period not exceeding 3 years to make
payment, provided he gives security or bond to
guarantee payment of the balance, with interest
thereon
- This option to purchase PC or join in the partnership
thereof expires on June 30 1919
- Hereafter, in case of sale of PC or formation of
Partnership, Zayco shall have preference
2. June 1919: Zayco, thru his atty, wrote to Serra accepting the
contract and palcing at his disposal a P100k cash order of
the Bank of Philippine Islands Iloilo in partial payment of PC
- In the letter, Zayco informed Serra that Philippine
National Bank had agreed to transfer a P600k long
term loan to Zayco’s account and hold him responsible
for such loan, with Serra completely relieved of
responsibility
- Letter also offered to provide the required bond; then
ended with demand that Serra execute the deed of
sale
3. Serra had knowledge of the letter on June 30, but on July
15, he wrote Zayco’s atty. stating that the November
Option Contract was cancelled and annulled
4. June 30 1919: Zayco brought suit against Serra to compel
him to execute the deed of sale and to pay damages
5. Serra’s demurrer:
- The November Option Contract does not specify the
part to be paid in cash and the part to be paid within 3
years
- Zayco amended his complaint
- Serra restated his demurrer
- Zayco’s final amendment: subsequent to November
option contract, a stipulation was made by Zayco that
the sum to be paid in cash was P100k
- Serra’s defense: that the November option contract
did not specify sufficient consideration on Zayco’s part
- March 1920: Zayco filed a supplemental complaint that
Serra had sold PC to Whitaker, Concepcion and de
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Luzriaga on January 29 1920; he asked to be entitled to
purchase OC under the same terms
6. RTC:
- Absolved defendants from the complaint
- That there was no consideration in the November
option contract, and is thus null and void.
ISSUE/S:
1. WON the November Option Contract is null and void for
having no consideration (NO)
2. WON Serra can be compelled to sell him PC in accordance
with the November Option Contract. (NO)
HELD:
1. No, the option contract is not null and void.
- While the contract does not state a consideration, it is
presumed that there is a consideration in all contracts. (Art.
12777). Consideration can be proved, and evidence in this
case shows its existence. Zayco’s support to PC was a
prestation of thing or service which positively benefited
Serra.
o Consideration of the contract: Zayco owned an estate
in between competing mills Palma Central and Bearing
Central; both centrals had made favorable offers to
Zayco (BC offering to remit his P40k debt, PC offering
to give him 60% of the milled sugar) — the fact that
Zayco at last decided to support PC is sufficient
consideration, in particular:
o That Zayco would waive positive benefits from BC
o OC could expand its central and increase profit
2. No, Serra cannot be compelled to sell the PC.
- An offer to sell, if accepted before the offer is withdrawn,
can generate a contract. But for the acceptance to convert
the offer of sale into a perfected contract, said acceptance
must be plain and unconditional and it must not involve any
new proposal. Zayco’s acceptance lacks these requisites;
therefore the November option contract did not convert
into a perfected contract of sale.
- According to the terms of the contract, a first portion of the
P1M was to be paid in cash, but the amount of this first
portion was not specified. When Zayco accepted the offer,
he tendered P100k, an amount not contained in the offer,
thus requiring acceptance from Serra. Serra not only
rejected this counter-offer, but cancelled the option
contract.
- Zayco’s allegation that a subsequent agreement was made
in a second letter to have the first portion to be P100k was
never proven; the letter was never presented in evidence.
Instead, his sons were presented as witnesses, and their
testimonies were uncertain and contradictory.
- As to Zayco’s allegation that he also agreed to assume
Serra’s P600k obligation with the National Bank, it is strange
that such an important part of the contract was not alleged
in the original complaint.

1.b. Forms of Acceptance
Art. 1319 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.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into
in the place where the offer was made. (1262a)
- Acceptance must be absolute. A qualified acceptance
constitutes as a counter-offer.
- May be express or implied
- To bind the offeror, the offeree must comply with the
conditions of the offer
2. Vices of Consent
Art. 1330 A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
(1265a)
Art. 1338 There is fraud when, through 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. (1269)
Art. 1331 In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the object of
the contract, or to those conditions which have principally
moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties
will vitiate consent only when such identity or qualifications have
been the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
(1266a)
- Deceit need not be by misrepresentation in words
- Failure to disclose the facts, when there is a duty to reveal
them, constitutes fraud
Asiain v. Jalandoni
FACTS:
1. Luis Asian, owner of hacienda Maria in Negros Occidental,
offered to sell to Benjamin Jalandoni a portion of the latter
for P55k. Asian indicated the tract of land with a hand wave,
affirmed that it contained between 25-30 ha, and that it
would produce no less than 2k piculs.
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2. Jalandoni remained doubtful as to the area of the land and
its production capacity, so to assuade Jalandoni’s doubts,
they both signed a memorandum of agreement that
stipulated the following:
- A bound himself to sell the subject parcel of land
- J bound himself to pay; P55k in total, P30k upon
signing of the agreement, and P25k within the year
- Should A withdraw from the contract, J has a right to
collect from A the amount he advanced, plus P15k as
penalty
- Should J withdraw, he will the P30k he had advanced
3. Once in possession of the tract of land, J had sugar cane
ground (8k piculs) and secured a certificate of title (18ha);
both below what A had assured him.
4. J paid 30k of the 55k.
5. A began an action in CFI Negros Occidental to recover the
25k balance. J opposed, claiming the document was null
and void.
6. CFI:
- Ruled in favor of J. Declared the document null and
void.
- J was absolved of the P25k balance, but was ordered
to turn over the tract of land. A was ordered to return
the P30k advance.
ISSUE/S:
WON the mistake as to area is sufficient ground to have the
document avoided. (YES)
HELD:
1. Yes. The mistake is sufficient ground.
- The Court held that Art. 1471, insofar as it refers to sales of
real estate for a lump sum, is the applicable law.
o In case of sale of real estate for a lump sum and not at
the rate of specified price for each unit or measure,
there shall be no increase or decrease of the price even
if the area be found to be more or less than that stated
in the contract. Same rule applies when two or more
estates are sold for a single price. But, if in addition to
a statement of the boundaries, which is indispensible in
every conveyance of real estate, the area of the estate
should be designated in the contract, the vendor shall
be obliged to deliver all that is included within such
boundaries, even should it exceed the area specified in
the contract; and should he not be able to do so, he
shall suffer a deduction of the price in proportion to
what is lacking of the area, unless the contract be
annulled by reason of the vendee’s refusal to accept
anything other than that which was stipulated.
- o The Court then noted that there are conflicting views
as to what Art. 1471 could mean. According to Manresa, the
second view is an erroneous interpretation because the
vendor would lose in either case; should the area contain
more than stipulated in the contract, the vendor loses the

value of the excess, but if the area is less than what is
stipulated in the contract, he still loses because the price is
reduced or the contract annulled. The second view is
unjust.
o FIRST VIEW: the sale of real estate is for a lump sum
and not at the rate of specified price for each unit or
measure, there shall be no increase or decrease of the
price even if the area be found to be more or less than
that stated in the contract. Same rule applies when two
or more estates are sold for a single price. But, if in
addition to a statement of the boundaries, which is
indispensible in every conveyance of real estate, the
area of the estate should be designated in the
contract, the vendor shall be obliged to deliver all that
is included within such boundaries, even should it
exceed the area specified in the contract; and should
he not be able to deliver the land designated within
the boundaries, he shall suffer a deduction of the price
in proportion to what is lacking of the area, unless the
contract be annulled by reason of the vendee’s refusal
to accept anything other than that which was
stipulated.
o SECOND VIEW: the phrase “should he not be able to
do so” refers not to an inability by the vendor to
deliver the land within the boundaries, but an inability
to comply with the contract precisely because the
boundaries contain less area than what is stated in the
terms of the agreement; in such a case, he must suffer
nullity or reduction of the price, proportionate to the
amount of land lacking.
- After surveying American jurisprudence on the contracting
views, the Court arrived at the general principle that where
it appears that the parties intended a contract of hazard, as
where the sale is a sale in gross (lump sum for land
designated by boundaries and not by acreage or quantity).
However, even if the sale is one on gross, when a mutual
mistake is made as between the parties and it is clear that
the mistake goes to the essence of the contract, such
mistake may be a ground for relief and rescission for
reasons of equity.
o The Court arrived at this rule by noting two general
classes of sales of land. One where the sale of land is
for a specific quantity, denominated as sale by acre,
and one where the sale is of a specific tract by name or
description, i.e., a sale in gross. The latter has four
kinds:
§ Strictly by tract without reference in negotiation
as to estimated quantities of acre
§ Sales of like kind, wherein a supposed quantity by
estimation is mentioned in the contract, but
reference was made only for descriptive
purposes.
§ Sales in which it is evident from extraneous
circumstances of locality, value, price, time,
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conduct and conversations of the parties, that
they did not contemplate or intend to risk more
than the usual rates of excess or deficit (i.e. when
they use the phrase “more or less”).
§ Sales which, though technically deemed a sale in
gross, are in fact sales by the acre, and so
understood by the parties
o As to the first two kinds of sales by specific tract, the
contract should not be modified even if the subject
land turns out to have more or less acreage than what
was noted in the contract. But as regards the third and
fourth kind, an unreasonable surplus or deficit may
entitle the injured party to equitable relief.
- The general rule is thus stated as follows in jurisprudence:
o A vendee of land when it is sold in gross or with the
description of “more or less” does not thereby ipso
facto take all risk of quantity in theland. Mutual mistake
of contracting parties to a sale in regard to the subject-
matter of the sale which is so material as to go to the
essence of the contract is a ground for relief and
rescission. When the parties saw the premises and
knew the boundaries it cannot prevent relief when
there was mutual gross mistake as to quantity. Innocent
and mutual mistake alone are sufficient grounds for
rescission. (Bigham v Madison 1899)
o Equity will rescind a contract for the sale of land for
mutual mistakes as to the quantity of land which the
boundaries given in the contract contained,, where the
deficiency is material. “More or less,” used in the
contract in connection with the statement of the
quantity, will not prevent the granting of such relief.
(Belknap v Sealey)
- As applied to the case:
o The MOA between A and J contained the phrase
“more or less,” which, when added to a statement of
quantity, covers only inconsiderable or small
differences.
o This was not a contract of hazard, but a sale in gross.
o There was a mutual mistake as to the quantity of the
land sold and the amount of standing crop.
o Mistake of fact as disclosed, not alone by the terms of
contract but by the attendant circumstances, is, as it is
sometimes expressed, the efficient cause. Mistake with
reference to the subject-matter of the contract at the
option of the purchaser is rescindable, because without
such mistake, agreement would not have been made.
The agreement is thus inoperative and void. Such is
not a case of misinterpretation, deception, or fraud,
but of bilateral mistake for which relief should be
granted. The solution is to put the parties back in their
respective positions before the agreement was
accomplished.
DISPOSITIVE: Judgment of the lower court affirmed.
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3. Option Contract to purchase sucj subject matteràsubject matter of the
option contract is the accepted promise to sell/buy
Art. 1479 A promise to buy and sell a determinate thing for a o Option Contract is an unaccepted offer. If acceptance
price certain is reciprocally demandable. is not made, then the offeror is no longer bound and
the option is at an end. In a contract of sale however, it
An accepted unilateral promise to buy or to sell a determinate fixes definitely the relative rights and obligations of
thing for a price certain is binding upon the promissor if the both parties at the time of its execution and leaves no
promise is supported by a consideration distinct from the price. choice to either party to withdraw or proceed
(1451a) • Gives the following Obligations on the part of the
Offeror
o Personal obligation not to offer to any 3rd party the sale
Art. 1324 When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before of the object of the option during the option period
acceptance by communicating such withdrawal, except when o Personal obligation not to withdraw the offer or option
during the option period; and
the option is founded upon a consideration, as something paid
o Obligation to hold the subject matter for sale to the
or promised. (n)
offeree in the even that offeree exercises his option
during the period
• Art. 1479 2nd par means: when the option is founded upon a
• Elements of a Valid Option Contract
prior consideration, then the offer may not be withdrawn at
o Consent
any time during the option period
o Subject Matter: an option right to an unaccepted
• Enriquez de la Cavada v Diaz: A privilege existing in one
unilateral offer to sell/buy:
person, for which he had paid a consideration and which
§ A determinate or determinable object
gives him the right to buy certain property/merchandise
§ For a price certain, including the manner of
from another person, if he chooses, at any time within the
payment thereof
agreed period at a fixed price
o Prestation: a consideration separate and distinct from
• Adelfa Properties Inc v CA: a continuing offer or contract by
the purchase price for the option given
which the owner stipulates with another that the latter shall
• Separate Consideration
have the right to buy the property at a fixed price within a
o May be anything or undertaking of value
certain time. It is not itself a purchase but merely secures
o The more controlling concept is the “separateness” of
the privilege to buy. It imposes no binding obligation on
such consideration from the purchase price agreed
the person holding the option, aside from the consideration
upon
for the offer
o It is the “why” of the contract, the essential reason
• Equatorial Realty Dev. Vs. Mayfair Theater: one involving
which moves the contracting parties to enter into the
the choice granted to another for a distinct and separate
contract (i.e. obligation or promise of each party is the
consideration as to whehter or not to purchase a
consideration for that of the other)
determinate thing at a predetermined time
o Sanchez doctrine: without a consideration separate
• Carceller vs. CA: the binding effect of an option contract is
from the purchase price, an option contract would be
that the one who gave the option cannot enter into the
void as a contract but would still constitute a valid offer
principal contract with any other person during the period
o However, the Sanchez doctrine has been overturned by
designated
Southwestern Sugar Molasses Co vs Atlantic Gulf and
• Option must be accepted and communicated to the
Pacific Co: when an option is not supported by a
offeror. Notice need not be coupled with actual payment so
separate consideration, it is void and can be withdrawn
long as the payment will be delivered to the owner upon
notwithstanding the acceptance made previously by
performance of the latter’s part of the agreement
the offeree
• Characteristics
o Offeree has burden of proving that there is a separate
o Onerous- must have a separate consideration from the
consideration
purchase price to be valid.
• Period
o Consensual- there must be a meeting of the minds
o If the contract doesn’t contain a period, Art. 1144(1) will
o Unilateral- only the optioner is obliged even when the
be appliedàactions upon written contract must be
optionee hasn’t paid the separate consideration.
brought within 10 years after which the right of option
• Versus Sale
would prescribe
o The most important distinction with sale is that the
o Summary rules when Period is granted to promise (Ang
subject matter of an option contract is actually not the
Yu Asuncion v CA):
subject matter of the sought sale, but rather the option

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§ If period itself is not founded upon a separate
consideration, the offeror is still free and has the
right to withdraw the offer before acceptance or if
acceptance has been made, before the
communication of such acceptance to the offeror
§ The right to withdraw must not be exercised
arbitrarilyà otherwise liable under Art. 19
§ If period has a separate consideration, a contract
of option is deemed perfected and it would be a
breach to withdraw the offer during the period
§ The option is an independent contract itself and
the parties may not sue for specific performance of
the MAIN contract since it has failed to reach its
own stage of perfection
§ Care should be taken of the real nature of the
consideration given
Notes from De Leon
KIND OF PROMISE TREATED IN ARTICLE 1479
1. Accepted unilateral promise to sell – promisee
(acceptor) elects to buy;
2. Accepted unilateral promise to buy – promisee
(acceptor) elects to sell;
3. Bilateral promise to buy and sell – reciprocally
accepted in which either of the parties chooses to exact
fulfillment
EFFECT OF UNACCEPTED UNILATERAL PROMISE
- Policitacion – unaccepted imperfect promise or offer
- Creates no juridical effect or legal bond
- A period may be given to the offeree within which to
accept the offer
MEANING OF OPTION
- It is a contractual privilege existing in one person for which
he has paid a consideration which gives him the right to
buy/sell certain merchandise or certain specified property,
from/to another person, if he chooses, at any time within
the agreed period at a fixed price, or under, or in
compliance with certain terms and conditions
NATURE OF OPTION CONTRACT
1. An option is a contract. It is a preparatory contract,
separate and distinct from the main contract itself (subject
matter of the option) which the parties may enter into upon
the consummation of the option. It merely secures the
privilege to buy/sell.
2. It gives the party granted the option the right to decide
whether or not to enter into a principal contract, while it
binds the party who has given the option, not to enter into
the principal contract with any other person during the
agreed time and within that period, to enter into such
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contract with the one to whom the option was granted if
the latter should decide to use the option.
3. It imposes no binding obligation on the person holding the
option aside from the consideration for the offer. It is only
when the option is exercised may a sale be perfected.
4. An option must be supported by a consideration distinct
from the price. The optionee or promise has the burden of
proving such consideration. Lacking any proof of such
consideration, the option is unenforceable. A contract of
option to buy is separate from the contract to sell, and both
contracts need separate and distinct considerations for
validity.
5. The consideration need not be monetary or actual cash. It
may consist of other things or undertakings but they must
be something of value, in view of the onerous nature f the
option contract, unlike in sale where it must be in price
certain in money or its equivalent. Furthermore, when the
consideration is not monetary, it must be clearly specified
as such in the option contract or clause.
6. A consideration of an option contract is just as important as
the consideration for any other kind of contract. The
consideration is “the why of the contract, the essential
reason which moves the contracting parties to enter into
the contract.” An option without consideration is void. The
effect is the same as if there was no option.
EFFECT OF ACCEPTED UNILATERAL PROMISE
- Option – referred to in second paragraph of Art. 1479
- Unilateral promise to sell or to buy a determinate thing for
a price certain does not bind the promissor even if
accepted and may be withdrawn at any time
- It is only if the promise is supported by a consideration
distinct and separate from the price that its acceptance will
give rise to a perfected contract
- Optionee (holder of the option), after accepting the option
and before he exercises it has the right, but not the
obligation, to buy or sell, as the case may be
- Once the option is exercised, i.e., 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
- It would be a breach of the option for the optioner-offeror
to withdraw the offer during the agreed period
- If he 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 since it
has failed to reach its own stage of perfection
- Offeror renders himself liable for damages for breach of the
option

FULL PAYMENT OF PRICE NOT NECESSARY FOR
EXERCISE OF OPTION TO BUY
- Obligations under an option to buy are reciprocal
obligations
- The party who has an option may validly and effectively
exercise his right by merely notifying the owner of the
former’s decision to buy and expressing his readiness to
pay the stipulated price
- Notice need not be coupled with actual payment of the
purchase price, so long as this is delivered upon the
execution and delivery of the deed of sale
- Payment of the price is contingent upon the deed of sale –
unless and until the owner shall have done this, the buyer
who has the option is not and cannot be held in default
o Since the obligation to pay is not yet due, consignation
is not required
- An option to buy is not a contract of purchase and sale
ARTICLE 1479 AND ARTICLE 1324 COMPARED
- Art. 1324:
o The general rule regarding offer and acceptance (Art.
1319) is that, when the offerer has allowed the offeree a
certain period within which to accept the offer, the
offer may be withdrawn as a matter of right at any time
before acceptance
o If the option is founded upon a separate consideration,
the offerer cannot withdraw his offer, even if the same
has not yet been accepted, before the expiration of the
stipulated period
o Whether it is supported by a consideration or not, the
offer, cannot be withdrawn after acceptance
- Art. 1479 modified Art. 1324
o Applies specifically to a promise “to buy or to sell”
o Rule requires that for a promise to sell to be valid, it
must be supported by a consideration distinct from the
price
o Sanchez v. Rigos:
§ Abandoned the view in Southwestern Sugar &
Mollases Co. v. Atlantic Gulf & Pacific Co., which
holds that an option to sell can still be withdrawn,
even if accepted, if the same is not supported by
any consideration
§ Reaffirmed the doctrine in Atkins, Kroll & Co., Inc.
v. Cua Hian Tek, holding that it could no longer be
withdrawn after acceptance
o If acceptance is made before withdrawal, it constitutes
a binding contract of sale although the option is given
without consideration
o Before acceptance, the offer may be withdrawn as a
matter of right
o The offerer cannot revoke, before the period has
expired, in an arbitrary or capricious manner the offer
without being liable for damages, under Art. 19
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EFFECT OF BILATERAL PROMISE TO BUY AND SELL
- When the promise is bilateral (one party accepts the other’s
promise to buy and the latter, the former’s promise to sell a
determinate thing for a price certain), it has practically the
same effect as a perfected contract of sale since it is
reciprocally demandable
Notes from Baviera
OPTIONAL CONTRACT
- Privilege existing in one person for which he had paid a
consideration 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
- It is a separate and distinct contract from the contract which
the parties may enter into upon 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 option, then it cannot
be enforced anymore
- It 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
- In Sanchez v Rigos (1972), even though the option was
unsupported by a consideration, the moment it was
accepted, a perfected contract of sale resulted
- An option is a continuing offer upon sufficient
consideration and so long as it remains unaccepted, it is a
unilateral contract, lacking the mutual elements of a
contract; but when accepted, an executory contract arises,
mutually binding upon the parties, and it imposes no
binding obligation on the person holding the option aside
from the consideration for offer, but when the option is
accepted, it ceases to be an option and becomes a mutual
binding agreement of sale
- Subsequent cases reverted to the old doctrine, applying
Art. 1479 regarding a consideration for an option

De la Cavada v. Diaz
FACTS:
1. On November 15, 1912, Diaz and Enriquez entered into a
“contract of option” whereby Diaz granted an exclusive
option to Enriquez to purchase his hacienda at Pitogo for
P70,000 within the period necessary for the issuance of a
Torrens title.
2. After the execution of the contract, Diaz was granted by the
Court of Land Registration the certificates of titles for parts
of the Hacienda de Pitogo under the Torrens system.
3. Pretending to comply with the contract, Diaz offered to
Enriquez one of the said parcels only. Enriquez refused to
accept on the ground that under their contract, he was
entitled to a transfer of the entirety of the hacienda.
4. Theory of Diaz: contract of sale of said hacienda included
more or 100 hectares of said hacienda. By offering to sell
part of it, he has complied with the terms of the contract.
5. Theory of Enriquez: he had purchased ALL of said hacienda
and the same contained at least 100 hectares more or less
6. TC
- The sale was a sale of the entire hacienda and not just
a part of it. Rendered judgment requiring Diaz to
comply with the terms of the contract
7. Both parties entered into an agreement, allowing the
assistant clerk of the CFI to act as appointed commissioner
in gathering proof for the case. Diaz assigns several errors
for the resolution of the court.
ISSUE/S:
1. WON the agreement with the method of presenting proof
is valid (YES)
2. WON the trial court erred in declaring the contract a valid
obligation for failure of consideration (NO)
3. WON the contract was made with Rosenstock, Else & Co.
and not with plaintiff (NO)
4. WON the action was premature because plaintiff had not
paid the price agreed upon (NO)
5. WON trial court erred in declaring that defendant was
obligated to sell to plaintiff despite nonfulfillment,
abandonment, and negligence (NO)
6. WON trial court erred in awarding damages to plaintiff
(NO)
7. WON the contract was a contract wherein plaintiff
promised to find a buyer for the lot (NO)
8. WON trial court erred in ordering him to convey the land to
plaintiff even if plaintiff didn’t demand the transfer of the
property and because a portion of the hacienda has already
been sold to another (NO)
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HELD:
1. Yes, the agreement is valid.
- In civil actions, the parties have a right to agree, outside the
court, upon the facts of litigation. The proof, as submitted
to the court by virtue of their agreement, is in effect the
form of a deposition of the various witnesses presented.
Having agreed upon this method, it is now too late for
them to deny the validity of their agreement.
2. No; the contract is one of sale and a consideration
was present.
- The contract is a contract of sale and there is consideration
thereof.
- The contract was for the sale of a definite parcel of land. It
was reduced to writing. Defendant admitted the execution
and delivery of the contract and alleged that he made an
effort to comply with it.
- It is rather late to raise this question for the first time in
court since the only issue that they resolved in the trial court
is whether or not defendant has complied with the terms of
their contract.
- The promise made by one party may be a good
consideration for a promise made by another party (Art
1274). The consideration need not pass from one to the
other at the time the contract is entered into. Defendant
promised to convey to the plaintiff the said parcel of land
and the plaintiff promised to pay P70,000 for it. Plaintiff was
ready to comply while defendant refused even though he
already obtained a registered title to the parcel of lands.
- The contract is not an “optional contract”: it is clearly an
absolute promise to sell a definite parcel of land for a fixed
price upon definite conditions. An optional contract is a
privilege existing in one person, for which he had paid a
consideration, which gives him the right to buy something
any time within the agreed period for a fixed price. It is a
contract where the parties obligate themselves to enter into
another contract at a future time, upon the happening of
certain events or conditions.
o In their case, it is not an option contract since Diaz
promised to convey to Enriquez the land as soon as it
was registered under the Torrens system, and Enriquez
promised to pay to Diaz the sum of Php 70,000.
o When he alleged that he complied with his part and
demanded that plaintiff should do the same, he was
already laying the foundation for an action for
damages and/or nullification or specific performance
which presupposes a valid contract of sale.
3. No. The contract was made with the plaintiff.
- The contract on its face, was made with the plaintiff
- This issue was also not raised in the trial court. Since he
admitted execution and delivery of contract with plaintiff,
his admission is conclusive.

4. No. The action was not premature.
- Defendant couldn’t demand the payment until he had
offered the deeds of conveyance
- While payment must be made simultaneous with the
delivery of the deeds of conveyance, payment need not be
made until deed of conveyance is offered. Plaintiff was
ready and willing to perform his part anyway.
5. No. The trial court did not err in its declaration.
- Plaintiff, at all times, insisted upon a compliance with the
contract
6. No. The award of damages was proper.
- Plaintiff already suffered injury
- Plaintiff entered into a contract with a 3rd party for the sale
of the land in question and already made a deposit for
guaranteeing the consummation of the contract. Failure of
defendant to comply with the contract, plaintiff was obliged
to return P30,000 deposit made.
7. No. There was no such contract.
- Defendant already admitted that he offered and sold the
land to plaintiff. No mention of another buyer.
8. No. The trial court did not err in ordering the
conveyance of the land.
- Plaintiff was constantly insisting for the transfer. Also, sale
to another party doesn’t preclude defendant from
performing his obligation.
Soriano v. Baustista
FACTS:
1. Basilio Bautista and Sofia de Rosas are the absolute and
registered owners of a parcel of land situated in the
Municipality of Teresa, province of Rizal.
2. On May 30, 1956, the said spouses signed a document
entitled “Kasulatan ng Sanglaan” in favor of Ruperto
Soriano and Olimpia de Jesus in consideration of the sum
of P1,800. Spouses Bautista then transferred the possession
of the land to spouses Soriano. Paragraph 5 of their
agreement states that: if the financial condition of the
mortgagees will permit, they may purchase said land
absolutely on any date within the 2-year term of this
mortgage at the agreed price of P3,900.
3. Pursuant to such agreement, spouses Soriano conveyed
P450 to spouses Bautista, which the latter rejected. On May
31, 1958, Atty. Angel Ver informed spouses Bautista of the
intention of spouses Soriano to buy the said parcel of land.
4. Spouses Bautista refused to comply with the demand. Thus,
spouses Soriano filed before this court a petition praying
that they be allowed to consign P1,650 as the balance of
the purchase price and for the defendants to be ordered to
execute and absolute deed of sale in their favor.
5. Spouses Bautista filed a complaint against spouses Soriano,
asking them to receive payment of the principal obligation
and to release the mortgage
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6. TC: Ruled in favor of Spouses Soriano and asked Spouses
Bautista to execute a Deed of Sale covering the property in
question
ISSUE/S:
WON pursuant to par. 5, spouses Bautista are entitled to
specific performance consisting of the execution of the Deed of
Sale (YES)
HELD:
Yes. The spouses are entitled to an action for specific
performance.
- Appellants contend that they being the mortgagors, they
cannot be deprived of the right to redeem the mortgaged
property. However, their agreement contains a special
provision which renders the mortgagors’ right to redeem
defeasible at the election of the mortgagees.
- The agreement between the parties is an option to buy and
is sanctioned by Art. 1479: “an accepted unilateral promise
to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by
a consideration distinct from the price”
- In this case, the mortgagor’s promise to sell is supported by
the same consideration as that of the mortgage itself which
is different from the consideration for the sale which is
P3,900.
- Mortgagor’s promise is a continuing offer and cannot be
withdrawn during the 2-year period of lease, which upon
acceptance of the mortgagee gave rise to a perfected
contract of sale.
- Their offer to redeem the mortgage could be defeated by
mortgagee’s right to purchase which intent they conveyed
through a letter.

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Nietes v. CA
FACTS:
1. Nietes and Garcia entered into a “Contract of lease with
Option to Buy” on October 19, 1959 whereby Garcia
agreed to lease the Angeles Educational Institute situated
in Pampanga to Nietes for a period of 5 years with the
rental price of P5,000 per year. Garcia also gave Nietes the
option to buy the land and building for P100,000 within the
period of the lease (par 4). Should the lessee buy the
property, the unused payment for the Contract of Lease will
be considered a part payment for the sale of such.
2. On July 31, 1964, Garcia’s counsel wrote to Nietes
informing him of Garcia’s decision to rescind the contract
on the ground of Nietes’ failure to comply with the
obligations set forth (i.e. maintenance of building, inventory
of properties, collection of accounts of former students).
3. Nietes’ counsel replied that he has not violated any of the
provisions of the contract. He also informed Garcia that he
will exercise his option to buy the land and building and
that he is ready to pay the purchase price.
4. On July 26, Nietes deposited with the Agro-Industrial Bank
in Angeles City checks amounting to P84, 860 as a balance
of the purchase price, which he withdrew after the checks
have been cleared.
5. On August 2, he commenced the action for specific
performance of Garcia’s obligation to execute a Deed of
Absolute Sale of the lease property.
6. TC: Ruled in favor of Nietes and ordered Garcia to execute
the Deed of Absolute Sale. Both parties appealed (Garcia
for failure to order Nietes to vacate the property and Nietes
because TC didn’t grant him no more than P1,000 as
nominal damages).
7. CA: affirmed TC but deleted award of attorney’s fees to
Nietes. On motion for reconsideration of Garcia, CA
reversed its first decision and dismissed the complaint of
Nietes on the ground that the full purchase price must be
paid in FULL before the option to buy could be exercised.
ISSUE/S:
1. WON the full purchase price should be paid in full before
the option to buy could be exercised (NO)
2. WON Nietes exercised his option within the 5-year period
(YES)
HELD:
1. No. Purchase price need not be paid in full
- Garcia claims that: the checks for P84, 860 did not
constitute proper payment and was made beyond the 5-
year period
- The contract doesn’t say that Nietes had to pay P100,000
before exercising his option to buy the property. In case of
an option to buy, the creditor may validly and effectively
exercise his right by merely advising the debtor of his
decision to buy and expressing his readiness to pay the
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price. Unless the debtor has executed and delivered the
deed of sale, the creditor cannot be in default of his
obligation to pay (Art. 1169).
- Therefore, notice of creditor’s decision to exercise his
option need not be couple with payment until the owner
delivers to him the deed of sale. Nietes didn’t need to
deposit the P84k and his subsequent withdrawal of such
doesn’t affect his cause of action. It only shows his
willingness and capability to pay.
2. Yes. The option to buy was exercised within the
valid period.
- The receipts issued by Garcia for the payment of P3,000 on
Sept 4 1961 was referred to as “a per advance pay for the
school” and the P2,200 on Dec 13 1962 was referred to him
as “partial payment on the purchase of the property” thus
indicating that the payment conformed to the said contract
and that such was in full force and in effect.
o Garcia, being a doctor of medicine and could not
possible “not know” whether the signatures on such
receipts were his
- He’s entitled to exercise his option within the period of the
lease (June 1960-June 1965). As early as Sept 4, 1961,
Nietes has exercised his option to buy as reflected in the
fact he paid Garcia P27,757 or P2,757 in excess of the
P25,000 rentals for the entire period of lease and over
P21,000 in excess of the rentals for the unexpired period of
the lease.
- The letter of Nietes on August 1964 was just a formal notice
that he had exercised his option and that he is ready to pay
the purchase price. The letter cannot be implied to mean
that he hasn’t been exercising the option until then.
- The phrase “should the Lessee choose to make use of his
option to buy, the unused payment of the Contract of
Lease will be considered as payment of the sale” means
that the rental paid for the unused portion of the lease shall
be deducted from the sale price at the proper time
(simultaneously with the delivery of the deed of sale)
- There is a balance of P17, 248.67 (representing rentals for
unused period of the lease and that paid in excess of the
rental) which should be deducted from P100,000. Thus,
Nietes should pay Garcia P82, 751.33 upon the execution of
the Deed of Sale.

Cronico v. J.M. Tucson
FACTS:
1. Subject lot belongs to J.M. Tuason. Cronico offered to buy
the lot and personally talked to Manager Bautista,
exhibiting documents showing her priority rights to buy the
lot. Ramirez also expressed intimated desire to purchase
the lot
2. 20 Mar 1962: The Company sent separate reply letters to
prospective buyers including Cronico and Ramirez.
3. 21 Mar: Letters dropped in Manila Post Office at 11:00 AM.
It so happened that Cronico went to the Company’s office
that day → tipped by Bautista that the reply letters were
already placed in the mails → she immediately went to
Manila post office and claimed the registered letter
addressed to her without waiting for the ordinary course for
registered mails to be delivered
4. 22 Mar: Ramirez received from the post office the reply
letter of Company stating that lot was available for sale on a
“first come first serve” basis → proceeded to the office of
Bautista stating he accepted the conditions stated in the
letter → was advised by Bautista to wait for decision of
Gregorio Araneta II
5. 23 Mar: Ramirez presented letter to Company confirming
his verbal acceptance.
6. 27 Mar: Company received letter from Cronico’s counsel
requesting that lot be sold to her. Tendered a check for
down payment → returned to Cronio
7. 31 Mar: Ramirez’ counsel wrote Company requesting early
execution of proper contract to sell over subject lot. Check
(P33,572) enclosed as down payment → request favorably
considered
8. 2 Apr: Company and Ramirez executed CONTRACT TO
SELL (total price: P167,896)
9. 4 Apr: Company sent letter to Cronico informing her that it
had decided to sell lot to Ramirez → Cronico filed suit to
ANNUL AND SET ASIDE the contract between Company
and Ramirez
10. Ramirez: Motion to Dismiss. No cause of action against him.
Cronico NOT a party to the contract → motion denied →
Ramirez filed his answer reiterating Cronico no right to
demand annulment of contract
11. Cronico: Motion for Substitution. Rights transferred to
Lucille Venturaza through deed of assignment → granted
12. RTC - In favor of Cronico. Contract to sell null and void
13. CA
- In favor of Company and Ramirez. Dismissed complaint
- No regularity of notice
- Serious doubt casted on Cornico’s financial ability to
purchase lot
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ISSUE/S:
1. WON Cronico obtained letter-offer to her by means of
irregular and premature delivery? (YES)
2. WON CA erred in entertaining Company’s doubts as to
financial capability of Cronico to purchase property? (NO)
3. WON letter-offer or unilateral promise to sell was
supported by a consideration other than the selling price?
(NO)
4. WON contract to sell contains a stipulation for her benefit
hence she is principally and subsidiarily obliged under the
contract to sell and hence may bring suit to annul the
same? (NO)
5. WON Cronico has become the obligee or creditor of the
respondent company because she was the first to comply
with the terms of the letter-offer? (NO)
HELD:
1. Yes. There was irregular and premature delivery.
- Letter obtained irregularly
- Cronico: presented Manila post office’s chief of general
service (Bautista) who testified that means by which she
received the letter is very regular
- SC: Act of Cronico in taking delivery of her letter at the
entry section of the Manila post office without waiting for
said letter to be delivered to her in due course of mail is a
violation of the "first come first served" condition imposed
by the Company
- Ramirez, on the other hand, presented his letter confirming
verbal acceptance of terms the day after he regularly
received the letter-offer
- Company rejected Cronico’s check and informed her of
decision to sell lot to Ramirez
2. NO. The CA did not err in finding that there was
financial incapability on the part of Cronico.
- Cronico did not have financial capability to pay and acted
only as mere front of Venturanzas
- Cronico: question on her capability not raised as an issue in
the answer of Company and was developed only as an
afterthought during trial
- SC: She was only receiving P150/month as her salary; no
other sources of income
- It was Mary Ventruaza who drew check which was rejected
by Company.
- Daughter of Mary substituted Cronico
- Realtors are given the right to choose their buyers so as to
avoid delinquent payments of monthly installments which
may result in costly court litigations
3. No. There was no consideration.
- Promise to sell has no consideration separate from the
selling price of said lot.

- Cronico: supported by consideration as to her because she
had established her link as successor of Gregorio
Venturanza who bought the lot from Juan Ramos who in
turn acquired said lot from Pedro Deudo; Clause Seventh of
Compromise Agreement between Company and Deudors
obligated Company to sell to buyers of Deudors listed
thereof. Ramos was there → she has established onerous
cause or consideration apart from selling price of the lot
- SC: Granting that that is valid, the Compromise Agreement
upon which the petitioner Cronico predicates her right to
buy the lot in question has been rescinded and set aside
- In order that a unilateral promise may be binding upon the
promisor: NCC Art. 1479 requires the concurrence of the
condition that the promise be "supported by a
consideration distinct from the price”
o Promisee can not compel the promisor to comply with
the promise, unless the former establishes the
existence of said distinct consideration.
o The promisee has the burden of proving such
consideration.
o She cannot claim that she had accepted the promise
before it was withdrawn because she had violated the
condition of "first, come, first served"
o Company received her letter of acceptance much later
than that of Ramirez’
4. No. There is no stipulation for her benefit
(stipulation pour autrui).
- No stipulation pour autrui. Stipulation for the benefit of
Company
- Stipulation: “… Claudio Ramirez has been fully informed by
the company of all the circumstances relative to the offer of
Florencia Cronico…”
- Stipulation does not confer any right arising from the
contract that may be enforced by the petitioner against any
of the parties; Does not impose any obligation arising from
the contract that may be enforced by any of the parties
thereto against the petitioner.
- The petitioner is not "obliged principally or subsidiarily" by
the contract
5. NO. She did not become creditor.
- She is not first to comply with the terms
- Her so-called acceptance has no effect because she
violated the condition of "first come, first served"
- Formal letter of acceptance was only received by the
Company later than that of Ramirez’.
DISPOSITIVE: CA affirmed.
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Carceller v. CA
FACTS:
1. Carceller and SIHI entered into a lease contract with option
to purchase over property:
- Monthly rental for 18 months
- Grants lessee exclusive exclusive right, option and
privilege to purchase, within the lease period, for the
aggregate amount of P1.8 M
- The option shall be exercised by a written notice to the
LESSOR at anytime within the option period
2. Three weeks prior expiration of lease contract, SIHI notified
Petitioner of impending termination of lease agreement
3. 15 Feb: Petitioner requested for a six-month extension in
order to raise sufficient funds to exercise the option; made
substantial investment on property and had been punctual
in paying his monthly rentals → disapproved by SIHI.
Offered same property for lease for 1 year and informed
Petitioner of its decision to offer for sale said property to
the general public
4. 18 Feb 1986: Peitioner failed to notify SIHI of decision to
exercise option and that he made arrangements for the
down payment
5. 20 Feb: SIHI stressed period to purchase already lapsed.
Ordered them to vacate property, pay rental and penalty
due
6. Petitioner: complaint for specific performance and
damages. Honor commitment and execute Deed of Sale
7. TC - In favor of Petitioner. Purchase price may be by “one
shot payment” of P1.8M
8. CA - Affirmed TC but basis of purchase price must be
prevailing market price of real property
9. Appealed by both parties → no agreement reached by
parties → denied both parties’ motion, remanding case to
TC to conduct hearings on prevailing market value of real
properties → petition for review
10. Contrary ruling will cause damage to the appellee → he has
introduced considerable improvements on the property +
has borrowed huge loan from the Technology Resources
Center
ISSUE/S:
1. WON Petitioner can be allowed to exercise the option to
purchase the leased property despite alleged delay in
giving required notice? (YES)
2. What should be the basis in determining purchase price of
the property? (Fair market value as of 1986 when the
contract would have been consummated.)

HELD:
1. Yes. Petitioner may exercise the option to
purchase.
- Petitioner should be allowed to exercise option. Granting
so is consistent with the intent of the parties when they
executed the lease contract
- An option is a preparatory contract in which one party
grants to the other, for a fixed period and under specified
conditions, the power to decide, whether or not to enter
into a principal contract.
o Binds the party who has given the option, not to enter
into the principal contract with any other person during
the period designated, and, within that period, to enter
into such contract with the one to whom the option
was granted, if the latter should decide to use the
option.
o Separate agreement distinct from the contract which
the parties may enter into upon the consummation of
the option
- In construing a written agreement, the reason behind and
the circumstances surrounding its execution are of
paramount importance. To ascertain the intent of the
parties in a contractual relationship, it is imperative that the
various stipulations provided for in the contract be
construed together, consistent with the parties’
contemporaneous and subsequent acts as regards the
execution of the contract
- Proof of SIHI’s intent to promptly dispose said property:
o SIHI already beset with financial problems → in dire
need of liquidating its assets
o SIHI reminded Petitioner of time left to purchase
o Selling of property to general public
- Proof of Petitioner ’ s determination to purchase said
property. (SC upheld CA’s ruling that if not allowed to
purchase → will cause damage to appellee after he has
done the following:
o Introduced improvements
o Secured P8M loan to pay SIHI singly instead of
installment
- 15 Feb letter: a fair notice of Petitioner’s intent to exercise
option despite the request for extension → no substantial
nor fundamental breach that would defeat intention of
parties when they executed lease contract
- Given the four periods by which petitioner can exercise
option → letter sent was within a reasonable time-frame
consistent with periods given and the known intent of the
parties to the agreement
2. The fair market value as of 1986 (when the
contract would have been consummated) should
be the basis of the purchase price.
- Fair market value at the time the contract would have been
consummated should be the basis of the purchase price
- In a contract of lease, if the lessor makes an offer to the
lessee to purchase the property on or before the
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termination of the lease, and the lessee fails to accept or
make the purchase on time, the lessee losses the right to
buy the property later on the terms and conditions set in
the offer.
o Petitioner cannot insist on price agreed upon in the
lease agreement
o SIHI could not take advantage of the situation to
increase the selling price of said property by nearly
90% of the original price → opportunistic
DISPOSITIVE: Petitioner may exercise option. Remanded to
RTC for determination of fair market value.
3.a. Meaning of Consideration
Sanchez v. Rigos
Seller: Severina Rigos
Buyer: Nicolas Sanchez
Object: Parcel of land in the barrios of Abar and Sibot,
municipality of San Jose, Nueve Ecija
FACTS:
1. April 3, 1961: Sanchez and Rigos executed an instrument
entitled “Option to Purchase”
- Rigos “agreed, promised and committed xxx to sell” to
Sanchez for the amount of P1,510 a parcel of land
within 2 years from that date
- There was an understanding that the option shall be
deemed “terminated and elapsed” if “Sanchez shall
fail to exercise his right to buy the property” within the
stipulated period
2. Several tenders of payment of the sum of P1,510 were
made by Sanchez within the period, but were rejected by
Mrs. Rigos
3. Mar. 12, 1963: Sanchez deposited the amount with CFI
Nueva Ecija and commenced an action for specific
performance and damages
- Rigos alleged as a special defense that the contract “is
a unilateral promise to sell, and the same being
unsupported by any valuable consideration, by force of
the NCC, is null and void”
- CFI: rule in favor of Sanchez and ordered Rigos to
accept the sum and to execute the requisite deed of
conveyance; Rigos sentenced to pay P200 as atty’s fees
- CFI based its ruling on Art. 1354
- Appeal to SC by Mrs. Rigos
ISSUE/S:
What is the proper application of Art. 1479?
- W it is reciprocally demandable, as Sanchez alleges; OR
- W it is a unilateral promise to sell, unsupported by a
valuable consideration, as Rigos maintains

HELD: It is reciprocally demandable.
- Sanchez: By virtue of the option under consideration,
“defendant agreed and committed to sell,” and “the
plaintiff agreed and committed to buy” the land – and the
promise contained in the contract is “reciprocally
demandable”
- SC: Although defendant had really “agreed, promised and
committed” herself to sell the land to the plaintiff, it is not
true that the latter had, in turn, “agreed and committed
himself” to buy said property
o Annex A (the Option) does not bear out his allegation
o The option did not impose upon Sanchez the
obligation to purchase Rigos’s property
- Annex A is not a “contract to buy and sell” It merely
granted Sanchez an “option” to buy
o It was understood as such based on the caption,
“Option to Purchase,” given to the instrument
o Under the provisions of the Option, Rigos “agreed,
promised and committed” herself to sell the land for
P1,510 to Sanchez but there is NOTHING to indicate
that her agreement, promise and undertaking is
supported by a consideration “distinct from the price”
stipulated for the sale of the land
- The lower court relied on Art. 1354 CC and presumed the
existence of said consideration
- It should be noted, however, that:
o Art. 1354 applies to contracts in general, whereas the
2nd paragraph of Art. 1479 refers to “sales” in
particular, and, more specifically, to “an accepted
unilateral promise to buy or to sell” – Art. 1479 is
controlling
o In order that said unilateral promise may be “binding”
upon the promisor, Art. 1479 requires the concurrence
of a condition, namely, that the promise be “supported
by a consideration distinct from the price.” – Promisee
can not compel the promisor to comply with the
promise, unless the former establishes the existence of
said distinction consideration. – Promisee has the
burden of proving such consideration; Sanchez
has not even alleged the existence thereof
o Rigos explicitly averred that 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
her answer
- Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
Pacific Co. is squarely in point (Art. 1479 v. Art. 1324):
o Under Art. 1479 ‘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
§ Inferred from the context that a unilateral promise
to buy or to sell, even if accepted, is only binding if
supported by a consideration
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§ 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
o In this cited case, it is not disputed that the option is
without consideration; therefore, it can be withdrawn
notwithstanding the acceptance made by appellee
o Under Art. 1324, the general rule regarding offer and
acceptance is that, when the offerer gives to the
offeree a certain period to accept, ‘the offer may be
withdrawn at any time before acceptance’ except when
the option is founded upon consideration
§ This general rule must be interpreted as modified
by Art. 1479, which applies to ‘a promise to buy
and sell’ specifically – requires that a promise to
sell to be valid must be supported by a
consideration distinct from the price
- Atkins, Kroll and Co., Inc. v. Cua Hian Tek: saw no
distinction between Art. 1324 and Art. 1479
o 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.
o 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.
o However, upon accepting the petitioner’s offer, a
bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a
purchaser.
o Supposing that the option was not binding for lack of
consideration, authorities hold that:
§ 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. (Corpus Juris Secundum)
§ It can be taken that the option contract was not
valid for lack of consideration, but it was, at least,
an offer to sell, which was accepted by letter, 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.
- SC: 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.

o This view avoids a conflict between Art. 1324 (general
principle on contracts) and Art. 1479 (sales)
o The Southwestern Sugar v. Atlantic Gulf doctrine,
which considers Art. 1479 as an exception to Art. 1324
is not favored
o The doctrine in the Atkins, Kroll & Co. case is reiterated
and Southwestern Sugar is deemed abandoned
DISP: Decision appealed from AFFIRMED.
Villamor v. CA
Seller: Macaria Labingisa Reyes
Buyer: Spouses Julio and Marina Villamor
Object: 600 sq. meter lot (300 first, 300 after) at Baesa,
Caloocan City
FACTS:
1. Macaria Reyes was the owner of a 600 sq. meter lot at
Baesa, Caloocan City
2. July 1971: Macaria sold a portion of 300 sq. meters to the
Spouses Villamor for the total amount of P21,000
- P2,000 was deducted from the total purchase price
because Macaria borrowed that amount earlier
- The portion sold is covered by a new TCT, while the
remaining portion is still in the name of Macaria
3. Nov. 11, 1971: Macaria executed a “Deed of Option” in
favor of Villamor in which the remaining 300 sq. meter
portion would be sold under the conditions therein
- That she is the owner in fee simple of a parcel of land,
inherited from her deceased parents (paraphernal
property)
- That she, in conformity with her husband (Roberto),
sold half to the Sps. Villamor at the price of P70 per sq.
meter (greatly higher than the actual reasonable
prevailing value of lands in place at the time)
- That the only reason why the Sps. Villamor agreed to
buy the half portion at above-stated price is because
she and her husband have agreed to sell and convey to
them the remaining half whenever the need of such
sale arises, either on the sellers’ part or the buyers’
4. 1984: When Roberto retired, he and Macaria offered to
repurchase the lot earlier sold to the Sps. Villamor but
Marina Villamor refused and reminded them that the Deed
of Option gave them the option to purchase the other half
- Villamors claimed that they expressed their desire to
purchase the remaining half but the Reyeses ignored
them
5. July 13, 1987: Villamors filed a complaint for specific
performance against the Reyeses
- July 26: Trial Court ruled in favor of the Villamors,
ordered Reyeses to sell the land
- It was a valid written agreement between the parties
and the document is the only instrument of evidence
which the law will recognize
- Reyeses appealed to the CA
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6. Feb. 12, 1991: CA reversed the TC decision because the
Deed of Option is void for lack of consideration
- CA did not believe the Villamors that their paying P70
per sq. meter rather than the prevailing price of P25
per sq. meter was the consideration for the option; it
said that the consideration is supposed to be a distinct
one, and the balance to be considered the
consideration was not shown beyond a mere allegation
that it was below P70 per sq. meter
7. Instant petition for review by Villamors
ISSUE/S:
WON the Deed of Option is valid
HELD: The Deed of Option is valid, but the action has
prescribed.
- In Gonzales v. Trinidad, the consideration is “the why of the
contracts, the essential reason which moves the contracting
parties to enter into the contract”
o The cause or compelling reason on Macaria’s part in
executing the Deed of Option is the Villamors’ having
agreed to buy the 300 sp. Meter portion at P70 per sq.
meter “which was greatly higher than the actual
reasonable prevailing price”
o SC: This cause or consideration is clear from the deed
which stated: “That the only reason why the spouses-
vendeed Julio Villamor and Marina Villamor agreed to
buy the said one-half portion at the above stated price
of about P70 per sq. 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”
o The CA failed to give due consideration to the
Villamors’ evidence that showed that they bought an
adjacent lot from the brother of Macaria for P18 per sq.
meter in 1969
o Thus, the consideration for the Deed of Option is
the difference between the purchase price and the
prevailing reasonable price
o Although paying P52 per sq. meter for the option is
improbable (as CA said), improbabilities do not
invalidate a contract
- Ordinarily, an option contract is a privilege existing in one
person, but the Deed of Option in this case is unique
o First part covered the statement on the sale of the 300
sq. meter portion at P70 per sq. meter
o Second part stated that the only reason why the
Villamor spouses agreed to buy the lot at a higher
price is because the Reyeses also agreed to sell the
other half-portion of 300 sq. meters of land (if it ended
here, it is just an ordinary deed of option granting the
Villamors the option to buy the remaining 300 sq.
meter half portion in consideration for a higher
purchase price)

oThird part stated that the sale of the other half would
be made whenever the need of such sale arises, either
on our (Reyeses) part or on the part of the Sps. Villamor
§ Not only the Villamors who were granted an
option to buy, but the Reyeses were granted an
option to sell
- SC: The option offered by the Reyeses had been accepted
by the Villamors; acceptance of an offer to sell for a price
certain created a bilateral contract to sell and buy and upon
acceptance, the offeree, ipso facto assumes obligations of a
vendee. Demandability may be exercised at any time after
the execution of the deed.
- Under Art. 1475, 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. From that
moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing
the form of contracts.”
o Since there was a meeting of the minds upon the
object and price, there was already a perfected
contract of sale
o What was left was for either party to demand their
respective undertakings and may be demanded at any
time
- However, the Deed of Option did not provide for the
period within which the parties may demand the
performance and the parties could not have contemplated
that the delivery of the property and the payment could be
made indefinitely, rendering the status of the land uncertain
o SC: The failure of either parties to demand
performance renders the contract ineffective
- And under Art. 1144 (1) CC, actions upon a written contract
must be brought within 10 years
o Deed of Option was executed in November 11, 1971 (it
was accepted in the same instrument)
o Complaint was filed in July 13, 1987 (17 years from the
execution)
o SC: The right of action has prescribed
o Allegations of the Villamors that they demanded as
early as 1984 still occurred beyond the 10-year
period and in Santos v. Ganayo, the Court held that
failure or abandonment of one’s right to file an action
within the 10 years from the date of written agreement
is now barred by laches and/or prescribed by law
- Obiter: Price of real estate is continuously on the rise. To
allow Villamors to deliver the property 13 or 17 years after
execution of the deed is iniquitous
o For reasons of equity and in consideration of the fact
that Reyeses have no other decent place to live, SC is
not inclined to grant the petition
DISP: Petition is DENIED.
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4. Right of First Refusal
Notes from Baviera
- Integral part of contracts of lease of real estate nowadays
- Consideration is built into the reciprocal obligations of the
parties
- Usual stipulation is: “if the Lessor should desire to sell the
leased premises, the Lessee should be given 30-days
exclusive option to purchase the same”
- In a right of first refusal, the exercise of the right 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 price, that are yet to be later firmed up
- The basis of the right must be the current offer to sell
by the lessor, or offer to purchase by any prospective
buyer
- Only after the grantee fails to exercise its right of first
priority under the same terms and conditions within the
period agreed upon, could the grantor validly offer to sell
the property to a third person under the same terms as
offered to the grantee
Ang Yu Asuncion v. CA
Petitioners/Lessees: Ang Yu Auncion, Arthur Go and Keh
Tiong
Lessors: Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
Respondent: Court of Appeals
Private Respondent: Buen Realty Development Corporation
Object: residential and commercial spaces in Ongpin St.,
Binondo, Manila
FACTS:
1. Petitioners are tenants/lessees of residential and commercial
space owned by the lessors.
2. Lessors informed lessees that they are offering to sell the
premises and are giving them priority to acquire the same.
Bobby Cu Unjieng offered a price of P6-million while
petitioners made counter-offer of P5-million. The offer was
put into writing.
3. On 24 October 1986, lessees asked lessors to specify the
terms and conditions of the offer to sell but did not receive
any reply so they sent another letter on 28 January 1987.
4. Lessors failed to specify the terms and conditions of the
offer to sell. Lessees received information that lessors were
about to sell the property. Thus they filed a complaint to
compel lessors to sell the property to them.
5. Trial court found that lessors’ offer to sell was never
accepted by lessees because they did not agree upon the
terms and conditions of the sale thus there was no contract
of sale at all. But court ruled that should the defendants offer
their property for sale at a price of P11-million or below,
plaintiffs will have right of first refusal. Lessors need not offer
the property to the plaintiffs if purchase price is higher than
P11-million.

6. Court of Appeals ruled that there was no meeting of the
minds concerning the sale of the property. Claim for specific
performance will not lie. CA also granted the same right of
first refusal in the event that the property is sold for a price in
excess of P11-million.
7. SC denied the appeal for insufficiency in form and
substance.
8. On 15 November 1990 while appeal in the CA was pending,
the Cu Unjieng spouses executed a Deed of Sale
transferring the property to herein Buen Realty for P15-
million. Thus, Buen Realty demanded that the lessees vacate
the premises of the property.
9. Lessees filed a motion for execution.
TC:
- Trial court ruled that ordered that a Deed of Sale be
executed in favour of Ang Yu Asuncion et al in consideration
of P15-million in recognition of their right of first refusal.
CA:
- CA declared without force and effect the orders of the trial
court.
ISSUES:
1. WON lessees’ right of first refusal has been breach. (YES)
2. WON a writ of execution on the judgment is the proper
remedy for the breach. (NO)
RATIO:
1. There was breach because the Cu Unjiengs’ failed
to honor the right of first refusal.
- The final judgment on the first civil case has accorded the
lessees the right of first refusal.
2. The proper remedy is action for damages in a
proper forum.
- The proper remedy is not writ of execution because there is
none to execute.
- Also, Buen Realty, not being impleaded in the first civil
case, cannot be held subject to the writ of execution, let
alone ousted from the ownership and possession of the
property without being duly afforded its day in court.
- Having the right of first refusal does not mean that there is
already a perfected contract of sale under Art. 1458, nor is
there an option under Art. 1479, nor an offer under Art.
1319.
- The exercise of the right 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 are yet to be firmed up. Such belongs to a
class of preparatory juridical relations governed not by
contracts, but by provisions of CC on human conduct.
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Equatorial Realty Dev’t v. Mayfair Theater
Owner/Petitioner: Carmelo and Bauermann, Inc.
Lessee/Respondent: Mayfair Theater, Inc.
Buyer/Petitioner: Equatorial Realty Development Inc.
Object: Parcel of land with two 2-storey buildings constructed
thereon in Recto Ave., Manila
FACTS:
1. Carmelo entered into a contract of lease with Mayfair for the
use of a portion of Carmelo’s property as a motion picture
theatre for a term of 20 years. Two years later, they entered
into another contract for the lease of another portion of the
property, also for use as a movie theatre for twenty years.
2. Both contracts of lease provide, in paragraph 8, that should
the lessor sell the leased premises, the lessee shall be given
30-days exclusive option to purchase the same.
3. On August 1974, Mr. Pascal of Carmelo informed Mr. Yang
of Mayfair that Carmelo desires to sell the entire property.
Mr. Pascal asked Mr. Yang if the latter was willing to buy the
property for six to seven million pesos.
4. Mayfair replied through a letter reminding Carmelo of the
provisions of the 2 contracts of lease. Carmelo did not reply.
Mayfair sent another letter expressing interest to acquire the
entire building and other improvements.
5. On 30 July 1978, Carmelo sold the entire land and building
(including the leased premises) to Equatorial for P11.3-
million.
6. Mayfair instituted the action for specific performance and
annulment of the sale of the leased premises.
TC: dismissed the complaint.
- Option in the contract of lease is not supported by a
separate consideration; without consideration, the option is
not binding on Carmelo to sell the property to Mayfair.
- There is no option because there is no consideration.
CA: reversed the ruling of TC
- Since paragraph 8 of the two lease contracts does not state
a fixed price for the purchase of the leased premises, which
is an essential element for a contract of sale to be perfected.
- Paragraph 8 is a right of first refusal, not an option contract.
- Assuming that the option is valid and effective, it is
impossible of performance because it covered only the
leased premises and not the entire property, while
Carmelo’s offer to sell pertained to the entire property in
question.
ISSUES:
1. WON Paragraph 8 of the contracts of lease is an option
contract. (NO)
2. WON the sale of the property to Equatorial is rescissible.
(YES)

RATIO:
1. The contracts of lease do not contain an option
clause.
- It is not an option clause because an option clause, in order
to be valid and enforceable, must indicate a definite price
at which the person granting the option is willing to sell.
- To rule that a contractual stipulation such as that in par. 8 of
the contracts is governed by Art. 1324 on withdrawal of an
offer or Art. 1479 on promise to buy and sell would render
ineffectual the provisions on the right of first refusal.
- Par. 8 was incorporated for the benefit of Mayfair which
wanted to be assured that it shall be given a first option to
buy the property at the price which Carmelo is willing to
appeal.
2. Since Equatorial is a buyer in bad faith, sale to it of
the property in question is rescissible.
- Equatorial was aware of the lease contracts because its
lawyers had, prior to the sale, studied the same contract.
- Carmelo violated Mayfair’s right of first refusal when
without affording its negotiations with Mayfair the full
process to ripen to a definite offer and a possible
acceptance within the 30-day exclusive option time,
Carmelo abandoned the negotiations, kept a low profile for
some time and then sold, without prior notice to Mayfair,
the entire property to Equatorial.
- Since Mayfair ahs the right of first refusal, it can exercise the
right only if the fraudulent sale is first set aside or
rescinded.
- 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, 300.00.
SEPARATE OPINIONS
1. J. Padilla:
- Agreed that Mayfair’s right of first refusal should be
recognized, and Carmelo and Equatorial acted in bad faith,
and that Mayfair must effectively exercise right of first
refusal by paying Carmelo the sum of P11,300,000 for the
entire subject property.
- Disagreed that Mayfair should be required to pay a
compounded interest of 12% per annum of said amount.
2. J. Panganiban:
- Two juridical relations are involved in the instant case: 1) the
deed of sale between the petitioners and 2) the contract
clause establishing Mayfair’s rights of first refusal.
- With respect to sale of property, Mayfair was not a party,
thus it has no personality to sue for its annulment.
- The term “creditors” as used in Art. 1381 of CC includes the
obligee under the option contract and under a right of first
refusal. As such, Mayfair can impugn the sale by way of
accion pauliana. The status of defrauded creditor can and
should be granted to Mayfair.
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- In the case of Guzman (an analogous case to this one where
an action was brought by the lessee to enforce his right of
first priority), the Court affirmed the ruling of CA insofar as
it invalidated the deed of sale in favour of a petitioner-
buyer, cancelled the TCT and ordered the lessor to execute
a deed of sale over the leased property in favour of the
lessee for the same price and under the same terms and
conditions.
o Thus, specific performance can actually be used as an
effective remedy to enforce a right of first refusal.
- The consensuality required for a contract of sale is distinct
from the consensuality attendant to the right of first refusal
itself.
- Mayfair’s right of first refusal may be classified as one
subject to a suspensive condition – if Carmelo should
decide to sell the leased premises during the life of the
lease contracts, then it should make an offer of sale to
Mayfair.
3. J. Romero
- Disagreed that the contract of sale entered into by Carmelo
and Equatorial should be rescinded.
o Rescission is an extreme remedy which may be
exercised only in specific instances provided by law.
Art. 1381 (3) specifically refers to contracts undertaken
in fraud of creditors. If rescission were allowed for
analogous cases, the law would have stated.
4. J. Vitug
- Art. 1381 (3) has been misapplied.
- Rescission is merely subsidiary.
- A breach of right of first refusal can only give rise to an
action for damages primarily under Art. 19 of the Civil
Code, but not to action for specific performance.
- There being no binding contract between Carmelo and
Mayfair, neither the rescission of the contract between
Carmelo and Equatorial nor the directive to Carmelo to sell
the property to Mayfair would be appropriate.
- A right of first refusal is not a contract; when parties instead
make certain the object and the cause thereof and support
their understanding with an adequate consideration, that
juridical relation is not to be taken as just a right of first
refusal, but as a contract in itself (option).

Paranaque Kings v. CA
Plaintiff/Petitioners: Paranaque Kings Enterprises, Inc. (PKEI)
Defendants/Respondents: Catalina Santos (owner),
represented by Luz Protacio; David A. Raymundo
Object: 8 parcels of land in Paranaque, Metro Manila
FACTS:
1. Santos owns the subject property. Frederick Chua leased the
property. Chua assigned all his rights, interests and
participation in the leased property to Lee Ching Bing who
also assigned all his rights and interest in the leased
property to PKEI.
2. Par. 9 of the deed of assignment provides that if the
properties are sold or encumbered, the lessor shall impose
as a condition that the buyer of mortgagee thereof shall
recognize and be bound by all the terms and conditions of
this lease agreement, and shall respect the Contract of
Lease as if they are the lessors and in case of sale, lessee
shall have the first option or priority to buy the properties
subject of the lease.
3. On 21 September 1988, Santos sold the 8 parcels of land to
David Raymundo for P5-million. She had the property
reconveyed to her for P5-million.
4. The property was offered for sale to PKEI for P15-million.
PKEI was given ten days to make good of the offer but the
period expired. PKEI offered to buy the properties for P5-
million.
5. On 15 May 1989, before they replied to the offer to
purchase, Santos executed another deed of sale in favour of
Raymundo for P9-million.
6. It was only on 17 May 1989 that Santos replied to the letter
of the plaintiff’s offer to buy, stating that the period has
lapsed and PKEI is not privy to the contract.
7. PKEI filed complaint for annulment of Deed of Sale.
TC:
- Dismissed the complaint for lack of valid cause of action.
- Santos had complied with Par. 9 of the lease agreement by
twice offering the properties for sale to the plaintiff for P15-
M, but PKEI scorned saying the offer was ridiculous. There
was definite refusal.
CA:
- Affirmed ruling of CA.
- Appellant as prospective buyer cannot dictate its own price
and forcibly ram it against the owner.
ISSUES:
1. WON the complaint alleging breach of contractual right of
first option states a valid cause of action. (YES)
2. WON there is cause of action under PD 1517. (NO)
3. WON the Deed of Assignment included the option to
purchase. (YES)
4. WON Raymundo was privy to the Contract of Lease. (YES)
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RATIO:
1. There is breach of contractual right of first option.
- Santos sold the properties to Raymundo without first
offering these to the PKEI. Thereafter, she repurchased the
properties and offered it to PKEI for P15-M. When rejected,
she sold the properties to Raymundo for P9-million without
first offering them to petitioner at such price.
- The basis of the right of first refusal must be the current
offer to sell of the seller or offer to purchase of any
prospective buyer. Only after the optionee fails to exercise
its right of first priority under the same terms and within the
period contemplated, could the owner validly offer to sell
the property to a third person, again, under the same terms
as offered to the optionee.
2. There is no cause of action under PD 1517.
- Under Sec. 6 of the PD “the terms and conditions of the
sale in the exercise of the lessee’s right of first refusal to
purchase shall be determined by the Urban Zone
Expropriation and Land Management Committee. Hence,
certain prerequisites must be complied with by anyone who
wishes to avail himself of the benefits of the decree.”
- There being no allegation in its complaint that the
prerequisites were complied with, it is clear that the
complaint fail to state a cause of action on this ground.
3. The Deed of Assignment included the option to
purchase.
- Under the first and second assignments it was expressly
stated that the assignor sells, transfers and assigns all his
rights, interests and participation over said leased premises.
- One of such rights included in the contract of lease and in
the assignments of rights was the lessee’s right of first
option or priority to buy the properties as provided in Par. 9
of the assigned lease contract.
4. Raymundo was privy to the Contract of Lease since
he stepped into the shoes of the owner-lessor as,
by virtue of his purchase, he assumed all the
obligations of the lessor under the lease contract.
- In order to accord complete relief to petitioner, Raymundo
was a necessary party to the case. A favourable judgment
for the petitioner will affect the rights of Raymundo as the
buyer of the property over which petitioner would like to
assert its first option to buy.

Rosencor v. Inquing
Owners: Heirs of Sps. Tiangco represented by Eufrocina de
Leon
Buyer/Petitioner: Rosencor Development Corporation
Lessees/Respondents: Paterno Inquing, Irene Guillermo and
Federico Bantugan
Object: two-storey residential apartment in Tomas Morato,
Quezon City
FACTS:
1. Respondents were lessees renting the subject property.
They were allegedly verbally granted by the lessors the pre-
emptive right to repurchase the property if they decide to
sell the same.
2. When Sps. Tiangco died, the lessees were allegedly
promised the same pre-emptive right by the heirs.
3. In June 1990, lessees received a letter from Atty. Aguila
demanding that they vacate the premises. They refused to
leave. De Leon refused to accept the lessees’ rental
payment. They received letter from de Leon offering to sell
to them the property for P2-million. Lessees offered to buy
the property for P1-million. No answer was given by de
Leon.
4. On January 1991, lessees again received a letter from Atty.
Aguila advising them that the heirs of the spouses have sold
the property to Rosencor. Lessees asked for a copy of the
deed of sale but such request was turned down. They also
offered to tender their rental payment to de Leon but she
refused to accept.
5. Lessees discovered that the sale between de Leon and
Rosencor took place in September 1990 while de Leon made
the offer to them only in October 1990. Also the property
was sold for only P726,000. The lessees offered to reimburse
de Leon the selling price plus the an additional P274,000 to
complete their P1-million offer. De Leon refused.
6. Lessees filed the present action.
RTC:
- Dismissed the complaint.
- Right of redemption on which complaint was based was
merely oral and is unenforceable.
CA:
- Reversed the decision of RTC
- Ordered, among others, the rescission of the Deed of
Absolute Sale and reconveyance of the premises to De
Leon.
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ISSUES:
1. WON a right of first refusal is covered by provisions of the
CC on Statute of Frauds. (NO)
2. WON respondents have satisfactorily proven their right of
first refusal over the property. (YES)
3. May a contract of sale entered into in violation of a third
party’s right of first refusal be rescinded in order that such
third party can exercise said right? (YES)
4. WON the sale in the present case is rescissible. (NO)
RATIO:
1. A right of first refusal is not among those listed as
unenforceable contracts under the statute of
frauds, thus it may be proven by oral evidence.
- The application of the provision on Statute of Frauds
presupposes the existence of a perfected, albeit unwritten,
contract of sale. A right of first refusal is not by any means a
perfected contract of sale of real property.
- It is a contractual grant, not of the sale of the real property
involved, but of the right of first refusal over the property
sought to be sold.
2. Respondents have adequately proven the existence
of their right of first refusal.
- Bantugan, Guillermo and Inquing uniformly testified that
they were promised by the Sps. Tiangco and later on, by
the heirs a right of first refusal over the property.
- If de Leon did not recognize their right of first refusal, then
she would not have bothered to offer the property for sale
to the respondents.
3. A contract of sale entered into in violation of a
right of first refusal of another person, while valid,
is rescissible.
- A contract otherwise valid may be subsequently rescinded
by reason of injury to third persons.
4. The petitioners did not act in bad faith in entering
into the deed of sale over the property. The
property remedy is an action for damages.
- Under Art. 1385 rescission shall not take place “when the
things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.”
- In the cases cited in the decision, the Court ordered the
rescission of the sales made in violation of the right of first
refusal because the vendees therein could not have acted
in good faith as they were aware or should have been aware
of the right of first refusal granted to another person by the
vendors therein.
- The evidence on record fails to show that petitioners acted
in bad faith. Also, they did not try to communicate with
Atty. Aguila and inform her about their preferential right
over the property.
- Bad faith on the part of De Leon does not mean that
Rosencor also acted in bad faith.
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Tanay Recreation v. Fausto

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5. Mutual Promise to Buy and Sell
Art. 1479 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.
(1451a)
EFFECT OF BILATERAL PROMISE TO BUY AND SELL
- Bilateral if one party accepts the other’s promise to buy and
the latter, the former’s promise to sell a determinate thing
for a price certain
- Practically has the same effect as a perfected contract of
sale since it is reciprocally demandable
B. Perfection
Art. 1475 The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object
of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts. (1450a)
Art. 1319 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.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into
in the place where the offer was made. (1262a)
- Consent is the concurrence of offer (which must be
certain) and acceptance (which must be absolute and
unqualified) between the parties.
- The Civil Code has adopted the theory of cognition
wherein the contract is perfected as soon as the acceptance
of the offeree once the offeror gains knowledge of it,
whether actual or constructive.
- The theory of cognition is also applicable to the withdrawal
of offers; an offer is validly withdrawn as soon as the
withdrawal of the offer by the offeror comes into the
knowledge of the offeree before the latter can
communicate his/her acceptance.
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Art. 1325 Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere invitations to
make an offer. (n)
- Advertisements are merely invitations to those who see
them to make an offer to buy the product or service
advertised.
Art. 1326 Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (n)
- In the same way as regular advertisements, advertisements
for bids are simply invitations and do not constitute a valid
offer.
Art. 1330 A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
(1265a)
Art. 1338 There is fraud when, through 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. (1269)
Art. 1476 In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is
the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any
bidder may retract his bid; and the auctioneer may withdraw the
goods from the sale unless the auction has been announced to
be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of
the seller, unless otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is
subject to a right to bid on behalf of the seller, it shall not be
lawful for the seller to bid himself or to employ or induce any
person to bid at such sale on his behalf or for the auctioneer, to
employ or induce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or any person
employed by him. Any sale contravening this rule may be
treated as fraudulent by the buyer. (n)

Art. 1479 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.
(1451a)
PERFECTION OF CONTRACT OF SALE (ART. 1475)
- Art. 1475 follows the general rule under Art. 1315, that
contracts are perfected by mere consent
1) Moment of consent – The contract of sale being
consensual, it is perfected at the moment of consent
without the necessity of any other circumstances. From
the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the
price (Art. 1624), the reciprocal obligations of the
parties arise even when neither has been delivered.
a) Contract is not rendered invalid merely because it
does not bear the signature of the vendee. The
essence of the contract is the conformity of the
parties on the terms of the contract, the
acceptance by one of the offer made by the other.
b) Mutual consent being a state of mind, its existence
may only be inferred from the confluence of
two acts of the parties: an offer certain as to
the object of the contract and its consideration
and an acceptance of the offer which is
absolute in that it refers to the exact object and
consideration embodied in the said offer.
c) When age or infirmities have impaired the mental
faculties so as to prevent a person from
intelligently protecting his property rights, then
such person is undeniably incapacitated.
2) Conduct of the parties – Appropriate conduct by
the parties may be sufficient to establish an
agreement.
a) The actions of the parties may indicate that a
binding obligation has been undertaken.
b) No perfected sale where it is conditional and the
condition is not fulfilled.
c) A letter of intent to buy and sell is just that – a
manifestation of the intent of the owner to sell his
property and the intention of the other party to
acquire the same. It is neither contract to sell nor a
conditional contract of sale.
3) Transfer of ownership – Sale, by itself, does not
transfer or affect ownership, the most that the sale
does is to create the obligation to transfer ownership.
Ownership is not transferred until the delivery of the
thing. Parties, however, may stipulate that the
ownership in the thing, notwithstanding its delivery,
shall not pass to the purchaser until he has fully paid
the purchase price.
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4) Form of contract – Generally, a contract of sale is
binding regardless of its form (Art. 1356). In case the
contract of sale should fall within the provisions of the
Statute of Frauds, that form must be complied with
(Art. 1483)
a) A sale of real estate becomes legally effective
against 3rd persons only from the date of
registration.
b) Receipt annotated on a letter-offer is merely a
memorandum of the receipt by him of the offer;
requisites of a valid contract of sale are lacking
5) Consent reluctantly given – No difference in law
where a person gives his consent reluctantly and even
against his good sense and judgment as when he acts
voluntarily and freely.
6) Notarized deed of sale states receipt of price
– To overcome a public document solemnly executed
before a notary public, the evidence to the contrary
must be clear, strong, and convincing. Parol evidence
will not suffice to negate the clear and positive recitals
of a public document not otherwise tainted with
fraud or falsification.
7) Applicant’s qualification to buy still subject for
investigation – Where an agreement embodies all
the essential elements of a contract but it appears that
after the approval of the application, it was necessary
to have the applicant’s qualifications investigated, the
application was subject to revocation in case the
applicant was found not to possess the qualifications
necessary – the Court considered it as a mere
application to buy, not a perfected contract of sale
8) Chattel mortgage of car by mortgagor-buyer
prior to transfer of title to his name – When a
chattel mortgage was executed on a date earlier than
the transfer of the registration certificate in the name of
the buyers does not render the said mortgage invalid;
mortgagors were already the owner of the car when it
was mortgaged inasmuch as at the time of the sale
where the parties agreed over the car and the price,
the contract became perfected. Registration of the
transfer merely constitutes an administrative
proceeding. Registration is required not because it is
the operative act that transfers ownership, but because
it is the means to identify the owner.
9) Breach of contract by one party – A party
commits a breach when he fails without legal reason or
justification to comply with the terms which form the
whole or part of the contract. The injured party may
sue for fulfillment or rescission with the payment of
damages in either case; and this right is predicated on
the violation of the reciprocity between the parties
brought about by the breach of obligation by one of
them.

1. When deviation allowed
Villonco v. Bormaheco, supra
FACTS:
1. April 1959: Sps. Cervantes mortgaged three lots in Buendia
Ave, Makati to Development Bank of the Philippines as
security for a P441, 000 loan; debt was fully paid in June of
that year.
2. All three lots are occupied by Bormaheco, Inc.’s (BI)
buildings and machinery, of which Cervantes is president.
Villonco Realty Company (VRC) occupies an adjacent
property.
3. Feb 1964: negotiations between Romeo Villonco of VRC and
Francisco Cervantes of VI took place for the sale of the lots
- VRC assumed the subject lots belonged to the Sps C.
- C did not disclose to the broker (Tagle) and to VRC
that the lots were conjugal property and subject to
DBP mortgage.
- In a letter by C to Villonco re: the sale of property, he
referred to the lots as “our property” and that “we”
are offering to sell it at the price of P400 per sq meter
with earnest money of P100k to be deposited, and that
sale is to be consummated only after “I” (i.e.
Cervantes) consummated purchase of another property
in Sta. Ana; and that C would return the P100k deposit
should his negotiations re: the Sta. Ana property not
push through.
4. In a Jan. 1964 public bidding, the Sta. Ana property was
awarded to BI as the highest bidder.
- Nassco (the Sta. Ana property’s former owner)
requested the approval of the resolution from the
Acting Economic Coordinator, who approved it in
March of 1964.
5. On Feb. 27, Cervantes and Teofilo Villonco had a final
conference which resulted in a counter-offer for the
purchase of the property, with the stipulation that the sale
shall be cancelled only if the deal with the Sta. Ana property
shall not be consummated.
6. March 1964: Tagle delivered the check for P100k to
Cervantes, with the voucher-receipt stipulating that the
earnest money was subject to the terms in the negotiation
letters.
- 26 days later, C returned the earnest money, citing that
despite the lapse of 45 days from Feb 12, there is no
certainty that the Punta property could be acquired. He
returned the checks by registered mail and rescinded
the contract, although he knew the Punta lot had
already been awarded to Bormaheco.
- C said his letter was a “manifestation that we are no
longer interested to sell” the subject properties.
- VRC returned the two checks stating the condition for
cancellation of the contract had not arisen.
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7. April 1964: VRC filed a complaint for specific performance
against BI, and a notice of lisp ends was annotated onto the
titles.
8. June 1964: the Board of Directors of Nassco informed BI that
it had approved the sale of the Punta lot. Deed of sale was
executed to BI.
- VRC impleaded the Sps. C upon learning that the lots
were in their name.
ISSUE/S:
1. WON there had been a perfected contract of sale. (YES)
2. WON C’s qualified acceptance constituted a counter-offer,
and when VRC did not accept it, it could be withdrawn by C.
(NO)
3. WON the contract was not perfected because the condition
that BI acquire the Nassco land within 45 days from Feb 12
was not fulfilled. (NO)
4. WON BI cannot be required to sell the lots because they are
conjugal properties of the Sps. C. (NO)
HELD:
1. Yes. BI’s acceptance of VRC’s offer to purchase
the subject property as shown in Villonco’s March
1964 letter proves that there was a meeting of
minds upon the subject matter and consideration
of the sale, thus perfecting the sale on that date
- The non-consummation of the Punta property was a
negative resolutory condition; upon BI’s acceptance of the
P100k earnest money, the sale was conditionally
consummated or partly executed, subject to the
extinguishment of the obligation should the Punta land not
be acquired.
- Feb. 1964 – Naasco had already authrozied its manager to
sign the deed of sale. All that was left was the Economic
Coordinator’s approval.
- Relevant laws:
o "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).
o "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.).
o "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).

o "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).
o "An acceptance may be express or implied" (Art. 1320,
Civil Code).
2. No. There is no evidence that C’s changes were a
revised offer. There is likewise no evidence that
VRC did not assent to the supposed changes. The
controlling fact is that there was agreement
between the parties on the subject matter, the
price and mode of payment, and that part of the
price was paid. 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.
- According to the records, Tagle, the real estate broker, had
acted as intermediary between BI and VRC, and all changes
were communicated and accepted, as seen from the P100k
deposit of earnest money.
- Had VRC not accepted C’s changes, it would have ordered
stop payment on its P100k check.
- The changes made by C were not significant:
o Substituting “Naasco” for “another” in the phrase
“property located in Sta. Ana” was simply meant to
not-publicize which property they were after to prevent
possible jeopardizing of the sale.
o Insertion of “per annum” after the word “interest” Is
not a counter offer; the parties had always intended it
to be per annum anyway, since a 10% monthly rate
would be usurious.
o There is no incompatibility between BI’s first offer letter
and VRC’s counter-offer; the latter simply emphasized
the condition stated in the former.
3. No. The contract was not perfected.
- In C’s Feb 1964 letter, it stated that the sale of the subject
lots would be consummated after he had consummated the
purchase of the Nassco property. He later added that “final
negotiations on both properties can be definitely known
after forty-five days.” The condition thus rested on BI’s
acquisition of the Nassco land, but nothing stated that such
acquisition had to be effected within 45 days from Feb 12.
The condition to acquire the Nassco property was fulfilled
- The term of 45 days was not a part of the condition for
acquiring the Nassco property. It simply surmised that such
a period is how long it would take for BI to know whether it
could acquire the Nassco property.
- BI’s stand is confusing since it said its acceptance of
Villonco’s revised counter offer was conditioned on the
circumstance “that final acceptanceor not shall be made
after 45 days” without specifying what event from which to
count 45 days.
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4. No. BI cannot be required to sell the lots.
- Cervantes did raise the issue of conjugal property to
oppose the sale of the lots. In fact, he concealed the fact
that the lots were registered under their names instead of
BI’s. He led the Villoncos to believe that as president of BI,
he could dispose of the said lots.
- Furthermore, when VRC alleged in its complaint that BI had
made a former offer to sell the property, BI did not deny it;
thus BI’s “ownership” of the property is deemed admitted.
- BI’s basis in its affirmative defense was the 45-day
condition. Such a condition meant that Cervantes, as
president of BI, needed 45 days to “negotiate” with
himself, which is absurd.
- BI also never pleaded as an affirmative defense that Mrs. C
had opposed the sale of the three lots, nor did she
authorize her husband to sell these. The defense was an
afterthought, brought to light only during the May 1965
trial.
- Because obligations arising from contracts have the force of
law between the parties, inasmuch as the sale was
perfected and even partly executed, the Sps. C are bound
to comply with their commitments.
2. Sale by Auction
Art. 1476 In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is
the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any
bidder may retract his bid; and the auctioneer may withdraw the
goods from the sale unless the auction has been announced to
be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of
the seller, unless otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is
subject to a right to bid on behalf of the seller, it shall not be
lawful for the seller to bid himself or to employ or induce any
person to bid at such sale on his behalf or for the auctioneer, to
employ or induce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or any person
employed by him. Any sale contravening this rule may be
treated as fraudulent by the buyer. (n)

Art. 1403 The following contracts are unenforceable, unless
they are ratified:
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at
the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a sufficient
memorandum
RULES GOVERNING AUCTION SALES
1. Sales of separate lots by auction are separate
sales – Where separate lots are the subject of separate
biddings and are separately knocked down, there is a
separate contract in regard to each lot. As soon as the
hammer falls, the purchaser of that lot has a complete and
separate bargain. When the next lot is put up and knocked
down to the highest bidder, there is a separate complete
contract. The parties may subsequently consolidate all the
purchases into one transaction – as by giving a single note
– for the aggregate price.
2. Sale perfected by the fall of the hammer – in putting
up the goods for sale, the seller is merely making an
invitation to those present to make offers which they do by
making bids (Art. 1326), one of which is ultimately accepted.
Each bid is an offer and the contracted is perfected only
by the fall of the hammer. The bidder may retract his
bid and the auctioneer may withdraw the goods from sale
any time before the hammer falls. If the sale has been
announced to be without reserve, the auctioneer cannot
withdraw goods once a bid has been made and the highest
bidder has a right to enforce his bid.
3. Right of seller to bid in the auction – seller or his
agent may bid in an auction sale provided: 1) such right was
reserved; 2) notice was given that the sale is subject to a
right to bid on behalf of the seller; and 3) the right to bid by
the seller is not prohibited by law or by stipulation
a. Where no notice given of right to bid – when
there is no notice, it is unlawful for the seller to bid
either directly or indirectly or for the auctioneer to
employ or induce any person to bid on behalf of the
seller; purpose of the notice is to prevent puffing or
secret bidding by or on behalf of the seller by
people who are not themselves bound; they are just
used to enhance or inflate the price and it is a fraud
upon the purchaser
b. Where notice of right to bid given – a right to
bid may be expressly reserved by or on behalf of the
seller; it is the secrecy of puffing which renders it a
fraud
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4. Contract not to bid – Sale may be fraudulent because of
the conduct of the buyer; it is not permissible for intending
buyers to make an agreement that only one of them shall
bid so that the property may be knocked down at a low
price; it is fraudulent as regards the seller though the
agreement is without consideration, if it is actually carried
out, for the fraud against the seller is the same as if there
were considerations
5. Advertisements for bidders – are simply invitations
to make proposals, and the advertiser is not bound to
accept the highest or lowest bidder
RIGHT OF OWNER TO PRESCRIBE TERMS OF PUBLIC
AUCTION
- Owner of property which is offered for sale, either at public
or private auction, has the right to prescribe the manner,
conditions, and terms of such sale
- He may provide that all the purchase price or any portion
should be paid at the time of the sale, or that time will be
given for that payment, or that any or all bids may be
rejected
- Conditions of a public sale announced by an auctioneer or
by the owner of the property at the time and place of sale
are binding upon all bidders, whether they knew of such
conditions or not
Art. 1326 Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (n)
3. Earnest Money vs. Option Money
Art. 1482 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. (1454a)
MEANING OF EARNEST MONEY
- Something of value given by the buyer to the seller to show
that the buyer is really in earnest, and to bind the bargain
- Actually a partial payment of the purchase price and is
considered as proof of the perfection of the contract
- It forms part of the consideration only if the sale is
perfected and the sale is consummated upon full payment
of the purchase price
- Since it constitutes an advance or down payment, it must
be deducted from the total price
- By agreement of the parties, the amount given may be
merely a deposit of what would eventually become earnest
money or downpayment, not as part of the purchase price
and as proof of the perfection but only as a guarantee that
the buyer would not back out of the sale
- It is not really the giving of earnest money but the proof of
the concurrence of all the essential elements of a contract
which establishes the existence of the perfected contract
 LAW 103 SALES | PROF. CHAN 61

 
- Under Art. 1454 of the old CC, it has been held that the Cifra v. CA
delivery of part of the purchase price should not be
understood as constituting earnest money to bind the
agreement in the absence of something in the contract
showing that such was the intention of the parties

EARNEST MONEY AND OPTION MONEY

DISTINGUISHED
Earnest Money Option Money
Part of the purchase price Distinct consideration for an
option contract
Given only where there is Applies to a sale not yet
already a perfected sale perfected
When given, buyer is bound to When given, would-be buyer
pay the balance is not required to buy but may
even forfeit it depending on
the terms of option
- Option money may become earnest money if the parties so
agree, or it may actually be in the nature of earnest money
when considered with the other terms or words
- Art. 1482 speaks of a contract of sale, not of earnest
given in a contract to sell. It is considered part of the
purchase price only if the sale is consummated upon
payment of full purchase price

Notes from Baviera

Earnest Money Option Money

Paid in advance of the
purchase prices agreed upon
by the parties in a contract of
sale, given by the buyer to the
seller, to bind the latter to the
bargain
Payment of the balance of the
purchase price is usually
subject to a condition (to eject
squatters or to procure a
certificate of title in his name
and execute a deed of
absolute sale)
Manifests his earnest desire to
buy the property in question
Privilege paid for by a person
which gives him the right to
buy certain merchandise or
certain specified property
from another person, if he
chooses, at any time within the
agreed period, at a fixed price
Consummation of the contract
of option is subject to the
happening of certain events,
or the fulfillment of certain
conditions
Grantee of the option is still
undecided whether or not to
buy or sell the property

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 LAW 103 SALES | PROF. CHAN 62
 
Laforteza v. Machuca
Seller: the late Francisco Laforteza, and heirs Lea, Michael and
Dennis Laforteza
Buyer: Alonzo Machuca
Object: house and lot at Marcelo Green Village, Paranaque
Metro Manila

FACTS:
1. Aug 2 1988: Lea Zulueta-Laforteza executed special power of
attorney in favor of Roberto and Gonzalo Laforteza,
authorizing them to jointly sell the property for the
settlement of the late Francisco Laforteza; Michael Laforteza
granted the same authority to Roberto and Gonzalo
2. Oct 1988: Dennis Laforteza executed a Special Power of
attorney in favor of Roberto to sell the property, then a year
later, executed an agency instrument similar to that of Lea
and Michael.
3. Jan 1989: Heirs of the late Francisco Laforteza (Lea, Michael
and Dennis) represented by Gonzalo and Roberto entered
into a Memorandum of Agreement (Contract to sell) the
subject property with Alonzo Machuca for P630k payable as
follows:
- P30k earnest money, to be forfeited if sale is not
effected due to fault of Machuca
- P600k upon issuance of TCT in the name of Francisco
Laforteza and upon execution of extra-judicial
settlement of decedent’s estate with sale in favor of
Machuca
- Par. 4 of MoA stated that upon issuance of the new
title, Machuca shall be notified in writing and have 30
days to produce the P600k balance which shall be paid
to the heirs upon execution of the extrajudicial
settlement with sale
4. Jan 1989: Machuca paid earnest money of P30k plus rentals
5. Sept. 1989: Laforteza Heirs presented Machuca with a copy
of the reconstituted title to the subject property and the 30-
day notice to pay the P600k balance.
6. Oct. 1989: Machuca sent a letter requesting for an extension
of 30 days until Nov 15 1989 to produce the P600k. Roberto
Laforteza signed conformity to the extension, but Gonzalo
Laforteza did not.
7. Nov 1989: Machuca informed the Laforteza Heirs through
Roberto that he had the balance P600k covered by United
coconut Planters Bank Manager’s Check, but the Laforteza
heirs refused to accept the check, claiming the property was
no longer for sale.
8. Nov. 20: Laforteza Heirs informed Machuca that they were
cancelling the MoA on grounds of failure by Machuca to
comply with his obligation to pay the purchase price.
9. Machuca reiterated offer to tender payment but Laforteza
Heirs insisted on rescission of MoA, leading Machuca to file
an action for specific performance.

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RTC:
- Ruled for Machuca – Laforteza Heirs were ordered to accept
the P600k balance and transfer TCT of subject property to
Machuca.
- The Laforteza Heirs were ordered to execute the deed of
absolute sale and pay attorney’s fees.
CA:
- • Affirmed with modification – modified that Laforteza
Heirs pay P50k moral damages
ISSUES:
1. WON the MoA is merely a lease agreement with “option to
purchase” with a limited period, and upon lapse of the
period, tender of payment did not give rise to perfected
contract of sale. (NO)
2. WON the MoA is a contract to sell thus the obligation of the
Laforteza heirs to sell the property was conditioned upon the
execution of extrajudicial partition and payment of P600k –
hence failure of Machuca to pay prevented the Laforteza
Heirs’ obligation to convey title from acquiring obligatory
force. (NO)
3. WON Machuca’s failure to pay balance within the period
allowed is fatal to his right to enforce the agreement. (NO)
RATIO:
1. The transaction between the parties was one of
sale and lease.
- The price agreed upon was P630k: 30k earnest money,
P600k balance upon issuance of TCT and extrajudicial
settlement of estate with sale. While processing new title
and extrajudicial settlement of estate took place, Machuca
was to lease the property for 6 months at P3500 monthly
rate, but should the 6 months expire and title is not yet
ready, Machuca is no longer required to pay rentals. Upon
issuance of new title, Machuca has 30 days to produce the
P600k balance
- There was a perfected agreement when Laforteza heirs
obligated themselves to transfer ownership of and deliver
the house and Machuca obligated himself to pay the P600k.
Prior to payment of the balance, Machuca was already in
possession of the house as lessee – the 6 month period was
a period of lease, and not a period within which to exercise
an option. An option contract is a separate and distinct
contract from that which parties may enter into upon the
consummation of the option. An option must be supported
by a separate and distinct consideration.
- In this case, the 6-month period merely delayed the
demandability of the contract of sale but did not determine
its perfection; it was simply a reasonable estimate that the
reconstitution of lost title would take time. The fact that
after the 6-month period, Machuca would retain possession
of the house clearly indicated the parties contemplated
ownership would be transferred to him by that time.
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2. The issuance of a new title was not a condition
precedent to the perfected contract of sale.
Laforteza heirs failed to distinguish between a
condition imposed upon the perfection of the
contract, and a condition imposed on the
performance of the obligation; failure to fulfill the
first results in failure of the contract, while failure
to comply with the second gives other party the
option either to refuse or proceed with the sale, or
to waive the condition.
- ART. 1545: Where the obligation of either party to a
contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If
the other party has promised that the condition should
happen or be performed, such first mentioned party may
also treat the nonperformance of the condition as a breach
of warranty. Where the ownership in the things has not
passed, the buyer may treat the fulfillment by the seller of
his obligation to deliver the same as describe and as
warranted expressly or by implication in the contract of sale
as a condition of the obligation of the buyer to perform his
promise to accept and pay for the thing.
- In this case, there was a perfected contract — the condition
was imposed on the performance of the obligation. Upon
reconstitution of the title, Machuca was entitled to demand
fulfillment of the obligation to deliver and transfer
ownership of the house and lot.
- Furthermore, Machuca had paid P30k earnest money.
Earnest money is something of value to show that the buyer
was really in earnest, and given to the seller to bind the
bargain. Whenever earnest money is given in a contract of
sale, it is considered as part of the purchase price and proof
of the perfection of the contract.
- The case at bar is not one of a contract to sell, since there
was no reservation of title or provision imposing non-
payment of price as a condition for the contract’s entering
into force. The mere fact that the obligation of Machuca to
pay the balance of the purchase price was subject to the
condition that the Laforteza heirs first deliver the
reconstituted title does not make the contract a contract to
sell.

3. While Machuca’s failure to pay the balance within
the given period was a breach constituting a
ground for rescission (and Roberto’s grant of an
extension was ineffective since Gonzalo’s signature
was not present), after the 6-month period, the
Laforteza heirs were also not read to comply with
their obligation i.e. the delivery of the
reconstituted title. It was only after 8 months from
the execution of the MoA that they had the
reconstituted title and demanded balance of
purchase price. In reciprocal obligations, neither
party incurs in delay if the other party does not
comply or is not ready to comply with what is
incumbent upon him.
- Furthermore, the rescission of a sale of immovable property
is governed by Art. 1592 which states that a vendee may
pay even after the expiration of the period as long as no
demand for rescission has been made upon him either
judicially or by notarial act. The Laforteza Heirs did not
make a demand for rescission – their November 1989 letter
was not notarized, and was made five days after Machuca
attempted to pay the purchase price. Machuca’s offer to
pay prior to a demand for rescission is sufficient to defeat
Laforteza heirs’ right under Art. 1592. Besides, the MoA did
not contain a clause automatically cancelling the contract
without court intervention should the terms be violated. A
seller cannot unilaterally and extrajudicially rescind a
contract of sale where there is no express stipulation
authorizing him to extrajudicially rescind. Without a judicial
demand for rescission, the agreement was still in force
when Machica filed an action for specific performance.
HELD: CA affirmed. Petition denied.
Limson v. CA
Seller: Lorenzo de Vera and Asuncion Santos-de Vera
Buyer: Lourdes Ong Limson
Object: parcel of land in Paranaque, Metro Manila
FACTS:
1. Limson filed a complaint alleging that in July 1978, the
Spouses de Vera had offered to sell her a parcel of land for
P34/sq m and that she had given them P20k earnest money.
2. The Spouses de Vera acknowledged the P20k with a receipt
and gave her a 10-day option period to purchase. Lorenzo
de Vera informed her that the subject property was
mortgaged to Emilio and Isidro Ramos, and she was asked
to pay the balance of the purchase price so they could settle
their debt with the Ramoses
3. Aug 5, 1978: the scheduled meeting at Office of Registry of
Deeds did not push through because the Ramoses and de
Veras did not show up
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4. Aug 11 meeting: transaction did not materialize even if
Limson was ready and able to pay the balance because the
de Veras had failed to pay back taxes on the property.
5. Aug 23: Limson gave Lorenzo de Vera 3 checks amounting
to P36,170 for settlement of back taxes for payment of
quitclaims of 3 tenants on the subject land, to form part of
the purchase price, and Lorenzo signed receipts therefore
6. Sept 5: Limson learned that the De Veras were negotiating
for sale to Sunvar Realty Dev’t Corp (SUNVAR) represented
by Tomas Cuenca.
7. Sept. 15: De Vera discovered that though the De Veras had
purchased the property from the Ramoses in 1970, title was
issued in their name only on Sept 15. Limson thus filed an
Affidavit of Adverse Claim with the Office of the Registry of
Deeds and informed SUNVAR of her contract to purchase
the property. On the same day, the Deed of Sale between
De Veras and SUNVAR was executed and title was issued in
favor of SUNVAR on Sept 26 with Limson’s adverse claim
annotated thereon.
8. Limson filed a case to have the deed of sale with SUNVAR
cancelled, and the deed of sale between her and De Veras
executed
- De Vera’s answer: that they negotiated with SUNVAR
only after expiration of the option period given to
Limson and her failure to comply with commitments
thereunder
RTC:
- Ordered the annulment and rescission of Deed of Sale with
SUNVAR and cancellation of TCT in SUNVAR’s name and
reissue it in the name of the De Veras, as well the De Veras
to reconvey to Limson upon her payment of balance of
purchase price and P50k attorney’s fees
CA: reversed the RTC
- Adverse claim was lifted.
- Limson to pay SUNVAR and De Vera spouses attorney’s fees
ISSUES:
1. What is the nature of the contract entered into between
Limson and the De Veras. Option contract. (OPTION
CONTRACT)
2. Were the De Veras to blame for non-consummation of the
contract with Limson? (NO)

RATIO:
1. OPTION CONTRACT– 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 time certain,
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
(“unaccepted offer”). What is sold is the right to
buy property at a fixed price, within a certain time.
Until acceptance, it is not a contract that vests any
interest in the subject matter, but one that gives
the optionee the privilege the accept the owner’s
offer on certain terms.
- The receipt shows that the De Veras agreed that Limson
shall have the right to buy their property at P34/sq m within
10 days from July 31 1978 – the P20k paid by Limson was
referred to as “earnest money” but was in fact “option
money.”
- EARNEST MONEY forms part of the purchase price, is
given only when there is already a sale, and when given, the
buyer is bound to pay the balance
- OPTION MONEY is the consideration for an option
contract, applies to a sale that is not yet perfected, and the
buyer is not required to buy and may forfeit depending on
the terms of the option.
- Nothing in the receipt indicated that the P20k formed part
of the purchase price. It was not shown that there was a
perfected sale between the parties, and the receipt did not
bind Limson to pay the balance. The receipt further states
that the option money would be returned should the
transaction not materialize without fault of the buyer, and
that the buyer would be notified in case the subject
property was sold to a third person. Finally, the receipt
indicated a period for the option, i.e. ten days from July 31
1978.
- Nothing in the acts of Limson made clear her intention to
accept the offer within the 10-day period. At most, she
agreed to meet the De Vera spouses at the Office of the
register of deeds, but whether that showed acceptance by
Limson of the offer is dubious.
o On or before Aug 19 1978, there was no affirmative
manifestation by Limson to accept the offer; without
acceptance and concurrence thereto by the De Veras,
there was no perfected contract to sell.
o On Aug 11, 1978, the option period expired; all
subsequent meetings showed a mere inclination by the
De Veras to sell the property to Limson, but did not
constitute an exclusive right on limson’s behalf to
purchase the subject property.
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2. The De Veras were not to blame for Limson’s non-
exercise of her option. The Deveras were the ones
who initiated the meeting at the Office of the
Register of deeds; their failure to appear thereto
was beyond their control. Succeeding meetings
were all beyond the option period, and Limson was
not prepared even then to pay the purchase price
in cash as agreed upon. Limson could have paid
even without the Ramoses present, since the De
Veras could have covered the mortgage
themselves.
- The telegram demanding full payment sent by the De Vera
spouses on Sept 15 does not estop them from claiming that
there was no contract to sell. It only showed that the De
Veras were willing to give Limson a chance to buy the
property even if such option was no longer exclusive.
- The option period having expired and acceptance not
effectively made by Limson, the purchase of subject
property by SUNVAR was perfectly valid and entered into in
good faith. SUNVAR’s meetings with the De Veras on Spet
5 and 15 were beyond the option period given to Limson –
thus there was no bad faith on SUNVAR’s part.
HELD: Petition denied. CA ordered to lift the adverse claim.
San Miguel Properties v. Huang
Seller: San Miguel Properties Philippines Inc. (engaged in the
purchase and sale of real properties)
Buyer: Alfredo and Grace Huang
Object: 2 parcels of land in Barrio Oranbo, Pasig City
FACTS:
1. Feb 1994: the properties were offered for sale for
P52,140,000.00 cash to Atty. Helena Duaz, acting for the
Spouses Huang as undisclosed principals.
2. March 1994: Atty Duaz signified the Huangs’ interest in
purchasing the properties, under the following terms: P500k
as earnest money, with balance in 8 equal monthly
installments from May to Dec 1994.
- San Miguel rejected the offer
3. March 29: Atty Duaz wrote another proposal:
4. P1M enclosed representing earnest-money deposit subject
to the conditions that the Huangs be given an exclusive
option to purchase the property within 30 days from date of
acceptance of offer – during said period, they were to
negotiate on the terms and conditions of the purchase and
San Miguel would secure the necessary board approvals
while the Huangs will initiate documentation, and in the
event that the agreement is not arrived at, the P1M shall be
refunded in full upon demand.

5. Isidro Sobrecarey, San Miguel’s vice-president and
operations manager, indicated his conformity to the offer by
affixing his signature to the letter and accepting the
“earnest-deposit” of P1M. He also ordered the removal of
the FOR SALE sign on the properties
6. Negotiation period:
- April 8 meeting: Sobrecarey offered a 90-day payment
term, Atty. Duaz counter-offered with 6 months
- April 14: San Miguel had not yet acted on Atty Duay’s
counter-offer, so Atty Duaz proposed a four-month
period of amortization
- April 25: Atty Duz asked for a 45 day extension to June
13, 1994 to exercise the option, which was granted.
7. July 7: San Miguel wrote to Atty Duez, returning the P1M
earnest deposit for failure by the parties to agree on the
terms of the sale.
8. July 20: Huangs wrote to San Miguel demanding the
execution within five days of the deed of sale, and
attempted to return the “earnest-deposit” but San Miguel
refused on grounds that the option period had expired
9. Aug 16: Huangs filed a complaint for specific performance
with RTC, Pasig.
- San Miguel’s defense: the exclusive option lacked a
distinct consideration and was thus unenforceable + no
meeting of the minds, thus no perfected contract of
sale, thus no cause of action
RTC: Dismissed the action
CA: RTC reversed.
- All requisites of perfected contract of sale had been
complied with as the March 29 offer + earnest money had
been accepted by San Miguel + Art. 1482: “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.”
- The fact that the parties had not agreed on a mode of
payment did not affect the contract, since such mode is not
an essential element for its validity.
ISSUES:
1. WON there was a perfected contract of sale, given that
there was earnest money that was accepted by Isidro
Sobrecarey. (NO)
2. WON the failure to agree on the terms of payment is fatal to
the perfection of the contract of sale. (YES)
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RATIO:
1. The P1M was not earnest money as contemplated
under Art. 1482. Such was a deposit that would
become earnest money should a contract of sale
be made between the parties. It was only a
guarantee that the Huangs would not back out of
the sale, and not part of purchase price or proof of
perfection of the contract.
- It is “earnest-deposit” – at the time it was given, the
contract had not yet been perfected: the Huangs requested
30 day exclusive option, during which the parties were to
negotiate the terms San Miguel was to secure the necessary
approvals while the Huangs would handle the
documentation.
- The request for an exclusive option shows that the sale was
not yet perfected. This option was not exercised because
there was a failure to agree on the terms of payment. Even
this option was defective, since it was not accompanied by
a consideration distinct from the purchase price.
- During the option period, the parties still had to negotiate
on the terms of the purchase – the parties never got past
the negotiation stage, so there was no perfected sale, but
simply offers and counter-offers.
2. The agreement on 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. (Toyota Shaw Inc v CA)
HELD: CA reversed, the Huang’s complaint dismissed.
4. Place of Perfection
Art. 1319 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.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into
in the place where the offer was made. (1262a)
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C. Formalities of the Contract SALE OF REAL PROPERTY OR AN INTEREST THEREIN
1. Sale of a piece of land or an interest therein when made
1. General Rule: Form Not Important through an agent is void unless the agent’s authority is in
writing
Art. 1483 Subject to the provisions of the Statute of Frauds 2. For the sale of real property to be effective as against third
and of any other applicable statute, a contract of sale may be persons, the sale must be registered in the Registry of
made in writing, or by word of mouth, or partly in writing and Deeds (or Property) of the province or city where the
partly by word of mouth, or may be inferred from the conduct of property is located and the sale must be in a public
the parties. (n) document (acknowledged before a notary public or any
public officer authorized) for the registration to be valid
3. Real purpose of registration is to give notice to third
FORM OF CONTRACT OF SALE
persons and to protect the buyer against claims of third
1. General rule – form of a contract refers to the manner in
persons; it is not necessary to give efficacy to the deed of
which it is executed or manifested; and it has no prescribed
sale as between the parties and their privies because actual
form, provided all the essential requisitesfor its validity are
notice is equivalent to registration and registration is not a
present
mode of acquiring ownership
2. Where form is required in order that a contract
4. Sale of land in a private instrument is valid and binding
may be enforceable – if the contract is covered by the
upon the parties, and even a verbal contract of sale of real
Statute of Frauds, the law requires that the agreement be in
estate produces legal effects since sale is a consensual
writing; otherwise, it cannot be enforced by action (Art.
contract
1403 par. 2)
5. The fact that the notarization of a deed of sale of real
a. Sale of personal property at a price not less than P500;
property is false is of no consequence, for it need not be
b. Sale of real property or an interest therein regardless of
notarized; it is enough that it be in writing.
the price involved; and
c. Sale of property not to be performed within a year
MODES OF SATISFACTION OF THE STATUTE OF
from the date thereof regardless of the nature of the
FRAUDS (3 ways in which contracts of sales of goods within its
property and the price involved
terms may be binding:
- Purpose of the Statute of Frauds is to prevent fraud
1. The giving of a memorandum;
and perjury in the enforcement of obligations
2. Acceptance and receipt of part of the goods (or things in
- Contracts infringing the Statute of Frauds are ratified
action) sold and actual receipt of the same (see Art. 1585);
when the defense fails to object to the introduction of
and
parol evidence, or asks questions on cross-examination
3. Payment or acceptance at the time of some part of the
- Statute of Frauds refers to specific kinds of transactions
purchase price.
and cannot apply to any other transaction that is not
- Memorandum is suitable either for a contract to sell or a
enumerated
sale
- Application of the Statute presupposes the existence
- Other 2 modes seem more naturally to apply to sales than
of a perfected contract
to executory contracts
3. Where form is required in order that a contract
- Statute of Frauds applies not only to goods but to things in
may be valid – where the “applicable statute” requires
action as well
that the contract of sale be in a certain form for its validity;
required form must be observed in order that the contract
may be both valid and enforceable (Art. 1356)
4. Where form is required only for the convenience
of the parties – A certain form (public instrument) is
required for convenience in order that the sale may be
registered in the Registry of Deeds to make effective as
against third persons the right acquired under the sale
- As between the contracting parties, the form is not
indispensable since they are allowed by law to compel
each other to observe that form (Art. 1357, 1358 par. 1)
- Intention of the parties still and always is the primary
consideration in determining the true nature of the
contract

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STATUTE OF FRAUDS APPLICABLE ONLY TO
EXECUTORY CONTRACTS
- Applicable only to executory contracts (where no
performance, i.e., delivery and payment, has been made)
ant not to contracts which are totally (consummated) or
partially performed
1. Reason for the rule – partial performance, like writing,
furnishes reliable evidence of the intention of the parties or
the existence of a contract; SoF does not apply to contracts
which are either totally or partially performed
2. Circumstances indicating partial performance –
partial performance of a parol contract; other circumstances
indicating partial performance are relinquishment of rights,
continued possession by a purchaser who is already in
possession, building of improvements, tender of payment,
rendition of services, payment of taxes, surveying of the
land at the vendee’s expense, and acceptance of initial
payment
3. Application presupposes existence of perfected
contract – application of SoF presupposes the existence
of a perfected contract and requires only that a note or
memorandum be executed in order to compel judicial
enforcement
LEGAL RECOGNITION OF ELECTRONIC DATA
MESSAGES – pursuant to RA 8792 (Electronic Commerce Act)
1. Validity and enforceability – information shall not be
denied validity or enforceability solely on the ground that it
is in the form of an electronic data message or electronic
document; electronic data messages or electronic
documents shall have the legal effect, validity or
enforceability as any other document or legal writing
2. Incorporation by reference – information shall not be
denied solely on the ground that it is not contained in an
electronic data message or electronic document but is
merely incorporated by reference therein
3. Writing – where the law requires a document to be in
writing, an electronic document or electronic data message
will be sufficient if the latter:
a. Maintains its integrity and reliability; and
b. Can be authenticated so as to be useful for subsequent
reference, in that:
i. It has remained complete and unaltered
ii. It is reliable in light of the purpose for which it was
generated and in light of all relevant circumstances
4. Original – where the law requires that a document be
presented in its original form, that requirement is met by an
electronic document or electronic data message if:
a. There exists a reliable assurance as to the integrity of
the electronic document when it was first generated in
its final form and is shown by evidence aliunde
(evidence other than the electronic data); and
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b. The electronic document or electronic data message s
capable of being displayed to the person to whom it is
to be presented
c. For purposes of No. 1:
i. The criteria for assessing integrity shall be whether
the information has remained complete and
unaltered
ii. The standard of reliability shall be assessed in light
of the purpose for which the information was
gathered
5. Solemn contracts – No provision of RA 8792 shall apply
to vary any and all requirements of existing laws and
relevant judicial pronouncements respecting formalities
required in the execution of documents for their validity
Art. 1358 The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights
or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which
has for its object an act appearing or which should appear in a
public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But
sales of goods, chattels or things in action are governed by
Articles, 1403, No. 2 and 1405. (1280a)
- The enumerated items under this provision remain valid and
enforceable among the parties. The public document is
required only for the greater protection of parties while
registration is needed to make them effective as to third
persons.
- Public documents are acceptable as evidence in court without
further proof as to their authenticity and due execution.
- It may only be rebutted by clear and convincing evidence and
not merely a preponderance thereof.

Dalion v. CA
Seller: Segundo Dalion and Epifania Sabesaje-Dalion
Buyer: Ruperto Sabesaje Jr.
Object: a parcel of land in Panyawan, Sogod, Southern Leyte
FACTS:
1. May 1978: Sabasaje sued to recover ownership of a parcel of
land on the basis of a document of absolute sale dated July
1, 1965 allegedly executed by Dalion, who denied the fact of
sale (Dalion claimed that the document was fictitious, his
signature was a forgery, and subject property is conjugal
property acquired from Saturnina Sabesaje). Dalion further
denied Sabesaje’s claims that the Dalions had simply asked
to be allowed to remain and administer the land having no
other means of livelihood.
2. Dalion admitted to administering the land since 1958, in
particular, 5 parcels of land that belonged to Leonardo
Sabesaje (grandfather of Sabesaje). He threatened to
counter-sue for commission on sales of copra and abaca that
had gone unpaid.
RTC:
- Ordered the spouses Dalion to execute a deed of
conveyance to Sabesaje otherwise the provincial sheriff shall
execute the same
CA: affirmed, using as its basis Sections 21 and 23 of the Rules
of Court to rule that Dailon had not proven that his signature on
the document was forged.
- Sec. 21: private writing must be proved: by anyone who saw
the writing executed, by evidence of genuineness of
handwriting of maker, or by a subscribing witness.
- Sec. 23: 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.
ISSUES:
1. WON the contract of sale of a parcel of land is valid. (YES)
2. [MAIN] WON a public document is required for the transfer
of ownership thereto. (NO)
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HELD:
1. According to the Findings of fact of the trial court,
people who witnessed the execution of the subject
deed testified on the authenticity thereof as
executed and signed by the signatories (Gerardo
Ogsoc, as the one who prepared the deed of sale
and had copied parts thereof from the “Escritura
de venta absoluta” by which Saturnina Sabesaje
sold the same land to Segundo Dalion). Dalion
never presented witnesses or evidence to prove
claim of forgery. Furthermore, a comparison of
signatories and specimens of signatures convinced
the court that they were Dalion’s signatures.
Dalion’s signatures also appear twice – a forger
would not attempt to forge a second one.
2. Art. 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. While the
deed of sale that Sabesaje used is a private
document, it is nevertheless valid.
- Contract of sale is a consensual contract – perfected by
mere consent; no form is required for its validity, and upon
perfection, the parties may reciprocally demand
performance.
- The Trial Court correctly ordered Dalion to deliver to
Sabesaje the parcel of land and to execute the formal deed
of conveyance in a public document. Under Art. 1498, a sale
made through a duly executed public instrument is
equivalent to the delivery of the thing. Delivery may either
be actual (real) or constructive – the delivery of a parcel of
land may be made by placing the vendee in control and
possession of the land (real) or by embodying the sale in a
public instrument (constructive)
- Art. 1475 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). The trial
court correctly upheld Sabesaje’s complaint compelling
Dalion to execute a formal deed of sale to consummate an
already perfected and binding contract of sale between the
parties.
HELD: Petition DENIED, decision of CA affirmed.

Secuya v. vda. De Selma
Plaintiffs: Benigna, Miguel, Marcelino, Corazon, Rufina,
Bernardino, Natividad, Gliceria, Purita all surnamed Secuya
Defendant: Gerarda M. Vda. De Selma
Object: Portion of Lot 5679 (3,000 sq.m.) of the Talisay-
Minglanilla Friar Lands Estate
FACTS:
1. A portion of Lot 5679 (which has a total of 12, 750 sq. m) of
the Talisay-Minglanilla Friar Lands Estate was originally sold
and the covering patent issues to Maxima Caballero
2. She subsequently entered into an AGREEMENT OF
PARTITION with Paciencia Sabellona whereby Caballero
bound herself and parted with 1/3 portion of the lot in favor
of Sabellona. It was also stipulated that such portion will be
located adjoining the municipal road
3. Sabellona took possession and occupation of the 1/3
portion of the lot. On October 20, 1953, she sold 3,000 sq.
m. to Dalmacio Secuya for P1,850 by means of a private
document which was “lost”. Said sale was confirmed by
Ramon Sabellona, the only heir of Paciencia Sabellona in the
instrument denominated CONFIRMATION OF SALE OF
UNDIVIDED SHARES
4. Dalmacio took possession of the land and cultivated it.
Edilberto Superales, the husband of his niece Rufina Secuya,
constructed a house in the lot with permission of the
Secuyas. Dalmacio died on November 20, 1961, leaving his
brothers, sisters, nephews, and nieces as his heirs
5. In 1972, Gerarda Selma bought a 1,000 sq. m. portion of the
lot. On February 19, 1975, she bought 9,302 sq. m.
evidenced by a DEED OF ABSOLUTE SALE. The object lot
(3,000 sq. m.) is included within the boundary of the
acquisition of Selma
6. Selma lodged a complaint before the Barangay Captain
against herein petitioners, asserting her ownership over the
land allegedly inherited by them. She traces her title from a
Deed of Absolute Sale wherein ½ plus 1/5 of the lot was
adjudicated to Cesaria Caballero, widow of Silvestre Aro
(registered owner of the mother lot) from whom she bought
the said lots
7. Petitioners filed an action for Quieting of Title and
cancellation of Certificate of Title before the RTC
RTC: Dismissed the Complaint and ordered petitioners to
vacate the premises
CA: Affirmed the RTC. Selma’s title can be traced to a valid
TCT. Petitioners anchor their claim on an “Agreement of
Partition” which is void for violating the Public Land Act which
prohibits the alienation or encumbrance of land acquired under
a free or homestead patent for a period of 5 years from such
issuance.
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ISSUES:
1. WON the Agreement of Partition gave them a valid claim to
the land (NO)
2. WON the sale to Dalmacio Secuya is valid (NO)
3. WON Selma’s title is valid (YES)
2. WON Petitioners have the requisite title that would entitle
them to avail of the remedy of Quieting of Title (NO)
RATIO:
1. The Agreement of Partition is an express trust, and
not a partition
- Even if it is named as an agreement of partition, the
instrument is only a trust agreement because there was no
property to partition and the parties weren’t co-owners
thereof.
- Trust is the right to the beneficial enjoyment of property to
which the legal title is vested in another. It is a fiduciary
relationship that obliges the trustee to deal with the
property for the benefit of the beneficiary. It can either be
an express or implied trust.
- In the “Agreement of Partition”, Caballero bound herself to
transfer to Sabellana, her aunt, 1/3 of the portion of the lot
upon the approval of her application by the Talisay-
Minglanilla Estate.
- Said agreement is an express trust. Under Art 1444 of the
Civil Code, “no particular words are required for the
creation of an express trust, it being sufficient that a trust is
clearly intended”. As a result of such agreement, Caballero
held the lots in trust as belonging to Sabellona when the
application was eventually approved and a sale certificate
was issued in her name. However, she never transferred the
ownership to Sabellona.
- From 1954 (issuance of sale certificate) to 1985 (filing of
complaint by petitioners), Sabellona and her successors-in-
interest didn’t do anything to enforce their propriety rights.
They didn’t even register the agreement with the Registry
of Property or pay the land taxes.
- Meanwhile, the heirs of Caballero sold the entire lot to
Silvestre Aro in 1955. Therefore, it can be said that the
express trust was repudiated due to failure to deliver the
said lots to Sabellona and the subsequent sale to a third
party.
- Since the agreement between Caballero and Sabellona
wasn’t registered, it cannot bind third persons. Therefore,
subsequent sales transactions involving the land must be
upheld.

2. Petitioners were not able to present the document
of Sale in favor of Dalmacio Secuya
- Petitioners insist that Pacencia sold the lot to Damacio
Secuya and that such sale was embodied in a private
document. However, such document was never presented
in court because it had been lost.
- Though a sale of piece of land embodied in a private
document is binding between the parties, it cannot bind
third persons if it isn’t in a public instrument and recorded
in the Registry of Property.
- Petitioners instead submitted the testimony of Miguel
Secuya (one of the petitioners) and the Deed Confirming
the Sale executed by Ramon Sabellona. The testimony is a
bare assertion that the sale has taken place while the
Deed’s probative value is doubtful since Ramon’s status as
Sabellona’s heir wasn’t affirmatively established.
3. Deed of Absolute Sale in favor of Selma is valid
- Petitioners contend that Selma’s title is invalid because she
couldn’t be regarded as a purchaser in good faith who is
entitled to the protection of the Torrens System since she
was aware of their possession of the property.
- The vendor, Cesaria Caballero, assured Selma that
petitioners were just tenants of the said lot. Selma couldn’t
be faulted for believing this representation, considering
that the claim of petitioners wasn’t noted in the certificate
of title.
- Selma’s tile is amply supported by clear evidence while
petitioners’ claim is barren of proof
4. Claim of Petitioners isn’t enough to overturn the
validity of Selma’s title
- Under Art. 476 of the Civil Code: Whenever there is a cloud
on title to real property or any interest therein, by reason of
any instrument, record, claim, encumbrance or proceeding
which is apparently valid or effective but is in truth and in
fact invalid, ineffective, voidable or unenforceable, and may
be prejudicial to said title, an action may be brought to
remove such cloud or to quiet title.
- An action may also be brought to prevent a cloud from
being cast upon title to real property or any interest therein.
- For such action to prosper, plaintiffs must demonstrate a
legal or equitable title thereto. They must also show that
the deed that purportedly casts a cloud on their title is in
fact invalid despite its prima facie appearance of validity.
- Between the titles of the two parties, it is Selma’s which has
more weight.
2. Exception: When Form Important
2.a. Form Important for Enforceability
2.a.1. Statute of Frauds
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Art. 1403 The following contracts are unenforceable, unless
they are ratified:
(1) Those entered into in the name of another person by one
who has been given no authority or legal representation, or who
has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within
a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other than
a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at
the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a longer period than one
year, or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to
a contract.
- The “Statute of Frauds” requires certain classes of contracts
to be in writing.
- It merely regulates the formalities of the contract necessary
to render it enforceable. The effect of non-compliance is
simply that no action can proven unless the requirement is
complied with.
- There is no particular form of language or instrument
required to constitute a note or memorandum in writing, in
compliance with the Statute of Frauds and maybe
contained in two or more documents.

Art. 1405 Contracts infringing the Statute of Frauds, referred
to in No. 2 of Article 1403, are ratified by the failure to object to
the presentation of oral evidence to prove the same, or by the -
acceptance of benefit under them.
- If the adverse party fails to object to the presentation of
parol/oral evidence to prove the contract, it is deemed
ratified under the Statute of Frauds.
- This ratification also applies when the adverse party accepts
the benefits provided by the contract. He is estopped from
claiming that it is unenforceable.
Ortega v. Leonardo
Plaintiff: Marta Ortega
Defendant: Daniel Leonardo
Object: Lot located at San Andres Street, Malate, Manila
FACTS:
1. Marta Ortega occupied a parcel of land located at San
Andres Street, Malate, Manila before the liberation of the
City of Manila
2. After the liberation, she re-occupied it. However, the
administration and disposition of the Lot were assigned by
the Government to the Rural Progress Administration
3. Ortega asserted her right to purchase the said land but
Daniel Leonardo, also asserted the same right over the land,
claiming to have occupied that land after Ortega
4. Leonardo asked Ortega to desist from pressing her claim
and promised that if he succeeded in getting the title to the
lot, he would sell to her a portion thereof with an area of
555.60 sq. m. at the rate of P25 per sq. m provided she pay
for the surveying and subdivision of the lot. They also
agreed that she would continue occupying the land as
tenant and will pay monthly rental of P10 until the purchase
price has been fully paid
5. Ortega accepted the offer and when Leonardo acquired the
title, she paid for the surveying and segregation of the land.
When she remodeled her son’s house, she extended it over
the said lot. She also regularly paid him the P10 monthly
rental. After the plans of subdivision had been approved by
the Bureau of Lands, Ortega tendered payment to Leonardo
but he refused to accept without cause.
6. Ortega filed a complaint with the Manila CFI, seeking to
compel Leonardo to comply with their oral contract of sale
TC: Dismissed the complaint on the ground that oral contracts
for the Sale of Land are not enforceable under the Statue of
Frauds. The only time that it can be enforced is when there has
been partial performance. The desistance of Ortega from
asserting her claim over the lot cannot be considered as partial
performance since it is not a part of the contract of sale.
ISSUE:
WON the oral contract for the sale of land is enforceable (YES)
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RATIO:
Yes. The oral contract is enforceable.
A recognized exception to the Statute of Frauds is partially
executed contracts. The trial court, in its ruling, in effect
reasoned that the partial performance of a contract of sale
occurs only when there has been partial payment of the
purchase price. This is defective statement of the law.
- American Jurisprudence in its title “Statute of Frauds”, lists
other acts of partial performance such as: possession, the
making of improvements, rendition of services, payment of
taxes, relinquishment of rights, etc.
- In the instant case, Ortega has been in the continuing
possession of the land, has made valuable improvement
thereof, has relinquished her rights over the property, has
surveyed the lot, and has tendered payment to Leonardo
- The combination of all these acts amounted to a partial
performance which makes the oral contract enforceable
Paredes v. Espino
Plaintiff: Cirilo Paredes
Defendant: Jose Espino
Object: Lot No. 67 of the Puerto Princessa Cadastre
FACTS:
1. Espino entered into the sale of Lot No. 67 of the Puerto
Princesa Cadastre at P4 per sq. m. with Paredes
2. The deal was closed by letter and telegram but the actual
execution of the deed of sale and payment of the price were
deferred until the arrival of Espino at Puerto Princessa
3. When Espino arrived therein, he refused to execute the
deed of sae although Paredes was able and willing to pay
the purchase price. As a result, Paredes had lost expected
profits from a resale of the property and suffered from
mental anguish.
4. Paredes filed an action for specific performance. Espino filed
a motion to dismiss on the ground that the complaint has no
cause of action since the claim of Paredes is unenforceable
under the Status of Frauds.
TC: Ruled in favor of Espino and granted the motion to dismiss.
There being no written contract, the action is unenforceable
under the Statute of Frauds.
ISSUE:
WON enforcement of the “contract” pleaded in the complaint
is barred by the Statute of Frauds (NO)

RATIO:
No. It is not barred by the Statute of Frauds.
- The Statute of Frauds does not require that the contract
itself be in writing. A written note or memorandum,
embodying the essentials of the contract and signed by the
party charged or his agent, is enough to make the verbal
agreement enforceable
- In the case at bar, the sale was closed by a letter and a
telegram which were signed by Espino, referred to the
property sold as a lot with an area of 1826 sq.m. in Puerto
Princessa, Palawan, and contained the purchase price of P4
per sq. m. payable in cash
- All the essential terms of the contract are found therein
therefore, they satisfy the requirement of the Statute of
Frauds. They constitute an adequate memorandum of the
transaction.
- Berg vs. Magdalena Estate Inc: a sufficient memorandum
may be contained in two or more documents
Claudel v. CA
Owner: HEIRS of Cecilio Claudel (P)
Buyer: SIBLINGS of Cecilio Claudel (parents of the PR [Heirs of
Raymunda Clauded])
Object: Lot No. 1230 in Muntinlupa, Rizal
FACTS:
1. Cecilio Claudel (dad) acquired subject lot from Bureau of
Lands → acquired TCT, paid real estate taxes → died →
widow then sons continued paying the taxes → partitioned it
in 1972
2. Four years later Siblings of Cecilio claim that their parents
purchased the property from Cecilio through a verbal
transaction sometime in 1930 (46 years earlier). Filed
Complaint for Cancelation of Titles and Reconveyance with
Damages
3. Siblings’ evidence: subdivision plan dated 1930 indicating
portions allegedly sold to them
CFI and CA:
- CFI in favor of Heirs. Dismissed the complaint. CA reversed.
- On the parties in the complaint
o CFI: filed in the name of Heirs of Claudel but did not
name the different heirs particularly involved and those
who wish to recover the land → will not be able to
apportion the property if they are entitled thereto
o CA: not fatal omission since court court could adjudicate
the lots to SIBLINGS OF CECILIO, leaving it to them to
adjudicate lot among themselves
- On RESIDENCE in the lot:
o CFI: PRs no longer residing in the property (left in 1967)
except for one Lapintoc
o CA: Fact of residence in the lot by the PRs had been
made possible by the toleration of the deceased Cecilio.
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- On the FORM:
o CFI: no document evincing the supposed sale which is a
REAL PROPERTY → precludes the admission of oral
testimony (Statute of Frauds)
o CA: SoF applies only to executory contracts and not to
consummated sales as in the case at bar where oral
evidence may be admitted
- On PRESCRIPTION:
o CFI: action prescribed since alleged sale took place in
1930 and action filed more than 30 years after
o CA: cannot be set up against PRs despite the lapse of
over 40 years. Action was not for the recovery of
possession of real property but for the cancellation of
titles issued to the HEIRS OF CECILIO in 1973. Since the
SIBLINGS OF CECILIO commenced their complaint for
cancellation on 1976, only 4 years after the HEIRS
obtained the TCT → no prescription of action yet.
ISSUES:
1. WON contract of sale of land may be proven orally? (With
respect to third parties, NO. contract of sale made by Cecilio
with his siblings cannot be proved)
2. When should the prescriptive period for filing the action be
counted from? Date of issuance in favor of HEIRS. Action
prescribed.
RATIO:
1. In general: sale valid regardless of the form.
Against third parties: it must be in writing
- In a sale of land, once consummated, is valid regardless of
the form it may have been entered into (law or
jurisprudence prescribe that the contract of sale be put in
writing)
- In the event that a third party, as in this case, disputes the
ownership of the property, the person against whom that
claim is brought cannot present any proof of such sale and
hence has no means to enforce the contract. SoF precisely
devised to protect the parties in a contract of sale of real
property so that no such contract is enforceable unless
certain requisites, for purposes of proof, are met
- NCC Par. 2 (e) Art. 1403 Unenforceable Contracts unless
ratified: (2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following cases, an
agreement hereafter made shall be unenforceable by
action unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged,
or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary
evidence of its contents: (e) An agreement for the leasing
for a longer period than one year, or for the sale of real
property or of an interest therein;

- PURPOSE: prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced in
writing
- Used to be in the ROC only but now in NCC → transfer was
not only a matter of style but to show that the SoF is also a
substantive law
2. If the parties SIBLINGS OF CECILIO had allegedly
derived their right of action from the oral purchase
made by their parents in 1930, then the action filed
in 1976 would have clearly prescribed. More than 6
years had lapsed.
- NCC Art. 1145. The following actions must be commenced
within six years: (1) Upon an oral contract
- SIBLINGS: an implied trust in favor of them was established
in 1972, when the HEIRS OF CECILIO executed a contract
of partition over the said properties.
o SC: law recognizes the superiority of the torrens title →
carries more weight as proof of ownership than the
survey or subdivision plan of a parcel of land in the
name of SIBLINGS. Court did away with the
irrevocability of the torrens title in some cases but
circumstances here varied significantly from those
cases:
o Bornales v. IAC: transferees bought the land registered
under the torrens system from vendors who procured
title thereto by means of fraud
o Amerol v. Bagumbaran: title wrongfully registered in
another person's name. An implied trust was therefore
created.
- Facts here belie the claim of ownership:
o Taxes were allegedly paid by SIBLINGS to HEIRS.
HEIRS pay to Municipality. Why not pay directly? →
admission of non-ownership
o Two of the PR should not be paying for a lot they
already owned and if they did not acknowledge one of
the heirs as its owners
o Before any SIBLINGS can stay on the property, they
hand to ask permission of Jose Claudel (one of the
HEIRS)
HELD: Petition granted in favor of HEIRS.
2.b. Form Important for Validity
2.b.1. Sale of Realty through an Agent
Art. 1874 When a sale of a piece of land or any interest therein
is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. (n)
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City-Lite Realty Corp v. CA
Owner: F.P. Holdings & Realty Corp. (PR)
Through: Meldin Al G. Roy (PR) of Metro Drug, Inc
Buyer 1: City-Lite Realty Corp (P)
Buyer 2: Viewmaster Construction Corp.
Object: Entire front lot of "Violago Property" in E. Rodriguez
Ave, Q.C.
FACTS:
1. Briefly: Roy sold lot to City Lite → lot was sold by F.P.
Holdings to Viewmaster. City-Lite filed complaint.
2. Roy sent letter to City-Lite (including: sales brochure,
location plan and copy of TCT of lot) to City-Lite → City-Lite
conveyed it’s interest in buying ½ of the front lot → after a
few days decided that they want to buy the entire front lot →
City-Lite made counter-offer that payment be in installment
and that asking price of P6,250/square be reduced
3. City-Lite ’ s officers met with Roy to consummate
transaction → formal acceptance by City-Lite through
separate letters made
4. Despite demand, F.P. Holdings refused to execute
corresponding Deed of Sale in favor of City-Lite → City-Lite
filed adverse claim to the tile of the property with ROD →
annotated in the Memo of Encumberance
5. City-Lity asked that Metro Drug (Roy) comply by executing
deed of conveyance
6. F.P. Holdings filed a petition for cancellation of adverse
claim → tried to offer substitute property to City-Lite →
refused (not suited for business) → City-Lite caused the
annotation of first notice of lis pendens
7. F.P. Holdings’ Petition to cancel dismissed --> City Lite:
complaint for specific performance and damages
8. F.P. Holdings asked ROD to issue separate titles → new
TCTs → property transferred to Viewmaster (lis pendens
carried over new TCT)
9. City-Lite: complaint amended to: leave of court to implead
and cancellation of Viewmaster’s TCT
RTC:
- Judgment rendered in favor of City-Lite. Cancel subsequent
title given to Viewmaster
CA:
- Judgment rendered in favor F.P. Holdings
- No contract of sale was perfected because of lack of definite
agreement on the manner of paying the purchase price and
that Metro Drug and Roy were NOT authorized to sell the
property. Authority of Roy limited to that of a mere liaison or
contact person
ISSUES:
WON contract of sale was perfected between City-Lite and Roy?
(NO)

RATIO:
Roy had no written authority that he is F.P. Holding’s
agent
- NCC Art. 1874: "When the sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void."
- Petitioner: authority of Metro Drug and Roy on (a) the
testimonies of petitioner's 3 witnesses and the admissions of
Roy and the lawyer of Metro Drug; (b) the sales brochure
specifying Roy as a contact person; (c) the guard posted at the
property saying that Metro Drug was the authorized agent; and,
(d) the common knowledge among brokers that Metro Drug
through Roy was the authorized agent of F. P. HOLDINGS
- The absence of authority to sell can be determined from the
written memorandum issued by respondent F. P. HOLDINGS'
President requesting Metro Drug's assistance in finding buyers
for the property. The memorandum in part stated: "We will
appreciate Metro Drug's assistance in referring to us buyers for
the property → Roy and/or Metro Drug was only to assist F. P.
HOLDINGS in looking for buyers → final evaluation, appraisal
and acceptance of the transaction could be made only by F. P.
HOLDINGS
- Roy was only a contact person with no authority to conclude a
sale of the property.
o A witness for petitioner even admitted that Roy and/or
Metro Drug was a mere broker, and Roy's only job was to
bring the parties together for a possible transaction.
- For lack of a written authority to sell on the part of Roy and/or
Metro Drug → declared null and void.
- No legal effect as to transfer the subject property from its lawful
owner, F. P. HOLDINGS, to any interested party including
petitioner CITY-LITE.
HELD: CA Affirmed.
2.b.2. Sale of Large Cattle
Art. 1581 The form of sale of large cattle shall be governed by
special laws. (n)
Revised Administrative Code Sec. 529 Registration
necessary to validity of transfer. – No transfer of large cattle shall
be valid unless the same is registered and a certificate of
transfer obtained as herein provided; but large cattle under two
years of age may be registered and branded gratis for the
purpose of effecting a valid transfer, if the registration and
transfer are made at the same time.
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2.b.3. Electronic Commerce Act
RA 8792 Sec. 7 Legal Recognition of Electronic Documents. –
Electronic documents shall have the legal effect, validity or
enforceability as any other document or legal writing, and –
(a) Where the law requires a document to be in writing, that
requirement is met by an electronic document if the said
electronic document maintains its integrity and reliability and
can be authenticated so as to be usable for subsequent
reference, in that -
(i) The electronic document has remained complete and
unaltered, apart from the addition of any endorsement and any
authorized change, or any change which arises in the normal
course of communication, storage and display; and
(ii) The electronic document is reliable in the light of the
purpose for which it was generated and in the light of all
relevant circumstances.
(b) Paragraph (a) applies whether the requirement therein is in
the form of an obligation or whether the law simply provides
consequences for the document not being presented or
retained in its original form.
(c) Where the law requires that a document be presented or
retained in its original form, that requirement is met by an
electronic document if –
i) There exist a reliable assurance as to the integrity of the
document from the time when it was first generated in its final
form; and
ii) That document is capable of being displayed to the person to
whom it is to be presented: Provided, That no provision of this
Act shall apply to vary any and all requirements of existing laws
on formalities required in the execution of documents for their
validity.
For evidentiary purposes, an electronic document shall be the
functional equivalent of a written document under existing laws.
This Act does not modify any statutory rule relating to the
admissibility of electronic data messages or electronic
documents, except the rules relating to authentication and best
evidence.

RA 8792 Sec. 8 Legal Recognition of Electronic Signatures. –
An electronic signature on the electronic document shall be
equivalent to the signature of a person on a written document if
the signature is an electronic signature and proved by showing
that a prescribed procedure, not alterable by the parties
interested in the electronic document, existed under which –
a.) A method is used to identify the party sought to be bound
and to indicate said party’s access to the electronic document
necessary for his consent or approval through the electronic
signature;
b.) Said method is reliable and appropriate for the purpose for
which the electronic document was generated or
communicated, in the light of all circumstances, including any
relevant agreement;
c.) It is necessary for the party sought to be bound, in order to
proceed further with the transaction, to have executed or
provided the electronic signature; and
d.) The other party is authorized and enabled to verify the
electronic signature and to make the decision to proceed with
the transaction authenticated by the same.
RA 8792 Sec. 11 Authentication of Electronic Data Messages
and Electronic Documents. – Until the Supreme Court by
appropriate rules shall have so provided, electronic documents,
electronic data messages and electronic signatures, shall be
authenticated by demonstrating, substantiating and validating a
claimed identity of a user, device, or another entity in an
information or communication system, among other ways, as
follows:
(a) The electronic signature shall be authenticated by proof that
a letter, character, number or other symbol in electronic form
representing the persons named in and attached to or logically
associated with an electronic data message, electronic
document, or that the appropriate methodology or security
procedures, when applicable, were employed or adopted by a
person and executed or adopted by such person, with the
intention of authenticating or approving an electronic data
message or electronic document;
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The Supreme Court may adopt such other authentication
procedures, including the use of electronic notarization systems
as necessary and advisable, as well as the certificate of
authentication on printed or hard copies of the electronic
documents or electronic data messages by electronic notaries,
service providers and other duly recognized or appointed
certification authorities.
The person seeking to introduce an electronic data message or
electronic document in any legal proceeding has the burden of
proving its authenticity by evidence capable of supporting a
finding that the electronic data message or electronic document
is what the person claims it to be.
In the absence of evidence to the contrary, the integrity of the
information and communication system in which an electronic
data message or electronic document is recorded or stored may
be established in any legal proceeding -
(a) By evidence that at all material times the information and
communication system or other similar device was operating in
a manner that did not affect the integrity of the electronic data
message or electronic document, and there are no other
reasonable grounds to doubt the integrity of the information
and communication system;
(b) By showing that the electronic data message or electronic
document was recorded or stored by a party to the proceedings
who is adverse in interest to the party using it; or
(c) By showing that the electronic data message or electronic
document was recorded or stored in the usual and ordinary
course of business by a person who is not a party to the
proceedings and who did not act under the control of the party
using the record.

(b) The electronic data message or electronic document shall be

authenticated by proof that an appropriate security procedure,
when applicable was adopted and employed for the purpose of
verifying the originator of an electronic data message or
electronic document, or detecting error or alteration in the
communication, content or storage of an electronic document
or electronic data message from a specific point, which, using
algorithm or codes, identifying words or numbers, encryptions,
answers back or acknowledgment procedures, or similar security
devices.

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IV. Subject M atter of the Sale 2.c.1. Express Reservation

2.c.2. Implied Reservation

A. Requisites of a Valid Subject Matter
3. Sale by a Person Not the Owner at the Time of Delivery
1. Must be Existing, Future or Contingent
3.a. Exception: Estoppel
1.a. Emptio Rei Speratae/Emptio Spei
3.b. Exception: Factors Act, Recording Laws, Torrens System
1.b. Subject to a Resolutory Condition
3.c. Validity of the Sale under Statutory Power or Court Order to
2. Must be Licit Sell

3. Must be Determinate or Determinable 3.d. Sale in Merchant’s Store, Market, or Fair

B. Particular Kinds 4. Sale by a Person Having a Voidable Title

1. Generic Things -------------------------------MIDTERMS-------------------------------

2. Future Goods B. Delivery of the Thing with Fruits and

Accessions
3. Undivided Interest/Share
1. Place, Time, and Manner of Delivery
4. Things in Litigation
1.a. Reasonable Time
5. Things Subject to Conditions
1.b. When Time is of the Essence
V. Price or Consideration
1.c. When Vendor not bound to Deliver
A. Must be Real
1.d. Acceptance not a condition to Delivery
1. Adequacy of Price
2. Sale of Goods
2. False Consideration
Notes from Baviera
3. Must be in Money or its Equivalent
GOODS
4. Must be Certain or Ascertainable at the Time of Perfection - Includes all chattels personal but not things in action or money
of legal tender in the Philippines. The term includes growing
fruits or crops (Art. 1636)
VI. Obligations of the Vendor
- Includes all chattels personal other than things in action and
money. The term includes emblements, industrial growing
A. Transfer Ownership to Vendee crops, and things attached to or forming part of the land which
are agreed to be severed before sale or under the contract of
1. General Rule sale (Uniform Sales Act, Sec. 76)

2. Exceptions 2.a. Delivery of Wrong Quantity

2.a. Sale or Return Transactions 2.b. Delivery by Installments

2.b. Sale on Approval 3. Sale of Immovables

2.c. Executory Sales 3.a. Where Price is at Certain Rate per Unit of Measure

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3.b. Sale for a Lump Sum 2. Loss Before Perfection

4. Inspection and Acceptance 3. Loss at the Time of Perfection

4.a. Right of Inspection 4. Loss After Perfection but Before Delivery

4.b. Manifestation of Acceptance 4.a. General Rule

4.c. Breach of Warranty 4.b. Loss by Fault of a Party

4.d. Refusal to Accept 4.c. Loss by Fortuitous Events

5. Kinds of Delivery 4.d. Fruits or Improvements

5.a. Real or Actual Delivery 5. After Delivery

5.b. Constructive Delivery

E. W arranties
5.b.1. Symbolic Delivery/Delivery by Public Instrument
1. Express Warranties
5.b.2. Traditio Longa Manu
1.a. Distinguished from Condition
5.b.3. Traditio Brevi Manu
1.b. Distinguished from Opinion, Dealer’s Talk
5.b.4. Traditio Constitutum Possessorium
1.c. Distinguished from False Representation
5.b.5. Delivery to Common Carrier
2. Implied Warranties

C. Double Sale 2.a. Implied Warranty of Title

1. General Rule 2.a.1. Eviction by Judgement

2. Requisites 2.a.2. Waiver

3. Purchaser in Good Faith 2.a.3. Effects of Eviction

4. Sale of Movables 2.b. Implied Warranty Against Encumbrances or Defects

5. Sale of Immovables 2.b.1. Hidden Encumbrances or Defects

6. Sale by Virtue of Execution or Attachment 2.b.2. Warranties in Sales of Animals/Redhibitory Defects

7. Unregistered Land 2.b.3. Sale by Sample or Description/Merchantable Quality

8. First Possession in Good Faith 2.c. Implied Warranty of Quality

9. Oldest Title 2.c.1. Fitness for a Particular Purpose

2.d. Consumer Act, RA 7394, Section 68 (4)

D. Risk of Loss
VII. Obligations of the Vendee
1. General Rule
A. Obligation to Accept the Delivery
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B. Conventional Redemption

B. Obligation to Pay the Price Notes from Baviera

1. Liability for Interests
2. Suspension of Payments
- In conventional redemption or pacto de retro sale, the
vendor reserves the right to repurchase the things sold, with the
obligation of returning the price of the sale, the expenses of the
contract, the necessary and useful expenses made on the thing,
and other payments made by reason of the sale

1. Distinguished from Equitable Mortgage

VIII. Breach of Contract
2. Distinguished from Option to Buy

A. Remedies of Unpaid Vendor

3. Period of Redemption

1. Possessory Lien 4. Exercise of Right to Redeem

2. Stoppage in Transitu 4.a. Who can exercise

3. Resale 4.b. From Whom to Redeem

4. Rescission 4.c. Effect of Redemption

B. Sale of Movables C. Legal Redemption

1. Action for Price Notes from Baviera

1.a. When Ownership has Passed
1.b. When Ownership has Not Passed
2. Action for Damages for Non-Acceptance
3. Rescission
4. Sale of Movables on Installment (Recto Law)
- 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
1. Period to Redeem
2. Instances of Legal Redemption
2.a. Co-owners

C. Sale of Immovables 2.b. Co-heirs

1. Anticipatory Breach 2.c. Adjoining Landowners of Rural Land

2. PD 957, Section 23-24, 17-18 2.d. Adjoining Landowners of Urban Land

3. Maceda Law (RA 6552) 2.e. Under the Public Land Act

2.f. Under Extrajudicial Foreclosure

IX. Extinguishm ent of Sale
2.g. Under the Agrarian Land Reform Code
A. Causes

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