LAM v. KODAK PHILIPPINES, LTD. (Ram) Colorkwik Laboratories, Inc.
with three (3) units Kodak Minilab System
January 11, 2016 | Leonen, J. | Definition of a Contract of Sale
PETITIONER: ALEXANDER and JULIE LAM, doing business under the name
and style “COLORKWIK LABORATORIES” and “COLORKWIK PHOTO
SUPPLY
RESPONDENTS: KODAK PHILIPPINES, LTD.
SUMMARY: On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd.
entered into an agreement (Letter Agreement) for the sale of three units of the
Kodak Minilab System 22XL (Minilab Equipment) in the amount of
₱1,796,000.00 per unit. Kodak delivered one unit of the Minilab Equipment in
Tagum, Davao Province and the Lam Spouses issued postdated checks amounting
to ₱35,000.00 each for 12 months as payment for the first delivered unit, with the
first check due on March 31, 1992. The depository bank honored the first two
checks, but the ten other checks were subsequently dishonored after the Lam
spouses ordered the bank to stop payment. Kodak Philippines, Ltd. canceled the
sale and demanded that the Lam Spouses return the unit. The Lam Spouses ignored
the demand but also rescinded the contract because of failure to deliver the two
other Minilab Equipment units. The issues in this case are WoN the contract
between the parties is an obligation that is severable, divisible, and susceptible of
partial performance and WoN rescission of the contract was correctly ordered. The
SC held that the Letter Agreement contained an indivisible obligation since the
intention of the parties shows that there be a single transaction covering all three
units of the Minilab Equipment. Moreover, since Kodak failed to deliver the
remaining Minilab Equipment and Spouses Lam stopped their payments,
rescission was correctly applied since the obligors did not comply with what was
incumbent upon them. Rescission under Article 1191 has the effect of mutual
restitution as if the contract was never entered into. Hence, petitioners must
relinquish possession of the delivered Minilab Equipment unit and accessories,
while respondent must return the amount tendered by petitioners as partial payment
for the unit received.
DOCTRINE: The contract between the parties is one of sale, where one party
obligates himself or herself to transfer the ownership and deliver a determinate
thing, while the other pays a certain price in money or its equivalent. A contract of
sale is perfected upon the meeting of minds as to the object and the price, and the
parties may reciprocally demand the performance of their respective obligations
from that point on. (In relation to the Sales outline)
FACTS:
1. On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered
into an agreement (Letter Agreement) for the sale of three (3) units of the
Kodak Minilab System 22XL (Minilab Equipment) in the amount of
₱1,796,000.00 per unit, with the following terms:
“This confirms our verbal agreement for Kodak Phils., Ltd. To provide
22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao
del Norte), and your existing Multicolor photo counter in Cotabato City
under the following terms and conditions:
a) Said Minilab Equipment packages will avail a total of 19% multiple
order discount based on prevailing equipment price provided said
equipment packages will be purchased not later than June 30, 1992.
b) 19% Multiple Order Discount shall be applied in the form of
merchandise and delivered in advance immediately after signing of the
contract. * Also includes start-up packages worth P61,000.00.
c) NO DOWNPAYMENT.
d) Minilab Equipment Package shall be payable in 48 monthly
installments at THIRTY FIVE THOUSAND PESOS (P35,000.00)
inclusive of 24% interest rate for the first 12 months; the balance shall
be re-amortized for the remaining 36 months and the prevailing
interest shall be applied.
e) Prevailing price of Kodak Minilab System 22XL as of January 8, 1992
is at ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND
PESOS.
f) Price is subject to change without prior notice. *Secured with PDCs;
1st monthly amortization due 45 days after installation.”
2. Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in
Tagum, Davao Province. The delivered unit was installed by Noritsu
representatives. The Lam Spouses issued postdated checks amounting to
₱35,000.00 each for 12 months as payment for the first delivered unit, with
the first check due on March 31, 1992.
3. The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the
check dated March 31, 1992 allegedly due to insufficiency of funds. The
same request was made for the check due on April 30, 1992.
4. However, both checks were negotiated by Kodak Philippines, Ltd. and were
honored by the depository bank. The 10 other checks were subsequently
dishonored after the Lam Spouses ordered the depository bank to stop
payment.
5. Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit. The Lam Spouses ignored the demand but also
rescinded the contract through the letter dated November 18, 1992 on account
of Kodak Philippines, Ltd.’s failure to deliver the two (2) remaining Minilab
Equipment units.
6. Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of
sum of money. The Lam Spouses failed to appear during the pre-trial
conference. Thus, they were declared in default.
7. TRIAL COURT FIRST DECISION:
a. Kodak Philippines, Ltd. presented evidence ex-parte.
b. The trial court issued the Decision in favor of Kodak Philippines,
Ltd. ordering the seizure of the Minilab Equipment.
 c.
Based on this Decision, Kodak Philippines, Ltd. was able to obtain
a writ of seizure for the Minilab Equipment installed at the Lam
Spouses’ outlet in Tagum, Davao Province. The writ was enforced
and Kodak Philippines, Ltd. gained possession of the Minilab
Equipment unit, accessories, and the generator set.
8. CA DECISION:
a. The Lam Spouses then filed before the CA a Petition to Set Aside
the Orders issued by the trial court.
b. These Orders were subsequently set aside by the CA, and the case
was remanded to the trial court for pre-trial.
9. REMANDED BACK TO TRIAL COURT
a. In its Decision, the RTC dismissed the case and ordered the Kodak
to pay Lam Spouses
10. CA SECOND DECISION
a. Lam Spouses filed their Notice of Partial Appeal. Kodak
Philippines, Ltd. also filed an appeal.
b. The CA dismissed it for Kodak Philippines, Ltd.’s failure to file its
appellant’s brief, without prejudice to the continuation of the Lam
Spouses’ appeal. The Resolution became final and executory.
c. CA modified the decision of the RTC.
ISSUES:
1. WoN the contract between the parties is an obligation that is severable,
divisible, and susceptible of partial performance – YES.
2. WoN rescission of the contract was correctly ordered – YES.
RULING: WHEREFORE, the Petition is DENIED. The Amended Decision dated
September 9, 2005 is AFFIRMED with MODIFICATION. Respondent Kodak
Philippines, Ltd. is ordered to pay petitioners Alexander and Julie Lam:
(a) P270,000.00, representing the partial payment made on the Minilab Equipment;
(b) P130,000.00, representing the amount of the generator set, plus legal interest at
12% per annumfrom December 1992 until fully paid;
(c) P440,000.00 as actual damages;
(d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages; and
(f) P20,000.00 as attorney’s fees.
Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard
accessories to respondent. SO ORDERED.
RATIO:
1. The Letter Agreement contained an indivisible obligation.
a. Intention of the parties is for there to be a single transaction covering
all three (3) units of the Minilab Equipment.
b. Respondent’s obligation was to deliver all products purchased under
a "package," and, in turn, petitioners’ obligation was to pay for the
total purchase price, payable in installments.
c. There was only one agreement covering all three (3) units of the
Minilab Equipment and their accessories.
d. The Letter Agreement specified only one purpose for the buyer,
which was to obtain these units for three different outlets.
e. The 19% multiple order discount as contained in the Letter
Agreement was applied to all three acquired units.
f. The "no downpayment" term contained in the Letter Agreement was
also applicable to all the Minilab Equipment units.
g. The fourth clause of the Letter Agreement clearly referred to the
object of the contract as "Minilab Equipment Package."
h. This intent must prevail even though the articles involved are
physically separable and capable of being paid for and delivered
individually
i.
2. Rescission was correctly applied since the obligors did not comply with what
was incumbent upon them. Kodak failed to deliver the remaining Minilab
Equipment and Spouses Lam stopped their payments.
a. (NOTE: Before discussing rescission, the case defined a Contract of
Sale)
i. The contract between the parties is one of sale, where one
party obligates himself or herself to transfer the ownership
and deliver a determinate thing, while the other pays a
certain price in money or its equivalent.
ii. A contract of sale is perfected upon the meeting of minds
as to the object and the price, and the parties may
reciprocally demand the performance of their respective
obligations from that point on.
b. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon
him.
c. Rescission under Article 1191 has the effect of mutual restitution as
if the contract was never entered into.
d. Petitioners must relinquish possession of the delivered Minilab
Equipment unit and accessories, while respondent must return the
amount tendered by petitioners as partial payment for the unit
received.
e. Further, respondent cannot claim that the two (2) monthly
installments should be offset against the amount awarded by the
Court of Appeals to petitioners because the effect of rescission under
Article 1191 is to bring the parties back to their original positions
before the contract was entered into.
f. When rescission is sought under Article 1191 of the Civil Code, it
need not be judicially invoked because the power to resolve is implied
i. Court intervention only becomes necessary when the party
who allegedly failed to comply with his or her obligation
disputes the resolution of the contract.
 ii. Since both parties in this case have exercised their right to
resolve under Article 1191, there is no need for a judicial
decree before the resolution produces effects.
3. The issue of damages is a factual one.
a. A petition for review on certiorari under Rule 45 shall only pertain
to questions of law.
b. The findings of fact of the trial court as affirmed by the Court of
Appeals are conclusive upon this court.
c. The damages awarded by the Court of Appeals were supported by
documentary evidence, especially in light of their failure to produce
receipts or check payments to support their other claim for actual
damages.
d. The award for moral and exemplary damages also appears to be
sufficient.
 GAITE v. FONACIER
July 31, 1961 | Reyes, J.B.L., J | Contract of Sale
PLAINTIFF-APPELLEE: Fernando Gaite
DEFENDANTS-APPELLANTS: Isabelo Fonacier, George Krakower Larap
Mines & Smelting Co., Inc, Segundina Vivas, Franscisco Dante, Pacifico Escandor
and Fernando Ty
SUMMARY: Fonacier owns 11 iron Iode mineral claims and assigned Gaite as his
attorney-in-fact to enter into contracts for the exploration and development of the
mining claims. Gaite conveyed the mining claims to Larap Iron Mines, which
belong to him and embarked on developing the mins and extracted approximately
24,000 metric tons of iron ore. Fonacier revoked Gaite’s authority and executed a
document wherein Gaite transferred all roads, improvements, facilities and rights
and interests over the 24,000 tons of iron ore to Fonacier in consideration of the
sum of P75,000 (P10,000 of which was paid signing the agreement). A surety bond
was executed in favor of Gaiteto secure the paymentof the balance of P65,000 but
Gaite refused to sign and insisted another surety bond is underwritten by a bonding
company. The second bond was executed with Far Eastern Surety and Insurance
Co., under the condition that there be an actual sale of the iron ore by Larap Iron
Mines, but the bond company’s liability automatically expires on December 8,
1955. Upon the expiration of the bond, there was neither a sale by Larap Iron Mines
nor payment to Gaite from Fonacier (P65,000) so Gaiter filed a complaint. SC held
that the obligation to pay became due and demandable upon the expiration of the
Far Eastern Surety bond (failure to put up a good and sufficient security under
Article 1198 of the New Civil Code).
DOCTRINE: A contract of sale is normally commutative and onerous: not only
does each one of the parties assume a correlative obligation (the seller to deliver
and transfer ownership of the thing sold and the buyer to pay the price),but each
party anticipates performance by the other from the very start. While in a sale the
obligation of one party can be lawfully subordinated to an uncertain event, so that
the other understands that he assumes the risk of receiving nothing for what he gives
(as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual
course of business to do so; hence, the contingent character of the obligation must
clearly appear.
FACTS:
1. Fonacier is the owner/holder of 11 iron Iode mineral claims, known as the
Dawahan Group in Camarines Norte.
2. By a Deed of Assignment (DOA), Fonacier appointed Fernando Gaite as his
true and lawful attorney-in-fact to enter into a contract with any individual
or juridical person for the exploration and development of the mining
claims on a royalty basis of not less than P0.50 per ton of ore that might be
extracted.
3. Gaite executed a general assignment conveying the development and
exploitation of the mining claims into the Larap Iron Mines, which belongs
to him, on the same royalty basis. Gaite embarked upon the development
and exploitation of the mining claims, opening and paving roads, making
toher improvements and installing facilities used for extracting
approximately 24,000 metric tons of iron ore.
4. Fonacier decided to revoke the authority granted by him to Gaite to exploit
and develop the mining claims. A document entitle “Revocation of Power
of Attorney and Contract” was executed wherein Gaite transferred to
Fonacier for the consideration of P20,000.00, plus 10% of the royalties that
Fonacier would receive from the mining claims, all his rights and interests
on all the roads, improvements and facilities in or outside said claims as
well as all his rights and interests over the “24,000 tons of iron ore,” in
consideration of the sum of P75,000, P10,000 of which was paid upon the
signing of the agreement (P65,000 will be paid from and out of the first
letter of credit)
5. A surety bond was executed in favor of Gaite to secure the payment of the
said balance of P65,000, with Fonacier as principal and the Larap Mines
and Smelting Co. and its stockholders George Krakower, Segundina Vivas,
Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties. Gaite,
however, refused to sign unless another bond under written by a bonding
company was put up. Hence, the second bond was executed with the Far
Eastern Surety and Insurance Co. as additional surety but it provided that
the liability of the surety company would attach only when there had been
an actual sale of iron ore by the Larap Mines & Smelting Co. for not less
than P65,000 and that the liability of the surety company would
automatically expire on December 8, 1955.
6. The second bond expired but there was neither sale of the 24,000 tons of
iron ore was made by Larap Mines nor payment of the P65,000 balance of
the price to Gaite by Fonacier. Gaite filed a complaint against Fonacier for
their failure to pay the balance.
7. The uniform defense is that the obligation was subject to a condition that
the amount of P65,000 would be payable out of the first letter of credit
covering the first shipment of iron ore and/or the first amount derived from
the local sale of the iron ore by the Larap Mines. Since no sale of the iron
ore had been made, the obligation was not yet due and demandable.
8. Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of
iron ore sold to him by Gaite was actually delivered, and counterclaimed for
more than P200,000.00 damages.
ISSUES:
1. Whether or not the lower court erred in holding that the obligation of
Fonacier to pay Gaite (P65,000) is subjected to a period/term or a
suspensive condition (that the term expired on December 8, 1955) – NO
2. Whether Fonacier and his sureties still have the right to insist that Gaite
should wait for the sale or shipment of the ore before receiving
payment/whether or not they are entitled to take full advantage of the period
granted them for making the payment – NO
 3. Whether there were really 24,000 tons of iron ore in the stockpiles sold by expiration of the bonding company’s undertaking on December 8
appellee Gaite to appellant Fonacier - YES substantially reduced the security of the vendor’s rights as creditor for the
4. Whether, if there had been a short-delivery as claimed by appellants, they unpaid balance, a security that Gaite considered essential and upon which he
are entitled to the payment of damages – NO had insisted when he executed the deed of sale of the ore to Fonacier. The
case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil
RULING: Finding no error in the decision appealed from, we hereby AFFIRM the Code of the Philippines: "ART. 1198. The debtor shall lose every right to
same. make use of the period:
(1) . . .
RATIO: (2) When he does not furnish to the creditor the guaranties or
1. We find the court below to be legally correct in holding that the shipment or securities which he has promised.
local sale of the iron ore is not a condition precedent (or suspensive) to the (3) When by his own acts he has impaired said guaranties or
payment of the balance of P65,000.00, but was only a suspensive period or securities after their establishment, and when through fortuitous
term. That the parties to the contract Exhibit "A" did not intend any such state event they disappear, unless he immediately gives new ones equally
of things to prevail is supported by several circumstances: satisfactory.
a. "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be
paid out of the first letter of credit covering the first shipment of iron Appellants' failure to renew or extend the surety company's bond
ores . . ." etc. By the very terms of the contract, the existence of the upon its expiration plainly impaired the securities given to the creditor
obligation to pay is recognized; only (appellee Gaite), unless immediately renewed or replaced.
its maturity or demandability is deferred. 3. There is no charge in this case that Gaite did not deliver to appellants all the
b. A contract of sale is normally commutative and onerous: not only ore found in the stockpiles in the mining claims in questions; Gaite had,
does each one of the parties assume a correlative obligation (the therefore, complied with his promise to deliver, and appellants in turn are
seller to deliver and transfer ownership of the thing sold and the bound to pay the lump price.
buyer to pay the price),but each party anticipates performance by the 4. No short-delivery in this case as would entitle appellants to the payment of
other from the very start. While in a sale the obligation of one party damages, nor could Gaite have been guilty of any fraud in making any
can be lawfully subordinated to an uncertain event, so that the other misrepresentation to appellants as to the total quantity of ore in the stockpiles
understands that he assumes the risk of receiving nothing for what of the mining claims in question, as charged by appellants, since Gaite's
he gives (as in the case of a sale of hopes or expectations, emptio estimate appears to be substantially correct.
spei), it is not in the usual course of business to do so; hence, the
contingent character of the obligation must clearly appear. Nothing
is found in the record to evidence that Gaite desired or assumed to
run the risk of losing his right over the ore without getting paid for
it, or that Fonacier understood that Gaite assumed any such risk.
This is proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, and not only upon a bond by Fonacier,
the Larap Mines & Smelting Co., and the company's stockholders,
but also on one by a surety company; and the fact that appellants did
put up such bonds indicates that they admitted the definite existence
of their obligation to pay the balance of P65,000.00.
c. The rules of interpretation would incline the scales in favor of "the
greater reciprocity of interests", since sale is essentially onerous.
Article 1378, paragraph 1, in fine, provides: If the contract is
onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests.
2. The obligation became due and demandable under Article 1198 of the New
Civil Code when Caltex failed to put up a good and sufficient security in lieu
of the Far Eastern Surety bond which expired on December 8, 1995. The
 BUENAVENTURA v. CA
November 20, 2003 | Carpio J. | Validity of a contract of sale;
Gross inadequacy of price does not affect a contract of sale
PETITIONERS/PLAINTIFFS: Spouses Bernardo Buenaventura and
Consolacion Joaquin, Spouses Juanita Edra and Nora Joaquin
RESPONDENTS/DEFENDANTS: Court of Appeals, Joaquin parents and
siblings
SUMMARY: Petitioners, who are the children and siblings of the respondents,
sought to declare as null and void the deeds of sale of real property that was sold by
the respondent parents in favor of their co-respondent children. The petitioners
assailed the validity of the sale on the grounds that their legitime was impaired
because of the sale, and that there was no actual valid consideration for the deeds
of sale due to the failure to pay the price. And assuming that there was a valid
consideration, there was gross inadequacy in the said price. However, before
touching the issue on the validity of the sale, the Court held that the petitioners are
not the real party-in-interest because their right to the property is merely inchoate
and will vests only upon the death of their parents. On the issue on the validity of
the sale, the petitioners failed to show that the contract of sale was simulated due to
lack of consideration. As a matter of fact, the evidence that the petitioners presented
showed that there was a cost for each lots sold, thus showing that there was a
meeting of minds between the respondents as regards the price. And even assuming
that there was gross inadequacy on the price, the Court held that the law expressly
provides mere gross inadequacy on the price, as a rule, will not invalidate the sale
unless it indicates a defect in the consent or that the parties intended some other act
or contract.
DOCTRINE: Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or cancellation
of the obligation under an existing valid contract while the latter prevents the
existence of a valid contract. Article 1470 of the Civil Code further provides: Gross
inadequacy of price does not affect a contract of sale, except as may indicate a
defect in the consent, or that the parties really intended a donation or some other act
or contract.
FACTS:
1. Sought to be declared null and void ab initio are certain deeds of sale of real
property executed by defendant parents Leonardo Joaquin and Feliciana
Landrito in favor of their co-defendant children and the corresponding
certificates of title issued in their names.
2. In seeking the declaration of nullity of the aforesaid deeds of sale and
certificates of title, plaintiffs, in their complaint, aver the ff:
a) Firstly, there was no actual valid consideration for the deeds of sale over
the properties in litis;
b) Secondly, assuming that there was consideration in the sums reflected in
the questioned deeds, the properties are more than three-fold times more
valuable than the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express the true intent of the
parties (vendors and vendees); and
d) Fourthly, the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the
compulsory heirs (plaintiffs herein) of their legitime.
3. The trial court noted that compulsory heirs have the right to a legitime but
such right is contingent since said right commences only from the moment of
death of the decedent pursuant to Article 777 of the Civil Code of the
Philippines. After trial, the trial court ruled in favor of the defendants and
dismissed the complaint.
4. The Court of Appeals affirmed the decision of the trial court. The appellate
court ruled:
Upon this point, there is no question that plaintiffs-appellants, like their
defendant brothers and sisters, are compulsory heirs of defendant spouses,
Leonardo Joaquin and Feliciana Landrito, who are their parents. However,
their right to the properties of their defendant parents, as compulsory heirs,
is merely inchoate and vests only upon the latters death. While still alive,
defendant parents are provided that such dispositions are not made in fraud
of creditors.
ISSUES:
1. W/N petitioners have a legal interest over the properties subject of the Deeds
of Sale – NO
2. W/N the Deeds of Sale are void for lack of consideration – NO
3. W/N the Deeds of Sale are void for gross inadequacy of price – NO
RULING: WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.
RATIO:
1. It is evident from the records that petitioners are interested in the properties
subject of the Deeds of Sale, but they have failed to show any legal right to
the properties. The trial and appellate courts should have dismissed the
action for this reason alone. An action must be prosecuted in the name of the
real party-in-interest. Petitioners do not have any legal interest over the
properties subject of the Deeds of Sale. As the appellate court stated,
 petitioners right to their parents properties is merely inchoate and vests
only upon their parent’s death. While still living, the parents of petitioners
are free to dispose of their properties.

2. A contract of sale is not a real contract, but a consensual contract. As a

consensual contract, a contract of sale becomes a binding and valid
contract upon the meeting of the minds as to price. It is not the act of
payment of price that determines the validity of a contract of sale.
Payment of the price has nothing to do with the perfection of the contract.
Payment of the price goes into the performance of the contract. Failure to
pay the consideration is different from lack of consideration. The former
results in a right to demand the fulfillment or cancellation of the obligation
under an existing valid contract while the latter prevents the existence of a
valid contract.

Petitioners failed to show that the prices in the Deeds of Sale were
absolutely simulated. To prove simulation, petitioners presented Emma
Joaquin Valdozs testimony stating that their father, respondent Leonardo
Joaquin, told her that he would transfer a lot to her through a deed of sale
without need for her payment of the purchase price. The trial court did not
find the allegation of absolute simulation of price credible. Petitioners’ failure
to prove absolute simulation of price is magnified by their lack of knowledge
of their respondent siblings financial capacity to buy the questioned lots. On
the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondent’s minds
meet as to the purchase price, but the real price was also stated in the
Deeds of Sale. As of the filing of the complaint, respondent siblings have
also fully paid the price to their respondent father.

3. Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause
shall not invalidate a contract, unless there has been fraud, mistake or undue
influence.

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale,
except as may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract.

Petitioners failed to prove any of the instances mentioned in Articles 1355

and 1470 of the Civil Code, which would invalidate, or even affect, the Deeds
of Sale. Indeed, there is no requirement that the price be equal to the exact
value of the subject matter of sale. All the respondents believed that they
received the commutative value of what they gave.
 CELESTINO CO AND CO. v. COLLECTOR OF INTERNAL REVENUE 2. Said article reads as follows: “A contract for the delivery at a certain price
(Mark) of an article which the vendor in the ordinary course of his business
August 31, 1956 |Bengzon J. | sales manufactures or procures for the general market, whether the same is on
hand at the time or not, is a contract of sale, but if the goods are to be
PETITIONER: Celestino Co and Company manufactured specially for the customer and upon his special order, and not
RESPONDENTS: Collector of Internal Revenue for the general market, it is contract for a piece of work.”

SUMMARY: Petitioner’s company, Oriental Sash Factory, wants to pay less tax 3. The company habitually makes Sash, windows, and doors as it has been
by claiming that they are contractors, and not manufacturers. CTA said that they represented to the public. The fact that the windows and doors are made only
are manufacturers because they are a “factory” and they offer ready-mad products. when customers place their orders, does not alter the nature of the
SC held that petitioners do not need special machinery to address special orders, establishment, for it is obvious that they accept special orders other than
thus they are not contractors as provided by Art. 1467. Oriental Sash Factory is a making ready-made products. The factory does nothing more than sell the
manufacturer. goods that it mass produces or habitually makes.
DOCTRINE: The orders herein exhibited were not shown to be special. Nothing
is shown to call them special requiring extraordinary service of the factory, it does 4. When this Factory accepts a job that requires the use of extraordinary or
not fall under Art. 1467 as a contract piece of work. additional equipment, or involves services not generally performed by it-it
thereby contracts for a piece of work — filing special orders within the
FACTS: meaning of Article 1467. The orders herein exhibited were not shown to be
1. Celestino Co doing business under the name of “Oriental Sash Factory”. special. They were merely orders for work — nothing is shown to call them
From 1956-1951 it paid percentage tax of 7% (National Revenue Code sec. special requiring extraordinary service of the factory.
186) on the gross receipts of its sash, door, and window factory. However, on
1952 it began to claim liability only to contractor’s 3% tax (Instead of 7%) 5. As the doors and windows had been admittedly "manufactured" by the
under sec. 191. Oriental Sash Factory, such transactions could be, and should be taxed as
2. Celestino claims that they do not manufacture ready-made doors, sash, and "transfers" thereof under section 186 of the National Revenue Code.
windows for the public and that they are contractors. He claims that they only
do Special Orders for customers, thus, contending they are not manufacturers.
This did not convince the BIR and the Court of Tax Appeals.
3. CTA said that their tradename gives an impression they do engage in
manufacturing and their records suggest that their huge earnings (P188,
754.69) cannot be from special orders from ther few customers, but because
it was from ready made products. They also offered themselves as a “factory”
to the public.
4. Petitioners now assail the decision of the CTA

ISSUES:
1. WoN EO petitioner is a manufacturer – YES

RULING: The appealed decision is consequently affirmed. So ordered.

RATIO:
1. Appellant invokes Article 1467 of the New Civil Code to bolster its
contention that in filing orders for windows and doors according to
specifications, it did not sell, but merely contracted for pieces of work or
"merely sold its services".
 Commissioner of Internal Revenue v. Engineering Equipment and Supply
Company
June 30, 1975 Esguerra, J. | Contract for Piece of Work
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Engineering Equipment and Supply Company
SUMMARY: Engineering Equipment & Supply (EES) was engaged in the
business of designing and installing central air-conditioning systems. Pursuantto
Section 185 of the Tax Code, EES was assessed by the CIR for 30% advanced
sales tax plus surcharges (of 25% and 50%) for misdeclaring its importation of
air conditioning units and parts and accessories. EES appealed to Court of Tax
Appeals (CTA), arguing that they are contractors and not manufacturers, and thus,
should only be liable for the 3% tax on sales of services or pieces of work. The
Court of Tax Appeals reversed the order of the CIR, declaring that EES is a
contractor. The Court ruled that EES is a contractor, subject to tax stated in
Section 191 of the Code. Though EES imported such items, they were NOT for
sale to the general public and were used as mere components for the design of the
centralized air-conditioning system, wherein its designs and specifications are
different for every client. Various technical factors must be considered and it can
be argued that no 2 plants are the same; all are engineered separately and
distinctly. Each project requires careful planning and meticulous layout. Such
central air- conditioning systems and their designs would not have existed were
it not for the special order of the party desiring to acquire it. This implies that EES
did not intend to sell the said aircon units to the general public. Thus, EES is not
liable for the sales tax of 30%.
DOCTRINE: If the thing is specially done only upon the specific order of
another, this is a contract for a piece of work; if the thing is manufactured or
procured for the general market in the ordinary course of business, it is a contract
of sale.
FACTS:
1. Engineering Equipment and Supply Co. (EES), a domestic corporation, is an
engineering and machinery firm. It is engaged, among others, in the design and
installation of central type air conditioning system, pumping plants and steel
fabrications.
2. On July 27, 1956, certain Juan de la Cruz wrote to the Commissioner of Internal
Revenue denouncing EES for tax evasion.
3. Pursuant to Section 185 of the Tax Code, EES was assessed by the CIR for 30%
advanced sales tax plus surcharges (of 25% and 50%) for misdeclaring its
importation of air conditioning units and parts and accessories.
4. It was recommended to CIR that EES be assessed for P480,912.01 as deficiency
advance sales tax on the theory that it misdeclared its importation of air
conditioning units and parts and accessories thereof which are subject to tax under
Section 185(m)1 of the Tax Code, instead of Section 186 of the same Code.
5. This assessment was revised on January 23, 1959, in line with the observation of
the Chief, BIR Law Division, and was raised to P916,362.56 representing
deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and
50% surcharges.
6. EES appealed to Court of Tax Appeals (CTA), arguing that they are contractors
and not manufacturers, and thus, should only be liable for the 3% tax on sales of
services or pieces of work.
7. The Court of Tax Appeals rendered judgement and said that: the decision of
respondent appealed from is hereby modified, and petitioner, as a contractor, is
declared exempt from the deficiency manufacturers sales tax covering the period
from June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay
respondent, or his duly authorized collection agent, the sum of P174,141.62 as
compensating tax and 25% surcharge for the period from 1953 to September 1956.
With costs against petitioner.
8. Hence, this appeal of the CIR.
ISSUES:
1. Whether or not EES is a manufacturer of air conditioning units under Section
185 of the Code or a contractor (piece of work) under Section 191. -
CONTRACTOR
2. Whether or not EES is guilty of fraud - YES
3. Whether or not the tax assessment has prescribed - NO
RULING: WHEREFORE, the decision appealed from is affirmed with the
modification that Engineering is hereby also made liable to pay the 50% fraud
surcharge.
RATIO:
1. There is a distinction between a contract of sale (manufacturer) and a contract for
furnishing services, labor and materials. Such difference is tested by the inquiry of
whether the thing transferred is one not in existence and which never would have
existed but for the order of the party desiring to acquire it, or a thing which would have
existed and has been the subject of sale to some other persons even if the order had not
been given.
2. Art. 1467 of the Civil Code–a contract for the delivery at a certain price of an article
which the vendor in the ordinary course of his business manufactures or procures for 3. BUT, because the fraud is too glaring, it was held that EES could not be absolved
the general market, whether the same is on hand at the time or not, is a contract of sale, from the 50% fraud surcharge. Otherwise, it would give premium to an intolerable act
but if the goods are to be manufactured specially for the customer and upon his special of tax evasion.
order and not for the general market, it is a contract for a piece of work.
(3) 1. No. EES contends that the prescriptive period is 5 years from importation. But
3. A contractor is a person who,in pursuit of independent business undertakes to do a the SC held that Sec 332 of the code provides for the exceptions as to the period of
specific job or piece of work for other persons, using his own means and methods limitation of assessment and collection of taxes
without submitting himself to control as to the petty details 2. Sec. 332–in case of a false and fraudulent return with intent to evade tax..., the tax
may be assessed, or a proceeding in court for the collection of such tax may be begun
4. Though EES imported such items, they were NOT for sale to the general public and without assessment at any time within 10 years after the discovery of the falsity, fraud
were used as mere components for the design of the centralized air-conditioning or omission.
system, wherein its designs and specifications are different for every client. Various
technical factors must be considered and it can be argued that no 2 plants are the same;
all are engineered separately and distinctly. Each project requires careful planning and
meticulous layout. Such central air- conditioning systems and their designs would not
have existed were it not for the special order of the party desiring to acquire it. This
implies that EES did not intend to sell the said aircon units to the general public. Thus,
EES is not liable for the sales tax of 30%.

5. EES should be held liable to pay the taxes prescribed in Section 190 of the Code.
This compensating tax is not a tax on the importation of goods but a tax on the use of
imported goods not subject to sales tax. Hence, it should be held liable to the payment
of 30% compensating tax in accordance with Sec 190, but without the 50% mark up
provided in Section 183 (b)

6. Also, EES should be subjected to 25% surcharge for delinquency in the payment of
the said tax, as provided in Section 190:

7. Sec 190 –If any article withdrawn from the customhouse or the post office without
payment of the compensating tax is subsequently used by the importer for other
purposes, corresponding entry should be made in the books of accounts if any are kept
or a written notice thereof sent to the Collector and payment of the corresponding
compensating tax made within 30 days from the date of entry or notice, and if tax is
not paid within such period the amount of tax shall be increased by 25%.

MINOR ISSUES:

(2) 1. Yes. As proven by correspondences of EES with foreign companies wherein

EES requested that words of air conditioning equipment should not be mentioned in
shipping documents.

2. The CTA absolved EES from paying the 50% surcharge prescribed in Sec 183 (a)
because the surcharge Section 190 of the tax Code (where EES is subjected to as a
contractor) does not provide it. According to CTA, where a particular provision of the
tax code does not impose a 50% surcharge as fraud penalty, it cannot be enforced.
 QUIROGA v. PARSONS
August 23, 1918 | Avancena, J. | Essential features of a contract of sale
PETITIONER: Andres Quiroga
RESPONDENTS: Parsons Hardware Co.
SUMMARY: Quiroga and Parsons Hardware entered into a contract where the
former granted the latter the exclusive right to sell Quiroga Beds in the Visayas.
It provided for a discount of 25% as commission for the sales, among other
conditions. Quiroga alleged that Parsons breached its contractual obligations by
selling the beds at a higher price, not having an open establishment in Iloilo, not
maintaining a public exhibition, and for not ordering beds by the dozen. Only the
last imputation was provided for by the contract, the others were NEVER
stipulated. Quiroga argued that since there was a contract of agency between
them, such obligations were necessarily implied. The issue in this case is WON
the contract between them was one of agency, and not sale. The Court held that
the agreement between Quiroga and Parsons was that of a simple purchase and
sale - NOT AN AGENCY. Quiroga supplied beds, while Parsons had the
obligation to pay their purchase price. These are characteristics of a purchase and
sale. In a contract of agency (or order to sell), the agent does not pay its price yet,
and sells the products, remitting to the principal its proceeds. Contracts are what
the law defines it to be, not what the parties call it.
DOCTRINE: These are precisely the essential features of a contract of purchase
and sale. There was the obligation on the part of the plaintiff to supply the beds,
and, on that of the defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatary or agent receives
the thing to sell it, and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he does not succeed
in selling it, he returns it.
FACTS:
1. January 24, 1911 - Andres Quiroga and J. Parsons, both merchants, entered
into a contract for the exclusive sale of Quiroga Beds in the Visayan Islands.
It was agreed, among others, that Andres Quiroga grants the exclusive right
to sell his beds in the Visayan Islands to J. Parsons, subject to some conditions
provided in the contract.
2. It was agreed that in compensation for the expenses of advertisement which,
for the benefit of both contracting parties, Mr. Parsons may find himself
obliged to make Mr. Quiroga assumes the obligation to offer and give the
reference to Mr. Parsons in case anyone should apply for the exclusive agency
for any island not comprised with the Visayan group; and that Mr. Parsons
may sell, or establish branches of his agency for the sale of Quiroga Beds in
all the towns of the Archipelago where there are no exclusive agents, and
shall immediately report such action to Mr. Quiroga for his approval.
3. The defendant violated the following obligations: not to sell the beds at higher
prices than those of the invoices; to have an open establishment in Iloilo; itself
to conduct the agency; to keep the beds on public exhibition, and to pay for
the advertisement expenses for the same; and to order the beds by the dozen
and in no other manner
4. He alleged that the defendant was his agent for the sale of his beds in Iloilo,
and that said obligations are implied in a contract of commercial agency.
ISSUES:
1. WoN the contract between Quiroga and Parsons was one of an agency and
not sale – NO, it was that of a simple purchase and sale.
RULING: The judgment appealed from is affirmed, with costs against
the appellant. So ordered.
RATIO:
1. In order to classify a contract, due regard must be given to its essential
clauses. In the contract in question, there was the obligation on the part of the
plaintiff to supply the beds, and on the part of the defendant to pay their price.
These are the characteristics of a purchase and sale.
2. In a contract of agency (or order to sell), the agent does not pay its price yet,
and sells the products, remitting to the principal its proceeds. Unsold products
must also be returned to the principal. The provisions on commission and the
use of the word “agency” in the contract as well as the testimonies in court
do not affect its nature. Contracts are what the law defines it to be, not what
the parties call it.
3. By virtue of the contract between the plaintiff and the defendant, the latter,
on receiving the beds was necessarily obliged to pay their price within the
term fixed, without any other consideration, and regardless as to whether he
had or had not sold the beds. With respect to the defendant's obligation to
order by the dozen (the only one expressly imposed by the contract), the effect
of its breach would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions. But if the plaintiff consents to
fill them, he waives his right and cannot complain for having acted thus at his
own free will.
 07 Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company (Paolo) and sale. The appellate court, however, held that the relation between Arco
June 20, 1941 | Laurel, J. | Not an agent and Gonzalo Puyat was that of and principal and its agent and held Gonzalo
Puyat responsible for $1,335 or 2,671 pesos for the total sum that was
PETITIONER: Gonzalo Puyat & Sons, Inc. overcharged in both transactions.
RESPONDENT: Arco Amusement Company (formerly known as Teatro Arco)
ISSUES: Whether or not the relationship between the Arco and Gonzalo Puyat was
SUMMARY: Arco was in the business of operating cinematographs. Gonzalo Puyat that of a principal and its agent? - NO, it is that of a sale (vendor and vendee).
& Sons was the exclusive agent of Starr Piano, which provided sound reproducing
RULING: Petition granted. Gonzalo Puyat & Sons, Inc. is absolved.
devices for cinematographs. Arco made two agreements with Gonzalo Puyat to order
RATIO:
such equipment from Starr piano and paid two separate transactions. Arco discovered
1. Arco accepted the prices of $1,700 and $1,600, respectively, for the sound
three years later that they paid for the list price (standard) of the equipment, and not
reproducing equipment subject of its contract with the petitioner, are clear in
the net price (discounted). They filed a civil case against Gonzalo Puyat & Sons for
their terms and admit no other interpretation that the respondent in question
the reimbursement of the excess payments for the overcharged equipment. The SC
at the prices indicated which are fixed and determinate.
ruled that this was a sale and not a relationship of agency. The terms of the contract
were clear in the object and price to be paid. There could be no agency just because
2. Gonzalo Puyat received ten per cent (10%) commission, this does not
of a commission on the part of Gonzalo Puyat for the transaction as this is not
necessarily make the petitioner an agent of the respondent, as this provision
incompatible with a contract of purchase and sale. The Court cannot grant relief for
is only an additional price which the respondent bound itself to pay, and
bad judgement in commercial transactions
which stipulation is not incompatible with the contract of purchase and sale.
DOCTRINE: The contract is the law between the parties and should include all the
3. To hold Gonzalo Puyat as an agent of Arco in the purchase of equipment and
things they are supposed to have agreed upon.
machinery from Starr Piano, is incompatible with the admitted fact that the
Gonzalo Puyat is the exclusive agent of the same company in the Philippines.
FACTS:
It is out of the ordinary for one to be the agent of both the vendor and the
1. Arco Amusement Company was engaged in the business of operating
purchaser.
cinematographs (motion picture film camera used as a film projector).
Gonzalo Puyat & Sons was another corporation acting as the exclusive agent 4. It follows that Gonzalo Puyat as vendor is not bound to reimburse Arco as
of Starr Piano Company of Richmond, Indiana, USA. This company dealt vendee for any difference between the cost price and the sales price which
with cinematograph equipment and machinery.
represents the profit realized by the vendor out of the transaction. This is the
2. Arco was interested in equipping its cinematographs with sound reproducing very essence of commerce without which merchants or middleman would not
devices that it could get from Starr Piano. The president and general manager exist.
of Arco approached the acting manager of Gonzalo Puyat.
3. It was agreed that Gonzalo Puyat would order the equipment on behalf of 5. The contract is the law between the parties and should include all the things
Arco who would then pay the price of the equipment plus a 10 percent
they are supposed to have agreed upon. What does not appear on the face of
commission, and all freight, insurance, banking, and cable charges. the contract should be regarded merely as ‘dealer’s’ or ‘trader’s talk,’ which
4. So the equipment arrived and was delivered to Arco. In this initial transaction,
can not bind either party.
$1700 was the cost of the equipment, excluding the commission and the
charges. 6. If the vendee later on discovers itself at the short end of a bad bargain, it alone
5. The following year, they came into a similar agreement for the acquisition of
must bear the blame, and it cannot rescind the contract, much less compel a
sound reproducing devises. This time it costed around $1600 for the cost of
reimbursement of the excess price, on that ground alone. It willingly paid the
the equipment, with the commission and an additional $160 for all expenses price quoted and received the equipment and machinery as represented.
and charges.
6. Three years later, they discovered that they paid for the list price of the sound 7. Not every concealment is fraud; and short of fraud, it were better that, within
devices and not the net price which had an applied discount from Starr Piano certain limits, business acumen permit of the loosening of the sleeves and of
to the benefit of Gonzalo Puyat. Arco filed a civil suit to obtain a reduction the sharpening of the intellect of men and women in the business world.
or reimbursement for overpriced charges.
7. The trial court ruled in favor of Arco, saying this was an outright purchase
 LO V. KJS ECO-FORMWORK SYSTEM PHIL., INC. (DOM)
08 October 2003 | Ynares-Santiago. | Assignment of Credit and Dacion En Pago
PETITIONER: Sonny Lo
RESPONDENT: KJS Eco-Formwork System Phil Inc.
SUMMARY: Petitioner Sonny Lo is a building contractor doing business under the
name San’s Enterprise while the respondent KJS Eco-Formwork is a corporation
engaged in the sale of steel scaffoldings. February 22, 1990, Petitioner Ordered
scaffolding equipment from respondent worth P540,425.80. Petitioner paid the
downpayment in the amount of 150,000. The balance was able made payable in 10
monthly installments. Respondent was able to deliver the scaffoldings to the
petitioner. Unfortunately, petitioner was only able to pay the first two monthly
installments for his business encountered financial difficulties and he was unable to
settle his obligation to the respondent despite oral and written demands made against
him. Both parties executed a deed of assignment because Sonny Lo claimed that
Jomero Realty is indebted to him. Sonny Lo assigned his collection rights to KJS.
However, when KJS tried to collect the sum of money from Jomero they refused
saying Sonny Lo is also indebted to them.
When KJS requested the payment from Sonny Lo, the petitioner claims that the
assignment of credit already extinguished his obligation.
DOCTRINE: An assignment of credit is an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation, and without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who acquires the power to enforce
it to the same extent as the assignor could enforce it against the debtor
In dacion en pago, as a special mode of payment, the debtor offers another thing to
the creditor who accepts it as equivalent of payment of an outstanding debt.16 In order
that there be a valid dation in payment, the following are the requisites:
o There must be the performance of the prestation in lieu of payment which
may consist in the delivery of a corporeal thing or real right or a credit against third
person
o There must be some difference between the prestation due and that which is
given in substitution
o Agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation from that due
FACTS:
• Petitioner Sonny Lo is a building contractor doing business under the name
San’s Enterprise while the respondent KJS Eco-Formwork is a corporation
engaged in the sale of steel scaffoldings
• February 22, 1990, Petitioner Ordered scaffolding equipment from
respondent worth P540,425.80.
• Petitioner paid the downpayment in the amount of 150,000. The balance was
able made payable in 10 monthly installments
• Respondent was able to deliver the scaffoldings to the petitioner
• Unfortunately, petitioner was only able to pay the first two monthly
installments for his business encountered financial difficulties and he was
unable to settle his obligation to the respondent despite oral and written
demands made against him
• On October 11, 1990, Petitioner and respondent executed a deed of
assignment whereby the petitioner assigned to respondent his receivables in
the amount of 335, 462.14 from Jomero Realty Corporation (the owner of the
residential house to be constructed by the petitioner-assignor)
• A relevant part of the deed of assignment stipulates that:
o the ASSIGNOR further agrees and stipulates as aforesaid that the
said ASSIGNOR, his heirs, executors, administrators, or assigns,
shall and will at times hereafter, at the request of said ASSIGNEE,
its successors or assigns, at his cost and expense, execute and do all
such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles
said ASSIGNOR has in accordance with the true intent and meaning
of these presents
• However, when respondent tried to collect the said credit from Jomero Realty
Corporation, the latter refused to honor the deed of assignment because it
claimed that petitioner was also indebted to it
• November 26, 1990, respondent sent a letter to petitioner demanding payment
of his obligation, but petitioner refused to pay claiming his obligation had
been extinguished when they executed the deed of assignment
• January 10, 1991, respondent filed am action for recovery of a sum of money
against the petitioner before the RTC
• During the trial petitioner argued that his obligation was extinguished with
the execution of deed of assignment of credit
• Respondent for its part, presented the testimony of its employee Banaga who
testified that Jomero Realty refused to honor the assignment of credit
• Trial Court rendered a decision dismissing the complaint on the ground the
credit extinguished the obligation
• CA reversed the RTC decision and ordered Sonny Lo to pay the respondent
ISSUE/S:
• WON the assignment of credit extinguishes the obligation of Sonny
Lo to pay KJS Eco-Framework System
RULING:
• The assignment of credit did not extinguish the obligation
because it cannot be considered as a dacion en pago moreover
the petitioner breached his obligation under the deed of
 assignment

RATION:
• An assignment of credit is an agreement by virtue of which the
owner of a credit, known as the assignor, by a legal cause, such as
sale, dacion en pago, exchange or donation, and without the consent
of the debtor, transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor
• In dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt.16 In order that there be a valid dation in
payment, the following are the requisites:
o There must be the performance of the prestation in lieu of
payment which may consist in the delivery of a corporeal
thing or real right or a credit against third person
o There must be some difference between the prestation due
and that which is given in substitution
o Agreement between the creditor and debtor that the
obligation is immediately extinguished by reason of the
performance of a prestation from that due
• In dacion it really partakes in one sense of the nature of sale that is the creditor
is really buying the property of the debtor, payment of which is to be charged
from the debtor’s debt.
• Hence, it may well be that the assignment of credit, which is in the nature of
a sale of personal property produced the effects of a dation in payment which
may extinguish the obligation.20 However, as in any other contract of sale,
the vendor or assignor is bound by certain warranties. More specifically, the
first paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have been sold as
doubtful; but not for the solvency of the debtor, unless it has been so expressly
stipulated or unless the insolvency was prior to the sale and of common
knowledge.
• From the above provision, the petitioner as vendor or assignor is bound to
warrant the existence and legality of the credit at the time of the sale. When
Jomero claimed it was no longer indebted to petitioner, It is essentially meant
that its obligation to petitioner has been extinguished by compensation. In
other words, it behooved on petitioner to make good its warranty and paid
the obligation
• The petitioner also breached the obligation of the deed of assignment.
Petitioner should have ensured the performance thereof in case the same is
later found to be inexistent. He should be held liable to the payent of his
indebtedness
RATIO:
 PARAGAS v. HEIRS OF DOMINADOR BALACANO
Aug. 31, 2005 | Chico-Nazario, J. | Capacity of Parties
PETITIONER: Sps. Rudy Paragas and Corazon Paragas
RESPONDENTS: Hrs. of Dominador Balacano, namely: Dominic, Rodolfo,
Nanette, and Cyric, all surnamed Balacano, represented by Nanette Balacano and
Alfredo Balacano
SUMMARY: Gregorio was an octogenarian who was suffering from liver
cirrhosis. On his last week he purportedly sold portions of lot 1175-E and the whole
of 1175-F to Sps. Paragas. The grandchildren of Gregorio filed a complaint alleging
that their grandfather couldn’t have consented to the alleged sale because he was
too weak, old, and sick to do so. The Court affirmed the CA and lower court’s
findings declaring the deed of sale null and void and denied the petition of Sps.
Paragas.
DOCTRINE: The general rule is that a person is not incompetent to contract
merely because of advanced years or by reason of physical infirmities. However,
when such age or infirmities have impaired the mental faculties so as to prevent the
person from properly, intelligently, and firmly protecting her property rights then
she is undeniably incapacitated.
FACTS:
1. Petition for review seeking to annul the Decision of the CA affirming with
modification the Decision of RTC. Petition likewise seeks to annul the
Resolution denying petitioners’ MR.
2. Gregorio Balacano, married to Lorenza Sumigacay was the registered owner
of two lots (1175-E and 1175-F) located at Isabela.
3. Gregorio had three children, namely: Domingo, Catalino, and Alfredo
4. Lorenza died on December 11, 1991 while Gregorio died on July 28, 1996.
5. Prior to Gregorio’s death he was admitted at the Veterans General Hospital
in Nueva Vizcaya and stayed there until July 19, 1996 and was transferred to
Veterans Memorial Hospital in QC where he stayed until his death.
6. On July 22, 1996, barely a week prior to his death, Gregorio purportedly sold
a portion of of 1175-E and the whole of 1175-F to Sps. Paragas for the total
consideration of P500,000.
7. Sps. Paragas then sold a portion of 1175-E to Catalino.
8. Domingo’s children filed a complaint against Catalino and Sps. Paragas
alleging:
a. Their grandfather Gregorio could not have appeared before the
notary public on July 22, 1996 because he was then confined
b. At the time of the alleged execution of the deed of sale, Gregorio
was seriously ill, in fact dying at that time, which vitiated his
consent. That at 81 years old he was old, weak, sick and could no
longer talk and whose condition had worsened. Nanette Balacano
claimed that Gregorio could not have signed a deed of sale on July
19, 1996 because she stayed at the hospital the entire day and saw
no visitors.
c. Catalino manipulated the execution of the deed and prevailed upon
the dying Gregorio to sign his name on a paper the contents of which
he never understood because of his serious condition
d. And that the other half portion of the lots belonged to Lorenza
9. Catalino and Sps. Paragas moved to dismiss the complaint on the ff grounds:
a. Plaintiffs have no legal capacity because Domingo was still alive
b. Alfredo, an indispensable party is not impleaded
c. That there was no alleged mistake, violence, intimidation, undue
influence or fraud
10. Lower court denied the motion to dismiss
11. Sps. Paragas filed their Answer with Counter-Claim
a. That the deed of sale was actually executed on July 19, 1996 and
that the notary public went to the hospital in Nueva Vizcaya on July
18, 1996 to notarize the deed of sale.
b. That Gregorio of sound and disposing mind
c. That the lots were Gregorio’s separate capital
d. That the entire areas of the lots were sold to Sps. Paragas.
e. Sps. Paragas presented as witnesses Notary Public de Guzman and
instrumental witness Antonio to prove Gregorio’s execution of the
sale. That Atty. De Guzman went to the hospital himself and that
Antonio took pictures of Gregorio while signing the deed of sale.
f. Atty. De Guzman claimed that the deed of sale was executed on July
18, 1996 but he only entered it in his registry on July 22, 1996.
g. That Gregorio received P50,000 of the P500,000 consideration.
12. After the trial, the lower court declared the deed of sale null and void and that
the lots were conjugal properties.
13. The Court of Appeals affirmed the Decision of the lower court with
modification that the lots were adjudged as belonging to the estate of
Gregorio Balacano. The CA also denied petitioners’ MR. Hence this petition.
ISSUE:
1. W/N the CA erred in finding that there was no perfected and partially
executed contract of sale due to absence of meeting of the minds and lack of
Gregorio’s consent to the sale.
RULING: WHEREFORE, the present petition is DENIED. Accordingly, the Decision
and the Resolution of the Court of Appeals are hereby AFFIRMED.
Ratio:
1. SC is not a trier or facts and ruled not to disturb the factual findings of the
CA which were in full agreement with that of the trial court
2. In affirming the trial court that there was no prior and perfected contract of
sale, the CA explained –
a. “In the absence of any note, memorandum or any other written
instrument evidencing the alleged perfected contract of sale, we
have to rely on oral testimonies, which in this case is that of Atty. de
Guzman whose testimony on the alleged oral agreement may be
summarized as follows: (1) that sometime in the first week of June
1996, Gregorio requested him (Atty. de Guzman) to prepare a deed
of sale of two lots; (2) Gregorio came to his firms office in the
morning with a certain Doming Balacano, then returned in the
afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio
whether he really intends to sell the lots; Gregorio confirmed his
intention; (4) Gregorio and Rudy left the law office at 5:00 p.m.,
leaving the certificates of title; (5) he prepared the deed a day after
Rudy (Paragas) and Gregorio came. With regard to the alleged
partial execution of this agreement, Atty. de Guzman said that he
was told by Rudy that there was already a partial payment
of P50,000.00.
We do not consider Atty. de Guzmans testimony sufficient
evidence to establish the fact that there was a prior agreement
between Gregorio and the Spouses Paragas on the sale of Lots
1175-E and 1175-F. This testimony does not conclusively establish
the meeting of the minds between Gregorio and the Spouses Paragas
on the price or consideration for the sale of Lots 1175-E and 1175-
F Atty. de Guzman merely declared that he was asked by Gregorio
to prepare a deed; he did not clearly narrate the details of this
agreement. We cannot assume that Gregorio and the Spouses
Paragas agreed to a P500,000.00 consideration based on Atty. de
Guzmans bare assertion that Gregorio asked him to prepare a deed,
as Atty. de Guzman was not personally aware of the agreed
consideration in the sale of the lots, not being privy to the parties
agreement. To us, Rudy could have been a competent witness to
testify on the perfection of this prior contract; unfortunately, the
defendants-appellants did not present Rudy as their witness.
We seriously doubt too the credibility of Atty. de Guzman as a
witness. We cannot rely on his testimony because of his tendency
to commit falsity.”
b. The lower court also did not consider Antonio Agcaoili, petitioner
Rudy Paragas’ driver, a convincing witness, concluding that he was
telling a rehearsed story. The lower court said -
i. The only portion of his testimony that is true is that he
signed the document. How could the Court believe that he
brought a camera with him just to take pictures of the
signing? If the purpose was to record the proceeding for
posterity, why did he not take the picture of Atty. De
Guzman when the latter was reading and explaining the
document to Gregorio Balacano? Why did he not take the
picture of both Gregorio Balacano and Atty. de Guzman
while the old man was signing the document instead of
taking a picture of Gregorio Balacano alone holding a ball
pen without even showing the document being signed?
Verily there is a picture of a document but only a hand with
a ball pen is shown with it. Why? Clearly the driver
Antonio Agcaoili must have only been asked by Rudy
Paragas to tell a concocted story which he himself would
not dare tell in Court under oath
c. Art. 24 also provides that when one of the parties is at a disadvantage
on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant
for his protection”
3. SC affirmed the trial court and the CA’s uniform decision based on the whole
evidence in record holding the Deed of Sale in question to be null and void.
4. As in the case of Domingo v. CA, the SC declared the deed of sale null and
void inasmuch as the seller at the time of the execution of the alleged contract
was already of advanced age and senile.
a. The general rule is that a person is not incompetent to contract
merely because of advanced years or by reason of physical
 infirmities. However, when such age or infirmities have impaired
the mental faculties so as to prevent the person from properly,
intelligently, and firmly protecting her property rights then she is
undeniably incapacitated.
5. Gregorio was an octogenarian at the time of the alleged execution of the
contract and suffering from liver cirrhosis at that- circumstances which raise
grave doubts on his physical and mental capacity to freely consent to the
contract.
 10 Matabuena v. Cervantes (Paolo) between spouses, should also apply to common-law relationships? - YES
March 31, 1971 | Fernando, J. | Donations between unmarried partners are void
RULING: The lower court decision which dismissed the complaint of Cornelia
Matabuena was reversed. The questioned donation should be void. The plaintiff
PLAINTIFF-APPELLANT: Cornelia Matabuena
and the defendant should be considered pro indiviso heirs to the parcel of land.
DEFENDANT-APPELLEE: Petronila Cervantes
RATIO:
SUMMARY: Felix Matabuena and Petronila Cervantes had a common-law
relationship when Felix decided to donate a parcel of land to Petronila in 1956. They
8. While Article 133 of the Civil Code considers as void a “donation between
got married in 1963, and as the years passed, Felix died. Cornelia Matabuena, the
the spouses during the marriage”, policy considerations of the most exigent
sister of Felix, went after the parcel of land as the nearest collateral relative,
character as well as the dictates of morality require that the same
disputing Petronila's claim of absolute ownership. Cornelia's argument is grounded
prohibition should apply to a common-law relationship.
on Art. 133 of the Civil Code which prohibits spouses from donating property to one
another. Petronila countered this with the fact that she wasn't married to Felix when
9. The Court cited its decision in the case of Buenaventura v. Bautista, where
he donated the parcel of land. The lower court agreed with Petronila. The Supreme
Justice J.B.L. Reyes wrote "to prohibit donations in favor of the other
Court reversed the lower court's decision on the basis that the same prohibition to
consort and his descendants because of fear of undue and improper
married spouses in Art. 133 of the Civil Code should apply to common-law
pressure and influence upon the donor”, which leads to the conclusion that
relationships. The court used principles of statutory construction and prevailing
“there is every reason to apply the same prohibitive policy to persons living
jurisprudence to affirm that the spirit of the Civil Code should trump and literal
together as husband and wife without the benefit of nuptials. Justice Reyes
interpretation of the written provisions that would be repulsive to public policy and
also wrote a line that said: “So long as marriage remains the cornerstone
morality.
of our family law, reason and morality alike demand that the disabilities
attached to marriage should likewise attach to concubinage.”
DOCTRINE: A donation between common-law spouses falls within the prohibition
in Art. 133 of the Civil Code and is null and void for being contrary to public policy.
10. The Court justified this application of the Civil Code provision by using
statutory construction; looking beyond the written text and into the spirit of
FACTS: the law. Whatever omission may be apparent in an interpretation purely
8. Cornelia Matabuena, the sister of the deceased Felix Matabuena, filed a literal of the language used must be remedied by an adherence to its
complaint which claimed that she had absolute ownership of a parcel of land. avowed objective. The frames of the Civil Code would not have allowed
This particular parcel of land was donated by Felix Matabuena to his
such a irregular relationship to have certain advantages over a lawful
common-law partner, Petronila Cervantes, when he was still alive. Felix died relationship
intestate, so the parcel of land's ownership was being questioned by the
parties. 11. The lack of validity of the donation made by the deceased Felix to the
defendant Petronila Cervantes does not necessarily result in plaintiff having
9. Cornelia argues that the deed of donation inter vivos was invalid because of
exclusive right to the disputed property. Prior to the death of Felix
Art. 133 of the Civil Code, which renders donations between spouses during Matabuena, the relationship between him and the defendant was legitimated
the marriage as void. Petronila counters this argument by taking note of the
by their marriage. She is therefore his widow. As provided for in the Civil
year when the donation took place, which was 1956. Petronila and Felix got
Code, Petronila is entitled to one-half of the inheritance as the widow, and
married in 1963, so she argues that the Civil Code provision could not apply the Cornelia, as the surviving sister, to the other half.
to the particular donation at the time it was done.
NOTES:
10. Cornelia says she has a better claim because of being the nearest collateral
relative and that she had declared the land under her name while paying the
• Donation is an act of liberality; Sale is an essentially onerous contract.
estate and inheritance taxes. The lower court ruled in favor of Petronila's
claim because they were not lawfully married when Felix donated the parcel • Donation is a solemn contract; Sale is perfected by mere consent.
of land to her. Cornelia appealed this decision to the Supreme Court. • Distinctions important to know if Law on Sales/Law on Donations appli

ISSUES: Whether Article 133 of the Civil Code, which renders void donations
 PHILIPPINE TRUST COMPANY v. SOCORRO ROLDAN
May 31, 1956 | Bengzon, J. | Purchase of ward’s property by guardian
PETITIONER: Philippine Trust Company, as guardian of the minor Mariano L.
Bernardo
RESPONDENTS: Socorro Roldan, Francisco Hermoso, Fidel C. Ramos and
Emilio Cruz
SUMMARY: Mariano Bernardo, a minor, inherited 17 parcels of land from his
deceased father. Soccoro Roldan was appointed as his guardian. Soccoro sought
and was granted authority to sell the lots to her brother-in-law, Dr. Fidel Ramos
for P 14,700. Very shortly after, Dr. Ramos sold back to Soccoro the same
properties for P 15,000. She then sold 4 parcels to Emilio Cruz. Philippine Trust
Company replaced Soccoro as guardian and sought to annul all the aforesaid sales.
The issue is whether or not the sales are valid. The Court held that the 3 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 Court ruled that Socorro Roldan violated the general doctrine of guardianship
when she purchased Mariano’s properties through Dr. Fidel C. Ramos.
Guardianship is a trust of the highest order and the trustee cannot be allowed to
have any inducement to neglect his ward's interest.
DOCTRINE: Guardianship is a trust of the highest order and the trustee cannot
be allowed to have any inducement to neglect his ward's interest.
FACTS:
1. Mariano L. Bernardo (Mariano), minor, inherited from his father, Marcelo
Bernardo, 17 parcels located in Guiguinto, Bulacan. In view of his minority,
guardianship proceedings were instituted and Socorro Roldan (Socorro), his
stepmother, was appointed as his guardian.
2. On July 27, 1947, Socorro filed a motion asking for authority to sell as
guardian the 17 parcels for P 14,700 to Dr. Fidel C. Ramos (Dr. Ramos),
brother-in-law, the purpose of the sale being allegedly to invest the money in
a residential house, which Mariano desired to have on Tindalo Street, Manila.
The motion was granted.
3. On August 5, 1947 Socorro executed the proper deed of sale in favor of Dr.
Ramos and on August 12, 1947 she obtained judicial confirmation of the sale.
The next day, Dr. Ramos executed in favor of Socorro a deed of conveyance
covering the same 17 parcels for P 15,000. On October 21, 1947 Socorro then
sold 4 parcels out of the 17 to Emilio Cruz for P 3,000, reserving to herself
the right to repurchase.
4. The Philippine Trust Company (PTC) replaced Socorro as guardian, on
August 10, 1948. Thereafter, PTC seeks to undo what Socorro had done. PTC
claimed that Socorro, in effect, sold to herself the properties of her ward
which was in violation of Article 1459 of the Civil Code prohibiting the
guardian from purchasing either in person or through the mediation of another
the property of her ward. Thus, the sale should be annulled.
5. The CFI held that there was no proof that Dr. Ramos was a mere intermediary
or that the latter had previously agreed with Socorro to buy the
parcels for her benefit. However, taking the former guardian at her word-she
swore she had repurchased the lands from Dr. Ramos to preserve it and to
give her protege opportunity to redeem-the court rendered judgment
upholding the contracts but allowing the minor to repurchase all the parcels
by paying P 15,000, within one year. The CA affirmed the judgment.
ISSUE: Whether or not the sales are valid. -NO
RULING: The following is the judgment of the Court:
a. Annulling the three contracts of sale in question;
b. declaring the minor as the owner of the 17 parcels of land, with, the obligation to
return to Socorro Roldan the price of P 14,700 with legal interest from August
12, 1947;
c. ordering Socorro Roldan and Emilio Cruz to deliver said parcels of land to the
minor;
d. requiring Socorro Roldan to pay him beginning with 1947 the fruits, which her
attorney admits, amounted to P l,522 a year;
e. authorizing the minor to deliver directly to Emilio Cruz, out of the price of P
14,700 above.
RATIO:
1. The Court ruled that Socorro Roldan violated the general doctrine of
guardianship when she purchased Mariano’s properties through Dr. Fidel C.
Ramos. Guardianship is a trust of the highest order and the trustee cannot be
allowed to have any inducement to neglect his ward's interest. Therefore,
Article 1459 of the Civil Code applies.
2. Although it may be true that she acted without malice and that there may
have been no previous agreement between her and Dr. Ramos to the effect
that the latter would buy the lands for her, the stubborn fact remains that she
acquired her protege's properties, through her brother-in-law. That she
planned to get them for herself at the time of selling them to Dr. Ramos, may
be deduced from the very short time between the two sales (one week). The
temptation which naturally besets a guardian so circumstanced, necessitates
the annulment of the transaction, even if no actual collusion is proved (so
hard to prove) between such guardian and the intermediate purchaser. This
would uphold a sound principle of equity and justice.
3. However, the Court held that the doctrine in Rodriguez vs. Mactal is not
applicable since the guardian bought back the property of her ward after two
years. In the case at bar, only one week had elapsed. And if we were technical,
we could say, only one day had elapsed from the judicial approval of the sale
(August 12), to the purchase by the guardian (Aug. 13).

4. Attempting to prove that the transaction was beneficial to the minor,

appellee’s attorney alleges that the money (P 14,700) invested in the house
on Tindalo Street produced for him rentals of P 2,400 yearly; the parcels of
land yielded to his step-mother only an average of P 1,522 per year. The
argument would carry some weight if that house had been built out of the
purchase price of P 14,700 only. One thing is certain: the calculation does not
include the price of the lot on which the house was erected. Estimating such
lot at P 14,700 only, (ordinarily the city lot is more valuable than the building)
the result is that the price paid for the 17 parcels gave the minor an income of
only P 1,200 a year, whereas the harvest from the 17 parcels netted his step-
mother a yearly profit of P 1,522. The minor was thus on the losing end.

5. Hence, from both the legal and equitable standpoints these 3 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 P 14,700 with legal interest.
 FABILLO v. INTERMEDIATE APPELLATE COURT
11 March 1991 | Fernan, C.J. | Contracts of Services: Contingent Fees
PETITIONER: Florencio Fabillo & Josefa Tana
RESPONDENTS: IAC, Alfred Murillo
SUMMARY: Florencio hired Atty. Murillo as his legal counsel for two cases.
Both parties entered into a contract of services which states that as a contingent
fee, Atty. Murillo is entitled to 40% of the properties (please see Fact #4 for
specificities).
Florencio, who used to be the owner of the San Salvador property in Leyte filed a
case for recovery of property against Gregorio. The case was terminated through
a compromise agreement and Florencio was awarded not only said property but
also the Pugahanay property.
Atty. Murillo proceeded to implement said contract of services. After a while,
Florencio claimed exclusive rights over the properties and refused to give Atty.
Murillo what he was entitled to. Florencio’s side claimed that Florencio’s consent
was vitiated when he entered into said contract (old age). The lower court ruled in
favor of Atty. Murillo stating that there was no proof of said vitiation of consent
(his educated children were even present then). Moreover, it upheld the 40%
contingent fee.
The SC affirmed the lower court’s decision, stating that said contract did not
violate Section 5 of Article 1491 of the Civil Code as the said prohibition applies
only if the sale or assignment of the property takes place during the pendency of
the litigation involving the client's property.
DOCTRINE: Hence, a contract between a lawyer and his client stipulating a
contingent fee is not covered by said prohibition under Article 1491 (5) of the
Civil Code because the payment of said fee is not made during the pendency of
the litigation but only after judgment has been rendered in the case handled by the
lawyer.
FACTS:
1. In her last will and testament dated August 16, 1957, Justina Fabillo
bequeathed to her brother, Florencio, a house in Leyte, and to her husband,
Gregorio, a piece of land in Leyte as well. (San Salvador property to
Florencio, Pugahanay property to Gregorio).
2. After Justina’s death, Florencio filed a petition for the probate of said will.
Probate court approved said petition.
3. Two years later, Florencio sought the assistance of Atty. Murillo in
recovering the San Salvador property. Atty. Murillo replied with a
handwritten letter stating:
a. Filing and sheriffs fee of not less than P86.00
b. 40% of the money value of the house and lot as a contingent fee in
case of success
4. A contract was then entered into by both parties, stating that:
a. Florencio hired Atty. Murillo as his legal counsel to represent
Florencio and his heirs
b. Atty. Murillo is constituted as attorney-in-fact to sell and convey
said huse and lot (he gets 40% of total purchase price if this happens)
c. If said property is mortgaged, Atty. Murillo shall be given 40% the
sum equivalent of the proceeds
d. 40% of whatever damages Atty. Murillo can collect in the two cases
he is handling for Florencio; full amount of attorney’s fees if
awarded
e. In case the property is not sold, a 60-40 ownership (same percentage
for maintenance and tax expenses)
5. Atty. Murillo then filed for Florencio Civil Case No. 3532 against Gregorio
to recover the San Salvador property. Said case was terminated (through a
compromise agreement) and Florencio was awarded both the San Salvador
and Pugahanay properties)
6. Atty. Murillo then proceeded to implement the contract of services by taking
possession and exercising rights of ownership over 40% of said properties.
He also installed a tenant in the Pugahanay property.
7. In 1966, Florencio claimed exclusive right over both properties and refused
to give Murillo his share of produce.
8. Murillo then fileda complaint against Florencio, and prayed that he be
declared the lawful owner of 40% of the properties, among others.
9. Florencio’s side stated that the consent of Florencio to the contract was
vitiated by old age, and the contingent fee of 40% was excessive, unfair and
unconscionable.
10. The lower court ruled that there was insufficient evidence to prove that there
was vitiated consent. Moreover, ruling that the contract of services did not
violate Article 1491 of the Civil Code as said contract stipulated a contingent
fee, the court upheld Murillo's claim for "contingent attorney's fees of 40%
of the value of recoverable properties.”
ISSUE/s:
1. W/N the contract of services is in violation of Article 1491 of the Civil Code
– NO.
RULING: WHEREFORE, the decision of the then Intermediate Appellate Court is
hereby reversed and set aside and a new one entered (a) ordering the petitioners to pay
Atty. Alfredo M. Murillo or his heirs the amount of P3,000.00 as his contingent fee
with legal interest from October 29, 1964 when Civil Case No. 3532 was terminated
until the amount is fully paid less any and all amounts which Murillo might have
received out of the produce or rentals of the Pugahanay and San Salvador properties,
and (b) ordering the receiver of said properties to render a complete report and
accounting of his receivership to the court below within fifteen (15) days from the
finality of this decision. Costs against the private respondent.

RATIO:
1. The contract of services did not violate said provision, because Article 1491,
specifically paragraph 5, prohibits lawyers from acquiring by purchase
even at a public or judicial auction, properties and rights which are the
objects of litigation in which they may take part by virtue of their
profession.
2. The said prohibition, however, applies only if the sale or assignment of the
property takes place during the pendency of the litigation involving the
client's property.
3. Hence, a contract between a lawyer and his client stipulating a contingent fee
is not covered by said prohibition under Article 1491 (5) of the Civil Code
because the payment of said fee is not made during the pendency of the
litigation but only after judgment has been rendered in the case handled by
the lawyer.
4. As long as the lawyer does not exert undue influence on his client, that no
fraud is committed or imposition applied, or that the compensation is clearly
not excessive as to amount to extortion, a contract for contingent fee is valid
and enforceable.
5. Moreover, contingent fees were impliedly sanctioned by No. 13 of the
Canons of Professional Ethics which governed lawyer-client relationships
when the contract of services was entered into between the Fabillo spouses
and Murillo.
6. Although the contract is vague in some aspects, it is against Murillo that it
should be resolved against as it was he himself who drafted the contract.
 RUBIAS vs. BATILLER (Elach) updated
May 29, 1973 | Teehankee, J. | Prohibited purchase
PETITIONER: Domingo Rubias
RESPONDENTS: Isaias Batiller
SUMMARY: Before the war, Francisco Militante filed an application for
registration of the parcel of land in question. After the war, the petition was heard
and denied. Pending appeal, Militante sold the land to petitioner, his son-in-law
and his counsel for the pending application for registration of land, which was
subsequently denied. Plaintiff filed an action for forcible entry against respondent.
Defendant Batiller claims the complaint of the plaintiff does not state a cause of
action, the truth of the matter being that he and his predecessors-in-interest have
always been in actual, open and continuous possession since time immemorial
under claim of ownership of the portions of the lot in question. The issue in this
case is whether or not the contract of sale between appellant and his father-in-law
was void because it was made when plaintiff was counsel of his father-in-law in a
land registration case involving the property in dispute. The court rules that it was
indeed void because it fell under the prohibited purchases enumerated in the Civil
Code.
DOCTRINE: Prohibition against purchase by lawyer of property in litigation
from his client; Prohibited purchases are void and produce no legal effect.
FACTS:
1. Francisco Militante claimed ownership of a parcel of land located in the
province of Iloilo, which he caused to be surveyed on July 18-31, 1934,
whereby he was issued a plan Psu-99791
2. Before the war with Japan, Francisco Militante filed with the Court of First
Instance of Iloilo an application for the registration of the title of the land
technically described in psu-99791 opposed by the Director of Lands, the
Director of Forestry and other oppositors.
3. However, during the war with Japan, the record of the case was lost before it
was heard, so after the war Francisco Militante petitioned this court to
reconstitute the record of the case. The record was reconstituted on the Court
of the First Instance of Iloilo
4. The Court of First Instance heard the land registration case on November 14,
1952, and after the trial this court dismissed the application for registration.
The appellant, Francisco Militante, appealed from the decision of this Court
to the Court of Appeals
5. Pending the disposal of the appeal in CA, Francisco Militante sold to the
plaintiff, Domingo Rubias the land technically described in psu-99791. The
sale was duly recorded in the Office of the Register of Deeds for the province
of Iloilo
6. The CA promulgated its judgment which dismissed the application for
Registration filed by Francisco Militante
7. The same land was claimed by the Batiller (defendant) as his own and was
surveyed on June 6 and 7,1956, and a plan approved by Director of Land on
November 15, 1956 was issued, identified as Psu 155241
8. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against
Isaias Batiller in the Justice of the Peace Court of Barotac Viejo Province of
Iloilo to which the defendant Isaias Batiller riled his answer on August 29,
1960.
9. The Municipal Court of Barotac Viejo after trial, decided the case on May
10, 1961 in favor of the defendant and against the plaintiff.
10. The plaintiff appealed from the decision of the Municipal Court which
decided in favor of the defendant, Isaias Batiller and against the plaintiff
11. Rubias tried to prove that the land he purchased from Francisco Militante
under was formerly owned and possessed by Liberato Demontaño but that on
September 6, 1919 the land was sold at public auction by virtue of a judgment
in a Civil Case entitled "Edw J. Pflieder plaintiff vs. Liberato Demontaño
Francisco Balladeros and Gregorio Yulo, defendants", of which Yap Pongco
was the purchaser
12. Batiller on the other hand, proved that lot No. 2 of the Psu-1552 was
originally owned and possessed by Felipe Batiller, grandfather of the
defendant Basilio Batiller, on the death of the former in 1920, as his sole heir.
Isaias Batiller succeeded his father , Basilio Batiller, in the ownership and
possession of the land in the year 1930, and since then up to the present, the
land remains in the possession of the defendant, his possession being actual,
open, public, peaceful and continuous in the concept of an owner
ISSUE/s
Whether or not the contract of sale between appellant Rubias and his father-in-law,
Francisco Militante, was void because it was made when plaintiff was counsel of his
father-in-law in a land registration case involving the property in dispute– YES it is a
prohibited sale
RULING: ACCORDINGLY, the order of dismissal appealed from is hereby
affirmed, with costs in all instances against plaintiff-appellant. So ordered.
RATIO:
1. The stipulated facts and exhibits of record indisputably established plaintiff's
lack of cause of action and justified the outright dismissal of the complaint.
Plaintiff's claim of ownership to the land in question was predicated on the
sale thereof for P2,000.00 made in 1956 by his father-in- law, Francisco
Militante, in his favor, at a time when Militante's application for registration
thereof had already been dismissed by the Iloilo land registration court and
was pending appeal in the Court of Appeals.
2. With the Court of Appeals' 1958 final judgment affirming the dismissal
of Militante's application for registration, the lack of any rightful claim
or title of Militante to the land was conclusively and decisively judicially
determined. Hence, there was no right or title to the land that could be
 transferred or sold by Militante's purported sale in 1956 in favor of
plaintiff.
3. No error could be attributed either to the lower court's holding that the
purchase by a lawyer of the property in litigation from his client is
categorically prohibited by Article 1491, paragraph (5) of the Philippine
Civil Code, reproduced and that consequently, plaintiff's purchase of the
property in litigation from his client (assuming that his client could sell the
same since as already shown above, his client's claim to the property was
defeated and rejected) was void and could produce no legal effect, by virtue
of Article 1409, paragraph (7) of our Civil Code which provides that contracts
"expressly prohibited or declared void by law' are "inexistent and that
"(T)hese contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived."
4. Article 1491 says that “The following persons cannot acquire any purchase,
even at a publicor judicial auction, either in person or through the mediation
of another…. (5) Justices, judges, prosecuting attorneys, clerks of superior
and inferiorcourts, and other officers and employees connected with the
administration of justice, the property andrights in litigation or levied upon
an execution beforethe court within whose jurisdiction or territory
theyexercise their respective functions; this prohibitionincludes the act of
acquiring by assignment and shallapply to lawyesr, with respect to the
property and rights which may be the object of any litigation inwhich they
may take part by virtue of their profession.”
5. The present case clearly falls under this, especially since the case was still
pending appeal when the sale was made
6. Fundamental consideration of public policy render void and inexistent such
expressly prohibited purchase has been adopted in a new article of our Civil
Code, viz, Article 1409 declaring such prohibited contracts as "inexistent and
void from the beginning.”
7. Indeed, the nullity of such prohibited contracts is definite and permanent and
cannot be cured by ratification. The public interest and public policy remain
paramount and do not permit of compromise or ratification.
8. In his aspect, the permanent disqualification of public and judicial officers
and lawyers grounded on public policy differs from the first three cases of
guardians, agents and administrators (Article 1491, Civil Code), as to whose
transactions it had been opined that they may be "ratified" by means of and
in "the form of a new contact, in which cases its validity shall be determined
only by the circumstances at the time the execution of such new contract.
9. The causes of nullity which have ceased to exist cannot impair the validity of
the new contract. Thus, the object which was illegal at the time of the first
contract, may have already become lawful at the time of the ratification or
second contract; or the service which was impossible may have become
possible; or the intention which could not be ascertained may have been
clarified by the parties. The ratification or second contract would then be
valid from its execution; however, it does not retroact to the date of the first
contract."
 PUP v. CA (CYRIA)
November 14, 2001 | Bellosillo, J. | Price must be in money or its equivalent
PETITIONER: Polytechnic University of the Philippines
RESPONDENTS: Court of Appeals and Firestone Ceramics
SUMMARY: NDC and Firestone entered into several contracts of lease of a
parcel of land located in Sta. Mesa, Manila (NDC Compound). The first contract
covered 2.9 hectares of the NDC Compound for use as manufacturing plant for 10
years, renewable for another 10 years. The second contract involved four NDC’s
steel warehouse in Davao to be shipped in Manila and used in the NDC Compound
as well as 2.6 hectare-lot. The 3rd contract involved lease of six steel warehouse.
Prior to the expiration of the 3rd contract, NDC and Firestone entered into a new
agreement of lease for 10 years, renewable for another 10 years and expressly
granting Firestone the first option to purchase the leased premises in the event that
NDC decides to sell its properties incuding the lot. Before the expiration of the
“new agreement,” Firestone notified NDC of its plan of renewing the contract.
Firestone then learned of the rumors of NDC’s plan to dispose of the property in
favor of PUP. Firestone filed a complaint for specific performance to compel NDC
to sell the land in its favor since Firestone has the right of refusal. On the other
hand, PUP referred to Memorandum Order No. 214 issued by President Cory
Aquino ordering the transfer of the whole NDC compound to the National
Government, which in turn would convey the property to PUP. PUP also argues
that the lease contract between Firestone and NDC had expired already and
Firestone’s right of first refusal applied only to the six-unit pre-fabricated
warehouse and not the lot upon which it stood.
The SC ruled that there was sale between NDC and PUP as the three requisites
were present – (1) consent – as seen in the Memorandum Order NO. 214, (2) object
– NDC Compound, (3) consideration – cancellation of NDC’s liabilities in
favor of the National Government. Firestone can exercise its right of first
refusal. Lastly, the consideration should only be P554.74 but since Firestone did
not appeal the RTC’s ruling re the consideration (P1500), there is no reason to
modify it.
DOCTRINE: The Civil Code provision is, in effect, a "catch-all" provision which
effectively brings within its grasp a whole gamut of transfers whereby ownership
of a thing is ceded for a consideration.
When a lease contract contains a right of first refusal, the lessor is under a legal
duty to the lessee not to sell to anybody at any price until after he has made an
offer to sell to the latter at a certain price and the lessee has failed to accept it.
FACTS:
11. In the early sixties, petitioner National Development Corporation (NDC), a
government owned and controlled corporation had in its disposal a ten (10)-
hectare property located along Pureza St., Sta. Mesa, Manila. The estate was
popularly known as the NDC compound and covered by Transfer Certificates
of Title Nos. 92885, 110301 and 145470.
12. On 24 August 1965 NDC and FIRESTONE entered into a contract of lease
denominated as Contract No. C-30-65 covering a portion of the property
measured at 2.90118 hectares for use as a manufacturing plant for a term of
ten (10) years, renewable for another ten (10) years under the same terms and
conditions. In consequence of the agreement, FIRESTONE constructed on
the leased premises several warehouses and other improvements needed for
the fabrication of ceramic products.
13. Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE
entered into a second contract of lease with NDC over the latter's four (4)-
unit pre-fabricated reparation steel warehouse stored in Daliao,
Davao. FIRESTONE agreed to ship the warehouse to Manila for eventual
assembly within the NDC compound. The second contract, denominated as
Contract No. C-26-68, was for similar use as a ceramic manufacturing plant
and was agreed expressly to be "co-extensive with the lease of LESSEE with
LESSOR on the 2.60 hectare-lot."
14. On 31 July 1974 the parties signed a similar contract concerning a six (6)-
unit pre-fabricated steel warehouse which, as agreed upon by the parties,
would expire on 2 December 1978. Prior to the expiration of the
aforementioned contract, FIRESTONE wrote NDC requesting for an
extension of their lease agreement. Consequently on 29 November 1978 the
Board of Directors of NDC adopted Resolution No. 11-78-117 extending the
term of the lease, subject to several conditions among which was that in the
event NDC "with the approval of higher authorities, decide to dispose and
sell these properties including the lot, priority should be given to the
LESSEE".
15. On 22 December 1978, in pursuance of the resolution, the parties entered into
a new agreement for a ten-year lease of the property, renewable for another
ten (10) years, expressly granting FIRESTONE the first option to purchase
the leased premises in the event that it decided "to dispose and sell these
properties including the lot . . . . "
16. The contracts of lease conspicuously contain an identically worded provision
requiring FIRESTONE to construct buildings and other improvements within
the leased premises worth several hundred thousands of pesos.
17. The parties' lessor-lessee relationship went smoothly until early 1988 when
FIRESTONE, cognizant of the impending expiration of their lease agreement
with NDC, informed the latter through several letters and telephone calls that
it was renewing its lease over the property. While its letter of 17 March 1988
was answered by Antonio A. Henson, General Manager of NDC, who
promised immediate action on the matter, the rest of its communications
remained unacknowledged.
18. FIRESTONE's predicament worsened when rumors of NDC's supposed plans
to dispose of the subject property in favor of petitioner Polytechnic
University of the Philippines (PUP) came to its knowledge. Forthwith,
 FIRESTONE served notice on NDC conveying its desire to purchase the
property in the exercise of its contractual right of first refusal.
19. Apprehensive that its interest in the property would be disregarded,
FIRESTONE instituted an action for specific performance to compel NDC to
sell the leased property in its favor. FIRESTONE averred that it was pre-
empting the impending sale of the NDC compound to petitioner PUP in
violation of its leasehold rights over the 2.60-hectare property and the
warehouses thereon which would expire in 1999.
20. FIRESTONE adduced in evidence a letter of Antonio A. Henson dated 15
July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant
to Executive Secretary Catalino Macaraeg, reviewing a proposed
memorandum order submitted to then President Corazon C. Aquino
transferring the whole NDC compound, including the leased property, in
favor of petitioner PUP. Attached to the letter was a draft of the proposed
memorandum order as well as a summary of existing leases on the subject
property. The survey listed FIRESTONE as lessee of a portion of the
property, whose contract with NDC was set to expire on 31 December 1989
renewable for another ten (10) years at the option of the lessee. The report
expressly recognized FIRESTONE's right of first refusal to purchase the
leased property "should the lessor decide to sell the same."
21. Meanwhile, on 21 February 1989 PUP moved to intervene. PUP referred
to Memorandum Order No. 214 issued by then President Aquino ordering
the transfer of the whole NDC compound to the National Government, which
in turn would convey the aforementioned property in favor of PUP at
acquisition cost. The issuance was supposedly made in recognition of PUP's
status as the "Poor Man's University" as well as its serious need to extend its
campus in order to accommodate the growing student population. The order
of conveyance of the 10.31-hectare property would automatically result in
the cancellation of NDC's total obligation in favor of the National
Government in the amount of P57,193,201.64.
22. FIRESTONE sought the annulment of Memorandum Order No.
214. FIRESTONE alleged that although Memorandum Order No. 214 was
issued "subject to such liens/leases existing [on the subject property]," PUP
disregarded and violated its existing lease by increasing the rental rate
at P200,000.00 a month while demanding that it vacated the premises
immediately. In the event Memorandum Order No. 214 was not declared
unconstitutional, the property should be sold in its favor at the price for which
it was sold to PUP - P554.74 per square meter or for a total purchase price
of P14,423,240.00.
23. Petitioner PUP, in its answer to the amended complaint, argued in essence
that the lease contract covering the property had expired long before the
institution of the complaint, and that further, the right of first refusal invoked
by FIRESTONE applied solely to the six-unit pre-fabricated warehouse and
not the lot upon which it stood.
24. RTC:
a. PUP was ordered and directed to sell to FIRESTONE the "2.6
hectare leased premises or as may be determined by actual
verification and survey of the actual size of the leased properties
where plaintiff's fire brick factory is located" at P1,500.00 per
square meter considering that, as admitted by FIRESTONE, such
was the prevailing market price thereof.
b. Contracts of lease executed between FIRESTONE and NDC were
interrelated and inseparable because "each of them forms part of the
integral system of plaintiff's brick manufacturing plant x x x if one
of the leased premises will be taken apart or otherwise detached
from the two others, the purpose of the lease as well as plaintiff's
business operations would be rendered useless and inoperative." It
thus decreed that FIRESTONE could exercise its option to purchase
the property until 2 June 1999 inasmuch as the 22 December 1978
contract embodied a covenant to renew the lease for another ten (10)
years at the option of the lessee as well as an agreement giving the
lessee the right of first refusal.
c. The trial court also sustained the constitutionality of Memorandum
Order No. 214 which was not per se hostile to FIRESTONE's
property rights, but deplored as prejudicial thereto the "very manner
with which defendants NDC and PUP interpreted and applied the
same, ignoring in the process that plaintiff has existing contracts of
lease protectable by express provisions in the Memorandum No. 214
itself." It further explained that the questioned memorandum was
issued "subject to such liens/leases existing thereon" and petitioner
PUP was under express instructions "to enter, occupy and take
possession of the transferred property subject to such leases or liens
and encumbrances that may be existing thereon"
25. CA:
a.
FIRESTONE was given a grace period of six (6) months from
finality of the court's judgment within which to purchase the
property in questioned in the exercise of its right of first refusal.
b. As there was a sale of the subject property, NDC could not excuse
itself from its obligation TO OFFER THE PROPERTY FOR SALE
FIRST TO FIRESTONE BEFORE IT COULD TO OTHER
PARTIES.
26. PUP argues that
a. In ordering the sale of the property in favor of FIRESTONE the
courts a quo unfairly created a contract to sell between the parties.
b. The "court cannot substitute or decree its mind or consent for that of
the parties in determining whether or not a contract (has been)
perfected between PUP and NDC."
c. Since "a real property located in Sta. Mesa can readily command a
sum of P10,000.00 per square (meter)," the lower court gravely
erred in ordering the sale of the property at only P1,500.00 per
square meter.
 d. The enactment of Memorandum Order No. 214 amounted to a
withdrawal of the option to purchase the property granted to
FIRESTONE. NDC, for its part, vigorously contended that the
contracts of lease executed between the parties had expired without
being renewed by FIRESTONE; consequently, FIRESTONE was
no longer entitled to any preferential right in the sale or disposition
of the leased property.
ISSUE/s:
2. WoN there was sale between NDC and PUP – YES (impt)
3. WoN Firestone should be allowed to exercise its right of first refusal – YES
4. WoN the courts a quo were correct in fixing the proper consideration of the
sale at P1,500.00 per square meter
RULING: DENIED. Inasmuch as the first contract of lease fixed the area of the leased
premises at 2.90118 hectares while the second contract placed it at 2.60 hectares, let a
ground survey of the leased premises be immediately conducted by a duly licensed,
registered surveyor at the expense of private respondent FIRESTONE CERAMICS,
INC., within two (2) months from finality of the judgment in this case. Thereafter,
private respondent FIRESTONE CERAMICS, INC., shall have six (6) months from
receipt of the approved survey within which to exercise its right to purchase the leased
property at P1,500.00 per square meter, and petitioner Polytechnic University of the
Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in
the exercise of its right of first refusal upon payment of the purchase price thereof.
RATIO:
Sale between NDC and PUP
1. Petitioner PUP posited that if we were to place our imprimatur on the
decisions of the courts a quo, "public welfare or specifically the
constitutional priority accorded to education" would greatly be prejudiced.
Paradoxically, our paramount interest in education does not license us, or
any party for that matter, to destroy the sanctity of binding
obligations. Education may be prioritized for legislative or budgetary
purposes, but we doubt if such importance can be used to confiscate private
property such as FIRESTONE's right of first refusal.
2. A contract of sale, as defined in the Civil Code, is a contract where one of the
parties obligates himself to transfer the ownership of and to deliver a
determinate thing to the other or others who shall pay therefore a sum certain
in money or its equivalent. It is therefore a general requisite for the existence
of a valid and enforceable contract of sale that it be mutually obligatory, i.e.,
there should be a concurrence of the promise of the vendor to sell a
determinate thing and the promise of the vendee to receive and pay for the
property so delivered and transferred. The Civil Code provision is, in effect,
a "catch-all" provision which effectively brings within its grasp a whole
gamut of transfers whereby ownership of a thing is ceded for a
consideration.
3. Contrary to what petitioners PUP and NDC propose, there is not just one
party involved in the questioned transaction. Petitioners NDC and PUP have
their respective charters and therefore each possesses a separate and distinct
individual personality. The inherent weakness of NDCs proposition that there
was no sale as it was only the government which was involved in the
transaction thus reveals itself. Beyond cavil, a government owned and
controlled corporation has a personality of its own, distinct and separate from
that of the government.
4. Since the conduct of the parties to a contract may be sufficient to establish
the existence of an agreement and the terms thereof, it becomes necessary for
the courts to examine the contemporaneous behavior of the parties in
establishing the existence of their contract.
5. The preponderance of evidence shows that NDC sold to PUP the whole NDC
compound, including the leased premises, without the knowledge much less
consent of private respondent FIRESTONE which had a valid and existing
right of first refusal.
6. All three (3) essential elements of a valid sale, without which there can be no
sale, were attendant in the "disposition" and "transfer" of the property from
NDC to PUP - consent of the parties, determinate subject
matter, and consideration therefor.
a. Consent to the sale is obvious from the prefatory clauses
of Memorandum Order No. 214 which explicitly states the
acquiescence of the parties to the sale of the property - WHEREAS,
PUP has expressed its willingness to acquire said NDC properties
and NDC has expressed its willingness to sell the properties to
PUP.
b. The cancellation of NDC's liabilities in favor of the National
Government in the amount of P57,193,201.64 constituted the
"consideration" for the sale. For it is axiomatic that every sale
imposes upon the vendor the obligation to transfer ownership as an
essential element of the contract. Transfer of title or an agreement
to transfer title for a price paid, or promised to be paid, is the very
essence of sale.
c. What is more, the conduct of petitioner PUP immediately after the
transaction is in itself an admission that there was a sale of the NDC
compound in its favor. Thus, after the issuance of Memorandum
Order No. 214 petitioner PUP asserted its ownership over the
property by posting notices within the compound advising residents
and occupants to vacate the premises. In its Motion for
Intervention petitioner PUP also admitted that its interest as a
"purchaser pendente lite" would be better protected if it was joined
as party-defendant in the controversy thereby confessing that it
indeed purchased the property.
Firestone’s right of first refusal
 1. Firestone’s right of first refusal was expressly stated by NDC and the property to a third person, again, under the same terms as offered to the
FIRESTONE in par. XV of their third contract which, as found by the grantee.
courts a quo, was interrelated to and inseparable from their first contract and 2. It appearing that the whole NDC compound was sold to PUP for P554.74
their second contract. per square meter, it would have been more proper for the courts below
a. Should the LESSOR desire to sell the leased premises to have ordered the sale of the property also at the same price. However,
during the term of this Agreement, or any extension since FIRESTONE never raised this as an issue, while on the other hand
it admitted that the value of the property stood at P1,500.00 per square
thereof, the LESSOR shall first give to the LESSEE, meter, then we see no compelling reason to modify the holdings of the
which shall have the right of first option to purchase the courts a quothat the leased premises be sold at that price.
leased premises subject to mutual agreement of both
parties. 3. One final word. Petitioner PUP should be cautioned against bidding for
2. In the instant case, the right of first refusal is an integral and indivisible public sympathy by bewailing the dismissal of its petition before the
part of the contract of lease and is inseparable from the whole press. Such advocacy is not likely to elicit the compassion of this Court or of
contract. The consideration for the right is built into the reciprocal any court for that matter. An entreaty for a favorable disposition of a case not
obligations of the parties. Thus, it is not correct for petitioners to insist that made directly through pleadings and oral arguments before the courts do not
there was no consideration paid by FIRESTONE to entitle it to the exercise persuade us, for as judges, we are ruled only by our forsworn duty to give
of the right, inasmuch as the stipulation is part and parcel of the contract of justice where justice is due.
lease making the consideration for the lease the same as that for the option.
3. It is a settled principle in civil law that when a lease contract contains a
right of first refusal, the lessor is under a legal duty to the lessee not to
sell to anybody at any price until after he has made an offer to sell to the
latter at a certain price and the lessee has failed to accept it. The lessee
has a right that the lessor's first offer shall be in his favor.
4. Consistent with their agreement, it was then implicit for NDC to have first
offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale
in favor of PUP. Only if FIRESTONE failed to exercise its right of first
priority could NDC lawfully sell the property to petitioner PUP.
5. Our attention is invited by petitioners to Ang Yu Asuncion v. CA in
concluding that if our holding in Ang Yu would be applied to the facts of this
case then FIRESTONE's "option, if still subsisting, is not enforceable," the
option being merely a preparatory contract which cannot be enforced.
6. The contention has no merit. At the heels of Ang Yu came Equatorial Realty
Development, Inc., v. Mayfair Theater, Inc., where after much deliberation
we declared, and so we hold, that a right of first refusal is neither
"amorphous nor merely preparatory" and can be enforced and executed
according to its terms. Thus, in Equatorial we ordered the rescission of the
sale which was made in violation of the lessee's right of first refusal and
further ordered the sale of the leased property in favor of Mayfair Theater, as
grantee of the right.

P1,500 per square meter consideration of the sale

1. In contracts of sale, the basis of the right of first refusal must be the current
offer of the seller to sell or the offer to purchase of the prospective
buyer. Only after the lessee-grantee fails to exercise its right under the same
terms and within the period contemplated can the owner validly offer to sell
 ATILANO vs. ATILANO (GUECO)
May 21, 1969 | Makalintal, J. |
PETITIONER: Asuncion Atilano, Cristina Atilano, Rosario Atilano, Hilario
Romano, Feliper Bernardo, Maximo Lacandalo, Isabel Atilano and Gregorio
Atilano
RESPONDENTS: Ladislao Atilano and Gregorio M. Atilano
SUMMARY: Eulogio I purchased Lot 535 and had it subdivided into 5 parts (A
to E). He occupied Lot A and sold Lot E to his brother, Eulogio II. Both brothers
died and their heirs found out after a survey that Eulogio I actually occupied Lot
E and Eulogio II occupied Lot A. Thus, the heirs of Eulogio II offered to exchange
the properties. However, the heirs of Eulogio I refused because Lot E was bigger
than Lot A. The heirs of Eulogio II then filed an action to have Lot E returned.
ISSUE: WON an exchange of the properties should be made. The SC ruled in the
negative (See doctrine for the ratio).
RULING: WHEREFORE, the judgment appealed from is reversed. The plaintiffs are
ordered to execute a deed of conveyance of lot No. 535-E in favor of the defendants,
and the latter in turn, are ordered to execute a similar document, covering lot No. 595-
A, in favor of the plaintiffs.
RATIO:
1. What took place was a simple mistake in drafting the instrument evidencing
the agreement between the brothers. One sells or buys property as he sees it
in actual setting and not by the mere lot number in the certificate of title. The
brothers remained in possession of their respective portions throughout their
lives unaware of the mistake in the designation of the lots. In this case, the
instrument simply failed to reflect the true intention of the parties; thus, an
exchange of the properties is unnecessary. All the heirs should do is to
execute mutual deeds of conveyance.

DOCTRINE:
What took place was a simple mistake in drafting the instrument evidencing the
agreement between the brothers. One sells or buys property as he sees it in actual
setting and not by the mere lot number in the certificate of title. The brothers
remained in possession of their respective portions throughout their lives unaware
of the mistake in the designation of the lots. In this case, the instrument simply
failed to reflect the true intention of the parties; thus, an exchange of the properties
is unnecessary. All the heirs should do is to execute mutual deeds of conveyance.

FACTS:
1. Eulogio Atilano I (“Eulogio I”) purchased Lot 535 from Gerardo Villanueva.
Afterwards, he had the lot subdivided into five parts (A to E).
2. Among the subdivided lots, Eulogio I occupied Lot A and sold lot E to his
brother, Eulogio II. He also sold B, C, and D to other persons.
3. Eulogio II’s wife died and his children obtained title over lot E. They also
had the land resurveyed so that it could properly be subdivided.
4. It was then that they discovered that the land they were actually occupying
was lot A and not lot E. Meanwhile, the land which remained in the
possession of Eulogio I, and which passed to his successors was lot E and not
lot A.
5. The heirs of Eulogio II then offered to exchange the properties. However, the
heirs of Eulogio I refused because Lot E was bigger than Lot A.
6. The heirs of Eulogio II then filed an action to have Lot E returned.
7. The trial court ruled in favor of Eulogio II.

ISSUES:
1. WoN an exchange of the properties should be made—NO.
 Yu Tek & Co v Gonzales (Reine)
February 1, 1915 | Trent, J. | Perfected Sale
PETITIONER: Yu Tek & Co
RESPONDENTS: Basilio Gonzales
SUMMARY: Basilio Gonzales (Gonzales) received P3000 from Yu Tek & Co
and in consideration of said sum, Gonzales obligated himself to deliver to Yu Tek
& Co 600 piculs of sugar. In the contract, it states that in case Gonzales does not
deliver said piculs of sugar, the contract will be rescinded and Gonzales will be
obligated to return to Yu Tek & Co the 3000 received and indemnity for loss and
damages in the sum of P1200.
There was no delivery of sugar by Gonzales hence Yu Tek & Co prayed for the
return of the P3000 plus the P1200. Judgment was rendered for P3000 only and
due to this, both Gonzales and Yu Tek & Co appealed.
The Court ruled that there was no perfected sale, only a promise of sale since the
thing, which was “sugar” was simply a generic name and there was no
appropriation for a particular lot of sugar. Furthermore, Gonzales must pay the
P1200 aside from the P3000 by way of indemnity for loss and damages.
DOCTRINE: Art. 1450: The sale shall be perfected between vendor and
vendee and shall be binding on both of them, if they have agreed upon the
thing which is the object of the contract and upon the price, even when
neither has been delivered.
There was no perfected sale, merely an executory agreement, a promise of sale.
Gonzales merely used the generic name for the thing sold and there was no
appropriation of any particular lot of sugar.
damages.
2. Yu Tek & Co. proved that no sugar had been delivered to it under the
contract nor had it been able to recover the P3000. Yu Tek and Co prayed
for the judgment for the P3000 and in addition P1200. Judgment was
rendered for P3000 only and from this judgment both, Gonzales & Yu
Tek & Co appealed.
3. First, according to Gonzales, the court erred in refusing to permit parol
evidence showing that the parties intended that the sugar was to be
secured from the crop which Gonzales raised on his plantation, and that
he was unable to fulfill the contract by reason of the almost total failure
of his crop.
4. However, there is not the slightest intimation in the contract that the
sugar was to be raised by Gonzales. Parties are presumed to have reduced
to writing all the essential conditions of their contract. While parol
evidence is admissible in a variety of ways to explain the meaning of
written contracts, it cannot serve the purpose of incorporating into the
contract additional contemporaneous conditions which are not
mentioned at all in the writing, unless there has been fraud or mistake.
5. Gonzales undertook to deliver a specified quantity of sugar within a
specified time. The contract placed no restriction upon Gonzales in the
matter of obtaining the sugar. He was equally at liberty to purchase it on
the market or raise it himself. It may be true that Gonzales owned a
plantation and expected to raise the sugar himself, but he did not limit
his obligation to his own crop of sugar. The rights of the parties must be
determined by the writing itself.
6. Second, Gonzales assumes that the contract was limited to the sugar he
might raise upon his own plantation; that the contract represented a
perfected sale; and that by failure of his crop he was relieved from
complying with his undertaking by loss of the thing due.

ISSUE/s:
FACTS:
5. WoN there was a perfected sale?- NO (Promise of sale only)
1. A written contract (Exhibit A) was the basis of the contract wherein the
6. WoN Yu Tek & Co can recover the additional sum of P1200?- YES
pertinent portion contain:
a.) Mr. Basilio Gonzales (Gonzales) acknowledges the receipt of the
RULING: The judgment appealed from is modified by allowing the recovery of
sum of P3000 from Messrs. Yu Tek and Co and in consideration of
P1,200 as stipulated in the contract.
said sum, Gonzales obligates himself to deliver to Yu Tek & Co 600
piculs of sugar according to the result of polarization within the
RATIO:
period of 3 months beginning on Jan 1, 1912 and ending on March
7. Art. 1450: The sale shall be perfected between vendor and vendee and
31, 1912.
shall be binding on both of them, if they have agreed upon the thing
b.) Gonzales obligates himself to deliver to Yu Tek & Co. the 600 piculs
which is the object of the contract and upon the price, even when neither
of sugar at any place within the municipality of Santa Rosa which
has been delivered.
the Yu Tek & Co or a representative of the same may designate.
8. The contract was merely an executory agreement, a promise of sale and
c.) In case Gonzales does not deliver to Yu Tek & Co the 600 piculs of
not a sale. Therefore, Art. 1452: "The injury to or the profit of the thing
sugar within the period of 3 months, the contract will be rescinded
sold shall, after the contract has been perfected, be governed by the
and Gonzales will be obligated to return to Yu Tek & Co the P3000
provisions of articles 1096 and 1182"is not applicable
received and the sum of P1200 by way of indemnity for loss and
 9. Gonzales having defaulted in his engagement, Yu Tek & Co is entitled to
recover the P3000 which Yu Tek & Co advanced to Gonzales.
With regard to thing:
1. There is a perfected sale with regard to the "thing" whenever the article of
sale has been physically segregated from all other articles.
2. It is clear that Gonzales could only say that it was "sugar." He could only use
this generic name for the thing sold. There was no "appropriation" of any
particular lot of sugar.
Recovery of P1200:
1. The contract plainly states that if Gonzales fails to deliver the 600 piculs of
sugar within the time agreed on, the contract will be rescinded and he will be
obliged to return the P3,000 and pay the sum of P1,200 by way of indemnity
for loss and damages. There cannot be the slightest doubt about the meaning
of this language or the intention of the parties.
 Melliza v. Iloilo (Steph)
April 30, 1968 | Bengzon, J.P., J. | Arellano Plan, an object is determinate if there is
no need for another contract to determine what the buyer and seller are talking about.
PETITIONER: Pio Sian Melliza (notary public)
RESPONDENTS: City of Iloilo, University of the Philippines, the Court of
Appeals
SUMMARY: Pio Sian Melliza has a TCT over a parcel of land, over which UP
Iloilo presently stands. He filed an action to recover the lot, but UP claims that
the lot was bought by the City Government of Iloilo, which bought the said lot
from Juliana Melliza (see fact 6 for excerpt of instrument) for the construction of
the municipal hall with parks and avenues, according to the Arellano Plan. Both
the CFI and the CA ruled in favor of UP Iloilo, that they are the rightful owners
of the land. The issue in this case is whether or not the instrument executed in fact
6 included the lot occupied by UP Ilolo, and whether or not the instrument covers
a determinable thing. The SC affirmed the CFI and CA rulings, stating that
according to the Art. 1273 of the Civil Code an object is determinable if there is
no need to execute another agreement/contract to determine which thing the seller
and buyer are talking about. The SC said that because the instrument referred to
whatever lots were needed to follow the Arellano Plan, which was in existence
even before the questioned instrument, there is no need for another contract to
determine what lot the seller intended to sell, and therefore the object is
determinate.
DOCTRINE: The object of the sale is a determinate object when there is no need
for a new agreement between the parties to designate which thing the seller wants
to sell and the buyer wants to buy, in accordance with Art. 1273 of the Civil Code.
FACTS:
1. Juliana Melliza owned three parcels of residential land in Iloilo, registeredin
her name under an OCT. These lots are numbered 2, 5, 1214. Lot 1214 was
the biggest (29 073 sq m).
2. She donated a part of it (9 000 sq m) of lot 1214 to serve as the site ofr
municipal city hall.
3. However, this donation was revoked because the portion donated was found
too small to meet the plan (the Arellano Plan).
4. So, Lot 1214 was divided by Certeza Surveying Co. Inc. into lots 1214 A and
1214B.
5. Lot 1214 B was further divided into lots 1214B1, 1214B2, and 1214D.
6. After division, Juliana executed an instrument without any caption (original
in Spanish, that’s google translate hehe. Basically she sold a bigger portion
to Iloilo government!)
In consideration of the sum total of SIX HUNDRED TWENTY
THOUSAND PESOS FOUR (P6,422.00), Philippine currency
hereby state that I received to my satisfaction the Municipal
Government of Iloilo, I give and transfer real and difinitiva sale
to the Government Municipal of Iloilo the lots and portions of the
same that next are specified to know: the lot No. 5 in all their
extension; a portion of 7669 square meters Lot No. 2, which portion
is designated as sub-batches Nos. 2-B and 2-C piano subdivision of
the lots prepared by the Certainty Surveying Co., Inc., and a portion
of 10,788 square meters lot No. 1214 - which portion is designated
as sublots 1214-B-2 and B-3 1214-the same plane subdivision..
Also Nago noted that the assignment and handover ariba mentioned
is difinitiva sale, and for the better identification of lots and portions
thereof which are the subject of this, I note that these lots and lots
are needed by the Municipal Government of Iloilo for the
construction of avenues, parks and City Hall site of the
Municipal Government Center of iloilo, according to the
Arellano plan.
7. Later Juliana sold her remaining interest in lot1214 to Remedios Sian
Villanueva, who registered it through a TCT.
8. Remedios Sian Villanueva transferred her rights in that parcel of land to Pio
Sian Melliza (petitioner) who got TCT over it. Annotated at the back of said
TCT is the following:
... (a) that a portion of 10,788 square meters of Lot 1214 now designated as
Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the
Municipality of Iloilo as per instrument dated November 15, 1932 (the
one referred to in fact 6)
9. The City of Iloilo, which succeeded the Municipality of Iloilo, donated the
city hall site with the building to UP Iloilo (it consisted of Lot 1214B, 1214C,
1214D).
10. UP then enclosed the site donated with a wire fence.
11. Pio Sian Melliza made representations through his lawyer, with the city
authourity for payment of Lot1214B. He was not able to get any money.
12. The lands were subsequently registered under UP’s name through TCT.
13. Pio Sian Melliza filed an action in CFI against UP to recover Lot1214B or of
its value.
14. UP claims that Lot1214B was included in the public instrument executed by
Juliana Melliza in favor of Iloilo municipality, and the CFI ruled in favor of
UP, pointing to bold portion of fact 6.
15. Pio appealed to CA, and CA affirmed CFI ruling, but ordered the remand
of the case to determine which parts of the land Iloilo needed to construct
avenues and parks for the city hall site.
16. Pio now appeals to SC, maintaining that Lot 1214B is excluded from that
instrument—that to adhere to CFI and CA interpretation would render
the contract invalid because the law requires that a sale must involve a
“determinate object”.
17. UP says that the present appeal only concerns questions of fact, and that the
document in question really intended to include Lot 1214B. To exclude
Lot1214B would be absurd because they’re all contiguous. They also rebut
Pio’s claims and say that the object of the sale is determinate because it could
 be ascertained what lots were needed by Iloilo municipality for avenues,
parks, and the city hall site at the time of the execution for the contract
ISSUES:
1. WoN the conveyance by Juliana Melliza to Iloilo municipality included Lot
1214B – YES.
2. WoN the instrument covers a determinable object and is therefore valid –
YES.

RULING: WHEREFORE, the decision appealed from is affirmed insofar as it

affirms that of the Court of First Instance, and the complaint in this case is dismissed.
No costs. So ordered.

RATIO:

1. Reading the public instrument in toto, with special reference to the

paragraphs describing the lots included in the sale, shows that said instrument
describes four parcels of land by their lot numbers and area; and then it goes
on to further describe, not only those lots already mentioned, but the
lots object of the sale, by stating that said lots are the ones needed for the
construction of the city hall site, avenues and parks according to the Arellano
plan.
2. The object of the sale is a determinate object because there is no need for a
new agreement between the parties to designate which thing the seller wants
to sell and the buyer wants to buy, in accordance with Art. 1273 of the Civil
Code. (in other words, they were on the same page from the start, referring
to the same thing, without the need to execute another agreement/contract).
3. The Arellano plan was already in existence before the public instrument
conveying the questioned lot was executed.
4. The Arellano plan provides enough guidance to ascertain which lots the seller
intended to sell to make sure Iloilo had a municipal hall with avenues and
parks.
5. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary
public of the public instrument. As such, he was aware of its terms. Said
instrument was also registered with the Register of Deeds and such
registration was annotated at the back of the corresponding title certificate of
Juliana Melliza. From these stipulated facts, it can be inferred that Pio
Sian Melliza knew of the aforesaid terms of the instrument or is
chargeable with knowledge of them; that knowing so, he should have
examined the Arellano plan in relation to the public instrument.
6. The fact remains that, instead, for twenty long years, Pio Sian Melliza and
his predecessors-in-interest, did not object to said possession, nor exercise
any act of possession over Lot 1214-B. Applying, therefore, principles of
civil law, as well as laches, estoppel, and equity, said lot must necessarily be
deemed included in the conveyance in favor of Iloilo municipality, now Iloilo
City.
 NGA v. IAC (Arielle)
March 8, 1989 | Medialdea, J. | Contract of Sale
PETITIONER: National Grains Authority
RESPONDENTS: Intermediate Appellate Court
SUMMARY: Soriano offered to sell palay to the NFA and submitted the required
documents. Soriano’s certificate was processed and was given a quota of 2,640
cavans of palay. This represented the maximum number of palay that Soriano can
sell to NFA. Soriano delivered 630 cavans of palay but the same were not
rebagged, classified, or weighed (which was the standard procedure for the NFA).
When Soriano demanded for payment, he was informed that the payment will be
held in abeyance since the NFA received information that Soriano is not a bona
fide farmer. NFA ordered Soriano to withdraw the 630 cavans of palay from the
warehouse, because NFA cannot legally accept the said delivery on the ground
that Soriano is not a bona fide farmer. Soriano filed a complaint for specific
performance with damages against the NFA. The trial court rendred judgment in
favor of Soriano. The CA affirmed the trial court’s decision.
The SC held that there was indeed a contract of sale. Art. 1458 defines sale as a
contract whereby one of the contracting parties obligate himself to transfer the
ownership of and to deliver a determinate thing, and the other party to pay a price
certain in money or its equivalent. In the case at bar, Soriano initially offered to
sell palay to NFA. When NFA accepted the offer noting the 2,460 cavans of palay,
there was already a meeting of minds between the parties. Sale is a consensual
contract, there is perfection when there is consent upon the subject matter and
price, even if neither is delivered. NFA contends further that one of the essential
requisites of contract, which is consent. The acceptance referred to which
determines consent is the acceptance of the offer of one party by the other and not
of the goods delivered as contended by NFA. Hence, there is already a perfected
contract of sale between NFA and Soriano.
DOCTRINE:
Sale is a consensual contract, there is perfection when there is consent upon the
subject matter and price, even if neither is delivered.
FACTS:
1. Petitioner National Grains Authority (now National Food Authority or NFA)
is a government agency created under PD No. 4. One of its incidental
functions is the buying of palay grains from qualified farmers.
2. Private respondent Leon Soriano offered to sell palay grains to NFA through
William Cabal, the Provincial Manager of NFA in Cagayan.
3. Soriano submitted documents required by the NFA namely: 1) An
accomplished Farmer’s Information sheet certified by the Bureau of
Extension; 2) Photocopies of four tax declarations of the lease contract
between him and Judge Concepcion Salud; and 3) his Residence Tax
Certificate.
4. Soriano’s certificate was processed and he was given a quota of 2,640 cavans
of palay. The quota represented the maximum number of palay that Soriano
can sell to NFA.
5. Soriano then delivered 630 cavans of palay. The palay delivered were not
rebagged, classified, and weighed. When Soriano demanded for payment, he
was informed that the payment will be held in abeyance since Mr. Cabal was
investigating on an information he received that Soriano was not a real farmer
and that the palay he delivered was taken from the warehouse of a rice trader,
Ben de Guzman.
6. Cabal wrote Soriano advising him to withdraw the 630 cavans of palay from
the warehouse stating that NFA cannot legally accept the said delivery on the
basis that Soriano is not a bona fide farmer.
7. Instead of withdrawing the cavans of palay, Soriano insisted that the palay
grains he delivered be paid. He filed a complaint for specific performance
with damages against the NFA.
8. The trial court rendered judgment ordering NFA to pay Soriano P47,250
representing the unpaid price of the 630 cavans of palay plus legal interest.
9. NFA appealed to the IAC but the latter upheld the findings of the trial court.
Hence this petition.
ISSUE/s:
1. WoN there was a contract of sale – YES
RULING: The instant petition for review is DISMISSED. The assailed decision of
the IAC (now the CA) is affirmed.
RATIO:
1. NFA contends that the 630 cavans of palay was made only for purposes of
having it offered for sale. Moreover, NFA stated that the procedure then
prevailing in matters of palay procurement from qualified farmers were:
a. There is a rebagging wherein palay is transferred from a private sack to the
NFA sack;
b. After rebagging, classification of palay is made to determine variety;
c. The palay will be weighed to determine the number of kilos;
d. The palay will be piled inside the warehouse after the preparation of the
Warehouse Stock Receipt indicating the number of kilos, the variety, and
the number of bags.
2. Under this procedure, rebagging is the initial operative act signifying
acceptance, and acceptance will be considered complete only after the
preparation of the Warehouse Stock Receipt.
3. When the 630 cavans of palay were brought by Soriano to the warehouse of
NFA, they were only offered for sale. Since the same were not rebagged,
classified and weighed, there was no acceptance of the offer which, to NFA’s
mind is a clear case of policitation or an unaccepted offer to sell.
4. Art. 1458 of the Civil Code defines sale as a contract where by one of the
contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party to pay a price certain in money
 or its equivalent.
5. A contract, on the other hand, is a meeting of minds between two or more
persons whereby one binds himself, with respect to the other, to give
something or to render some service.
6. In the case at bar, Soriano initially offered to sell palay grains produced in his
farmland to NFA. When NFA accepted the offer noting in Soriano’s
Information Sheet a quota of 2,640 cavans, there was already a meeting of
minds between the parties.
7. The object of the contract, being the palay grains produced in Soriano’s
farmland and the NFA to pay the same depending on its quality. The fact that
the exact number of cavans of palay to be delivered has not been determined
does not affect the perfection of the contract.
8. Art.1349 states that the fact that the quantity is not determinate shall not be
an obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract.
9. In this case, there was no need for NFA and Soriano to enter into a new
contract to determine the exact number of cavans of palay to be sold.
10. NFA further contend that there was no contract of sale because of the absence
of an essential requisite in contacts, which is consent. This is not correct. Sale
is a consensual contract, there is perfection when there is consent upon the
subject matter and price, even if neither is delivered.
11. The acceptance referred to which determines consent is the acceptance of the
offer of one party by the other and not of the goods delivered as contended
by NFA.
12. From the moment the contract of sale is perfected, it is incumbent upon the
parties to comply with their mutual obligations, or the parties may
reciprocally demand performance.
13. The reason why NFA initially refused acceptance of the 630 cavans of palay
is that it cannot legally accept the said delivery because Soriano is allegedly
not a bona fide farmer. The trial court and the appellate court found that
Soriano was a bona fide farmer and therefore, he was qualified to sell palay
grains to NFA.
14. NFA’s refusal is without just cause.
 SCHUBACK & SONS PHIL. TRADING CORP. v. CA (Jolina)
Nov. 11, 1993 | Romero | Art. 1349; PO w/o quantity and unopened letter of credit
PETITIONER: Johannes Schuback & Sons Philippine Trading Corporation
RESPONDENTS: Court of Appeals, Ramon San Jose, Jr. doing business under
the name and style “Philippine SH Industrial Trading
SUMMARY: Roman talked with petitioner to purchase german bus spare parts.
After a few exchanges in offers, respondent sends petitioner a purchase order with
the item number, part number and description (no quantity of the items). He
promises to send this in the future, which he later did to the general manager. A
line of credit was given to respondent for the payment of the partial deliveries of
the parts. Roman contends that he didn’t make any valid PO and that there was no
valid contract between them. The SC ruled that there is a perfected contract when
the PO was sent. The absence of the quantity of the items is of no effect for it is
not an essential requirement of a contract of sale.
DOCTRINE: 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. Art.
1319 states “Consent is manifested by the meeting of the offer and acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter offer.”
The opening of a letter of credit in favor of the vendor is only a mode of payment.
It it not among the essential requirements of a contract of sale enumerated in Art.
1305 and 1474 and therefore does not prevent the perfection of the contract
between the parties.
FACTS:
27. Through the Philippine Consulate General in Hamburg, West Germany,
Roman purchased german MAN bus spare parts from petitioner. Petitioner
communicated with its trading partner Johannes Schuback and Sohne
Handelsgesellschaft & Co. (herein as Schuback Hamburg) regarding the
spare parts Roman ordered.
28. Roman gave petitioner a list of parts with specific part numbers and
description. Upon the quotations of the trading partner, petitioner sent the
letter while enclosing its offer on the items listed. Roman replies that he
prefers the genuine over the replacement parts and requested for a 15%
discount on all the items.
29. Petitioner submitted its formal offer containing the item number, quantity,
part number, description, unit price and total to Roman. In turn, Roman
informed plaintiff of his desire to avail of the prices of the parts at that time
and enclosed its Purchase Order. The PO contained the item number, part
number and description (no quantity of the items). Roman promises to
submit the quantity he wants in a future date.
30. Roman personally submits the quantities he wants for the order to Dieter
Reichert (general manager of petitioner). Using the PO from earlier, he wrote
“NOTE: Above P.O. will include a 3% discount. The above will serve as our
initial P.O.”
31. Petitioner ordered the items from Schuback Hamburg that in turn ordered
from NDK, a supplier of MAN spare parts from Germany. Schuback
Hamburg sent petitioner a proforma invoice for applying for a letter of credit.
The said invoice require the letter of credit to be opened in favor of Schuback
Hamburg. Respondent acknowledged receipt of the invoice.
32. An order confirmation was sent by Schuback Hamburg to plaintiff which was
forwarded to and received by defendant. Petioner reminds the respondent
several times to open the letter of credit to avoid the delay in shipment and
payment of interests. Respondent avers the difficulty he’s experiencing in
secuing the required $ allocations and applying for the letter of credit,
procuring a loan and looking for a partner-financier, and of finding ways to
proceed with the orders.
33. Meanwhile, Schuback Hamburg paid NDK for the partial deliveries of the
items, later on deducted from petitioner. Petitioner reminds respondent once
again of the order. Respondent claims that he didn’t make any valid PO and
that there was no valid contract between them. Petitioner contends that there
is a valid PO, giving him a choice to proceed with the order to pay for the
parts or to pay the cancellation fee of 30% of FOB value, or petitioner will
file a suit.
ISSUE/s:
7. WoN a contract of sale has been perfected between the parties – Yes
8. WoN the absence of the quantity of items in the PO invalidates the contract?
– No
RULING: SC reinstated the trial court’s decision and reversed the decision of the CA.
RATIO:
10. Where the seller quoted items offered for sale, by item number, part number,
description and unit price, and buyer had sent a reply in a purchase order
without indicating the quantity being ordered, there was already a perfected
contract of sale, even when the required letter of credit had not been opened
by the buyer.
11. The opening of a letter of credit in favor of the vendor is only a mode of
payment. It it not among the essential requirements of a contract of sale
enumerated in Art. 1305 and 1474 and therefore does not prevent the
perfection of the contract between the parties.
12. 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. Art. 1319
states “Consent is manifested by the meeting of the offer and acceptance upon
the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter offer.”
13. Upon the sending of respondent to petitioner the PO, a meeting of the minds
between the vendor and vendee had occurred, the object of the contract being
the spare parts and the consideration, the price stated in petitioner’s offer from
the earlier letter and accepted by respondent.
14. Although the said PO didn’t contain the quantity respondent wanted to order,
he promised to communicate the same, which he later followed through. In
this case, respondent was already in the process of executing the agreement
previously reached between the parties.
 MAPALO v. MAPALO (Megan)
May 19, 1966 | Bengzon, J. | Absence of Consideration
PETITIONER: Miguel Mapalo, et al.
RESPONDENTS: Maximo Mapalo, et al.
SUMMARY: Spouses Mapalo donated the eastern half of their land in favor of
Miguel’s (husband) brother, Maximo, since he was about to get married. They
were deceived into signing a deed of absolute sale covering the entire land. The
documaent stated a consideration of P500 but they did not receive anything.
Maximo was able to name the entire land as his. Years later he sold the entire land
to the Narcisos. The Narcisos at first occupied the eastern part of the land, but
subsequently filed a case against the spouses in order to be declared owners of the
entire land. The Mapalo spouses countered by seeking to cancel the TCT and
sought that the deed of sale be declared null and void. The CFI ruled in favor of
the Mapalo Spouses. The CA however reversed the ruling of the CFI and declared
that the deed was merely voidable since consent was present however vitiated.
The SC however reversed the ruling of the CA and declared that although consent
and subject matter was present, consideration was absent therefore making the
contract null and void.
DOCTRINE: A contract of purchase and sale is null and void and produces no
effect whatsoever where the same is without cause or consideration in that the
purchase price which appears thereon as paid has in fact never been paid by the
purchaser to the vendor.
FACTS:
34. Spouses Miguel Mapalo and Candida Quiba are simple illiterate farmers who
owned a parcel of land registered under the Torrens title.
35. Said spouses donated the eastern half of the land to Miguel’s brother,
Maximo Mapal, out of love and affection as he was about to get married.
36. However, the spouses were deceived in signing a deed of absolute sale over
the entire land.
37. Their signatures were procured by fraud since they were made to believe that
they were signing a deed of donation in Maximo’s favor covering the eastern
part of their land.
38. The document of the sale stated a consideration of 500 pesos but they did not
receive anything of value.
39. The spouses built a fence to segregate the eastern and western portion.
40. Not known to them, Maximo registered the deed of sale in his favor and
obtained in his name the Transfer Certificate of Title over the land.
41. 13 years later, he sold the entire land to the Narcisos.
42. The whole land was issued in their names.
43. The Narcisos took possession only of the eastern portion of the land.
44. After a year, they filed a suit in the CFI to be declared owners of the entire
land.
45. The Mapalo spouses filed their answer seeking the cancellation of the TCT
on the grounds that their signature was procured by fraud and that the
Narcisos were buyers in bad faith. They further asked that the deed of sale be
declared null and void as to the western half of said land.
46. The CFI ruled in favor of the Mapalo spouses.
47. The CA however reversed the decision of the CFI and declared that since the
deed of sale were obtained by fraud, the same was voidable, and not void ab
initio.
48. The Mapalo spouses appealed to the SC.
ISSUE/s:
9. WoN cause/consideration is present -NO
10. Whether the deed of sale void ab initio or voidable – void ab initio
RULING: Wherefore, the decision of the Court of Appeals is hereby reversed and set
aside
RATIO:
15. For a contract to exist at all, three essential requisites must concur: (1)
consent, (2) object, and (3) cause or consideration.
16. The Court of Appeals is right in that the element of consent is present as to
the deed of sale. For consent was admittedly given, albeit obtained by fraud.
Accordingly, said consent, although defective, did exist. In such case, the
defect in the consent would provide a ground for annulment of a voidable
contract, not a reason for nullity ab initio.
17. The second element of object is likewise present in the deed, namely, the
parcel of land subject matter of the same.
18. However, the third element of cause or consideration is not present.
19. The rule under the Civil Code, again be it the old or the new, is that contracts
without a cause or consideration produce no effect whatsoever.
20. Nonetheless, under the Old Civil Code, the statement of a false consideration
renders the contract voidable, unless it is proven that it is supported by
another real and licit consideration.
21. Since the deed of sale of 1936 is governed by the Old Civil Code, it should
be asked whether its case is one wherein there is no consideration, or one
with a statement of a false consideration.
22. If no consideration, it is void and inexistent; if false consideration, only
voidable.
23. What is meant by a contract that states a false consideration is one that has in
fact a real consideration but the same is not the one stated in the document.
24. As observed earlier, the deed of sale stated that it had for its consideration
P500.00. In fact, however, said consideration was totally absent.
25. A contract of purchase and sale is null and void and produces no effect
whatsoever where the same is without cause or consideration in that the
purchase price which appears thereon as paid has in fact never been paid
by the purchaser to the vendor.
26. The inexistence of a contract is permanent and incurable and cannot be the
subject of prescription.
27. On the bad faith of The Narcisos: RTC’s finding is conclusive that they had
prior knowledge that the spouses had ownership over the western half when
they recognized such ownership when they occupied only the eastern half.
 RONGAVILLA V. CA (MAYUMI)
August 17, 1998| Quisumbing, J.| Lack of consent and consideration as void ab initio
PETITIONER: Spouses Narciso Rongavilla and Dolores Rongavilla
RESPONDENTS: Court of Appeals and Mercedes Dela Cruz and Florencia Dela
Cruz
SUMMARY: Mercedes and Florencia (the aunts) borrowed from Spouses
Rongavilla P2,000 to repair their leaky roof. A month later Dolores Rongavilla
and Juanita (the nieces) visited the aunts and asked them to sign a document that
was written in English. Because the aunts didn’t know English and only knew
how to read and write in Tagalog, they asked Dolores what the document was to
which Dolores responded that it was a document acknowledging the debt of
P2,000 of the aunts. The aunts signed the document because of this representation.
4 years later Spouses Rongavilla went to the aunts and told them to vacate their
land saying that it now belongs to them because what the aunts signed was a Deed
of Sale. When the aunts went to the Register of Deeds, it was confirmed that a
Transfer Certificate of Title was issued in favor of Spouses Rongavilla and that
the said land was mortgaged for P40,000. Thus, the aunts filed with the CFI of
Rizal a complaint asking that the Deed of Sale be declared void and inexistent.
According to the Spouses, the aunts voluntarily signed the Deed of Sale, but
according to the aunts they signed the document thinking it was the
acknowledgement of debt. They further claim that no consideration was given to
them for the alleged sale. The lower courts ruled in favor of the aunts. Thus, the
Spouses brought the case to the SC.
The Court ruled that the deed of sale was not signed by vitiated consent, but rather
there was no consent at all. Moreover, that there was no consideration for the deed
of sale. When there is lack of consent and consideration in a deed of sale, it is
declared as void ab initio. Because it is a void and inexistent contract, such does
not have a prescription period.
DOCTRINE: Lack of consent and consideration made the deeds of sale void
altogether and rendered them subject to attack at any time, conformably to the rule
in Article 1410 that an action to declare the inexistence of void contracts does not
prescribe.
FACTS:
1. Mercedes (60 yrs. old) and Florencia Dela Cruz (71 yrs. old) are the aunts of
Dolores Rongavilla. The aunts are both spinsters and earn money from being
embroiderers (“magbuburda”) and dressmakers. The aunts were unschooled
in English, but are able to read and write in Tagalog. Moreover, they are of
advanced age, both aunts spend their day confined close to home.
2. The aunts own a parcel of land in Las Pias, Rizal (now Metro Manila). They
own in in proportion of 1/2 pro-indiviso with another niece named Juanita
Jimenez (sister of Dolores). The OCT and TCT of this land were kept by
Juanita.
3. In May 1976, the aunts borrowed P2,000 from Spouses Rongavilla in order
to have their dilapidated rooftop repaired.
4. A month later, Dolores and Juanita visited their aunts’ home and brough a
document for their aunts to sign. This document was typewritten in English.
Mercedes asked in Tagalog what the document was about and Dolores told
her that it was a document to show that the aunts had a debt of P2,000. On
account of this representation, the aunts signed the document.
5. In September 1980 (4 years later), Dolores went to the aunts’ place and asked
them to vacate the land stating that she and her husband were the new owners
of the land.
6. Surprised, the aunts went to the Office of the Register of Deeds of the
Province of Rizal to verify the matter. There they discovered that their
Certificate of Title had been cancelled and a new TCT was issued in favor of
Spouses Rongavilla. Moreover, that the parcel of land had been mortgaged
with the Cavite Development Bank by the spouses.
7. It was only then that the aunts realized that the document they had previously
been asked by their nieces to sign was a deed of sale.
8. The aunts then filed with the CFI (now RTC) a complaint to have the deed of
sale declared void and inexistent for being fictitious and simulated, and
secured by means of fraud and misrepresentation.
9. According to the aunts:
a. They did not sell their property (no consent);
b. They received no consideration for the supposed sale;
c. Spouses Rongavilla mortgaged the said title for P40,000 to the
damage and prejudice of the aunts; and
d. They claim moral and exemplary damages.
10. Spouses Rongavilla on the other hand allege that:
a. The aunts sold their parcel of land voluntarily;
b. There was consent in the deed of sale;
c. There was consideration for the sale;
d. The document of sale was complete in itself and in due form;
e. That the aunts were fully appraised by the Notary Public, Atty.
Arcadio G. Espiritu, on what the document was all about, and having
understood the explanation made by said Notary Public, they
voluntarily affixed their signatures on said document; and
f. That prescription had already set in
11. The lower court ruled in favor of the aunts which the CA affirmed.
12. Spouses Rongavilla claim that "the presumption that contracts are presumed
to be valid and to be supported by lawful and good consideration of one dollar
is just as effectual and valuable as a larger sum stipulated or paid''. Moreover
that the deed of sale is presumed valid and, being registered, could not be
disturbed anymore
13. Thus, this review on appeal by certiorari under Rule 45.
ISSUES:
1. WoN the Deed of Sale is void and inexistent –YES
2. WoN the action to annul the Deed of Sale prescribed –NO
RULING: WHEREFORE, the instant petition is hereby DENIED. The Decision and
the Resolution of the Court of Appeals in CA-G.R. CV No. 06543 are hereby
AFFIRMED.
7. Lack of consent and consideration made the deeds of sale void altogether and
rendered them subject to attack at any time, conformably to the rule in Article
1410 that an action to declare the inexistence of void contracts 'does not
prescribe'.
8. The defect of inexistence of a contract is permanent and incurable, hence
it cannot be cured either by ratification or by prescription.

RATIO:
Deed of Sale as Void and Inexistent
1. The aunts allege that the deed of sale had neither their consent nor a
consideration. They also denied going to and appearing before the Notary
Public. Moreover, they allege that the purported deed of sale was obtained by
fraud and misrepresentation because Dolores had misled them to believe the
document was just a paper to evidence a debt of P2,000 they obtained to buy
G.I sheets for the repair of their leaking roof.
2. While it is true that public documents are presumed genuine and regular
under the provisions of the Rules of Court, this presumption is a rebuttable
presumption which may be overcome by clear, strong and convincing
evidence.
3. The Court has already concluded in previous cases that when a contract of
sale lacks cause or consideration, it is therefore null and void and without any
effect whatsoever (Ocejo, Perez & Co. vs. Flores)

Prescription
1. Once the disputed deed is found to be inexistent and void, the statute of
limitations cannot apply. The cause of action for its declaration as such is
imprescriptible.
2. According to the spouses, this ruling is contrary to settled jurisprudence in
Pangadil v. CFI of Cotabato. However, the court mentioned that this case is
different from the case at bar. In Pangadil, there was an inaction for a
considerable period of time. In the case at bar, there is no doubt about the
credibility of the aunts in pursuing their cause promptly and forcefully.
3. They never intended to sell, nor acceded to be bound by the sale of their land.
4. Public policy is also well served in defending the rights of the aged to legal
protection, including their right to property that is their home, as against
fraud, misrepresentation, chicanery and abuse of trust and confidence by
those who owed them candor and respect.
5. While the Civil Code states that an action to annul a contract on the ground
of vitiated consent must be filed within four years from the discovery of the
vice of consent, the case at bar does is not a voidable contract but actually a
contract that is void ab initio.
6. When a deed of sale is signed with the owner not knowing what the deed
is, consent is not merely marred by vices (which would make it voidable),
but actually not given at all.
 MATE v CA (Armand)
May 21, 1998 | Martinez, J. | Consideration
PETITIONER: Fernando T. Mate
RESPONDENTS: Court of Appeals and Inocencio Tan
SUMMARY: On October 6, 1986, Josefina “Josie” Rey and private respondent
Tan went to the residence of petitioner in Tacloban City. Josie solicited his help
to stave her off her prosecution by respondent for violation of B. P. 22. Josie
asked petitioner to cede to respondent his 3 lots. Josie explained to him that he
was in no danger of losing his property as they will be redeemed by her own
funds. After a long discussion, petitioner agreed to execute a fictitious deed of
sale with right to repurchase after 6 months. Josie gave petitioner 2 post-dated
checks worth P1.4M and P420k, to be used in redeeming the property. However,
the checks were both dishonored. Realizing that he was swindled, he sent a
telegram to Josie, and looked for her in Manila, but she was nowhere to be found.
Petitioner filed a criminal case against Josie for violation of B. P. 22, but the case
was archived since Josie could not be located. Petitioner filed a civil case for
annulment of contract with damages against Josie and respondent. Josie was
declared in default and the case proceeded against private respondent. Both the
trial court and the Court of Appeals upheld the validity of the sale. The issue is
WoN the deed of sale is valid or null and void (as there is allegedly no
consideration) – the sale if valid and with consideration. The court held that it is
plain that consideration existed at the time of the execution of the deed of sale
with right of repurchase. It is not only appellant's kindness to Josefina, being his
cousin, but also his receipt of P420,000.00 that impelled him to agree to the
contract. Also, despite him not receiving the P1.4M, he had in his possession
postdated checks in an equivalent amount to repurchase the lots on or before the
sixth month. There is absolutely no basis for petitioner to file a complaint against
private respondent Tan and Josie Rey to annul the pacto de retro sale on the
ground of lack of consideration, invoking his failure to encash the two
checks. Petitioner's cause of action was to file criminal actions against Josie Rey
under B.P. 22, which he did. The filing of the criminal cases was a tacit admission
by petitioner that there was a consideration of the pacto de retro sale.
DOCTRINE: The filing of the criminal cases was a tacit admission by petitioner
that there was a consideration of the pacto de retro sale. Despite not receiving the
money as consideration, the petitioner had postdated checks in an equivalent
amount, hence there is consideration. Between two innocent parties, the one who
made it possible for the wrong to be done should be the one to bear the resulting
loss.
FACTS:
1. October 6, 1986 – Josefina Rey (Josie) and private respondent went to the
residence of Mate at Tacloban City. Josie who is a cousin of Mate’s wife
solicited his help to stave off her and her family’s prosecution by private
respondent for violation of BP22 on account of the rubber checks, that she,
her mother, sister and brother issued to Mate amounting to P4,435,067.
2. She requested Mate to cede to private respondent his 3 lots in Tacloban City
in order to calm him down.
3. Mate immediately rejected it as he owed private respondent nothing and he
was under no obligation to convey his properties to him. Josie explained to
him that he was in no danger of losing his properties as he will merely execute
a simulated document transferring them to private respondent but they will
be redeemed by her with her own funds. Mate eventually agreed to execute
the fictitious deed of sale with right to repurchase covering his 3 lots
mentioned subject to:
a) amount stated in the document is P1.4M with interest at 5% per month
b) properties will be repurchased within 6 months or on or before Apr 4,1987
c) Although it would appear that Mate is the vendor, Josie will provide money
for the redemption of the properties with her own funds.
d) Titles to the properties will be delivered to Mate but the sale will not be
registered in the Registry of Deeds and annotated on the titles.
4. To assure Mate that Josie will redeem the properties, Josie issued to him 2
BPI checks both postdated Dec 15, 1986. One was P1.4M for the selling price
and P420,000 for the interests.
5. Mate prepared the deed of sale with right to repurchase and after it was signed
and notarized, it was given to private respondent together with the titles and
the latter did not register them in the Register of Deeds as agreed upon.
6. Jan 14, 1987 – Mate deposited the check for P1.4M at UCPB and the other
check for P420,000 at Metrobank. Both checks were dishonored by the
drawee bank for having been drawn against a closed account.
7. He sent Josie a telegram about her checks and when she failed to respond, he
went to Manila to look for her but she could not be found.
8. He filed criminal cases against Josie for violation of BP 22 but the cases were
archived as the accused could not be found. He then filed a civil case against
her at the RTC of Leyte for annulment of contract with damages. Josie was
declared in default and the case proceeded against private respondent. But
during the trial the RTC asked private respondent to file an action for
consolidation of ownership of the properties subject of the sale.
9. He filed another case that was consolidated with the case he filed earlier
which were decided jointly by the RTC in favor of the private respondent and
subsequently appealed to the CA which affirmed it with modification. Mate
filed an MR but was denied, hence the instant petition for review.
ISSUES:
1. WoN the deed of sale with right to repurchase is valid or null and void for
lack of consideration (because allegedly, no consideration since no money
changed hands when he signed it and the checks that were issued were
dishonored) – The deed of sale is VALID and with consideration.
RULING: WHEREFORE, the Decision of the Court of Appeals dated August 29,
1994 is hereby AFFIRMED. The petition for review is hereby DENIED DUE “where one or two innocent persons must suffer, that person who gave
COURSE for lack of merit. occasion for the damages to be caused must bear consequences."
8. Mate's reliance on this doctrine is misplaced. He is not an innocent person.
RATIO: As a matter of fact, he gave occasion for the damage caused by virtue of the
1. The CA held: “In preparing and executing the deed of sale with right of deed of sale with right to repurchase which he prepared and signed. Thus,
repurchase and in delivering to Tan the land titles, appellant actually there is the equitable maxim that between two innocent parties, the one
accommodated Josefina so she would not be charged criminally by Tan. To who made it possible for the wrong to be done should be the one to bear
ensure that he could repurchase his lots, appellant got a check of the resulting loss.
P1,400,000.00 from her. Also, by allowing his titles to be in possession of 9. Mate even insinuates that private respondent deceived him into signing the
Tan for a period of six months, appellant secured from her another check for deed of sale with right to repurchase. There is no evidence of this. Contrary
P420,000.00. With this arrangement, appellant was convinced he had a good to Mate’s pretension, respondent Tan did not employ any devious scheme to
bargain. Unfortunately his expectation crumbled. For this tragic incident, not make the former sign the deed of sale. It is to be noted that Tan waived his
only Josefina, but also Tan, according to appellant(Mate) must be right to collect from Josie by virtue of the pacto de retro sale.Mate, a lawyer,
answerable.” should have known that the transaction was fraught with risks since Josie
2. Mate did not receive the P1.4 Million purchase prices from respondent Tan, already had a history of issuing worthless checks.
instead, he had a postdated check of Josie in an equivalent amount precisely 10. It was Mate’s own greed for huge profit that impelled him to accede to the
to repurchase the two lots on or before the sixth month. scheme of Josie despite knowing of its risks and dangers. He was in fact
3. As admitted by Mate, Josie thus assumed the responsibility of paying the negligent.
repurchase price on behalf of petitioner to private respondent. Unfortunately, 11. A contract is a contract. Once agreed upon, and provided all the essential
the two checks issued by Josie Rey were worthless and dishonored. However, elements are present, it is valid and binding as between the parties. Mate has
there is absolutely no basis for petitioner to file a complaint against private no one to lame but himself for his misfortune.
respondent Tan and Josie to annul the pacto de retro sale on the ground of
lack of consideration, invoking his failure to encash the two checks.
Petitioner's cause of action was to file criminal actions against Josie Rey
under B.P. 22, which he did. The filing of the criminal cases was a tacit
admission by petitioner that there was a consideration of the pacto de
retro sale.
4. Mate further claims that the pacto de retro sale was subject to the condition
that in the event the checks given by Josie to him for the repurchase of the
property were dishonored, then the document shall be declared null and void
for lack of consideration. However, the Court was not persuaded.
5. Tan was already poised to file criminal cases against Josie and her family. It
would not be logical for respondent Tan to agree to the conditions allegedly
imposed by petitioner. Mate knew that he was bound by the deed of sale with
right to repurchase, as evidenced by his filing criminal cases against Josie
Rey when the two checks bounced.
6. The SC agreed with the CA in ruling that: “If there is anybody to blame for
his predicament, it is appellant himself. He is a lawyer. He was the one who
prepared the contract. He knew what he was entering into. Surely, he must
have been aware of the risk involved. When Josefina's checks bounced, he
should have repurchased his lots with his own money. Instead, he sued not
only Josefina but also Tan for annulment of contract on the ground of lack of
consideration and false pretenses on their part.”
7. Mate then claims that "it is not only illegal but immoral to require him to
repurchase his own properties with his own money when he did not derive
any benefit from the transaction." even citing a case, when the SC held:
 GUAN v. ONG (IYA)
October 18, 2001| Panganiban, J. | Price must be real: When simulated
PETITIONER: Yu Bun Guan
RESPONDENTS: Elvira Ong
SUMMARY: Guan and Ong are husband and wife. During their marriage they
bought a house and lot using their conjugal funds. Ong also bought the Rizal
property using her person funds, therefore making it paraphernal property. In the
year 1992, they separated due to Guan’s promiscuity, temper, and other vices.
Guan insisted on Ong to transfer the Rizal property to him through a fictitious
Deed of Sale wherein he (Guan) did not pay any consideration. To this Ong
agreed on the condition that he build a commercial building for the benefit of their
children.
However, Guan did not comply with his promises and performed fraudulent acts
to acquire the owner’s title of the Rizal property for himself. Because of this Ong
filed a case for the cancellation of the fictitious sale. The issue before the courts
is whether or not the Deed of Sale is void.
The RTC and CA ruled in Ong’s favor declaring the sale void. Upon reaching the
Supreme Court, the lower court decisions were affirmed. It was held that contracts
of sale where the consideration is absolutely simulated is null and void.
DOCTRINE: A contract of purchase and sale is null and and void and
produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as paid has in fact
never been paid by the purchaser to vendor.
FACTS:
1. Elvira Ong and Yu Bun Guan are husband and wife, married under Chinese
rites on April 1961. They lived together and had 3 children until Guan
abandoned them due to his promiscuity, volcanic temper, and other vices.
2. Out of Ong’s personal funds, she bought a parcel of land referred to as the
Rizal Property from a certain Aurora Seneris. This was registered under her
name.
3. During their marriage, they purchased, out of their conjugal funds, a house
and lot registered under their names.
4. During their separation in 1992, Ong agreed to Guan’s insistence that she
execute a Deed of Sale of the Rizal property in his favor. This is on the
promise that he would construct a commercial building for the benefit of their
children.
5. Guan suggested that the property be named to him alone so that she would
not incur any obligation. The consideration or price for the sale was
simulated.
6. Ong then executed a Deed of Sale with the consideration of P200,000 (which
was not payed). A new title was issued under the name of Guan.
7. Guan made insistent demands (using physical violence and threats) for the
delivery of the owner’s copy of the title. Guan also refused to perform his
promise. This led to Ong executing an Affidavit of Adverse Claim.
8. Guan filed before the RTC a Petition for Replacement of an owner’s duplicate
title. Attached to the petition is an Affidavit of Loss, where he made it appear
that the owner’s copy of the title was lost or misplaced.
9. The RTC granted such and issued a new owner’s copy of title to Guan.
10. Ong, upon discovery of the fraudulent acts of Guan, filed a case before the
courts to declare the sale of the Rizal property as null and void.
11. As defense Guan posits that before he became a Filipino citizen, the Rizal
property was already beings offered to him, but as he is an alien he cannot
acquire for himself.
a. He therefore used Ong as his ‘dummy’ and claims he used his
personal funds to buy said property.
b. He also claims that Ong is in pari delicate and cannot claim relief
from courts.
12. The RTC found that the Rizal property was the paraphernalia property of
Ong.
a. That the in pari delicate rule does not apply because it would only
apply to existing contracts with illegal cause or object, not to
simulated or fictitious contracts.
b. The Deed of Sale is likewise voided for having been simulated and
executing during the marriage of the parties.
13. On appeal to the CA, the court upheld the RTC ruling:
14. Hence, this petition.
ISSUE/s:
1. WON the Deed of Sale is void? - YES, consideration is absolutely simulated
RULING: WHEREFORE, the Petition is hereby DENIED and the assailed. Decision
AFFIRMED.
RATIO:
1. In Roganvilla v. Court of appeals the Court declared that a deed of sale, in
which the stated consideration had not in fact been paid, is null and void:
a. “..a contract of purchase and sale is null and and void and
produces no effect whatsoever where the same is without cause
or consideration in that the purchase price which appears thereon
as paid has in fact never been paid by the purchaser to vendor.”
2. In the present case, it is clear from the factual findings of both lower courts
that the Deed of Sale was completely simulated and, hence, void and
without effect. No portion of the P200,000 consideration stated in the Deed
was ever paid.
3. The principle of in pari delicto provides that when two parties are equally
at fault, the law leaves them as they are and denies recovery by either
one of them. However, this principle does not apply with respect to inexistent
and void contracts.
a. The principle of in pari delicto non oritur actio denies all recovery
to the guilty parties. It applies to cases where the nullity arises from
the illegality of the consideration or the purpose of the contract.
When two persons are equally at fault, the law does not relieve them.
The exception to this general rule is when the principle is
invoked with respect to inexistent contracts.
 Ong v Ong (Lij)
October 8, 1985 | Relova, J. | Consideration
PETITIONER: Imelda Ong, et al
RESPONDENTS: Alfredo Ong, et al
SUMMARY: Imelda Ong executed a Quitclaim deed in favor of Sandra Maruzzo
(minor). The quitclaim conveyed the ½ undivided portion of a piece of land in
Makati. The deed itself stated that the conveyance was for 1 peso and other
valuable considerations. 4 years later, Imelda revoked the Deed of Quitclaim and
donated her entire property to her son Rex.
Sandra, through her guardian filed a case to recover ownership. The trial court
ruled in favor of Sandra and held that it was a deed of sale. The IAC affirmed
stating that it was a deed of sale with a valid cause or consideration. The SC ruled
that the deed itself states “for other valuable consideration”. The consideration
was not only 1 peso. The document in itself is prima facie evidence of sufficient
cause or consideration andit is the burden of the person alleging the lack thereof
to the court. Even if a consideration of 1 peso is suspicious, that circumstance
alone will not justify the inference that the parties were not purchasers in good
faith and for value.
Also if it was a donation, acceptance would not be needed since it was a pure
donation with no condition imposed hence the donor would have no right to
protect his interest nor would the donee have any obligation to the donor.
DOCTRINE: Execution of a deed purpoting to convey ownership of realty is in
itself prima facie evidence of the existence of valuable consideration.
FACTS:
49. February 25, 1976, Imelda Ong, executed in favor of private respondent
Sandra Maruzzo (minor) a Quitclaim deed for the consideration of P1 and
other valuable considerations. The quitclaim transferred, realesed, assigned
and forever quit-claimed to Sandra Maruzzo all right to one half undivided
portion of the parcel of land. The property was in Makati and had an are of
125 square meters.
50. November 19, 1980, Imelda revoked the Deed of Quitclaim and on Januart
20, 1982 dontaed the entire property to her son Rex Ong-Jimenez.
51. 1983, Sandra, through her guardian (ad litem) Alfredo Ong, filed for recovery
of ownership and null of deed of donation over the portion belonging to her.
52. The petitioners plead that the Quitclaim deed is null and void inasmuch as it
is equivalent to a Deed of Donation, acceptance of which by the done is
necessary to give it validity. They also argued the minority of Sandra.
53. The trial court rendered judgement in favor of Sandra and held that the
Quitclaim is a deed of Sale, hence was a valid conveyance. The IAC affirmed
the appealed judgement and the held that the Quitclaim Deed is a conveyance
of property with a valid cause or consideration. That the consideration of One
peso which is clearly stated in the deed itself, the apparent inadequacy is of
no moment since it is usual practice to place a nominal amount although there
is valuable consideration given.
54. Not satisfied, petitioners came to the court to question the interpretation of
the said document.
55. April 15, 1985, Sandra replaced her guardian ad litem since she reached age
of majority.
ISSUE/s:
11. W/n there was consideration to constitute the deed as a sale? Yes
RULING: WHEREFORE, the appealed decision of the Intermediate Apellate Court
should be, as it is hereby AFFIRMED, with costs against herein petitioners.
RATIO:
28. A careful perusal of the subject deed reveals that the conveyance of the ½
undivided portion was in consideration of 1 peso and other valuable
considerations paid by respondent Sandra through her representative. Alfred
Ong to Imelda Ong. The consideration was not only 1 peso.
29. The execution of a deed purporting to convey ownership of a realty is in itself
prima facie evidence of the existence of a valuable consideration. The party
alleging lack of consideration has the burden of proving such allegations.
There is a legal presumption of sufficient cause or consideration supporting
a contract even if such cause is not stated therein(art.1345).
30. Even if the quitclaim was a deed, the acceptance of the donation in favor of
a minor by parents or guardian applies to onerous and conditional donations
where there are certain burdens. Acceptance by a guardian of a simple or pure
donation does not seem to be necessary. Kapunan v Casilan: the donation to
an incapacitated donnee does not need acceptance when it does notcontain a
condition.
31. The pronouncement of the IAC finds support in Court of Morales
Development Co., Inc. vs. CA which states the the 1 peso consideration is not
unusual. Deeds of conveyance adheringto the Anglo-Saxon practice of stating
the consideration is 1 peso when in fact the consideration is much more. Even
if the 1 peso consideration is suspicious, it does not necessarily justify the
inference that Reyes and the Abellas were not purchasers in good faith and
for value nor does it render it void ab initio. Bad faith and inadequacy of
monetary consideration do not render a conveyance inexistent.
 BAGNAS v. COURT OF APPEALS (PERRAL)
Aug. 10, 1989| NARVASA J.:| Price must be in “Money or its Equivalent”
PETTIONER: ISAAC, ENCARNATION, SILVESTRE, MAXIMINA, SIXTO, all
surnamed BAGNAS, and AGATONA ENCARNACION
RESPONDENT: COURT OF APPEAL, ROSA RETONI, TEOFILO
ENCARNACION, JOSE NAMBAYAN
SUMMARRY: Hilario Mateum, the owner of the disputed parcels of land in this case,
died leaving no ascendant and descendants, and was survived only by collateral
relatives. Mateum left no will and an estate consisting of 29 parcels of land wherein 10
of which are the subject of this proceeding. The conflict in this case started when the
distant and remote relatives of Mateum, private respondents, registered 2 deeds of sale,
each covering 5 parcels of land, purportedly executed by Mateum himself in favor of
private respondents, wherein private respondents were able to secure a title over 3 out
of 10 parcels of land. Also, written on the face of the deeds is a stipulation of the price
of said properties amounting only to P1.00 and services rendered or being rendered in
his favor as to constitute as consideration of the sale. Upon the knowledge of the nearest
collateral relatives of Mateum, his first cousins, about the said registration, they
immediately file an action against private respondents seeking to recover the ownership
and possession of the said lands; to Annul the deeds of sale, and declare such sale as
VOID for lack of Consideration thus, fictitious or simulated. Private respondents file a
motion to dismiss on the ground that petitioners have no capacity to impugn the
disposition of deceased with his property since they are mere collateral relative who
are not bound subsidiarily or principally and for lack of evidence which would
substantiate the claim of fraud. Trial Court dismissed the case agreeing with private
respondents that petitioners were not able to present proof of Fraud and that as
collateral rel. they do not have the right to question deceased disposition of his land.
Petitioner appealed with the CA but unfortunately the latter affirmed the ruling of trial
court that they have no right to impugn, no sufficient evidence of fraud and that there
is a presumption of the existence of consideration in duly registered deeds. Hence,
petitioner appealed to the SC. SC reversed the ruling of both trial court and CA and
declared that there was no valid contract of sale at all since the element of
consideration, price certain in money or its equivalent, is absent. Court also Annulled
the deeds of sale covering the 10 parcels of land, and awarded all the properties to
Petitioners.
DOCTRINE: At the onset, if a contract has no consideration, it is not merely
voidable, but VOID—and even collateral heirs may assail the contract. In this
case, there was no consideration. Price must be in money or its equivalent; services
are not the equivalent of money insofar as the requirement of price is concerned.
A contract is not one for sale if the consideration consists of services. Not only are
they vague, they are unknown and not susceptible of determination without a new
agreement between the parties.
FACTS:
1. Hilario Mateum of Kawit, Cavite, died on March 11,1964, SINGLE L,
without ascendants or descendants, and survived only by collateral relatives,
of whom petitioners herein, his first cousins, were the nearest.
2. Matueum left no will, no debt, and an estate consisting of 29 parcels of land
in Kawit and Imus cavite, 10 of which are involved in this case.
3. April 1964: Mateum’s distant or remote collateral relatives, herein private
respondents, registered 2 deeds of sale purportedly executed by Mateum in
their favor covering the disputed 10 parcels of land.
4. The 2 deeds covered 5 parcels of land each and both antedating Mateum’s
death by more than a year. (Feb. 6, 1963; March 4,1963)
5. Both deeds recited the consideration of the sale to be: “the Sum of ONE
PESO, Phil. Currency, and Services rendered, being rendered and to be
rendered for my benefit.” (originally stated in Tagalog)
6. What initially prompted the filing of this case, is that, on the strength of the
aforementioned deeds of sale, the private respondents were able to secure title
in their favor over 3 out of the 10 parcels of land.
7. May 1964: The petitioner filed a suit against private respondents in the CFI
(RTC), questioning the validity of said deeds of sale, advancing the following
arguments:
a. PETIONERS’ ARGUMENT:
i. The deeds of sale should be annulled for being fictitious,
fraudulent or falsified for lack of good and valuable
consideration;
ii. Assuming that both sales, in reality, were donations, the
same are void for want of acceptance embodied in a public
instrument;
iii. Claiming ownership pro indiviso of the lands subject of the
deeds by virtue of being intestate heirs of Mateum.,
petitioners prayed for recovery of ownership and
possession of said lands, accounting of the fruits thereof
and damages.
8. Originally, the complaint seeks the recovery of all 29 parcels of land,
however at the pre- trial the parties agreed that it be limited to the 10 parcels
subject of the questioned sales. Of the 10 parcels under litigation, 9 were
assessed having an aggregate value of P10,500.
9. The respondent filed their answer to the complaint positing the following
contentions:
a. PRIVATE RESPONDENTS’ POSITION:
i. They denied the alleged fictitious or fraudulent character
of the sales in their favor;
ii. Asserting that said sales were made for good and valuable
consideration;
iii. While they may have the effect of a donations, yet the
formalities and solemnities of donation are not required for
their validity and effectivity
 iv. That they are collateral relatives of Mateum and had done
many good things for him, nursing him in his last illness,
which services constituted the bulk of the consideration of
the sales;
v. (by way of affirmative defense) that the plaintiffs could not
question or seek annulment of the sales because they are
mere collateral relatives of the deceased vendor and were
not bound, principally or subsidiarity, thereby.
10. After petitioners presented their evidence, private respondents filed a motion
to dismiss reasserting their affirmative defense and that no evidence of fraud
tainting said transfers had been presented.
11. The Trial Court granted the motion to dismiss, holding:
a. On the Authority laid down in the case of Armentia, that the
petitioners, as mere collateral relatives, not forced heirs, of Mateum,
could not legally question the disposition made by said deceased
during his lifetime, regardless of whether said dispositions were
valid or not.
b. That plaintiffs’ evidence of alleged fraud was insufficient, the fact
that the deeds of sale each stated a consideration of P1 not being in
itself evidence of fraud or simulation.
12. From this ruling, the Petitioners appealed to the CA:
a. CA affirmed, adverting with approval the Trial Court’s reliance of
the Armentia ruling which, both courts saw as denying, without
exception, to collaterals, of a decedent, not forced heirs, the right to
impugn the latter’s disposition inter vivos of his property.
b. Declared that the testimonies of petitioners’ witnesses failed to
establish fraud of any kind or that Mateum had continued paying
taxes on the lands in question even after executing the deeds.
c. Ruled that since in duly notarized and registered deeds of sale
consideration is presumed, CA did not find any alternative
allegations of the appellants that the said deed of sail were in reality
donations.
13. Hence, this appeal to the SC.
ISSUE:
1. W/N the immense disproportion between the assessed value of the
parcels of land (10K+) and the actual price (1 peso) given under the
said sales plus the services rendered by Private respondents to
Mateum prior to his death constitutes a consideration as
contemplated in the law.—NO
a. W/N there was a valid contract of sale between Mateum and
herein private respondents? – NONE
2. W/N Bagnas et. al (petitioners) have the right to impugned or seek
annulment of the sales even if they were mere collateral relatives of
Mateum. – YES. Because deeds of sale is VOID.
RULING: Appealed decision of the CA is reversed. The Questioned transfers are
declared VOID and of no force or effect. Certificates of title as the private respondents
may have obtained over the properties subject of said transfers are hereby
ANNULLED. Respondent is ordered to return all the properties and to account for
their fruits during the time of their possession.
RATIO:
1. FIRST ISSUE
a. CITING AUTHORITIES:
i. Citing Montinola: a price of P1 for the sale of things worth
20K is so insignificant as to amount to no price at all,
and does not satisfy the law which, while not requiring for
the validity of a sale that the price be adequate, prescribes
that it must be real and not fictitious.
ii. Citing Manresa: that true price, while is essential to the
validity of a sale, means existent, real and effective price;
that is not the same as the concept of just price which
entails weighing and measuring, for economic
equivalence; but there is no need of such a close
examination when the immense disproportion between
such economic values is patent (a case of insignificant or
ridiculous price), the unbelievable amount of which at
once points out its inexistence.
iii. Art 1458 of CC, prescribing that a sale be for a “price
certain in money or its equivalent”, requires that the
equivalent is something representative of money. To the
effect that SERVICES ARE NOT EQUIVALENT OF
MONEY insofar as said requirement is concerned and a
contract is NOT A TRUE SALE where the PRICE
CONSISTS OF SERVICES or PRESTATION.
b. COURT’S RULING:
i. Without necessarily according all these assertions its full
concurrence, but upon the consideration alone that the
apparent gross, not to say enormous, disproportion
between the stipulated price (in each deed) of P l.00 plus
unspecified and unquantified services and the indisputably
valuable real estate allegedly sold worth at least
P10,500.00 going only by assessments for tax purposes
which, it is well-known, are notoriously low indicators of
actual value plainly and unquestionably demonstrates
that they state a false and fictitious consideration, and
no other true and lawful cause having been shown, the
Court finds both said deeds, insofar as they purport to be
sales, not merely voidable, but void ab initio.
 ii. Neither can the validity of said conveyances be defended
on the theory that their true causa is the liberality of the
transferor and they may be considered in reality
donations because the law also prescribes that donations of
immovable property, to be valid, must be made and
accepted in a public instrument, and it is not denied by the
respondents that there has been no such acceptance which
they claim is not required.
iii. THEREFOR, there was no Valid sale between deceased
Mateum and herein private respondents for want of
consideration that is a PRICE in MONEY or Its
EQUIVALENT.
2. SECOND ISSUE:
a. Citing Justice JBL Reyes in his opinion in Armentia:
I cannot bring myself to agree to the proposition that the heirs’ intestate
would have no legal standing to contest the conveyance made by the deceased
if the same were made without any consideration, or for a false and fictitious
consideration. For under the Civil Code, Art. 1409, par. 3, contracts with a
cause that did not exist at the time of the transaction are inexistent and void
from the beginning. The same is true of contracts stating a false cause
(consideration) unless the persons interested in upholding the contract
should prove that there is another true and lawful consideration therefor.

If therefore the contract has no causa or consideration, or the causa is false

and fictitious (and no true hidden causa is proved) the property allegedly
conveyed never really leaves the patrimony of the transferor, and upon the
latter's death without a testament, such property would pass to the
transferor's heirs intestate and be recoverable by them or by the
Administrator of the transferor's estate.

b. It therefore seems clear that insofar as it may be considered as

setting or reaffirming precedent, Armentia only ruled that transfers
made by a decedent in his lifetime, which are voidable for having
been fraudulently made or obtained, cannot be posthumously
impugned by collateral relatives succeeding to his estate who are not
principally or subsidiarily bound by such transfers. For the reasons
already stated, that ruling is not extendible to transfers which,
though made under closely similar circumstances, are void ab
initio for lack or falsity of consideration.
 REPUBLIC v. PHIL. RESOURCES DEV. CORP. (PELINO)
January 31, 1958 | Padilla, J. | Payment & Price
Petitioner: Republic of the Philippines
Respondents: Philippine Resources Development Corporation and the Court of
Appeals
Summary: BOP filed a case against Apostol for the remaining amount unpaid for
Apostol’s purchase of logs and other goods. PRDC filed a motion to intervene on the
ground that Apostol, as president of PRDC but without the consent of the stockholders,
disposed of goods that the company owns to BOP in order to pay his private debt; they
were not able to recover from BOP because BOP refused, which is why they wanted to
intervene. CFI denied the motion but the CA granted it since the materials paid off by
Apostol to the BOP belonged to PRDC. Hence, this petition. RP contends that PRDC
has no legal interest in the case and that price is always paid in terms of money, and
since what was paid was “in kind”, such is no payment at all. The issue in this case is
whether or not payment is limited to money. The SC held that payment is not limited
to money. RP based its argument on Art. 1458 of the CC in that since price is always
paid in money, if the payment is in kind, it is not payment at all, but the SC said that
the same article provides that payment may be “a price certain in money or its
equivalent”, which means that it need not be necessarily money.
Doctrine: Although Article 1458 of the Civil Code provides that “price is always paid
in terms of money and the supposed payment being in kind is no payment at all”, it also
provides that the purchaser can pay “a price certain in money or its equivalent” which
means that the payment of the price need not be money.
Facts:
1. Republic of the Philippines (RP), in representation of the Bureau of Prisons
(BOP) filed a case against Macario Apostol (Apostol) and Empire Insurance
Co. (EIC).
2. The complaint against Apostol avers the following:
a. Apostol submitted the highest bid (Php 450.00 per ton) for 100 tons of
Palawan Almaciga from the BOP; a contract was drawn and Apostol
obtained goods from the BOP valued at Php 15,878.59, but he only paid
Php 691.10, leaving a balance.
b. Apostol also submitted the best bid with the BOP for 3 million board feet
of logs at Php 88.00 per 1k board feet and a contract was drawn, to which
Apostol received logs valued at Php 65,830 and he failed to pau a balance
of Php 18,827.57.
c. EIC was also included in the complaint since they executed a
performance bond of Php 10k in favor of Apostol.
3. Apostol interposed payment as a defense and sought the dismissal of the
complaint.
4. Phil. Resources Dev. Corp. (PRDC) moved to intervene since when Apostol
was the president of the corporation, he disposed of certain goods that
belonged to the company, without the president and stockholders’ consents,
to the BOP in an attempt to settle his personal debts.
5. PRDC took steps to recover the said goods from the BOP but BOP refused,
which is why they wanted to intervene.
6. CFI denied the motion to intervene, but the CA granted.
7. CA found no merit in the contention of the respondents. Although the subject
of the original case is a sum of money, the materials belonging to the
corporation have been assigned by Apostol as tokens of payment to his
private debts with the BOP.
8. In this case, RP contends that:
a. PRDC has no legal interest in the matter in litigation because the suit is
only for a collection of a sum of money and that what PRDC seeks to
recover is ownership and possession of the G.I. sheets, black sheets, M.S.
plates, round bars and G.I. pipes that it claims to own.
b. Allowing the intervention would change the personal action into one ad
rem and would delay the disposition of the case.
c. Price is always paid in terms of money, and since what was paid was
“in kind”, such is no payment at all.
Issue: WON payment is limited to money. – NO.
Held: The judgment under review is AFFRIMED, without pronouncement as to costs.
Ratio:
On whether payment is limited to money
• RP: Based on Art. 1458 of the CC, price is always paid in terms of money
and since the payment is in kind, it is no payment at all.
• SC: The same article provides that the purchaser may pay “a price certain in
money or its equivalent”, which means that payment need not be in money.
• Whether the aforementioned sheets, bars, plates, or pipes claimed by PRDC
belong to it and delivered to BOP by Apostol in payment of his account is
sufficient payment. Should the CFI hold that it is as to credit Apostol with
the value or price of the materials, PRDC would be affected if indeed their
claim is true.
•
On whether counsel for PRDC has no authority to represent/sue in its behalf
• RP: Counsel of PRDC has no authority to sue in its behalf.
• SC: Power of a corporation to sue and be sued in any court is lodged in the
board of directors which exercises its corporate powers, and not in the
president, as contended by RP.
o CA was satisfied that counsel was duly authorized by his client to file
the complaint-in-intervention and to appear on its behalf; findings of the
CA should not be disturbed.
o Granting that he is not authorized, as stockholder and director of PRDC,
he may sue on its behalf and file the complain-in-intervention with the
court.
HYATT ELEVATORS AND ESCALATORS CORP. v. CATHEDRAL
HEIGHTS BLDG. COMPLEX ASSOCIATION (MICA)
December 1, 2010 | Peralta, J. | Unjust Enrichment
PETITIONER: Hyatt Elevators and Escalators Corporation
RESPONDENTS: Cathedral Heights Building Complex Association, Inc.
SUMMARY: Hyatt and Cathedral entered into a service agreement wherein,
Hyatt would maintain 4 of the elevators of Cathedral. Hyatt sent the respondent
demand letters for the payment of the maintenance expenses but Cathedral refused
to pay. RTC said that there was a contract of sale. CA reversed this. It ruled that
Cathedral did not give its consent to the purchase of the spare parts installed. SC
held that there is indeed no contract of sale because The fixing of the price can
never be left to the decision of one of the contracting parties. But a price fixed
by one of the contracting parties, if accepted by the other, gives rise to a
perfected sale. In this case, Hyatt was the only one who determined the price.
However, respondent is partly to blame. They received the parts but failed to
remind the petitioners to follow the SOP. It is not an uncommon practice for
contractors to deliver materials and to bill the client at a later date, specially
since the parties in the present action have an existing Service Agreement.
Withal, it is indisputable that the repairs made on the elevators ultimately
redounded to the benefit of respondent for without said repairs, the elevators
would not be operational. Under Article 2142 of the Civil Code, such acts
“give rise to the juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of another.” It would
certainly be unjust for respondent to benefit from the repairs done by
petitioner only to refuse payment because the papers submitted were not in
order.
DOCTRINE: By the contract of sales, one of the contracting parties obligates
himself to transfer the ownership of and deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent. The absence of
any of the essential elements will negate the existence of a perfected contract
of sale. The sale is inefficacious when the price is neither certain or
ascertainable. But if the buyer appropriates the object, he must pay a
reasonable price. (Art. 1474)
FACTS:
1. This case is a petition for review on certiorari under Rule 45 of the Rules of
Court.
2. Oct. 1, 1994—Hyatt Elevators and Escalators Corp (Hyatt) entered into an
“Agreement to Service Elevators” (Service Agreement) with Cathedral
Heights Building Complex Association, Inc. (Cathedral).
3. Under the Service Agreement: Hyatt would maintain four passenger elevators
installed in Cathedral’s building. This included monthly inspection,
adjustment and lubrication of machinery, motors, control parts and accessory
equipments, including switches and electoral wirings (BASICALLY
MAINTAIN NGA NAMAN)
4. Hyatt claims that during the period of April 1997 to July 1998, the expenses
amounted to P1,161,933.47. After a series of demand letters, Cathedral still
refused to pay.
5. Hyatt filed a complaint for sum of money against the respondent before the
RTC.
6. RTC: ruled in favor of the petitioner ordering the latter to pay:
a. P1,161,933.27 – costs of the elevator parts used, and for services
and maintenance, with legal rate of interest from filing
b. 50,000 – attorney’s fees
c. cost of suit
7. RTC also held that based on the sales invoices presented by petitioner, a
contract of sale of goods was entered into between the parties. Since
petitioner was able to fulfill its obligation, it was incumbent on respondent to
pay for the services rendered.
8. RTC also said that the claim of the respondent that the parts were never
delivered and that the repairs were questionable was a mere afterthought. MR
was denied.
9. CA reversed the decision. It said that Cathedral did not give its consent to the
purchase of the spare parts allegedly installed in the defective elevators. Also,
there was no perfected contract of sale because there was no meeting of minds
upon the price.
10. CA ruled that the Service Agreement did not give petitioner the unbridled
license to purchase and install any spare parts and demand payment accdg to
its own dictated price. MR was denied
ISSUE/s:
12. WoN there is a perfected contract of sale between petitioner and respondent
with regard to the spare parts delivered and installed by petitioner on the four
elevators of respondent at its hospital under the agreement to service
elevators as to render respondent liable for their prices – No but, since there
was benefit to the respondent, they should still pay.
RULING: Wherefore, premises considered, the petition is granted.
RATIO:
Procedural issue:
1. Respondent claimed that the petition should be denied due course for raising
questions of fact.
2. The determination of whether there exists a perfected contral of sale is
essentially a question of fact
3. It is a well-settled rule that the jurisdiction of the SC is limited to reviewing
errors of law and findings of fact of the CA are conclusive. However, there
are exceptions: (listed sa case but yung nag-aapply isJ
 a. When the findings are contrary to those of the trial court
4. RTC and the CA arrived at conflicting findings of fact
Substantive issue:
1. Petitioner contends that the CA erred when it ruled that there was no perfected
contract of sale between petitioner and respondent with regard to the spare
parts delivered and installed
2. According to the Service Agreement: respondent “shall pay whatever
additional charges in connection with the repair, supply of parts…”
3. Respondnet claimed that petitioner had not complied with the Standard
Operating Procedure (SOP) following a breakdown of an elevator
4. According to Celestino Aguilar, respondent’s witness, the SOP following an
elevator breakdown is as follows: (a) Hyatt’s technician will be notified, (b)
the technician will evaluate the problem and if it is possible, to repair it right
there and then, (c) present the defective parts to the building administrator
and a quotation is made, (d) this is indorsed to Cathedral’s Finance Dept, (e)
a purchase order is prepared and submitted for the Board of Directors for
approval
5. Respondent contends that petitioner had failed to follow the SOP since no
purchase orders form the Finance Manager or Board of Directors relating to
the supposed parts used were secured prior to the repairs
6. The SOP was not embodied in the agreement. However, the SOP was an
industry practice.
7. Petitioner’s excuse was that it was the respondent who requested that the SOP
not be followed
8. Petitioner presented Wilson Sua, its finance manager: (testimony in Court):
a. Process: call technician, dispatch technicians, request the parts to the
office, install parts to be checked for a couple of weeks, if it is
correct then they will secure the approval. Afterwards, issue
invoices and delivery receipts
b. All are in writing and written within the day of the torouble
c. Install before rdelivery receipt because there was an agreement
between the building engineer and Hyatt’s service manager that the
elevator should be running in good condition at all times, breakdown
should be at least one day only. If there’s a complaint that the parts
were not actually installed or delivered or did not agree with the
price indicated, then it should bring its complaint or disagreement to
the attention of petitioner
d. This was a verbal agreement
9. Petitioner claimed that this was because of the special circumstances of the
building being a hospital (ST. LUKES, IN CASE TANUNGIN)
10. Following the procedure testified by Sua, there was no complaint or
disagreement as to the prices of the spare parts.
11. Burden of proof is with the plaintiff. Court found Sua’s testimony insufficient
because a mere allegation is not evidence.
12. Petitioner did not present the service manager and Engr. Tisor who were to
the two individuals who were privy to the transactions. Petitioner also did not
offer any evidence that the engineer accepted the parts.
13. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and deliver a determinate thing, and the other to pay
therefore a price certain in money or its equivalent. Absence of any of the
essential requirements negates the existence of a perfected contract of sale
14. Based on the record, it was only Hyatt who determined the price, wihout the
acceptance or conformity of CHBCAI. Petitioner failed to secure the
necessary purchase orders form Cathedral’s Board of Directors or Finance
Manager
15. From the moment the determination of the pirce is left to the judgment of one
of the contracting parties, it cannot be said that there has been an arrangement
on the price since it is not possible for the other contracting party to agree on
something of which he does not know beforehand
16. The fixing of the price can never be left to the decision of one of the
contracting parties. But a price fixed by one of the contracting parties, if
accepted by the other, gives rise to a perfected sale.
17. Respondent is partly to blame because respondent and its employees never
once questioned the authority of petitioner to install replacement parts during
the repairs. They should have reminded them to follow the SOP
18. Also, based on the testimony of Mr. Perfecto Cruz, respondent’s witness: The
security guards were aware of the installation of parts done; that their
employees accepted the defective parts replaced; and that the information
clerk was authorized to accept deliveries and that the parts received were used
to repair their elevators.
19. The trouble call reports, sales invoices and delivery receipts were also signed
by respondent’s employees
20. On a final note, the Court disagreed with the findings of the CA that the
claims of petitioner are questionable, because the date of the sales invoice
and the date stated in the corresponding delivery receipt are too far
apart.
21. It is not an uncommon practice for contractors to deliver materials and
to bill the client at a later date, specially since the parties in the present
action have an existing Service Agreement.
22. Withal, it is indisputable that the repairs made on the elevators
ultimately redounded to the benefit of respondent for without said
repairs, the elevators would not be operational.
23. Under Article 2142 of the Civil Code, such acts “give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another.”
24. It would certainly be unjust for respondent to benefit from the repairs
done by petitioner only to refuse payment because the papers submitted
were not in order.
 Navarra v. Planters Development bank (Cristelle)
July 12, 2007| GARCIA, J.| Manner of Payment” of Price Is Essential (Art. 1179)
PETITIONER: SPS. JORGE NAVARRA and CARMELITA BERNARDO
NAVARRA and RRRC DEVELOPMENT CORPORATION,
RESPONDENTS: PLANTERS DEVELOPMENT BANK and ROBERTO
GATCHALIAN REALTY, INC.
SUMMARY: Navarra spouses are the owners of 5 parcels of land in BF Homes,
Paranaque. In 1982, they obtained a loan of P1.2M from Planters Bank, secured by a
mortgage over these parcels of land. Unfortunately, they defaulted to pay their
obligation and thus, Planters Bank foreclosed the property. They were not able to
redeem the property as well. On the other hand, RRRC Dev. Corp. is a real estate
company owned by the parents of Carmelita Navarra. It obtained a loan from Planters
Bank secured by a mortgage over another set of properties of RRRC. Likewise, it
defaulted and the properties were foreclosed. However, RRRC was able to negotiate
with the Bank for the redemption of the properties by was of a concession whereby
the Bank allowed RRRC to refer to it would-be buyers of the properties who would
remit their payments directly to the Bank, which would then be considered as
redemption price for RRRC. Eventually, these were sold and payments made directly
to the Bank were in excess by P300K for the redemption price. In the meantime, Jorge
Navarra requested that they repurchase their house and lot for P300K, which the Bank
agreed. Accordingly, Jorge Navarra requested further that the excess payment of
RRRC be applied as down payment for their repurchase. For his failure to submit a
board resolution from RRRC authorizing such, the Bank refused to apply the excess
to his repurchase. In 1988, a portion of the lots was sold to Gatchalian Realty. Navarra
spouses filed for specific performance against Planters Bank, alleging that there was
a perfected contract of sale (P1.8M, with P300K downpayment). RTC ruled in favor
of Navarra spouses. CA reversed.
ISSUE: W/N there was a valid contract of sale? NO. While the letters indicate the
amount of P300K as downpayment, they are completely silent as to how the
succeeding installment payment shall be made. At most, the letters merely
acknowledge that the down payment was agreed upon by the parties. However, this
fact cannot lead to the conclusion that a contract of sale had been perfected. Before a
valid and binding contract of sale can exist, the manner of payment of the purchase
price must first be established since the agreement on the manner of the payment goes
into the price such that a disagreement on the manner of payment is tantamount to a
failure to agree on the price. Moreover, the letter/offer failed to specify a definite
amount of the purchase price for the sale/repurchase of the properties. It merely stated
that it will be based on the redemption value plus accrued interest at the prevailing
rate up to the date of the sales contract. Clearly, the lack of a definite offer on the part
of the Navarra spouses could not possibly serve as the basis of their claim that the
sale was perfected.
DOCTRINE: A definite agreement on the manner of payment of price is an essential
element in the formation of a binding and enforceable contract sale; without which
the sale is void and an action for specific performance must fail.
FACTS:
1. Spouses Jorge and Carmelita Navarra obtained loan of 1.2 M from Planters
Bank.
2. They mortgaged 5 LOTS for security. Couple failed to pay, so the bank
foreclosed on the mortgage and sold it for more than 1.3 M. Bank was highest
bidder. One year redemption expired w/o it having been redeemed by couple.
3. RRRC Development Corporation on the other hand, a real estate company
owned by the parents of Carmelita, obtained a loan with the same bank.
4. They also mortgaged a certain property as security. They also failed to pay
and the mortgaged assets was foreclosed. BUT they were able to negotiate
with the bank by way of concession.
5. Eventually, the foreclosed properties of RRRC were sold to third persons
whose payments were directly made to the Bank, were in excess by
P300,000.00 for the redemption price.
6. In July 1985 - Back to the spouses, Jorge sent a letter to the bank proposing
to repurchase the said 5 LOTS previously foreclosed.
7. In response, Planters Bank, thru its Vice-President wrote back Navarra via a
letter agreeing to the request and telling him to see the Head of the bank’s
Acquired Assets Unit for the details of the transaction so that they may work
on the necessary documentation.
8. In August 1985 - Jorge went to see the Head with a letter requesting that the
excess payment ofP300,000.00 in connection with the redemption made by
the RRRC be applied as down payment for the Navarras’ repurchase of their
foreclosed properties but because the amount of P300,000.00 was sourced
from a different transaction between RRRC and Planters Bank and involved
different debtors, the Bank required Navarra to submit a board resolution
from RRRC authorizing him to negotiate for and its behalf and empowering
him to use the amount
9. In Jan 1987 - Planters Bank sent a letter to Jorge Navarra informing him
that it could not proceed with the documentation of the proposed
repurchase of the foreclosed properties on account of his non-
compliance with the Bank’s request for the submission of the needed
board resolution of RRRC.
10. Navarra claimed having already delivered copies of the required board
resolution to the Bank. The Bank, however, did not receive said copies.
11. In June 1987 - Navarras filed their complaint for Specific Performance
against bank. Planters Bank asserted however that there was no perfected
contract of sale because the terms and conditions for the repurchase have not
yet been agreed upon
12. Sep 1988 – Planters bank sold the properties to Gatchalian Realty
13. RTC ruled for the Navarra spouses and said there was perfected Contract of
Sal.
14. The CA reversed the trial court ruling.
ISSUES: Whether or not there was a perfected Contract of sale? NO. SC upheld the
CA decision.
RULING: WHEREFORE, the petition is DENIED and the assailed decision and Here, what is dramatically clear is that there was no meeting of minds vis-
resolution of the Court of Appeals are AFFIRMED. No pronouncement as to costs. a-vis the price, expressly or impliedly, directly or indirectly.
SO, ORDERED.
Stages of contracts: Negotiation begins from the time the prospective contracting
RATIO: parties manifest their interest in the contract and ends at the moment of their
1. Navarras assert that the following exchange of correspondence between them agreement. Perfection or birth of the contract takes place when the parties agree upon
and Planters Bank constitutes the offer and acceptance. The July 1985 letter the essential elements of the contract, i.e., consent, object and price. Consummation
being the offer from Navarra and the Aug 1985 letter-reply from the Bank occurs when the parties fulfill or perform the terms agreed upon in the contract,
the acceptance. BUT SUCH WERE NOT “CERTAIN OFFER” and culminating in the extinguishment thereof.
“ABSOLUTE ACCEPTANCE”. Negotiation: formally initiated by an offer which should be certain with respect to
2. While the foregoing letters indicate the amount of P300,000.00 as down both the object and the cause or consideration of the envisioned contract. In order to
payment, they are, however, completely silent as to how the succeeding produce a contract, there must be acceptance, which may be express or implied, but it
installment payments shall be made. At most, the letters merely acknowledge must not qualify the terms of the offer. The acceptance of an offer must be
that the down payment of P300,000.00 was agreed upon by the parties. unqualified and absolute to perfect the contract. In other words, it must be identical
3. However, this fact cannot lead to the conclusion that a contract of sale had in all respects with that of the offer so as to produce consent or meeting of the minds.
been perfected. Quite recently, this Court held that before a valid and binding
contract of sale can exist, the manner of payment of the purchase price
must first be established since 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.
4. Navarras’ letter/offer failed to specify a definite amount of the purchase price
for the sale/repurchase of the subject properties. It merely stated that the
"purchase price will be based on the redemption value plus accrued interest
at the prevailing rate up to the date of the sales contract."
5. The ambiguity of this statement only bolsters the uncertainty of the Navarras’
so-called "offer" for it leaves much rooms for such questions.
6. Also, not clear insofar as concerned the exact number of years that will
comprise the long-term payment scheme. As we see it, the absence of a
stipulated period within which the repurchase price shall be paid all the more
adds to the indefiniteness of the Navarras’ offer.
7. Further, the tenor of Planters Bank’s letter-reply negates the contention
of the Navarras that the Bank fully accepted their offer. The letter
specifically stated that there is a need to negotiate on the other details of the
transaction before the sale may be formalized.
8. Such statement in the Bank’s letter clearly manifests lack of agreement
between the parties as to the terms of the purported contract of
sale/repurchase, particularly the mode of payment of the purchase price and
the period for its payment. The law requires acceptance to be absolute and
unqualified.
9. In this case one essential element of a contract of sale is wanting: the price
certain. There can be no contract of sale unless the following elements
concur: (a) consent or meeting of the minds; (b) determinate subject
matter; and (c) price certain in money or its equivalent.
10. Such contract is born or perfected from the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
 MANILA METAL CONTAINER CORPORATION v PNB (Clark)
December 20, 2006 | Callejo, Sr. J. | Negotiation
PETITIONER: Manila Metal Container Corporation, Reynaldo C. Tolentino
RESPONDENTS: Philippine National Bank, DMCI-Project Developers, Inc
SUMMARY: Manila Metal was the owner of 8,015 square meters of parcel of
land located in Mandaluyong City, Metro Manila. To secure a P900,000 loan it
had obtained from respondent Philippine National Bank, Manila Metal executed
a real estate mortgage over the lot. PNB later granted petitioner a new credit
accommodation. On August 5, 1982, PNB filed a petition for extrajudicial
foreclosure of the real estate mortgage and sought to have the property sold at
public auction. After due notice and publication, the property was sold at public
action where PNB was declared the winning bidder. Manila Metal sent a letter to
PNB, requesting it to be granted an extension of time to redeem/repurchase the
property. Some PNB personnel informed that as a matter of policy, the bank does
not accept “partial redemption”. Since Manila Metal failed to redeem the property,
the Register of Deeds cancelled TCT No. 32098 and issued a new title in favor of
PNB. Meanwhile, the Special Asset Management Department (SAMD) had
prepared a statement of account of Manila Metal’s obligation. It also
recommended the management of PNB to allow Manila Metal to repurchase the
property for P1,574,560. PNB rejected the offer and recommendation of SAMD.
It instead suggested to Manila Metal to purchase the property for P2,660,000, in
its minimum market value. Manila Metal declared that it had already agreed to
SAMD’s offer to purchase for P1,574,560.47 and deposited a P725,000. Manila
Metal filed a complaint against PNB for specific performance. RTC ruled in favor
PNB. CA affirmed. The issue is WoN Manila Metal and PNB had entered into a
perfected contract for Manila Metal to repurchase the property from PNB. The SC
held that there is no perfected contract of sale. The statement of account prepared
by the SAMD stating that the net claim of respondent as of June 25, 1984
was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's
offer to purchase the property. The statement is but a computation of the amount
which petitioner was obliged to pay in case respondent would later agree to sell
the property. What the parties had at best was a negotiation wherein there is still
no acceptance of the offer.
DOCTRINE: A negotiation is formally initiated by an offer, which, however,
must be certain. At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer may be
withdrawn; the withdrawal is effective immediately after its manifestation. To
convert the offer into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal, unconditional and
without variance of any sort from the proposal.
FACTS:
1. Manila Metal Container Corporation is an owner of an 8,015 sqm land
located in Mandaluyong, Metro Manila. The property was covered by TCT
in the Registry of Deeds of Rizal. To secure a P 900,000 loan it had obtained
from PNB, Manila Metal executed a real estate mortgage over the lot. PNB
later granted Manila Metal a new credit accommodation of P1,000,000. On
November 16, 1973, Manila Metal executed an Amendment of Real Estate
Mortgage over its property.
2. Manila Metal secured another loan of P653,000 from PNB, payable in
quarterly installments of P32,650, plus interests and other charges.
3. On August 5, 1982, PNB filed a petition for extrajudicial foreclosure of the
real estate mortgage and sought to have the property sold at public auction
for P911,532.21, Manila Metal's outstanding obligation to PNB as of June
30, 1982, plus interests and attorney's fees.
4. After due notice and publication, the property was sold at public auction on
September 28, 1982 where PNB was declared the winning bidder
for P1,000,000. The Certificate of Sale issued in its favor was registered with
the Office of the Register of Deeds of Rizal, and was annotated at the dorsal
portion of the title on February 17, 1983. Thus, the period to redeem the
property was to expire on February 17, 1984.
5. Manila Metal sent a letter dated August 25, 1983 to PNB, requesting that it
be granted for a one year extension from February 17, 1984 to
redeem/repurchase the property. PNB informed petitioner that the request had
been referred to its Pasay City Branch for appropriate action and
recommendation.
6. Some PNB Pasay City Branch personnel informed Manila Metal that as a
matter of policy, the bank does not accept “partial redemption.” Since Manila
Metal failed to redeem the property, the Register of Deeds cancelled TCT
No. 32098 on June 1, 1984, and issued a new title in favor of PNB. Manila
Metal’s offers had not yet been acted upon by PNB.
7. Meanwhile, the Special Assets Management Department (SAMD) had
prepared a statement of account, and as of June 25, 1984 Manila Metal’s
obligation amounted to P1,574,560.47. This included the bid price
of P1,056,924.50,.
8. When apprised of the statement of account, Manila Metal remitted P725,000
to PNB as “deposit to repurchase,” and Official Receipt No. 978191 was
issued to it. In the meantime, the SAMD recommended to the management
of PNB that Manila Metal be allowed to repurchase the property
for P1,574,560.
9. On November 14, 1984, the PNB management informed Manila Metal that it
was rejecting the offer and the recommendation of the SAMD. It was
suggested that Manila Metal purchase the property for P2,660,000, its
minimum market value.
a. PNB gave Manila Metal until December 15, 1984 to act on the
proposal; otherwise, its P725,000.00 deposit would be returned and
the property would be sold to other interested buyers.
 b. Manila Metal declared that it had already agreed to the SAMD's
offer to purchase the property for P1,574,560.47, and that was why
it had paid P725,000.00. Manila Metal warned PNB that it would
seek judicial recourse should PNB insist on the position.
10. On June 4, 1985, PNB informed Manila Metal that the PNB Board of
Directors had accepted Manila Metal's offer to purchase the property, but
for P1,931,389.53 in cash less the P725,000.00 already deposited with it.
Manila Metal did not respond, so PNB requested Manila Metal to submit an
amended offer to repurchase. Manila Metal rejected PNB's proposal.
11. Manila Metal filed a complaint against PNB for “Annulment of Mortgage
and Mortgage Foreclosure, Delivery of Title, or Specific Performance with
Damages.”
a. PNB averred, as a special and affirmative defense, that it had
acquired ownership over the property after the period to redeem had
elapsed. It claimed that no contract of sale was perfected between it
and Manila Metal after the period to redeem the property had
expired.
12. On March 18, 1993, Manila Metal offered to repurchase the property
for P3,500,000. The offer was however rejected by PNB. According to it, the
prevailing market value of the property was approximately P30,000,000, and
as a matter of policy, it could not sell the property for less than its market
value On June 21, 1993, Manila Metal offered to purchase the property
for P4,250,000.00 in cash. The offer was again rejected by PNB on
September 13, 1993.
13. RTC ruled against Manila Metal. It ordered PNB to refund the P725,000
deposit petitioner had made. The trial court ruled that there was no perfected
contract of sale between the parties; hence, petitioner had no cause of action
for specific performance against respondent.
a. Respondent had rejected petitioner's offer to repurchase the
property. Petitioner, in turn, rejected the terms and conditions
contained in the June 4, 1985 letter of the SAMD.
b. While petitioner had offered to repurchase the property per its letter
of July 14, 1988, the amount of P643,422.34 was way below
the P1,206,389.53 which respondent PNB had demanded.
c. The P725,000.00 remitted by petitioner to respondent PNB on June
4, 1985 was a “deposit,” and not a downpayment or earnest money.
d. Meanwhile, Manila Metal’s Board of Directors approved Resolution
No. 3-004, where it waived, assigned and transferred its rights over
the property covered by TCT No. 33099 and TCT No. 37025 in
favor of Bayani Gabriel, one of its Directors. Thereafter, Bayani
Gabriel executed a Deed of Assignment over 51% of the ownership
and management of the property in favor of Reynaldo Tolentino,
who later moved for leave to intervene.
14. CA affirmed the decision of the RTC. It declared that petitioner obviously
never agreed to the selling price proposed by respondent PNB
(P1,931,389.53) since petitioner had kept on insisting that the selling price
should be lowered to P1,574,560.47. Clearly therefore, there was no meeting
of the minds between the parties as to the price or consideration of the sale.
a. Petitioner's original offer to purchase the subject property had not
been accepted by respondent PNB. In fact, it made a counter-offer
through its June 4, 1985 letter specifically on the selling price;
petitioner did not agree to the counter-offer; and the negotiations did
not prosper.
b. Moreover, petitioner did not pay the balance of the purchase price
within the sixty-day period set in the June 4, 1985 letter of
respondent PNB. Consequently, there was no perfected contract of
sale, and as such, there was no contract to rescind.
ISSUE:
1. WoN Manila Metal and PNB had entered into a perfected contract for Manila
Metal to repurchase the property from PNB – NO
RULING: In sum, then, there was no perfected contract of sale between petitioner
and respondent over the subject property. IN LIGHT OF ALL THE
FOREGOING, the petition is DENIED. The assailed decision is AFFIRMED.
Costs against petitioner Manila Metal Container Corporation.
RATIO:
1. The ruling of the appellate court that there was no perfected contract of sale
between the parties on June 4, 1985 is correct. The absence of any of the
essential elements will negate the existence of a perfected contract of sale.
2. A definite agreement as to the price is an essential element of a binding
agreement to sell personal or real property because it seriously affects the
rights and obligations of the parties. Price is an essential element in the
formation of a binding and enforceable contract of sale. The fixing of the
price can never be left to the decision of one of the contracting parties. But a
price fixed by one of the contracting parties, if accepted by the other, gives
rise to a perfected sale.
3. A contract of sale is consensual in nature and is perfected upon mere meeting
of the minds. When there is merely an offer by one party without acceptance
of the other, there is no contract. When the contract of sale is not perfected,
it cannot, as an independent source of obligation, serve as a binding juridical
relation between the parties.
4. The stages of a contract of sale are as follows:
a. Negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time the
contract is perfected;
b. Perfection, which takes place upon the concurrence of the essential
elements of the sale which are the meeting of the minds of the parties
as to the object of the contract and upon the price; and
 c. Consummation, which begins when the parties perform their 12. We do not agree with petitioner's contention that the P725,000.00 it had
respective undertakings under the contract of sale, culminating in remitted to respondent was “earnest money” which could be considered as
the extinguishment thereof. proof of the perfection of a contract of sale under Article 1482 of the New
5. A negotiation is formally initiated by an offer, which, however, must be Civil Code: ART. 1482. Whenever earnest money is given in a contract of
certain. At any time prior to the perfection of the contract, either sale, it shall be considered as part of the price and as proof of the perfection
negotiating party may stop the negotiation. At this stage, the offer may of the contract.
be withdrawn; the withdrawal is effective immediately after its 13. This contention is likewise negated by the stipulation of facts which the
manifestation. To convert the offer into a contract, the acceptance must parties entered into in the trial court: The deposit of P725,000 was accepted
be absolute and must not qualify the terms of the offer; it must be plain, by PNB on the condition that the purchase price is still subject to the approval
unequivocal, unconditional and without variance of any sort from the of the PNB Board. Thus, the P725,000 was merely a deposit to be applied as
proposal. *highlight of the syllabus part of the purchase price of the property, in the event that respondent would
6. The rule is that except where a formal acceptance is so required, although the approve the recommendation of SAMD for respondent to accept petitioner's
acceptance must be affirmatively and clearly made and must be evidenced by offer to purchase the property for P1,574,560.47. Unless and until the
some acts or conduct communicated to the offeror, it may be shown by acts, respondent accepted the offer on these terms, no perfected contract of sale
conduct, or words of the accepting party that clearly manifest a present would arise. Absent proof of the concurrence of all the essential elements of
intention or determination to accept the offer to buy or sell. Thus, acceptance a contract of sale, the giving of earnest money cannot establish the existence
may be shown by the acts, conduct, or words of a party recognizing the of a perfected contract of sale.
existence of the contract of sale. 14. Per its letter to petitioner dated June 4, 1985, the respondent had decided to
7. A qualified acceptance or one that involves a new proposal constitutes a accept the offer to purchase the property for P1,931,389.53. However, this
counter-offer and a rejection of the original offer. A counter-offer is amounted to an amendment of respondent's qualified acceptance, or an
considered in law, a rejection of the original offer and an attempt to end the amended counter-offer, because while the respondent lowered the purchase
negotiation between the parties on a different basis. Consequently, when price, it still declared that its acceptance was subject to the following terms
something is desired which is not exactly what is proposed in the offer, such and conditions.
acceptance is not sufficient to guarantee consent because any modification or 15. It appears that although respondent requested petitioner to conform to its
variation from the terms of the offer annuls the offer. The acceptance must amended counter-offer, petitioner refused and instead requested respondent
be identical in all respects with that of the offer so as to produce consent or to reconsider its amended counter-offer. Petitioner's request was ultimately
meeting of the minds. rejected and respondent offered to refund its P725,000 deposit.
8. In this case, petitioner had until February 17, 1984 within which to redeem
the property. However, since it lacked the resources, it requested for more
time to redeem/repurchase the property under such terms and conditions
agreed upon by the parties. The request, which was made through a letter
dated August 25, 1983, was referred to the respondent's main branch for
appropriate action.
9. When the petitioner was told that PNB did not allow “partial redemption,” it
sent a letter to PNB’s President reiterating its offer to purchase the
property. There was no response to petitioner's letters dated February 10 and
15, 1984.
10. The statement of account prepared by the SAMD stating that the net claim of
respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an
unqualified acceptance to petitioner's offer to purchase the property. The
statement is but a computation of the amount which petitioner was obliged to
pay in case respondent would later agree to sell the property.
11. There is no evidence that the SAMD was authorized by respondent's Board
of Directors to accept petitioner's offer and sell the property
for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would
not bind respondent.
 TAYAG v. LACSON (Ella)
March 25, 2004 | Callejo Sr., J. | Option Contract
PETITIONER: Herminio Tayag
RESPONDENTS: Angelica Tiotuyco Vda. de Lacson, and her children Felicidad
Mardo
SUMMARY: The Lacsons are registerd owners of 3 parcels of land in Pampanga.
The properties are tenanted agricultural lands administered by Renato Espinosa
for the owner. On Mar. 17, 1996, 2 group of original farmers/tillers (35 farmers in
total) individually executed in favor of Tayag separate Deeds of Assignment in
which the assignees assigned to Tayag their respective rights as tenants/tillers of
the landholdings possessed and tilled by them for and in consideration of P50.00
per sqm. Said amount is payable when the legal impediemnts to the sale of the
property to Tayag no longer existed. Tayag was also granted the exclusive right to
buy if and when the Lacsons, with the concurrence of the tenants, agreed to sell
the property. Meanwhile, Tayag gave different sums of money as partial payments
and the tenants issued receipts. On July 24, 1996, Tayag called a meeting with the
tenants to discuss the implementation of the terms of their separate Deeds of
Assignments. But the farmer-tenants ultimately decided to sell their rights &
interests to Lacsons, the owners. So Tayag filed a complaint against the tenants
and the Lacsons, for the court to fix a period within which to pay the agreed
purchase price as provided for in the Deeds of Assignment. The SC decided
against Tayag. First, the contract between Tayag and the farmer-tenants is an
Option Contract. The obligation to pay to each of the farmers the balane of the
purchase price was conditioned on the occurrence of 1) the Lacsons agreeing to
sell the property to Tayag, 2) legal impediments on the land no longer exist, and
3) Tayag decided to buy the property. However, the first 2 conditions are absent
in this case. Second, there is actually no perfected option contract. An Option
Contract is a separate & distinct contract from which the parties may enter upon
the conjunction of the option. An option imposes no binding obligation on the
person holding the option aside from the consideration for the offer. Until accepted
(exercised), it is not treated as a sale. In this case, the tenant-farmers are not the
registered owners of the land so they could not legally grant to Tayag the option
and the exclusive right to buy the property. Furthermore, it is against public policy
because the Land Reform Code and the CARP law specifically provides that if the
Lacsons agreed to sell the property, the tenant-farmers shall have preferential right
to buy. Tayag wanted to get the rights over the lands even before the tenants could
actually get the land.
DOCTRINE: An Option Contract is a condition offered by which the owner
stipulates with another that the latter shall have the right to by the property at a
fixed certain time, or under, or in compliance with certain terms and conditions.
An option contract is a separate and distinct contract from which the parties may
enter into upon the conjunction of the option. An option imposes no binding
obligation on the person holding the option aside from the consideration for the
offer. Until accepted (exercised), it is not treated as a sale.
FACTS:
1. Respondents Angelica Tiotuyco Vda. de Lacson,[3] and her children
Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the
registered owners of three parcels of land located in Mabalacat, Pampanga.
2. The properties, which were tenanted agricultural lands,[4] were
administered by Renato Espinosa for the owner.
3. On March 17, 1996, a group of original farmers/tillers and another group
individually executed in favor of the petitioner separate Deeds of Assignment
in which the assignees assigned to the petitioner their respective rights as
tenants/tillers of the landholdings possessed and tilled by them for and in
consideration of P50.00 per square meter.
4. The said amount was made payable when the legal impediments to the sale
of the property to the petitioner no longer existed. The petitioner was also
granted the exclusive right to buy the property if and when the respondents,
with the concurrence of the defendants-tenants, agreed to sell the property.
5. In the interim, the petitioner gave varied sums of money to the
tenants as partial payments, and the latter issued receipts for the
said amounts.
6. However, on August 8, 1996, the defendants-tenants, through Joven Mariano,
wrote the petitioner stating that they were not attending the meeting and
instead gave notice of their collective decision to sell all their rights and
interests, as tenants/lessees, over the landholding to the respondents.
7. On August 19, 1996, the petitioner filed a complaint with the Regional Trial
Court of San Fernando, Pampanga, Branch 44, against the defendants-
tenants, as well as the respondents, for the court to fix a period within which
to pay the agreed purchase price of P50.00 per square meter to the defendants,
as provided for in the Deeds of Assignment.
ISSUE/s:
13. WON the contracts between the farmer-tenants and Tayag are perfected
Option Contract = YES
14. WON the Option Contract obligated Tayag to pay the farmer-tenants the
balance of the purchase price = NO
RULING: IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals nullifying the February 13, 1996
and April 16, 1997 Orders of the RTC is AFFIRMED.
RATIO:
1. Under the Deeds of Assignment, the obligation of the petitioner to pay to each
of the defendants-tenants the balance of the purchase price was conditioned
on the occurrence of the following events: (a) the respondents agree to sell
their property to the petitioner; (b) the legal impediments to the sale of the
landholding to the petitioner no longer exist; and, (c) the petitioner decides
to buy the property. It is only upon the occurrence of the foregoing conditions
that the petitioner would be obliged to pay to the defendants-tenants the
balance of the P50.00 per square meter under the deeds of assignment.
2. When Tayag testified, the petitioner admitted that the legal impediments
referred to in the deeds were (a) the respondents refusal to sell their property;
and, (b) the lack of approval of the Department of Agrarian Reform.
3. There is no showing in the petitioners complaint that the respondents had
agreed to sell their property, and that the legal impediments to the agreement
no longer existed. The petitioner and the defendants-tenants had yet to submit
the Deeds of Assignment to the Department of Agrarian Reform which, in
turn, had to act on and approve or disapprove the same. In fact, Tayag was
yet to meet with the defendants-tenants to discuss the implementation of the
deeds of assignment.
4. Unless and until the Department of Agrarian Reform approved the said
deeds, if at all, the petitioner had no right to enforce the same in a court
of law by asking the trial court to fix a period within which to pay the
balance of the purchase price and praying for injunctive relief.
5. No perfect option contract. An option is a contract by which the owner of
the property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. It imposes no binding
obligation on the person holding the option, aside from the consideration for
the offer. Until accepted, it is not, properly speaking, treated as a contract. An
option contract is a separate and distinct contract from which the parties may
enter into upon the conjunction of the option
6. In this case, Tayag receives not lands, not an agreement that he shall have
the lands, but the right to call for and receive lands if he elects.
7. In this case, the tenant-farmers, under the deeds of assignment, granted to the
petitioner not only an option but the exclusive right to buy the
landholding. But the grantors were merely the defendants-tenants, and not the
Lacsons, the registered owners of the property.
8. Not being the registered owners of the property, the defendants-tenants could
not legally grant to the petitioner the option, much less the exclusive right to
buy the property.
9. Furthermore, it is against public policy because the Land Reform Code and
the CARP law specifically provides that if the Lacsons agreed to sell the
property, the tenant-farmers shall have preferential right to buy. Tayag
wanted to get the rights over the lands even before the tenants could actually
get the land.
 VILLAMOR v. RESPONDENT (EMAR)
October 10, 1991| Medialdea, J. | Consideration in Option: No need to be in cash
PETITIONER: SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR
(M. Villamor) (Villamors)
RESPONDENTS: THE HON. COURT OF APPEALS AND SPOUSES
MACARIA LABINGISA REYES (M. Reyes) AND ROBERTO REYES (Reyeses)
SUMMARY: M. Reyes sold ½ (300sqm) of her land (600sqm) to the Villamors for
P70/sqm. It is provided in their Deed of Option that the Villamors paid an amount
significantly larger than the prevailing price of the land (P25/sqm) because the
Reyeses agreed to sell the other half of the land for the same amount whenever either
party finds the need to do so. The Villamors claimed that they had expressed their
desire to purchase the remaining portion of the lot but the Reyeses had been ignoring
them and so they filed a complaint before the barangay which failed to fix their
problem. The Villamors then, filed for specific performance before the lower court
which ruled in favor of them, ordering the Reyeses to sell to the Villamors the
remaining land. The Reyeses appealed in the CA which reversed the ruling of the
lower court, finding the deed of option void for lack of consideration. The Villamors
petitioned before the SC. The issue is WON the deed of option whereby the Reyeses
agreed to sell their lot to Villamors "whenever the need of such sale arises, either on
our (Reyeses) part or on the part of Julio Villamor and Marina Villamor (Villamors)”
is valid and the court held that yes, it is valid (and not void for lack of consideration)
because there is a consideration on the part of Reyeses executing the deed of option
as appearing in the deed itself which is the Villamors' having agreed to buy the
300sqm portion of Reyeses’ land at P70/sqm "which was greatly higher than the
actual reasonable prevailing price.” However, Villamors’ right of action has already
prescribed because they only filed for specific performance in 1987, 17y from the
time of the execution of the contract which is beyond the prescription period of 10
years within actions upon written contracts must be brought.
DOCTRINE: “Separate consideration” in an option may be anything of value,
unlike in sale where it must be the price certain in money or its equivalent.
FACTS:
1. M. Reyes was the owner of a 600-sq m lot located in Caloocan City.
2. July 1971: M. Reyes sold ½ of her land (300 sqm) to the Villamors for 21m.
2m was deducted from the purchase price as a previous debt of M. Reyes
from the Villamors. The lots of M. Reyes and the Villamors became covered
by different TCTs.
3. Nov 1971: Macaria executed a "Deed of Option" in favor of the spouses
stating that
a. They sold the first half of the lot for P70/sqm which is greatly higher
compared to the value (P25/sqm) of the lots that time;
b. The spouses bought their land for that price because the vendor
Reyeses have agreed to sell and convey to them the remaining one-
half portion whenever the need of such sale arises, either on our
part or on the part of the Villamors, at the same price of P70/sqm,
excluding whatever improvement may be found (see next and last
page for the full Deed of Option)
4. According to M. Reyes, when her husband retired, they offered to
repurchase the lot sold by them to the spouses but M. Villamor refused and
reminded them instead that the Deed of Option in fact gave them the option
to purchase the remaining portion of the lot.
5. The Villamors claimed that they had expressed their desire to purchase the
remaining portion of the lot but the Reyeses had been ignoring them.
6. July 1987: after conciliation proceedings in the barangay level failed, the
Villamors filed a complaint for specific performance against the Reyeses.
7. The RTC ruled in favor of the Villamor spouses, ordering the Reyeses to sell
to the Villamors the remaining land owned by them.
8. The Reyeses appealed to the CA which didn’t believe that the Villamors
bought the land for P70/sqm instead of its prevailing price of P25/sqm for the
consideration of the option to buy the remainder of the land because
a. A deed of sale was never produced by the Villamors to prove their
claim and
b. They see no reason why it should be reiterated in the Deed of
Option.
9. The CA reversed the decision and found that Deed of Option is void for lack
of consideration; hence this petition by the Villamors.
ISSUE: WON the Deed of Option whereby the Reyeses agreed to sell their lot to
Villamors "whenever the need of such sale arises, either on our (Reyeses) part or on
the part of Julio Villamor and Marina Villamor (Villamors)” is valid – YES, but right
of action already prescribed.
RULING: ACCORDINGLY, the petition is DENIED. The decision of the CA is
AFFIRMED for reasons cited in this decision. Judgement is rendered dismissing the
complaint in Civil Case on the ground of prescription and laches.
RATIO:
1. When the terms of an agreement have been reduced to writing it is to be
considered as containing all such terms, and therefore, there can be,
between the parties and their successors in interest no evidence of their
terms of the agreement, other than the contents of the writing.
2. It is a general and most inflexible rule that wherever written instruments
are appointed either by the requirements of law, or by the contract of
the parties, to be the repositories and memorials of truth, any other
evidence is excluded from being used, either as a substitute for such
instruments, or to contradict or alter them.
3. Gonzales v. Trinidad defined “consideration” as "the why of the contracts,
the essential reason which moves the contracting parties to enter into the
 contract." The cause/ impelling reason on the part of private respondent
executing the deed of option as appearing in the deed itself is the petitioner's
having agreed to buy the 300sqm portion of private respondents' land at
P70/sqm "which was greatly higher than the actual reasonable
prevailing price."
4. In 1969, Villamors bought an adjacent lot from the brother of M. Reyes for
only P18/sqm which the private respondents did not rebut. Thus, expressed
in terms of money, the consideration for the deed of option is the
difference between the purchase price of the 300 sqm portion of the lot
in 1971 P70/sqm and the prevailing reasonable price of the same lot in
1971. Whatever it is, (P25 or P18) though not specifically stated in the deed
of option, was ascertainable. Petitioner's allegedly paying P52/sqm for
the option may, as opined by the appellate court, be improbable but
improbabilities does not invalidate a contract freely entered into by the
parties.
5. The “deed of option" entered into by the parties in this case had unique
features. Ordinarily, an optional contract is a privilege existing in one person,
for which he had paid a consideration and which gives him the right to buy,
for example, certain merchandise or certain specified property, from another
person, if he chooses, at any time within the agreed period at a fixed price.
6. In this Deed of option, the first part covered the statement on the sale of the
300 sqm portion to theVillamors at the price of P70/sqm "which was higher
than the actual reasonable prevailing value of the lands in that place at
that time (of sale)." The second part stated that the only reason why the
Villamor spouses agreed to buy the said lot at a much higher price is
because the Reyeses also agreed to sell to the Villamors the other half-
portion of the land. But the deed went on and 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 Spouses Julio Villamor and
Marina V. Villamor.” While the option to buy was granted to the Villamors,
the Reyeses were likewise granted an option to sell. In other words, it was
not only the Villamors who were granted an option to buy for which they
paid a consideration. The Reyeses as well were granted an option to sell
should the need for such sale on their part arise.
7. The option offered by the Reyeses had been accepted by the petitioner, the
promise, in the same document. The acceptance of an offer to sell for a
price certain created a bilateral contract to sell and buy and upon
acceptance, the offer, ipso facto assumes obligations of a vendee.
8. 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 perform of contracts." (Art
1475) Since there was, between the parties, a meeting of minds upon the
object and the price, there was already a perfected contract of sale. What
wa left to be done was for either party to demand from the other their
respective undertakings under the contract. It may be demanded at any time
either by the private respondents, who may compel the petitioners to pay
for the property or the petitioners, who may compel the private
respondents to deliver the property.
9. Deed of Option did not provide for the period within which the parties may
demand the performance of their respective undertakings in the instrument.
The parties could not have contemplated that the delivery of the property and
the payment thereof could be made indefinitely and render uncertain the
status of the land. The failure of either parties to demand performance of
the obligation of the other for an unreasonable length of time renders the
contract ineffective.
10. Actions upon written contract must be brought within 10y. The Deed of
Option was executed on 1971. The acceptance was already in the same
instrument. The complaint in this case was filed by the petitioners on 1987,
17y from the time of the execution of the contract. Hence, the right of action
had prescribed. The Villamors allege that they demanded from the private
respondents as early as 1984 the enforcement of their rights under the contract
but it’s still beyond the 10y prescription period.
DEED OF OPTION
This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of
November, 1971, by and between Macaria Labing-isa, of age, married to Roberto
Reyes, likewise of age, and both resideing on Reparo St., Baesa, Caloocan City, on
the one hand, and on the other hand the spouses Julio Villamor and Marina V.
Villamor, also of age and residing at No. 552 Reparo St., corner Baesa Road, Baesa,
Caloocan City.
WITNESSETH
That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an
area of 600 square meters, more or less, more particularly described in TCT No.
(18431) 18938 of the Office of the Register of Deeds for the province of Rizal,
issued in may name, I having inherited the same from my deceased parents, for
which reason it is my paraphernal property;
That I, with the conformity of my husband, Roberto Reyes, have sold one-half
thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the price
of P70.00 per sq. meter, which was greatly higher than the actual reasonable
prevailing value of lands in that place at the time, which portion, after segregation, is
now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan,
issued on August 17, 1971 in the name of the aforementioned spouses vendees;
That the only reason why the Spouses-vendees Julio Villamor and Marina V.
Villamor, agreed to buy the said one-half portion at the above-stated price of about
P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed
to sell and convey to them the remaining one-half portion still owned by me and now
covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan,
whenever the need of such sale arises, either on our part or on the part of the spouses Notary Public
(Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square Until December 31, 1972
meter, excluding whatever improvement may be found the thereon; PTR No. 338203, Manila
January 15, 1971
That I am willing to have this contract to sell inscribed on my aforesaid title as an
encumbrance upon the property covered thereby, upon payment of the corresponding Doc. No. 1526;
fees; and Page No. 24;
Book No. 38;
That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the Series of 1971. (pp. 25-29, Rollo)
above provisions of this Deed of Option.

IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila,

Philippines, by all the persons concerned, this 11th day of November, 1971.

JULIO VILLAMOR MACARIA LABINGISA

With My Conformity:

MARINA VILLAMOR ROBERTO REYES

Signed in the Presence Of:

MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO

ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA ) S.S.

At the City of Manila, on the 11th day of November, 1971, personally appeared
before me Roberto Reyes, Macaria Labingisa, Julio Villamor and Marina Ventura-
Villamor, known to me as the same persons who executed the foregoing Deed of
Option, which consists of two (2) pages including the page whereon this
acknowledgement is written, and signed at the left margin of the first page and at the
bottom of the instrument by the parties and their witnesses, and sealed with my
notarial seal, and said parties acknowledged to me that the same is their free act and
deed. The Residence Certificates of the parties were exhibited to me as follows:
Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971, and B-502025, issued at
Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-1266104,
both issued at Caloocan City on April 15, 1971, their joint Tax Acct. Number being
3028-767-6; Julio Villamor, A-804, issued at Manila on Jan. 14, 1971, and B-138,
issued at Manila on March 1, 1971; and Marina Ventura-Villamor, A-803, issued at
Manila on Jan. 14, 1971, their joint Tax Acct. Number being 608-202-6.

ARTEMIO M. MALUBAY
 NICOLAS SANCHEZ v. SEVERINA RIGOR (SARMIENTO)
JUNE 14, 1972| C.J. CONCEPCION | OPTION TO PURCHASE
PETITIONER: NICOLAS SANCHEZ
RESPONDENTS: SEVERINA RIGOR
SUMMARY: Nicolas Sanchez and Severina Rigor entered into an Option to
Purchase, without consideration, a parcel of land owned by the latter. Sanchez
tendered payment to Rigor but the latter refused to accept the payment. This
prompted Sanchez to consign the payment to the court and instiuted an action of
specific performance to compel Rigor to convey the property. Lower court ruled
in favor of Sanchez. Rigor filed an appeal. Supreme court said that the Rigor as
seller is bound by the option to purchase even though without consideration.
Nonetheless, seller can revoke the option anytime before the buyer exercises the
option. In this case, Rigor did not withdraw the option before Sanchez exercised
the option. Thus, there is an ipso facto sale of the parcel of land in favor of the
buyer.
DOCTRINE: Even supposing that the Option to purchase granted an option
which is not binding for lack of consideration, the 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.
FACTS:
1. Plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument, entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed * * * to sell" to Sanchez, for the sum of P1,510.00,
a parcel of land within two (2) years from said date, with the understanding
that said option shall be deemed "terminated and elapsed," if "Sanchez shall
fail to exercise his right to buy the property" within the stipulated period.
2. Inasmuch as several tenders of payment of the sum of P1,510.00, made by
Sanchez within said period, were rejected by Mrs. Rigos, the former
deposited said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific performance and
damages.
3. Defendant alleging, as special defense that the contract between the parties
"is a unilateral promise to sell, and the same being unsupported by any
valuable consideration, by force of the New Civil Code, is null and void"
4. Lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept
the sum judicially consigned by him and to execute, in his favor, the requisite
deed of conveyance.
5. Hence, this appeal by Mrs. Rigos.
ISSUE/s:
15. WoN the seller is an Option to Purchase without consideration, automatically
sells the property to the buyer at the moment the buyer exercises such option.
RULING: YES
WHEREFORE, the decision appealed from is hereby affirmed, with costs
against defendant-appellant Severina Rigos.
RATIO:
1. This case admittedly hinges on the proper application of Article 1479 of our
Civil Code, which provides:
"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."
2. Plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy"
the land described in the option,
• Hence, plaintiff maintains that the promise contained in the contract
is "reciprocally demandable," pursuant to the first paragraph of said
Article 1479.
3. 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.
4. The option did not impose upon plaintiff the obligation to purchase
defendant's property. It is not a "contract to buy and sell." It merely granted
plaintiff an "option" to buy.
5. Under the provisions thereof, the defendant "agreed, promised and
committed" herself to sell the land therein described to the plaintiff for
P1,510.00, but there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the
land.
6. It should be noted that:
(1) In order that said unilateral promise may be "binding" upon the
promisor. Article 1479 requires the concurrence of a condition, namely, that
the promise be "supported by a consideration distinct from the price."
• Accordingly, the promisee cannot compel the promisor to comply
with the promise, unless the former establishes the existence of said
distinct consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.
(2) Upon the other hand, defendant explicitly averred in her answer, and
pleaded as a special defense, the absence of said consideration for her promise
to sell.
7. Southwestern Sugar & Molasses Co. vs. Atlantic Gulf & Pacific Co., from
which We quote:
• "The main contention of appellant is that the option granted to
appellee to sell to it barge No. 10 for the sum of P30,000 under the
terms stated above has no legal effect because it is not supported by
any consideration and in support thereof it invokes article 1479 of
the new Civil Code.
• "On the other hand, appellee contends that, even granting that the
'offer of option' is not supported by any consideration, that option
became binding on appellant when the appellee gave notice to it of
its acceptance, and that having accepted it within the period of
option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective.
o In support of this contention, appellee invokes article 1324
of the Civil Code which provides:
'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 consideration, as something paid or
promised.'
• There is no question that under article 1479 of the new Civil Code
'an option to sell,' or 'a promise to buy or to sell,' as used in said
article, to be valid must be 'supported by a consideration distinct
from the price.'
o Here it is not disputed that the option is without
consideration. It can therefore be withdrawn
notwithstandingthe acceptance made of it by appellee.
• "It is true that under article 1324 of the new Civil Code, 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.
o But this general rule must be interpreted as modified by the
provision of article 1479 above referred to, which applies
to 'a promise to buy and sell' specifically.
• "We are not oblivious of the existence of American authorities
which hold that an offer, once accepted, cannot be withdrawn,
regardless of whether it is supported or not by a consideration.
o But we are prevented from applying them in view of the
specific provision embodied in article 1479.
o While under the 'offer of option' in question appellant has
assumed a clear obligation to sell to appellee and the option
has been exercised in accordance with its terms and there
appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different
attitude because the law on the matter is clear. Our
imperative duty is to apply it unless modified by Congress."
8. However, this Court itself, in the cases decided later than Southwestern Sugar
& Molasses Co. vs. Atlantic Gulf & Pacif ic Co., where a unilateral promise
to sell similar to the one sued upon here was involved, treating such promise
as an option which, although not binding as a contract in itself for lack of a
separate consideration, nevertheless generated a bilateral contract of purchase
and sale upon acceptance.
9. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this
Court said:
• "Furthermore, an option is unilateral: a promise to sell at the price
fixed whenever the offeree should decide to exercise his option
within the specified time.
• After accepting the promise and before he exercises his option, the
holder of the option is not bound to buy. He is free either to buy or
not to buy later.
10. In this case, upon accepting herein petitioner's offer a bilateral promise
to sell and to buy ensued, and the respondent ipso facto assumed the
obligations of a purchaser.
11. Even supposing that the Option to purchase granted an option which is not
binding for lack of consideration, the 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.
12. 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.
13. What is more, the reference, in both the second paragraph of Art. 1479 and
Art. 1324, to an option or promise supported by or founded upon a
consideration, strongly suggests that the two (2) provisions intended to
enforce or implement the same principle.
14. The view adhered to in the Southwestern Sugar & Molasses Co. case should
be deemed abandoned or modified.
 TUAZON v. DEL ROSARIO-SUAREZ (Jenn)
December 13, 2010 | Del Castillo, J. | Option to Purchase without any consideration
PETITIONER: Roberto D. Tuazon
RESPONDENTS: Lourdes Q. Del-Rosario-Suarez, Catalina R. Suarez-De Leon,
Wilfredo De Leon, Miguel Luis S. De Leon, Rommel Lee S. De Leon, and
Guillerma L. Sandico-Silva, as attorney-in-fact of the defendants, except Lourdes
Q. Del Rosario
SUMMARY: Roberto leased a property owned by Lourdes for 3 years. After the
contract of lease was perfected, Lourdes sent a letter to Roberto offering to sell
the land to him for P37,541,000 said offer to be accepted by Roberto within 2
years if he wants to buy the land. After the expiration of the lease, Lourdes sold
the land to the De Leons (family of her child). Roberto now claims that Lourdes
violated his right to buy subject property under the principle of "right of first
refusal" by not giving him "notice" and the opportunity to buy the property under
the same terms and conditions or specifically based on the much lower price paid
by the De Leons. The RTC and CA ruled in favor of the De Leons. The issue in
this case is whether or not the letter sent by Lourdes to Roberto involved an option
contract or a contract of a right of first refusal. The SC held that it was an option
contract since it grants Roberto a fixed period of only 2 years to buy the property
at a fixed price of P37,541,000. And If there is no consideration, the offeror may
withdraw his offer by communicating such withdrawal to the offeree at anytime
before acceptance. If there is consideration, the offeror cannot withdraw his offer
before the lapse of the period agreed upon. Since there was no consideration,
Lourdes was not bound to sell the property to Roberto and also, the sale happened
long after the 2 years expired so Roberto can’t compel Lourdes to sell the land to
him.
DOCTRINE: If the option is without any consideration, the offeror may withdraw
his offer by communicating such withdrawal to the offeree at any time before
acceptance. If it is founded upon a consideration, the offeror cannot withdraw his
offer before the lapse of the period agreed upon.
FACTS:
1. Respondent Lourdes was the owner of a 1,211sqm land in Tandang Sora St.,
Quezon City which was covered by a TCT.
2. On June 24, 1994, Lourdes and Roberto, herein petitioner, executed a
Contract of Lease over the land for a period of 3 years. The lease started on
March 1994 and ended on February 1997. During the effectivity of the lease,
Lourdes sent a letter dated January 2, 1995 to Roberto wherein she offered to
sell the land to the latter for P37,541,000 which Roberto had to buy within 2
years from January 2, 1995 if he wanted to. So Roberto had until January 1,
1997 to decide.
3. On June 19, 1997, 4 months after the expiration of the lease, Lourdes sold the
land to her only child Catalina, her son-in-law, Wilfredo, and her 2 grandkids,
Miguel and Rommel (De Leon) for only P2,750,000. The TCT was then
reissued in the TCT in the De Leons names.
4. The new owners, through their attorney-in-fact, tolf Roberto to vacate the
land but Roberto refused so the De Leons filed a complaint for Unlawful
Detainer. The MTC rendered a decision ordering Roberto to vacate.
5. While the ejectment case was on appeal, Roberto filed with the RTC a
complaint for annulment of the deed of absolute sale and reconveyance,
damages and application for preliminary injuction against Lourdes and the
De Leons. He also filed a notice of Lis Pendens with the Registry of Deeds.
6. Lourdes and De Leons filed an answer and a counter claim praying that the
complaint be dismissed. Lourdes and De Leons were later declared in default
for failing to appear before the court. The RTC then rendered a decision in
favor of Lourdes and the De Leons. It declared the deed of absolue sale
between the 2 valid and that the offer made by Lourder to Roberto did not
ripen into a contract to sell because the price offered by Lourdes was not
accepted by Roberto and that the offer was no longer binding on Lourdes
when she sold the land to the De Leons.
7. The CA affirmed the RTC decision. Hence this petition.
8. Roberto claims the following:
a. that Lourdes violated his right to buy subject property under the
principle of "right of first refusal" by not giving him "notice" and
the opportunity to buy the property under the same terms and
conditions or specifically based on the much lower price paid by the
De Leons
b. that he is enforcing his "right of firrst refusal" based on Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc. which is the
leading case on the "right of first refusal."
9. Lourdes and the De Leons claim the following:
a. this case is not covered by the principle of "right of first refusal" but
an unaccepted unilateral promise to sell or, at best, a contract of
option which was not perfected. The letter of Lourdes to Roberto
clearly embodies an option contract as it grants the latter only two
years to exercise the option to buy the subject property at a price
certain of P37,541,000.00. As an option contract, the said letter
would have been binding upon Lourdes without need of any
consideration, had Roberto accepted the offer. But in this case there
was no acceptance made neither was there a distinct consideration
for the option contract.
ISSUE/s:
16. WoN the letter of Lourdes to Roberto involved an option contract or a
contract of a right of first refusal? –Option Contract
RULING: WHEREFORE, the instant petition for review on certiorari is D E N I E D. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 78870, which affirmed the
Decision dated November 18, 2002 of the Regional Trial Court, Branch 101, Quezon City in
Civil Case No. Q-00-42338 is AFFIRMED. SO ORDERED.
RATIO:
This case involves an option contract and not a contract of a right of first refusal.
1. An option contract is 'A contract by virtue of which A, in consideration of the
payment of a certain sum to B, acquires the privilege of buying from, or selling to, B
certain securities or properties within a limited time at a specifed price. (Story vs.
Salamon, 71 N.Y., 420.)'
2. It is simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price within
a certain time. He does not sell his land; he does not then agree to sell it; but
he does sell something; that is, the right or privilege to buy at the election or
option of the other party.
3. On the other hand, a right of first refusal is not a perfected contract of sale under
Article 1458 of the Civil Code. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on
the grantor's eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that obviously are yet to be later rmed up.
Prior thereto, it can at best be so described as merely belonging to a class of
preparatory juridical relations governed not by contracts (since the essential elements
to establish the vinculum juris would still be indefinite and inconclusive) but by,
among other laws of general application, the pertinent scattered provisions of the Civil
Code on human conduct.
4. An option contract is entirely different and distinct from a right of first
refusal. In an option contract, the option granted to the offeree is for a fixed
period and at a determined price. Absent these 2, it is only a right of first
refusal.
5. The letter is as follows:
Dear Mr. Tuazon,
I received with great joy and happiness the big box of sweet grapes and ham, fit for a king's
party. Thanks very much.
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only
family. I need money to buy a house and lot and a farm with a little cash to start.
I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in
dollars in the name of my daughter. I never offered it to anyone. Please shoulder the
expenses for the transfer. I wish the Lord God will help you buy my lot easily and you will
be very lucky forever in this place. You have all the time to decide when you can, but not
for 2 years or more. HCEaDI
I wish you long life, happiness, health, wealth and great fortune always!
I hope the Lord God will help you be the recipient of multi-billion projects aid from other
countries.
1
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.
2
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
Thank you,
Lourdes Q. del Rosario vda. de Suarez
6. It is clear that the letter is an option contract since it grants Roberto a fixed
period of only 2 years to buy the property at a fixed price of P37,541,000.
7. Since it is an option contract, Art. 13241 and Art. 14792 of the Civil Code
applies.
8. Based on Art. 1324, there is a great difference if the option was without a
consideration or with a consideration. If there is no consideration, the
offeror may withdraw his offer by communicating such withdrawal to
the offeree at anytime before acceptance. If there is consideration, the
offeror cannot withdraw his offer before the lapse of the period agreed
upon.
9. Under Art. 1479, “an accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.”
10. In the case at bar, Roberto did not accept the terms stated in the letter of
Lourdes since he negotiated for a much lower price. Roberto’s act of
negotiating for a much lower price was a counter-offer and is therefore not
an acceptance of the offer. And since the counter-offer for a much lower price
was not accepted by Lourdes, there is no contract between the, with regard to
the sale of the property. So Roberto does not have the right to demand that
the property be sold to him.
Equatorial Realty Dev’t v. Mayfair Theatre is not applicable.
1. The facts between the 2 cases are almost the same except that in Equatorial,
the Contract of Lease had the following provision:
a. (i)f the LESSOR should desire to sell the leased properties, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
2. There is no such provision in the case at bar. What is involved here is a
separate and distinct offer made by Lourdes to sell the land for a definite price
and within a definite period of time. Roberto was not given a right of first
refusal. The letter of Lourdes was not part of the contract since it was made
6 months after the perfection of the lease contract.
3. Also, in Equatorial, the property was sold within the lease period while in this
case, the property was sold after the lease.
4. Moreover, even if the offer of Lourdes was accepted by Roberto, still the former
is not bound thereby because of the absence of a consideration distinct and
separate from the price. The argument of Roberto that the separate
consideration was the liberality on the part of Lourdes cannot stand. A perusal
of the letter-offer of Lourdes would show that what drove her to offer the
property to Roberto was her immediate need for funds as she was already very
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.
old. Offering the property to Roberto was not an act of liberality on the part of
Lourdes but was a simple matter of convenience and practicality as he was the
one most likely to buy the property at that time as he was then leasing the same.
 VASQUEZ v. CA (Siapno)
July 12, 1991 | Gutierrez Jr., J. | Right to Repurchase
PETITIONERS: Spouses Cipriano Vasquez and Valeriana Gayanelo
RESPONDENTS: Spouses Martin Vallejera and Apolonia Olea
SUMMARY: Petitioner Spouses Martin Vallejera and Apolonia Olea sold their
land in Negros Occidental to Respondents Vasquez and Gayanelo. A Deed of Sale
was executed and on the same day, in a separate instrument, respondents were
granted a Right to Repurchase. Respondents availed of the right to repurchase but
Vasquez resisted because of lack of consideration separate from the purchase price
and on the ground that the right to repurchase was made in a separate document.
Issue is WON the respondents have the right to repurchase under the contract. SC
held that respondents cannot avail of the right to repurchase because it was not
accepted by the respondents and no consideration was given. The document
of the right to repurchase was not signed by the respondents and as such, shows
no acceptance from the promisee.
DOCTRINE: For there to be a valid reservation of the right to repurchase, the
right must bereserved by the vendor in the same instrument of sale as one of the
stipulations of the contract and not in a subsequent document. Otherwise, it is
just an option to to buy or a mere promise to resell.
FACTS:
1. Spouses Martin Vallejera and Apolonia Olea (respondents) filed an action against
Spouses Cipriano Vasquez and Valeriana Gayanelo (Vasquez) seeking to redeem
Lot No. 1860 of the Himalayan Cadastre which was previously sold by the
respondents to Vasquez.
2. Said lot was registered in the name of respondents. It was was leased by
respondents to Vasquez and after the execution of the lease, Vasquez took
possession of the lot and devoted the same to the cultivation of sugar.
3. The plaintiffs sold the lot to the defendants under a Deed of Sale for the amount of
P9,000.00. On the same day and along with the execution of the Deed of Sale,
a separate instrument, denominated as Right to Repurchase (Exh. E: refer to
end of digest for exact wording), was executed by the parties granting respondents
the right to repurchase the lot for P12,000.00.
4. By virtue of the sale, Vasquez secured TCT No. T-58898 in their name. 5 years
later, respondents sold the same lot to Benito Derrama, Jr., after securing Vasquez’
title, for the sum of P12,000.00.
5. Upon the protestations of Vasquez, assisted by counsel, the said second sale was
cancelled after the payment of P12,000.00 by Vasquez to Derrama.
6. Vasquez resisted this action for redemption on the premise that Exh. E is just an
3 4
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
promisor if the promise is supported by a consideration distinct from the price.
option to buy since it is not embodied in the same document of sale but in a separate
document, and since such option is not supported by a consideration distinct from
the price, said deed for right to repurchase is not binding upon them pursuant to
Article 1479 of the Civil Code.
7. After trial, the court below rendered judgment against Vasquez, ordering the
spouses to resell lot No. 1860 of the Himamaylan Cadastre to the respondents for
the repurchase price of P24,000.00, which amount combines the price paid for the
first sale and the price paid by Vasquez to Benito Derrama, Jr.
8. CA applied the principles laid down in the case of Sanchez v Rigos:
a. SC arrived at the conclusion that Article 14793 and Article 13244 of the Civil
Code should be reconciled and harmonized to avoid a conflict between the two
provisions.
b. Sanchez and Rigos executed a document entitled "Option to Purchase,"
whereby Mrs. Rigos agreed, promised and committed to sell to Sanchez for a
certain sum of money, a registered parcel of land within 2 years from execution
of the document with the condition that said option shall be deemed terminated
and lapsed, if Sanchez shall fail to exercise his right to buy the property within
the stipulated period. In the same document, Sanchez agreed and conformed
with all the conditions set forth in the option to purchase executed in my
favor, that I bind myself with all the terms and conditions.
c. The Court said that although promise to sell was not supported by a
consideration distinct from the price, it was obvious that Sanchez, the promisee,
accepted the option to buy before Rigos, the promisor, withdrew the same.
d. Under such circumstances, the option to purchase was converted into a bilateral
contract of sale which bound both parties.
ISSUE: WON respondents have the right to repurchase? NO
HELD: WHEREFORE, the petition is GRANTED. The questioned decision and
resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. The
complaint in Civil Case No. 839 of the then Court of First Instance of Negros
Occidental 12th Judicial District Branch 6 is DISMISSED. No costs.
RATIO:
1. SC held that the Sanchez v Rigos doctrine cannot be applied. In the instant case
and contrary to the appellate court's finding, it is clear that the right to repurchase
was not supported by a consideration distinct from the price. The rule is that the
promisee has the burden of proving such consideration. Unfortunately, the
private respondents, promisees in the right to repurchase, failed to prove such
consideration. They did not even allege the existence thereof in their complaint.
Therefore, in order that the Sanchez case can be applied, the evidence must show
that the private respondents accepted the right to repurchase.
2. The record, however, does not show that the private respondents accepted the
ART. 1324. When the offeror 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.
 "Right to Repurchase" the land in question. We disagree with the appellate court's
finding that the private respondents accepted the "right to repurchase" under the Note:
following circumstances: as evidenced by the annotation and registration of the "RIGHT TO REPURCHASE" (Exhibit E) provides:
same on the back of the transfer of certificate of title in the name of appellants.
This shows that it was signed by appellant himself and witnessed by his wife so "RIGHT TO REPURCHASE
that for all intents and purposes the Vasquez spouses are estopped from KNOW ALL MEN BY THESE PRESENTS:
disregarding its obvious purpose and intention. I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and
3. The annotation and registration of the right to repurchase at the back of the Apolonia Olea, their heirs and assigns, the right to repurchase said Lot No. 1860 for
certificate of title of the petitioners can not be considered as acceptance of the the sum of TWELVE THOUSAND PESOS (P12,000.00), Philippine Currency, within
right to repurchase. Annotation at the back of the certificate of title of registered the period TEN (10) YEARS from the agricultural year 1969-1970 when my contract
land is for the purpose of binding purchasers of such registered land. of lease over the property shall expire and until the agricultural year 1979-1980.
4. In effect, the annotation of the right to repurchase found at the back of the IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros
certificate of title over the subject parcel of land of the private respondents only Occidental, this 21st day of September, 1964.
served as notice of the existence of such unilateral promise of the petitioners to SGD. CIPRIANO VASQUEZ
SGD. VALERIANA G. VASQUEZ SGD.
resell the same to the private respondents. This, however, can not be equated with FRANCISCO SANICAS" (Rollo, p. 47).
acceptance of such right to repurchase by the private respondent.
5. Neither can the signature of the petitioners in the document called "right to
repurchase" signify acceptance of the right to repurchase. The respondents did
not sign the offer. Acceptance should be made by the promisee, in this case,
the private respondents and not the promisors, the petitioners herein. It
would be absurd to require the promisor of an option to buy to accept his own
offer instead of the promisee to whom the option to buy is given.
6. Furthermore, the actions of the private respondents — (a) filing a complaint to
compel resale and their demands for resale prior to filing of the complaint cannot
be considered acceptance.
7. Zulueta case (same situation as this case, right to repurchase executed separately
from the Deed of Sale on the same day):
a. The right of repurchase is not a right granted to the vendor by the vendee in
a subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract.
b. Once the instrument of absolute sale is executed, the vendor can no longer
reserve the right to repurchase, and any right thereafter granted the vendor by
the vendee in a separate instrument cannot be a right of repurchase but some
other right like option to buy.
c. 'Conventional redemption shall take place when the vendor reserves the right
to repurchase the thing sold, with the obligation to comply with the provision
of Article 1616 and other stipulations which may have been agreed upon.'
d. It is clear from the decision that the ruling in the Zulueta case was based
mainly on the finding that the transaction between the parties was not a sale
with right to repurchase and that the option to repurchase was but an option
to buy or a mere promise on the part of Octaviano to resell the property to
Zulueta.
8. In the instant case, since the transaction between the petitioners and private
respondents was not a sale with right to repurchase, the private respondents
cannot avail of Article 1601 of the Civil Code which provides for conventional
redemption.
 Nietes vs CA (Mel)
August 18, 1972| Concepcion, C. J. | Exercise of Option Contract
PETITIONER: Aquilino Nietes
RESPONDENTS: Hon. Court of Appeals & Dr. Pablo C. Garcia
SUMMARY: Nietes lease the Angeles Educational Institute from Dr. Garcia. Their
contract was a “Contract of Lease With Option to Buy”. It stipulated that the unused
payment will be applied to the purchase price of the school. Nietes paid Garcia certain
sums in excess of the rent, which Garcia acknowledged. Later on, Garcia, through counsel,
wrote Nietes informing him of his decision to rescind the contract due to certain violations
of the contract—such as poor maintenance, lack of inventory of school equipment, and the
use of another name for the said school. Nietes replied by informing Garcia that he decided
to exercise his Option to Buy. Nietes deposited the balance of the price to Agro-Industrial
Bank, but he later withdrew the said amounts. Garcia refused to sell so Nietes commenced
the present action for specific performance of Dr. Garcia's alleged obligation. The trial
court ruled in favor of Nietes which the CA affirmed. On motion for reconsideration by
Dr. Garcia, the special division of CA ruled in favor of Garcia stating that the full purchase
price must be paid before the Option to Buy may be exercised. The issue is WON actual
payment is needed before one may exercise the option to buy. The SC ruled that this was
not needed. There is nothing in the contract that required Nietes to pay the full price before
he could exercise the option. It was sufficient that he informed Garcia of his choice and
that he was at that time ready to pay. The exercise of the option need not be coupled with
actual payment so long as such payment is made upon the fulfillment of the owner’s
undertaking to deliver the property. This is based on the principle that such option contracts
involve reciprocal obligations—and one does not incur delay if the other party fails or
refuses to comply with his respective obligation. That being the case, there was no need
for Nietes to deposit the said amounts—and his withdrawal thereof does not affect his
right.
DOCTRINE: In the case of an option to buy, the creditor may validly and effectively
exercise his right by merely advising the debtor of the former's decision to buy and
expressing his readiness to pay the stipulated price, provided that the same is available and
actually delivered to the debtor upon execution and delivery by him of the corresponding
deed of sale. Unless and until the debtor shall have done this the creditor is not and cannot
be in default in the discharge of his obligation to pay. In other words, notice of the
creditor's decision to exercise his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to the owner of the property upon
performance of his part of the agreement.
FACTS:
1. Petitioner Aquilino Nietes and Respondent Dr. Pablo C. Garcia entered into
a “Contract of Lease with Option to Buy” pursuant to the terms and
conditions set forth in the deed namely:
That the LESSOR (Dr. Garcia) is an owner of the ANGELES EDUCATIONAL INSTITUTE
situated at Angeles, Pampanga, a school which is duly recognized by the Government;
That the lessor agrees to lease the above stated school to the LESSEE (Nietes) under the
following terms and conditions:
1. That the term will be for a period of 5 years
2. That the price of the rent is 5,000 per year payable in the following manners:
a. That the amount of P5,500 will be paid upon the execution of this Contract of Lease;
b. That the amount of P4,500 is payable on or before the 30th day of October, 1959;
c. That the remaining balance of P15,000 will be paid on or before March 30, 1960;
3. That all improvements made during the lease by the LESSEE will be owned by the LESSOR after the
expiration of the term of this Contract of Lease;
4. That the LESSOR agrees to give the LESSEE an option to buy the land and the school building,
for a price of P100,000 within the period of the Contract of Lease;
5. That should the LESSEE buy the lot, land and the school building within the stipulated period, the
unused payment for the Contract of Lease will be considered as part payment for the sale of the land and
school;
6. That an inventory of all properties in the school will be made on March 31, 1960;

6A. That the term of this Contract will commence in June 1960 and will terminate in June 1965;
7. That the LESSEE will be given full control and responsibilities over all the properties of the school and
over all the supervisions and administrations of the school;
8. That the LESSEE agrees to help the LESSOR to collect the back accounts of students incurred before
the execution of this contract.
2. Instead of paying Dr. Garcia in the manner set forth in the contract,
Nietes had made payments as follows:
October 6,1960 ....................................... P18,957.00
November 23, 1960 ................................. 300.00
December 21, 1960 ................................. 200.00
January 14, 1961 ..................................... 500.00
February 16, 1961 ................................... 3,000.00
March 12, 1961 ....................................... 1,000.00
March 13, 1961 ....................................... 700.00
August 4, 1961 ........................................ 100.00
TOTAL ..................................... P24,757.00
3. Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid
Garcia the additional sums of P3,000 and P2,200, respectively, for which
Garcia issued receipts
4. Dr. Garcia's counsel wrote to Nietes a letter informing Nietes that Dr. Garcia
will rescind the contract:
Sir: I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your contract,
1959 because of the following:
1. That you had not maintained the building, subject of the lease contract in good condition.
2. That you had not been using the original name of the school — Angeles Institute, thereby
extinguishing its existence in the eyes of the public and injuring its prestige.
3. That through your fault, no inventory has been made of all properties of the school.
4. That up to this time, you had not collected or much less helped in the collection of back
accounts of former students.
This is to remind you that the foregoing obligations had been one, if not, the principal moving
factors which had induced the lessor in agreeing with the terms embodied in your contract of
lease, without which fulfillment, said contract could not have come into existence. It is not
simply one of those reminders that we make mention, that our client under the circumstances,
is not only entitled to a rescission of the contract. He is likewise entitled to damages — actual,
compensatory and exemplary…”
5. Counsel for Nietes replied that Nietes did not violate any provision of the
 Contract of Lease with Option to Buy and said that for this reason, there was
no basis for the rescission of the contract nor of the demands contained in the
letter. The letter also stated that “Mr. AQUILINO T. NIETES will exercise
his OPTION to buy the land and building subject matter of the lease and
that my said client is ready to pay the balance of the purchase price in
accordance with the contract.”
6. Nietes deposited with the branch office of the Agro-Industrial Bank in
Angeles City checks amounting to P84,860.50, as balance of the purchase
price of the property, but he withdrew said sum, after the checks had been
cleared.
7. Nietes commenced the present action for specific performance of Dr. Garcia's
alleged obligation.
8. Trial Court ruled in favor of Nietes and ordered Dr. Garcia to execute the
Deed of Absolute Sale of property.
9. Both parties appealed. Dr. Garcia insofar as the trial court had neither
dismissed the complaint nor upheld his counterclaim and failed to order
Nietes to vacate the property in question, and Nietes insofar as the trial court
had granted him no more than nominal damages in the sum of P1,000, as
attorney's fees.
10. CA affirmed the trial court’s ruling except as regards the attorney’s fees
which were eliminated.
11. On motion for reconsideration of Dr. Garcia, the special division of the
CA reversed the decision of the trial court. The said decision was mainly
predicated upon the theory that, under the contract between the parties, "the
full purchase price must be paid before the option counsel be exercised,";
that the checks for P84,860.50 deposited by Nietes with the Agro-Industrial
Development Bank, did not constitute a proper tender of payment, which was
"made beyond the stipulated 5-year period"; that such deposit "was not
seriously made, because the same was withdrawn from the Bank and
ostensibly remains in the lessee's hand"; and that "the fact that such
deposit was made by the lessee shows that he himself believed that he
should have paid the entire amount of the purchase price before he could
avail of the option to buy, otherwise, the deposit was a senseless gesture
... ."
ISSUE:
WON actual payment is needed before one may exercise the option to buy? – NO
RULING: Thus modified, the decision of the Court of First Instance of Pampanga is
hereby affirmed in all other respects, and that of the Court of Appeals reversed, with
costs against respondent herein, Dr. Pablo C. Garcia. It is so ordered.
RATIO:
1. Dr. Garcia maintained "that the sums paid" to him "were part of the price of
the contract of lease between the parties which were paid late and not within
the periods and/or schedules fixed by the contract. Dr. Garcia claimed that he
did "not know" whether the signatures on the receipt for P3,000 and P2,200
were his, and even said that he was "doubtful" about it.
à SC: This testimony is manifestly incredible, for a man of his intelligence — a
Doctor of Medicine and the owner of an educational institution — could not possibly
"not know" or entertain doubts as to whether or not the aforementioned signatures are
his and the payments therein acknowledged had been received by him. Also, the
payment of said sums of P3,000 and P2,200 was admitted by Dr. Garcia in his answer.
2. The SC does not agree with the view of the CA that full purchase price
must be paid before the option to buy be exercised. Neither the tenor of
the contract nor the behaviour of Dr. Garcia justifies such view. The contract
does not say that Nietes had to pay the stipulated price of P100,000 before
exercising his option to buy the property in question. Accordingly, said
option is governed by the general principles on obligations, pursuant to
which: In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
3. In the case of an option to buy, the creditor may validly and effectively
exercise his right by merely advising the debtor of the former's decision
to buy and expressing his readiness to pay the stipulated price, provided
that the same is available and actually delivered to the debtor upon execution
and delivery by him of the corresponding deed of sale. Unless and until the
debtor shall have done this the creditor is not and cannot be in default in the
discharge of his obligation to pay.
4. Notice of the creditor's decision to exercise his option to buy need not be
coupled with actual payment of the price, so long as this is delivered to
the owner of the property upon performance of his part of the
agreement.
5. Nietes need not have deposited with the Agro-Industrial Bank checks
amounting altogether to P84,860.50 and the withdrawal thereof soon
after does not and cannot affect his cause of action in the present case. In
making such deposit, he may have had the intent to show his ability to pay
the balance of the sum due to Dr. Garcia as the sale price of his property. In
short, said deposit and its subsequent withdrawal cannot affect the result
of the present case.
6. Nietes was entitled to exercise his option to buy "within the period of the
Contract of Lease," which commenced "in June 1960" and was to "terminate
in June 1965." As early as September 4, 1961, or well "within the period
of the Contract of Lease," Nietes had paid Dr. Garcia.
7. Though it is true that Nietes was bound, under the contract to pay certain
amounts on specified dates and whereas he did not follow such dates, the
amounts received however was only P243.00 less than the P25,000 due as of
March 30, 1960, so that Nietes may be considered as having complied
substantially with the terms agreed upon. Indeed, Dr. Garcia seems to
 have either agreed thereto or not considered that Nietes had thereby
violated the contract, because the letter of Dr. Garcia demanding
rescission of the contract, did not mention said acts or omissions of Nietes
among his alleged violations thereof enumerated in said communication.
In fact, Dr. Garcia issued the receipt stating that said payment had been made
"as per advance pay for the school, the Contract of Lease being paid" — in
other words, in accordance or conformity with said contract.
8. Besides, when Mrs. Nietes delivered the additional sum of P2,200, Dr. Garcia
issued a receipt accepting said amount "as the partial payment on the purchase
price of the property as specified on the original contract," thus further
indicating that the payment, in his opinion, conformed with said contract,
and that, accordingly, the same was in full force and effect.
9. In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had
received the total sum of P27,757, or P2,757 in excess of the P25,000
representing the rentals for the entire period of the lease, and over P21,200 in
excess of the rentals for the unexpired portion of the lease, from September
4, 1961 to June 1965. This circumstance indicates clearly that Nietes had,
on September 4, 1961, chosen to exercise and did exercise then his option
to buy. What is more, this is borne out by the receipt issued by Dr. Garcia
wherein the payment was referred as a "partial payment on the purchase of
the property as specified on the original contract of 'Contract of Lease with
the First Option to Buy'”
10. Further, confirmation is furnished by the letter of Nietes, also, within the
period of the lease — stating that he "will exercise his OPTION to buy the
land and building subject matter of the lease."
11. It is not correct to construe this expression as implying that the option had
not been or was not yet being exercised, or as a mere announcement of the
intent to avail of it at some future time. This interpretation takes said
expression out of the context of Nietes’ letter, which positively states, also,
that Nietes "is ready to pay the balance of the purchase price in accordance
with the contract," and requests counsel for Dr. Garcia to inform or advise
him "to make available the land title and execute the corresponding Deed of
Sale pursuant to this notice, and that if he fails to do so within fifteen (15)
days ... we shall take the corresponding action to enforce the agreement."
12. The provision in paragraph 5 of the Contract, to the effect that "should the
LESSEE" choose to make use of his option to buy "the unused payment for
the Contract of Lease will be considered as payment for the sale of the land
and school, " simply means that the rental paid for the unused portion of
the lease shall be applied to and deducted from the sale price of P100,000
to be paid by Nietes at the proper time — in other words, simultaneously
with the delivery to him of the corresponding deed of sale, duly executed
by Dr. Garcia.
 CARCELLER v. CA (Paul)
Feb. 10, ’99 | Quisumbing, J. | Contract of Lease with Option to Purchase
PETITIONER: Jose Ramon Carceller
RESPONDENTS: Courts of Appeals and State Investment Houses, Inc.
SUMMARY: Carceller and SIHI entered into a contract of lease with option to
purchase. 3 weeks before the period of redemption expired, SIHI asked Carcerller
if he was going to exercised the option or not. A few days after, Carceller notified
SIHI that he wanted to ask for a 6-month extension so that he can raise funds to
buy the property. 18 days after, BUT BEYOND THE PERIOD FOR
REDEMPTION, Carceller told SIHI that he was going to exercise the option, but
SIHI already said that the period had elapsed and therefore, the option can no
longer be availed of. Because of this, petitioner filed for specific specific
performance against SIHI.
The SC holds that Carceller’s notification to SIHI (the one on Feb 18, 1986), was
fair notice of petitioner’s intent to exercise the option, despite the request for the
extension of the lease contract. As Carcerller said, he only asked the extension so
he can raised the funds needed to purchase the property. These are acts consistent
with the parties’ primary intent - Carceller wanted to buy, and SIHI wanted
to sell from the very start.
DOCTRINE: An option is a preparatory contract wherein one party grants to
another, for a fixed period, and under specified conditions, the power to decide,
whether or not to enter into a principal contract. It binds the party who has given
the option (SIHI, in this situation), not to enter into the principal contract with any
other person during the period, and to enter into such contract with the one whom
the option was granted (Carceller, here). It is a separate, distinct agreement from
the contract which the parties may enter into option the consummation of the
option.
FACTS:
1. Respondent State Investment Houses, Inc. (SIHI), is the owner of 2 lands in
Bulacao, Cebu City, covered by TCT’s by the Registry of Deeds of Cebu.
2. On January 10, 1985, petitioner Carceller entered into a LEASE
CONTRACT WITH OPTION TO PURCHASE over the parcels, with a
rental fee of Php 10,000 for 18 months.
3. Some of the pertinent portions of the contract are as follows:
a. Exclusive right, and option to purchase, within the lease period, is
given to the LESSEE (Carceller) for Php 1,800,000.
b. Upon signing the Deed of Sale, lessee shall immediately pay Php
360,000.
c. The balance of Php 1,440,000 shall be paid over 60 consecutive
months with 24% per annum on the balance; and the lessee shall
accelerate payments if the interest for the remaining installments
will no longer be imposed
d. The option shall be exercised by a written notice to the lessor, at
anytime within the option period and the document of sale has to
be consummated within the month when the option is exercised.
4. On January 7, 1986, 3 weeks before the expiration of the lease contract,
SIHI notified Carceller of the impending expiration of the lease contract aka
the period for exercising the option to purchase.
5. In a letter dated January 15, 1986, Carceller sent a letter requesting for a 6-
month extension of the lease contract, saying that he needs ample time to
raise funds to exercise the option. Carceller also said that he has made a
substantial investment on the property, and had been paying the monthly
rentals punctually.
6. On February 14, 1986, SIHI disapproved the request. Though, SIHI still
offered that the lease be extended for Php 30,000 a month for 1 year. SIHI
also told petitioner about its intention to lease property to the public.
7. On February 18, 1986, Carceller notified SIHI with his decision to exercise
the option to purchase the property and made the downpayment of Php
360,000 as stipulated in the contract.
8. SIHI told petitioner that the period to exercise the option has lapsed so
respondent ordered petitioner to vacate the property and to pay the remaining
rentals and penalty.
9. Because of this, Carcerller filed a complaint for specific performance and
damages to compel SIHI to execute the deed of sale.
10. RTC: ruled in favor of Carceller, making the consummation of the contract
Jan. 1985, the basis of the purchase price - Php 1,800,000.
11. CA: Affirmed the RTC but modified the basis of the purchase price - the
market price at 1995, the date when the decision was rendered
12. Both parties raised it to the SC.
ISSUES:
1. W/N Carceller should still be allowed to exercise the option to purchase
the property, even if there was delay on his part in giving notice to SIHI?
YES
2. W/N the market price that should be used is the prevailing market price aka.
at 1995 instead of 1985? NO, market price during the consummation of the
contract should be used.
RULING: The appealed decision of respondent court, insofar as it affirms the
judgment of the trial court in granting petitioner the opportunity to exercise the option
to purchase the subject property, is hereby AFFIRMED. However the purchase price
should be based on the fair market value of real property in Bulacao, Cebu City, as of
February 1986, when the contract would have been consummated.
RATIO:
Carceller should still be allowed to exercise the option to purchase despite him
complying after the said lease period 1986 should be used.
1. An option is a preparatory contract wherein one party grants to another, for
a fixed period, and under specified conditions, the power to decide, whether or not to
enter into a principal contract. It binds the party who has given the option (SIHI, in
this situation), not to enter into the principal contract with any other person during the
period, and to enter into such contract with the one whom the option was granted
(Carceller, here). It is a separate, distinct agreement from the contract which the
parties may enter into option the consummation of the option.
2. The SC holds that Carceller’s notification to SIHI (the one on Feb 18, 1986),
was fair notice of petitioner’s intent to exercise the option, despite the request for the
extension of the lease contract.
3. As Carcerller said, he only asked the extension so he can raised the funds
needed to purchase the property. These are acts consistent with the parties’ primary
intent, which will be discussed later on.
4. Carcerller acted in good faith, introduced substantial improvements on the
property, and therefore, he should be allowed to exercise the option to purchase the
property. SIHI will not even be prejudiced with the decision.

Primary Intent
1. Here, the primary intent, was in accordance with CA’s ruling.
2. Oblicon throwback: Construction should not be limited to the words in the contract,
but the paramount consideration is the parties’ intent. Their agreement has the force
of law between them, and therefore, the intent should always prevail. The provisions
should also be construed together, along with the contemporaneous, and subsequent
acts with regard to the execution of the contract.
3. Context: SIHI was already taken over by the Central Bank because it had financial
problems. The company was desperate to dispose its assets to improve its situation.
Among these assets, is the land in dispute here.
4. According to the stipulations, the lease period should have been exercised by
January 30, 1986. What happened instead, was that Carcerller asked for a 6-month
extension for him to be able to raise funds. He then exercised this option, on
February 14, 1986.
5. There was a delay of 18 days but this was not a substantial breach that would
defeat the intention of the parties. As seen, with the circumstances, petitioner and
defendant clearly had the intention to buy and sell the property, respectively.
6. Actions showing intent:
a. SIHI: Wanted to improve its financial standing even if it will only
materialize within years. Kept on reminding Carceller to send notice if he
will exercise the option.
b. Carceller: Went to a company named TRC to loan Php 8,000,000 to pay
the purchase price in one single payment, instead of paying in installments,
because he wanted to avoid paying the 24% interest.

Market price during consummation of the contract

1. It would be a great injustice to allow SIHI to unjustly enrich itself by earning 90%
more than the original price. For equity considerations, the market price back in
 ANG YU ASUNCION v. CA (Eliel)
December 2, 1994 | Vitug, J. | Right of First Refusal
PETITIONER: Ang Yu Asuncion, Arthur Go and Keh Tiong
RESPONDENTS: CA and Buen Realty Development Corporation
SUMMARY: Asuncion filed a complaint for specific performance against Cu
Unjieng for the latter to sell the property that Asuncion were leasing. The lower
court ruled, however, that there was no meeting of the minds as to the sale
between Cu Unjieng and Asuncion. Nonetheless, the court granted to Asuncion
the right of first refusal. During the appeal of the lower courts decision by
Asuncion, Cu Unjieng sold and transferred to Buen Realty the said property. This
prompted Asuncion to file a writ of execution to issue a deed of sale to Asuncion
for the same consideration of P15M. Buen Realty appelead the decision, and the
CA set aside such writ. Hence this petition. The issue before the SC was whether
or not the writ of execution was a valid remedy, since Asuncion had the right of
first refusal. The SC ruled that the writ of execution will fail since there is nothing
to execute. The right of first refusal, is independent from the contract of sale. At
best, it is merely a preparatory juridical relation between the parties. It is
dependent on the eventual agreement of the terms of the sale, in consistency with
the element of consensuality of contracts. Asuncion’s remedy, therefore, is not
specific performance for the writ of execution, rather an action for recovery of
damages under Art 19 fo the Civil Code.
DOCTRINE: In the law on sales, the so-called “right of first refusal” is an
innovative juridical relation. Needless to point out, it cannot be deemed a
perfected contract of sale under Art 1458 of the Civil Code.
FACTS:
1. A Second Amended Complaint for Specific Performance was filed by Ang
Yu Asuncion and Keh Tiong, et. al (Asuncion) against Bobby Cu Unjieng,
Rose Cu Unjieng and Jose Tan (Cu Unjieng) before the RTC.
2. Asuncion are tenants or lessees of residential and commercial spaces owned
by Cu Unjieng in Ongpin Street, Binondo, Manila. That they have occupied
said spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract
3. Cu Unjieng informed Asuncion that they are offering to sell the premises and
are giving them priority to acquire the same; that during the negotations, Cu
Unjieng offered a price of P6M while Asuncion made a counter offer of P5M
4. Asuncion thereafter asked Cu Unieng to put their offer in writing to which
request Cu Unjieng acceded. Asuncion asked that they specify the terms and
ocnditions o the offer to sell; that when Asuncion did not receive any reply,
they sent another letter with the same request
5. Since Cu Unjieng failed to specify the terms and conditions of the offer to
sell and because of information received that Cu Unjieng were about to sell
the property, Asuncion were compelled to file the complaint to compel Cu
Unjieng to sell the property to them.
6. The RTC found that Cu Unjieng’s offer to sell was never accepted by
Asuncion for the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at all.
7. Nonetheless, the lower court ruled that should Cu Unjieng subsequently offer
their property for sale at a price of P11M or below, Asuncion will have the
right of first refusal.
8. During the appeal of the decision in the CA, Cu Unjieng executed a Deed of
Sale transferring the property in question to Buen Realty and Development
Corporation for the consideration of P15M.
9. Buen Realty, as the new owner of the subject property, demanded Asuncion
to vacate the premises. Asuncion then filed a writ of execution, which was
granted by the court.
10. On appeal of the decision by Buen Realty, the court set aside ande decalred
without force and effect the writ of execution. Hence this petition.
ISSUES:
1. WoN the writ of execution is valid – NO
RULING: WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of the
court a quo. Costs against petitioners.
RATIO:
1. A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation.
2. Negotiation covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is concluded.
The perfection of the contract takes place upon the concurrence of the
essential elements thereof. The stage of consummation begins when the
parties perform their respective undertakings under the contract culminating
in the extinguishment thereof.
3. Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates himself,
for a price certain, to deliver and to transfer ownership of a thing or right
to another, called the buyer, over which the latter agrees.
4. Art. 1458. By the contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
5. When the sale is not absolute but conditions, such as in a “Contract to Sell”
where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition, the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory force.
6. An unconditional mutual promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.
7. An accepted unilateral promise which specifies the thing to be sold and the
price to be paid, when coupled with a valuable consideration distinct and
separate from the price, is what may properly be termed a perfected contract
of option.
8. Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation to buy. Once the option is
exercised timely, a bilateral promise to sell and to buy ensues and both parties
are then reciprocally bound to comply with their respective undertakings.
9. A negotiation is formally initiated by an offer. An imperfect promise is
merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals.
10. These relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation,
such as by its mailing and not necessarily when the offeree learns of the
withdrawal.
11. Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:
a. If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw
the offer before its acceptance, or, if an acceptance has been made,
before the offeror’s coming to know of such fact, by communicating
that withdrawal to the offeree.
b. The right to withdraw, however, must not be exercised whimsically
or arbitrarily; otherwise, it could give rise to a damage claim under
Art. 19 of the Civil Code which ordains that “every person must, in
the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good
faith.”
c. If the period has a separate consideration, a contract of “option”
is deemed perfected, and it would be a breach of that contract
to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement which is
obviously yet ot be concluded.
d. If, in fact, the optioner-offeror withdraws the offer before its
acceptance 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. The optioner-offeror, however,
renders himself liable for damages for breach of the option.
e. In these cases, care should be taken of the real nature of the
consideration given, for if, in fact, it has been intended to be part of
the consideration for the main contract with a right of withdrawal on
the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an “earnest money” in a
contract of sale that can evidence is perfection.
12. In the law on sales, the so-called “right of first refusal” is an innovative
juridical relation. Needless to point out, it cannot be deemed a perfected
contract of sale under Art 1458 of the Civil Code.
13. An option or an offer would require, among other things, a clear certainty on
both the object and the cause or consideration of the envisioned contract. In
a right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the
grantor’s eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that obviously are
yet to be later firmed up.
14. Prior thereto, it can at best be so described as merely belonging to a class
of preparatory juridical relations governed not by contracts but by,
among other laws of general application, the pertinent scattered
provision of the Civil Code on human conduct.
15. Even on the premise that such right of first refusal has been decreed
under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a judgment that
merely recognizes its existence, nor would it sanction an action for
specific performance without thereby negating the indispensible element
of consensuality in the perfection of contracts.
16. It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimate above, an unjustified disregard
thereof, given, for instance, the circumstances expressed in Article 19 of the
Civil Code, can warrant a recovery for damages.
17. The final judgment of the lower court has merely accorded a “right of
first refusal” in favor of Asuncion. The consequence of such a declaration
entails no more than what has heretofore been said. In fine, if, as it is
here so conveyed to us, Asuncion are aggrieved by the failure of Cu
Unjieng to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action
for damages in a proper forum for the purpose.
 10 EQUATORIAL REALTY DEVT, INC. v MAYFAIR THEATER, INC.
(CHIQUI)
November 21, 1996 | Hermosisima, J. | Right of First Refusal
PETITIONER: Equatorial Realty Development, Inc. & Carmelo & Bauermann,
Inc.
RESPONDENTS: Mayfair Theater, Inc.
SUMMARY: Mayfair leased a portion of the second floor of Carmelo’s building
for a term of 20 years. Mayfair would use the leased properties as Miramar and
Maxim Theatre. (Please check the wording of the contracts in Facts 4a and 4b).
Carmelo informed Mayfair that they would dispose of the whole property but
Mayfair only wanted to buy the leased portion. Carmelo was never heard from
again. Carmelo then sold the entire property to Equatorial which led to the
institution of specific performance and annulment of sale by Mayfair. RTC ruled
in favor of Carmelo and Equatorial because the contract was stated to be an option
contract since it lacks consideration. Meanwhile, the CA decided in favor of
Mayfair asserting that the contract was a right of first refusal. W/N the contract
provides for a right of refusal? YES and it is also RESCISSIBLE. According to
the SC, an option contract must be supported by consideration. Par. 8 was
incorporated for the benefit of Mayfair and that the right of first refusal is an
integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties. The contract is also rescissible because of the bad faith
shown by Carmelo and Equatorial.
DOCTRINE: Right of first refusal contained in a Contract of Lease, when
breached by a promissor allows enforcement by the promissee by way of
rescission of the sale entered into with the third party.
FACTS:
1. Carmelo owned a parcel of land, together with two 2-storey buildings
constructed along C.M. Recto Avenue and these are issued in its name by the
Register of Deeds of Manila
2. On June 1, 1967, Carmelo entered into a contract with Mayfair for the latter’s
lease (a portion of the second floor of the two-storey building) of Carmelo’s
property. Mayfair would use it as a motion picture theater for a term of 20
years. Mayfair then constructed on the leased property a movie house known
as Maxim Theatre.
3. On March 31, 1969, Mayfair entered into a second contract of lease of another
portion of the second floor for a similar use and for a similar term of 20 years.
Mayfair put up another movie house called Miramar Theatre.
4. Both contracts are worded in Par. 8 as:
a. 'That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
b. In the event, however, that the leased premises is sold to someone
other than the LESSEE, the lessor is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be
bound by all the terms and conditions thereof.’
5. In August 1974, Mr. Pascal of Carmelo informed Mr. Yang, president of
Mayfair, that Carmelo wanted to sell the whole property. There was a certain
Jose Araneta who wanted to buy for $1.2 M so Mr. Pascal asked Mr. Yang if
the latter wanted to buy the property for 6-7 M pesos.
6. Mr. Yang reminded Mr. Pascal of their contract and Carmelo did not reply
any further. In September, Mayfair expressed its intent to buy only the leased
premises for a reasonable price.
7. In July 1978, Carmelo sold the entire property to Equatorial which included
the leased premises. Thus, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises.
8. Carmelo and Equatorial’s side:
a. That it had informed Mayfair of its desire to sell the land and offered
the same to Mayfair, and that the latter only expressed their intent
on the leased premises which was impossible due to its structure
b. That the option to purchase was null and void for lack of
consideration.
9. RTC decision: In favor of Carmelo and Equatorial
a. Par. 8 is an option clause which is not binding because of the lack
of distinct consideration
10. CA decision: In favor of Mayfair
a. Since par. 8 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, then par. 8 must be a right of first refusal and not an option
contract.
b. The 30-day option to purchase cannot be legally categorized as an
option. It is valid and binding.
ISSUE/s:
17. W/N the contractual stipulations provides for a right of first refusal? YES
18. W/N the sale to Equatorial is valid - NO
RULING: WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED.
The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc.
and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo &
Bauermann is ordered to return to petitioner Equatorial Realty Development the
purchase price. The latter is directed to execute the deeds and documents necessary
to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo &
Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.
RATIO:
1. The rule so early established in this jurisdiction is that the deed of option or
 option clause in a contract, in order to be valid and enforceable, must,
among other things, indicate the definite price at which the person
granting the option, is willing to sell.
a. In all the cases which discussed option contracts, the selling price of
the object is always predetermined and specified in the option clause
in the contract or in the separate deed of option.
b. CA correctly ruled that par. 8 grants the right of first refusal to
Mayfair and is not an option contract. An option is a contract
granting a privilege to buy or sell within an agreed time and at
a determined price. It is a separate and distinct contract from
that which the parties may enter into upon the consummation
of the option. It must be supported by consideration. In the
instant case, the right of first refusal is an integral part of the
contracts of lease. The consideration is built into the reciprocal
obligations of the parties.
c. CA is correct in stating that par. 8 was incorporated into the
contracts of lease for the benefit of Mayfair which wanted to be
assured that it shall be given the first crack or the first option to
buy the property at the price which Carmelo is willing to accept.
d. It is also wrong to say that there is no consideration in an agreement
of right of first refusal. The stipulation is part and parcel of the
entire contract of lease. The consideration for the lease includes
the consideration for the right of first refusal. Thus, Mayfair is in
effect stating that it consents to lease the premises and to pay the
price agreed upon provided the lessor also consents that, should it
sell the leased property, then, Mayfair shall be given the right to
match the offered purchase price and to buy the property at that
price.
2. For the consequential rights, obligations and liabilities of Carmelo, Mayfair,
and Equatorial
a. Carmelo and Equatorial acted in bad faith when they rendered par.
8 as “inutile”. It is undisputed that Carmelo recognized the right of
Mayfair when it informed the latter of its intention to sell the said
property. However, the former violated such right when it
abandoned negotiations, kept a low profile for some time, then sold,
without prior notice to Mayfair, the subject property.
b. Equatorial is buyer in bad faith. It was aware of the lease contracts
between Mayfair and Carmelo when it had its lawyers study the
lease contracts. Hence, the sale to it of the property in question is
rescissible.
c. Under Art. 1380 to 1381(3) of the Civil Code, a contract otherwise
valid may nevertheless be subsequently rescinded by reason of
injury to third person, like creditors. It is a remedy by
contracting parties, even to third persons, to secure reparation
for damages caused to them by a contract. But this remedy is
not applicable to third persons who acquired possession lawfully
and in good faith.
3. On the impossibility of the performance because the entire property is
indivisible, common sense and fairness dictate that instead of nullifying the
agreement on that basis, the stipulation should be given effect by including
the indivisible appurtenance in the sale of the dominant portion under the
right of first refusal.
a. The right of first refusal should include not only the property
specified in the contracts but also the appurtenant portions sold to
Equatorial which are claimed by Carmelo to be indivisible.
b. Even as it recognizes the right of first refusal, this Court should
also order that Mayfair be authorized to exercise its right of first
refusal under the contract to include the entirety of the
indivisible property. The boundaries of the property sold should
be the boundaries of the offer under the right of first refusal.
c. Since Mayfair has a right of first refusal, it can exercise the right
only if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and
preferred right by the contract. The sale of the subject real property
by Carmelo to Equatorial should now be rescinded considering that
Mayfair, which had substantial interest over the subject property,
was prejudiced by the sale of the subject property to Equatorial
without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period.
4. Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated
that there was nothing to execute because a contract over the right of first
refusal belongs to a class of preparatory juridical relations governed not by
the law on contracts but by the codal provisions on human relations. This may
apply here if the contract is limited to the buying and selling of the real
property. However, the obligation of Carmelo to first offer the property to
Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal
which created the obligation. It should be enforced according to the law on
contracts instead of the panoramic and indefinite rule on human relations.
The latter remedy encourages multiplicity of suits.
a. There is something to execute and that is for Carmelo to comply
with its obligation to the property under the right of the first refusal
according to the terms at which they should have been offered then
to Mayfair, at the price when that offer should have been made.
Also, Mayfair has to accept the offer. This juridical relation is not
 amorphous nor is it merely preparatory. Paragraph 8 of the two
leases can be executed according to their terms.
5. Panganiban, separate concurring:
a. With respect to the sale, Mayfair is not a party so it had no
personality to sue for its annulment. However, it falls under a case
of rescission in Art. 1177.
b. Specific performance or rescission with damages is a proper remedy
to enforce a right of first refusal because consent was established
due to a perfected contract which discussed such right.
6. Romero, concurring and dissenting:
a. The right of first refusal is unlike an option which requires a
certainty as to the object and consideration of the anticipated
contract. When the right of the first refusal is exercised, there is no
perfected contract of sale because the other terms of the sale have
yet to be determined.
b. While Article 1381 (5) itself says that rescission may be granted to
all other contracts specially declared by law to be subject to
rescission, there is nothing in the law that states that an offeree who
failed to exercise his right of refusal because of bad faith on the part
of the offeror may rescind the subsequent contract entered into by
the offeror and a third person. Hence, there is no legal justification
to rescind the contract between Carmelo and Bauermann, Inc. and
Equatorial Realty. (His opinion is that third persons should be
construed as only including wards, creditors, absentees, heirs and
others enumerated under the law who are prejudiced by the contract
sought to be rescinded.)
7. Vitug, dissenting:
a. A "breach" of the right of first refusal can only give rise to an action
for damages primarily under Article 19 of the Civil Code, as well as
its related provisions, but not to an action for specific performance
set out under Book IV of the Code on "Obligations and Contracts.
(Breach of right of first refusal can only give rise to damages, not to
an action for specific performance.)
b. The consent contemplated by the law is that which is manifested by
the meeting of the offer and of the acceptance upon the object and
the cause of the obligation. The offer must be certain and the
acceptance absolute. Thus, a right of first refusal cannot have the
effect of a contract because, by its very essence, certain basic terms
would have yet to be determined and fixed.
 Parañaque Kings Enterprises Inc v. CA (Rica)
26 February1997| Panganiban, J| Price in Option to buy
PETITIONER: Parañaque Kings Enterprises Inc
RESPONDENT: Court of Appeals, Catalina Santos
SUMMARY: Santos owned eight parcels of land which was being leased to
Paranaque Kings. The deed of assignment included Paranaque’s right to first option to
purchase the property should Santos decide to sell it. This, however was violated by
Santos. Santos sold the property to Raymundo for Php5M. After learning of her error,
Santos repurchased the property and offered to sell it to Paranaque with a whopping
Php15M price. Paranaque refused to accept the offer because of the price. Santos then
violated the right again when she sold it to Raymundo for Php9M. Paranaque prays
for the annulment of the deed of sale between Raymundo and Santos. The TC and the
CA ruled in favor of Santos. The SC reversed the decision saying that Paranaque’s
right was violated because the price that was offered to Paranaque and the price offered
to Raymundo were not the same. For Paranaque to have exercised its right, the
properties should have been sold in the same terms and conditions. In this case, it was
not sold in the same terms and conditions. Therefore, violating Paranaque’s right.
DOCTRINE: 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 under
the same terms as offered to the optionee.
FACTS:
1. Paranaque is a private corporation organized and existing under and by virtue
of the laws of the Philippines. While Catalina Santos is of legal age and a
resident at Stockton, California, USA represented by her attorney-in-fact,
Protacio. Santos is the one who owns the eight parcels of land in question.
2. A certain Frederick Chua leased the land of Santos and the said lease was
registered in the Register of Deeds.
3. Chua then assigned all his rights and interests and participation in the leased
property to Lee Ching Bing with the conformity of Santos. The assignment
was registered.
4. Bing then assigned all his rights and interests in the leased property to
Paranaque Kungs Enterprises by virtue of a deed of assignment with the
conformity of Santos. The assignment was registered.
5. The deed of assignment included:
a. That in case the properties subject of the lease agreement are sold or
encumbered, Lessors shall impose as a condition that the buyer or
mortgagee thereof shall recognize and be bound by all the terms and
conditions of this lease agreement and shall respect this Contract of
Lease as if they are the Lessors thereof and in case of sale, Lessee
shall have the first option or priority to buy the properties subject
of the lease
6. On September 21, 1988 Santos sold the eight parcels of land subject of the
lease to David Raymundo for Php 5M. Santos wrote a letter to Paranaque
informing Paranaque of the sale. Upon learning this, Paranaque’s
representative wrote a letter back to Santos, requesting her to rectify the error
and consequently realizing the error, Santos had the properties reconveyed to
her for the same consideration. (Basically, Santos bought back the property
from Raymundo).
7. Santos offered the property to Paranaque for Php15M but Paranaque refused.
Instead, Paranaque offered to buy the property for Php5M.
8. A deed of sale was executed in favor of Raymundo for a consideration of
Php9M.
9. Paranaque demanded from Santos to rectify their unlawful acts that they
committed but Santos refused and failed to comply with Paranaque’s just and
valid demands.
10. Paranaque prays that the Deed of Sale between Santos and Raymundo be
annulled and the leased properties be sold to Paranaque in the amount of
Php5M, and damages.
11. Instead of filing their respective answers, Santos filed a motion to dismiss
anchored on the grounds of lack of cause of action, estoppel and laches.
ISSUE: W/N there is a lack of cause of action. – NO, may action.
Related to topic: W/N the first option to buy was violated – Yes it was because the
price offered to Paranaque was not proper.
RULING: WHEREFORE, the petition is GRANTED. The assailed decisions of the
trial court and the Court of Appeals are hereby REVERSED and SET ASIDE. The
case is remanded to the RTC of Makati for further proceedings.
RATIO:
1. Preliminary Issue: Failture to File Sufficient Copies of Brief – compliance
with the Rules was not intended to dely and did not result to prejudice Santos.
Because of the court’s equity jurisdiction, the appeal may be stayed.
2. A cause of action exists when:
a. A right in favor of plaintiff by whatever means and under whatever
law it arises or is created (the right to first option to buy)
b. An obligation on the part of the named defendant to respect or not
to violate such right (Santos’ failure to sell the properties first to
Paranaque)
c. An act or omission on the part of such defendant violative of the
right of plaintiff or constituting a breach of the obligation
3. In this case, the first option or priority to purchase the leased properties was
evident when the different past lessees of the property assigned their rights
and eventually ended with Paranaque. The assigned rights included the right
to first option or priority.
4. Santos first sold the properties to Raymundo and after realizing the her error,
she repurchased the properties and offered them to Paranaque. The price of
the property was, however, higher than that offered to Raymundo. Paranaque
refused to buy the property because of the ridiculous price. Santos then again
 violated the the right to first purchase when it sold the properties to
Raymundo without first offering them to Paranaque at the same price.
5. To have full compliance with the contractual right granting Paranaque the
first option to purchase, the sale of the properties for the amount of Php9M,
the price for which they were finally sold to Raymundo, should have likewise
been first offered to petitioner.
6. Guzman v Bonnevie was used by the court which is essentially the same. The
court in this case said that only if the Bonnevies failed to exercise their right
of first priority could Reynoso thereafter lawfully sell the subject property to
others, and only under the same terms and conditions previous offered to
the Bonnevies.
7. 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 under the same terms as offered to the optionee.
 ROSENCOR VS. INQUING (Nikki V)
J. Gonzaga-Reyes | G.R. No. 140479 | March 8, 2001 | Buyer in Good Faith
Petitioners: Rosencor Development Corporation and Rene Joaquin
Respondents: Paterno Inquing, Irene Guillermo, Federico Bantugan, Fernando
Magbanua, Lizza Tiangco.
Summary: The lessees in this case were granted a right of first refusal by Sps.
Tiangco. Upon the death of Sps. Tiangco, the management of the property was
adjudicated to their heirs who were represented by De Leon. The heirs allegedly the
same right to the lessees as the former knew the such right was extended by Sps.
Tiangco. However, the lessees received a letter from a certain Atty. Aguila
demanding them to leave the premises. The lessees refused to leave. Thereafter,
they received a letter from De Leon offering to sell to them the property for 2M.
The lessees offered to buy the property for 1M but no answer was given by De Leon
since then. Moreover, a certain Rene Joaquin came to the premises introducing
himself as the new owner. It turns out that a sale between Rene Joaquin (VP of
ROSENCOR) and De Leon took place in Sept. 1990 (a month before De Leon made
the offer to the lessees). The issue in this case is WON 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. The prevailing doctrine is that a contract of sale
entered into in violation of a right of first refusal of another person, while valid, is
rescissible.
DOCTRINE: In this case, the contract of sale cannot be rescinded because under
Article 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 order to hold that petitioners were in bad faith, there must be clear and
convincing proof that petitioners were made aware of the said right of first refusal
either by the respondents or by the heirs of the spouses Tiangco.
FACTS:
1. Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a
two-story residential apartment owned by spouses Faustino and Cresencia Tiangco.
The lease was not covered by any contract. The lessees were renting the premises and
were allegedly verbally granted by the lessors the pre-emptive right to purchase the
property if ever they decide to sell the same.
2. Upon the death of the spouses Tiangcos in 1975, the management of the property
was adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees
were allegedly promised the same pre-emptive right by the heirs of Tiangcos since the
latter had knowledge that this right was extended to the former by the late spouses
Tiangcos.
4. In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that
they vacate the premises so that the demolition of the building be undertaken. They
refused to leave the premises. In that same month, de Leon refused to accept the
lessees' rental payment claiming that they have run out of receipts and that a new
collector has been assigned to receive the payments. Thereafter, they received a letter
from Eufrocina de Leon offering to sell to them the property they were leasing for
P2,000,000.00.
5. The lessees offered to buy the property from de Leon for the amount of
P1,000,000.00. De Leon told them that she will be submitting the offer to the other
heirs. Since then, no answer was given by de Leon as to their offer to buy the property.
However, in November 1990, Rene Joaquin came to the leased premises introducing
himself as its new owner.
6. In January 1991, the lessees again received another letter from Atty. Aguila
demanding that they vacate the premises. A month thereafter, the lessees received a
letter from de Leon advising them that the heirs of the late spouses Tiangcos have
already sold the property to Rosencor. The following month Atty. Aguila wrote them
another letter demanding the rental payment and introducing herself as counsel for
Rosencor/Rene Joaquin, the new owners of the premises.
7. The lessees requested from de Leon why she had disregarded the pre-emptive right
she and the late Tiangcos have promised them. The lessees offered to tender their rental
payment to de Leon but she refused to accept the same.
8. In April 1992 before the demolition can be undertaken by the Building Official,
Rosencor raised the issue as to the rental payment of the premises. It was also at this
instance that the lessees were furnished with a copy of the Deed of Sale and discovered
that they were deceived by de Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while de Leon made the offer to
them only in October 1990 or after the sale with Rosencor had been consummated.
The lessees also noted that the property was sold only for P726,000.00.
9. The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an
additional P274,000.00 to complete their P1,000,000.00 earlier offer. When their offer
was refused, they filed an action praying for the following: a) rescission of the Deed
of Absolute Sale between de Leon and Rosencor dated September 4, 1990; b) the
defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon;
and c) de Leon be ordered to reimburse the plaintiffs for the repairs of the property, or
apply the said amount as part of the price for the purchase of the property in the sum
of P100,000.00.
10. The trial court held that the right of redemption on which the complaint was based
was merely an oral one and as such, is unenforceable under the law.
11. Not satisfied with the decision of the trial court, repondents went to the Court of
Appeals which rendered its decision reversing the decision of the trial court. Hence,
this petition for review on certiorari filed by petitioners Rosencor Development
Corporation and Rene Joaquin.
ISSUES:
WON a right of first refusal is covered by the Statute of Frauds - NO
WON respondents have satisfactorily proven their right of first refusal over the subject
property of the Deed of Sale between ROSENCOR and De Leon - YES
WON 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,
provided that the buyer is in bad faith. OTHERWISE, the sale must be valid as regards
the buyer and seller without prejudice to the right of the third party (with a right of
first refusal) to claim damages against the seller who disregarded such right.

RULING:
WHEREFORE, premises considered, the decision of the Court of Appeals dated June
25, 1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the
Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it
dismisses the action for rescission of the Deed of Absolute Sale dated September 4,
1990 and orders the payment of monthly rentals of P1,000.00 per month reckoned
from May 1990 up to the time respondents leave the premises.
RATIO:
RIGHT OF FIRST REFUSAL NOT COVERED BY THE STATUTE OF FRAUDS
A right of first refusal is not among those listed as unenforceable under the statute of
frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten, contract of sale. A right of
first refusal, such as the one involved in the instant case, is not by any means a
perfected contract of sale of real property. At best, 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. It is thus evident that the statute of frauds does not contemplate cases
involving a right of first refusal. As such, a right of first refusal need not be written to
be enforceable and may be proven by oral evidence.
RESPONDENTS HAVE THE RIGHT OF FIRST REFUSAL
1. Respondents have adequately proven the existence of their right of first refusal.
Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they
were promised by the late spouses Faustino and Crescencia Tiangco and, later on, by
their heirs a right of first refusal over the property they were currently leasing should
they decide to sell the same. Moreover, respondents presented a letter where Eufrocina
de Leon, the representative of the heirs of the spouses Tiangco, offering the property
for sale. Verily, if Eufrocina de Leon did not recognize respondents' right of first
refusal over the property they were leasing, then she would not have bothered to offer
the property for sale to the respondents.
2. It must be noted that petitioners did not present evidence before the trial court
contradicting the existence of the right of first refusal of respondents over the disputed
property. They only presented petitioner Rene Joaquin, the vice-president of petitioner
Rosencor, who admitted having no personal knowledge of the details of the sales
transaction between Rosencor and the heirs of the spouses Tiangco. They also
dispensed with the testimony of Eufrocina de Leon who could have denied the
existence or knowledge of the right of first refusal. As such, there being no evidence
to the contrary, the right of first refusal claimed by respondents was substantially
proven by respondents before the lower court.
CONTRACT OF SALE CANNOT BE RESCINDED BECAUSE ROSENCOR IS
A BUYER IN GOOD FAITH
1. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third persons, like
creditors. Rescission implies a contract which, even if initially valid, produces a lesion
or pecuniary damage to someone that justifies its invalidation for reasons of equity.
2. It is true that the acquisition by a third person of the property subject of the contract
is an obstacle to the action for its rescission where it is shown that such third person is
in lawful possession of the subject of the contract and that he did not act in bad faith.
Clearly, this rule is not applicable when the third person acted in bad faith.
3. A purchaser in good faith and for value is one who buys the property of another
without knowledge that some other person has a right to or interest in such property
and pays a full and fair price for the same at the time of such purchase or before he has
notice of the claim or interest of some other person in the property. Good faith
connotes an honest intention to abstain from taking unconscientious advantage of
another.
4. In Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc., the Court
ordered the rescission of a contract entered into in violation of a right of first refusal
saying that since respondent therein had a right of first refusal over the said property,
it could only exercise the said right if the fraudulent sale is first set aside or rescinded.
5. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the
sale of the property by the lessor Carmelo to Equatorial Realty "considering that
Mayfair, which had substantial interest over the subject property, was prejudiced by
its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period." The prevailing doctrine, as enunciated
in the Equatorial, is that a contract of sale entered into in violation of a right of first
refusal of another person, while valid, is rescissible.
6. There is, however, a circumstance which prevents the application of this doctrine in
the case at bench. In the case cited, the Court ordered the rescission of sale made in
violation of a right of first refusal precisely 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 rationale for this is found
in the provisions of the New Civil Code on rescissible contracts. Under Article 1381
of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded
if it is "undertaken in fraud of creditors when the latter cannot in any manner collect
the claim due them." Moreover, under Article 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."
6. The right of first refusal involved in the instant case was an oral one given to
respondents by the deceased spouses Tiangco and subsequently recognized by their
heirs. As such, in order to hold that petitioners were in bad faith, there must be clear
and convincing proof that petitioners were made aware of the said right of first refusal
either by the respondents or by the heirs of the spouses Tiangco.
7. It is axiomatic that good faith is always presumed unless contrary evidence is
adduced. In this regard, the rule on constructive notice would be inapplicable as it is
undisputed that the right of first refusal was an oral one and that the same was never
reduced to writing, much less registered with the Registry of Deeds. In fact, even the
lease contract by which respondents derive their right to possess the property involved
was an oral one.
8. On this point, we hold that the evidence on record fails to show that petitioners acted
in bad faith in entering into the deed of sale over the disputed property with the heirs
of the spouses Tiangco. Respondents failed to present any evidence that prior to the
sale of the property on September 4, 1990, petitioners were aware or had notice of the unjustified violation of their right of first refusal. Their remedy however is not an
oral right of first refusal. action for the rescission of the Deed of Absolute Sale but an action for damages against
9. Respondents point to the letter dated June 1, 1990 indicative of petitioners' the heirs of the spouses Tiangco for the unjustified disregard of their right of first
knowledge of the said right where certain Atty. Erlinda Aguila demanded that refusal.
respondent Irene Guillermo vacate the structure they were occupying to make way for
its demolition. We fail to see how the letter could give rise to bad faith on the part of
the petitioner. No mention is made of the right of first refusal granted to respondents.
The name of petitioner Rosencor or any of its officers did not appear on the letter and
the letter did not state that Atty. Aguila was writing in behalf of petitioner. In fact,
Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the
spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in
behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that
time that such a right of first refusal existed.
10. Neither was there any showing that after receipt of this June 1, 1990 letter,
respondents notified Rosencor or Atty. Aguila of their right of first refusal over the
property. Respondents did not try to communicate with Atty. Aguila and inform her
about their preferential right over the disputed property. There is even no showing that
they contacted the heirs of the spouses Tiangco after they received this letter to remind
them of their right over the property.
11. Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de
Leon, where she recognized the right of first refusal of respondents, as indicative of
the bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her
own behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina
de Leon was aware of the existence of the oral right of first refusal. It does not show
that petitioners were likewise aware of the existence of the said right. Moreover, the
letter was made a month after the execution of the Deed of Absolute Sale on September
4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no
showing that prior to the date of the execution of the said Deed, petitioners were put
on notice of the existence of the right of first refusal.
12. Clearly, if there was any indication of bad faith based on respondents' evidence, it
would only be on the part of Eufrocina de Leon as she was aware of the right of first
refusal of respondents yet she still sold the disputed property to Rosencor. However,
bad faith on the part of Eufrocina de Leon does not mean that petitioner Rosencor
likewise acted in bad faith. There is no showing that prior to the execution of the Deed
of Absolute Sale, petitioners were made aware or put on notice of the existence of the
oral right of first refusal. Thus, absent clear and convincing evidence to the contrary,
petitioner Rosencor will be presumed to have acted in good faith in entering into the
Deed of Absolute Sale over the disputed property.
13. Considering that there is no showing of bad faith on the part of the petitioners, the
Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale
dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses
Tiangco. The acquisition by Rosencor of the property subject of the right of first
refusal is an obstacle to the action for its rescission where, as in this case, it was shown
that Rosencor is in lawful possession of the subject of the contract and that it did not
act in bad faith.
14. This does not mean however that respondents are left without any remedy for the
 VAZQUEZ v. AYALA (JP)
November 19, 2004 | Tinga, J. | Right of First Refusal
PETITIONER: Dr. Daniel Vazquez and Ma. Luisa M. Vazquez
RESPONDENTS: Ayala Corporation
SUMMARY: The Vazquez Spouses entered into a MOA with Ayala where they
sold to Ayala their stocks in Conduit Dev’t Inc. Conduit’s main asset then was the
Ayala Alabang Village. As part of the MOA, Ayala was to reserve an area for the
Vazquez Spouses called the Retained Area. In addition to the Retained Area, par.
5.15 of the MOA also shows that Ayala agrees to give the Vazquez Spouses a first
option of repurchase of the four developed lots next to the Retained Area. These
4 lots were then offered to be sold to the Vazquez Spouses in 1990 after its
development. This was however rejected by the latter because they prefer to pay
with the 1984 prices where they allege they sent demand letters. RTC ruled in
favor of Vazquez Spouses, CA reversed.
The SC held that 5.15 is unmistakably not an option contract but a mere right of
refusal. While the subject is determinate, the 4 lots, the period for within they will
offered for sale and the price is not specified. According then to the Civil Code,
this offer by Ayala can be withdrawn. Ayala offered the lots for sale with the 1990
price but the Vazquez Spouses rejected this and gave their counteroffer. Ayala
rightfully then declined this counteroffer. It cannot be then said that Ayala is
obliged to sell the 4 lots.
DOCTRINE: In a right of first refusal while the object might be made
determinate, 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.
FACTS:
56. Spouses Daniel and Ma. Luisa Vazquez (Vazquez spouses) entered into a
Memorandum of Agreement (MOA) with Ayala Corporation (Ayala).
57. Vazquez spouses were to sell their shares of stock in Conduit Development,
Inc. (Conduit) to Ayala.
58. The main asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a
development plan where than land was divided into Villages 1, 2 and 3.
59. Under the MOA, Ayala was to develop the entire property, less what was
defined as the "Retained Area" consisting of 18,736 square meters.
60. This "Retained Area" was to be retained by the Vazquez spouses.
61. The area to be developed by Ayala was called the "Remaining Area".
62. In this "Remaining Area" were 4 lots adjacent to the "Retained Area" and
Ayala agreed to offer these lots for sale to the Vazquez spouses at the
prevailing price at the time of purchase.
63. Relevant provisions of the MOA:
5.7 The Buyer (Ayala) hereby commits that it will develop the
'Remaining Property' into a first class residential subdivision of the same
class as its New Alabang Subdivision, and that it intends to complete the
first phase under its amended development plan within three (3) years
from the date of this Agreement. . . ."
5.15 The Buyer (Ayala) agrees to give the sellers (Vazquez
Spouses) a first option to purchase four developed lots next to the
“Retained Area” at the prevailing market price at the time of purchase.
64. The parties are agreed that the development plan referred to in paragraph 5.7
is not Conduit's development plan, but Ayala's amended development plan
which was still to be formulated as of the time of the MOA.
65. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez
Spouses were in the first phase thereof or Village 1, in the Ayala plan which
was formulated a year later, it was in the third phase, or Phase II-c.
66. Taking the position that Ayala was obligated to sell the 4 lots adjacent to the
"Retained Area" within 3 years from the date of the MOA, the Vasquez
spouses sent several "reminder" letters of the approaching so-called deadline.
However, no demand after April 23, 1984, was ever made by the Vasquez
spouses for Ayala to sell the 4 lots.
67. In the contrary, one of the letters signed by their authorized agent, Engr.
Eduardo Turla, categorically stated that they expected "development of Phase
1 to be completed by February 19, 1990, three years from the settlement of
the legal problems with the previous contractor."
68. By early 1990 Ayala finished the development of the vicinity of the 4 lots to
be offered for sale. The four lots were then offered to be sold to the
Vasquez spouses at the prevailing price in 1990. This was rejected by the
Vasquez spouses who wanted to pay at 1984 prices, thereby leading to
the suit.
69. RTC: In favor of Vazquez Spouses, ordering Ayala to sell the relevant lots in
the Ayala Alabang Village at the price of P460/square meter, amounting to
P1,349,540 (the 1984 prices).
70. The RTC sided with the Vazquez Spouses that the option to purchase, as can
be gleaned from paragraph 5.15 was valid because it was incorporated in the
MOA and the consideration therefor was the commitment by Ayala
Corporation to the Vazquez Spouses embodied in the MOA.
71. Upon appeal, the CA reversed. According to it, par. 5.15 is not an option
contract but a right of first refusal there being no separate consideration
therefor. Hence this appeal by the Vazques Spouses.
ISSUE/s:
19. WoN Ayala was in default or in delay in the fulfillment of the obligation.–
NO
20. WoN the contract at bar is an option contract (not a contract with a right
of first refusal) - NO
RULING: Judgment in question is affirmed. Instant petition is denied.

RATIO:
32. On the issue on delay: According to the Civil Code, in order that the debtor
may be in default it is necessary, unless he qualifies under the exceptions, that
the following requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially or extrajudicially.
33. Under Article 1193 of the Civil Code, obligations for whose fulfillment a day
certain has been fixed shall be demandable only when that day comes.
However, no such day certain was fixed in the MOA.
34. Petitioners Vazquez Spouses, therefore, cannot demand performance after the
three (3) year period fixed by the MOA for the development of the first phase
of the property since this is not the same period contemplated for the
development of the subject lots.
35. Since the MOA does not specify a period for the development of the subject
lots, petitioner Vazquez Spouses should have petitioned the court to fix the
period in accordance with Article 1197 of the Civil Code.
36. As no such action was filed by petitioner Vazquez Spouses, their complaint
for specific performance was premature, the obligation not being demandable
at that point. Accordingly, Ayala Corporation cannot likewise be said to have
delayed performance of the obligation.
37. Even assuming that the MOA imposes an obligation on Ayala Corporation to
develop the subject lots within three (3) years from date thereof, Ayala
Corporation could still not be held to have been in delay since no demand
was made by petitioner Vazquez Spouses for the performance of its
obligation.
38. As found by the appellate court, petitioners (Vazquez Spouses)' letters which
dealt with the three (3)-year timetable were all dated prior to April 23, 1984,
the date when the period was supposed to expire.
39. In other words, the letters were sent before the obligation could become
legally demandable. Moreover, the letters were mere reminders and not
categorical demands to perform.
40. More importantly, petitioner Vazquez Spouses waived the three (3)-year
period as evidenced by their agent, Engr. Eduardo Turla's letter to the effect
that petitioners agreed that the three (3)-year period should be counted from
the termination of the case filed by Lancer (Context: Ayala had a case with
Lancer, subcontractor of GP Construction who worked the lots, wherein
Ayala failed to pay).
41. Manifestly, the letter expresses not only petitioners' acknowledgement that
the delay in the development of Phase I was due to the legal problems with
GP Construction, but also their acquiescence to the completion of the
development of Phase I at the much later date of February 19, 1990.
42. More importantly, by no stretch of semantic interpretation can it be construed
as a categorical demand on Ayala Corporation to offer the subject lots for sale
to petitioners as the letter merely articulates petitioners' desire to exercise
their option to purchase the subject lots and concern over the fact that
they have not been provided with the specifications of these lots.
43. On the issue of whether or not paragraph 5.15 can properly be construed
as an option contract or a right of first refusal: The Court has clearly
distinguished between an option contract and a right of first refusal.
44. An option is a preparatory contract in which one party grants to another, for
a fixed period and at a determined price, the privilege to buy or sell, or to
decide whether or not to enter into a principal contract. It 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. It must be supported by consideration.
45. In a right of first refusal, on the other hand, while the object might be made
determinate, 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.
46. Applied to the instant case, paragraph 5.15 is obviously a mere right of
first refusal and not an option contract.
47. Although the paragraph has a definite object, i.e., the sale of subject lots,
the period within which they will be offered for sale to petitioner
Vazquez Spouses and, necessarily, the price for which the subject lots
will be sold are not specified.
48. The phrase "at the prevailing market price at the time of the purchase"
connotes that there is no definite period within which Ayala Corporation
is bound to reserve the subject lots for petitioner Vazquez Spouses to
exercise their privilege to purchase.
49. Neither is there a fixed or determinable price at which the subject lots
will be offered for sale. The price is considered certain if it may be
determined with reference to another thing certain or if the
determination thereof is left to the judgment of a specified person or
persons.
50. Further, paragraph 5.15 was inserted into the MOA to give petitioners the
first crack to buy the subject lots at the price which Ayala Corporation would
be willing to accept when it offers the subject lots for sale. It is not supported
by an independent consideration. As such it is not governed by Articles 1324
and 1479 of the Civil Code.
51. Art. 1324: When the offeror 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.
52. Consequently, the "offer" may be withdrawn anytime by communicating the
withdrawal to the other party.
53. In this case, Ayala Corporation offered the subject lots for sale to petitioners
at the price of P6,500.00/square meter, the prevailing market price for the
property when the offer was made on June 18, 1990.
54. Insisting on paying for the lots at the prevailing market price in 1984 of
 P460.00/square meter, petitioners rejected the offer. Ayala Corporation
reduced the price to P5,000.00/square meter but again, petitioners
rejected the offer and instead made a counter-offer in the amount of
P2,000.00/square meter.
55. Ayala Corporation rejected petitioners' counter-offer. With this
rejection, petitioner Vazquez Spouses lost their right to purchase the
subject lots.
56. It cannot, therefore, be said that Ayala Corporation breached petitioners' right
of first refusal and should be compelled by an action for specific performance
to sell the subject lots to petitioners at the prevailing market price in 1984.
 RIVIERA FILIPINA v. CA (HENRY)
April 5, 2002 | De Leon, Jr., J. | Right of First Refusal
PETITIONER: Riviera Filipina, Inc.
RESPONDENTS: CA, Juan Reyes (deceased), Estefania Reyes, et al.
SUMMARY: This is a case that basically revolves around the right of first refusal
of Riviera as far as the sale of the property leased to it by Reyes is concerned.
The subject property is actually owned by Ryees, who mortaged the same to
Prudencial Bank, who eventually was unable to pay its loan and so the property
was foreclosed and sold to the bank as the highest bidder, with March 1989 as the
expiry of the redemption date. With not enough funds left, he finally decided to
sell the property so he can redeem it from the bank.
With Rivieara as lessee having the right to first refusal, the property was offered
at 5k/sqm, to which the former made a counter offer of 3.5k/sqm (which was
obviously not accepted as it was too low. Eventually though, petitioner Riviera
offered to buy at 4k/sqm, but Reyes was firm with not going lower, and even went
up to 6k/sqm.
Riviera was informed of its right of first refusal, with the offer standing at 6k/sqm,
to which it did not accept, but offered 5k/sqm which was not accepted. This
entitled Reyes to look for other potential buyers, and successfully, found one:
Cypress and Cornhill will buy it. After negotiations, the offer was settled at
5.3k/sqm. The buyer then gave Reyes payment, which enabled Reyes to redeem
the property from the bank.
Now, Riviera is claiming that its right of first refusal was violated. RTC and CA
both ruled against Riviera, and held that no right of first refusal was violated as it
specifically indicated in its letter to Reyes that it wouldn’t make an offer higher
than 5k/sqm.
Upon petitioner’s appeal to the SC, the ruling of the appellate court was upheld,
with the SC recognizing the acts of Riviera as far as the contract is concerned, and
that it did not express dissent when it was informed that such right of first refusal
was lost after it declined the last offer of 6k/sqm.
DOCTRINE: A right of first refusal means identity of terms and conditions to be
offered to the lessee and all other prospective buyers and a contract of sale entered
into in violation of a right of first refusal of another person, while valid, is
rescissible.
FACTS:
1. November 1982, respondent Reyes executed a Contract of Lease (for 10
years, renewable) with petitioner Riviera for a 1,018-sqm parcel of land along
EDSA.
2. Reyes loaned from Prudencial Bank, to which he mortgaged the leased
property as security. With the loan unpaid, Prudencial extrajudicially
foreclosed the mortgage.
3. At a public auction with the bank as the highest bidder, Reyes was left with
no choice but to sell the property due to his inability to raise enough money
to redeem it. (but note: redemption period was set to expire: March 7, 1989)
4. In his pursuit of selling the property, it was noted that Par 11 of his lease
contract with petitioner Riviera indicated that the latter had the right of first
refusal, and hence, he offered to sell the property for 5k/sqm through its
President, Angeles.
5. Riviera bargained for 3.5k/sqm, but Reyes pushed for his initial offer, to
which Angeles said he’ll consult with the Board of Directors of Riviera.
6. Sometime October 1988, Angeles informed Reyes of the new offer: 4k/sqm,
Reyes did not only decline this offer, but also told them that the asking price
is 6k/sqm.
7. In a letter dated Nov 2, 1988, Atty Juan, counsel of Reyes, informed Riviera
of the former’s asking price (still 6k/sqm), and further, that this is served to
them for their exercise of their right to first refusal, and is given 10 days to
decide—to which upon the period’s expiry, Reyes will be allowed to sell it
to other interested buyers.
8. Nov 22, 1988 (10 days after), Riviera through a letter informed Reyes of their
intent to purchase, with its offer at 5k/sqm
9. Dec 2, 1988, Angeles wrote to Reyes confirming their intent to purchase at
the final price of 5k/sqm, to which they even indicated that such offer is what
they feel should be the market price of the said property. That, Reyes should
make up his mind in 15 days as they are being offered other properties as
well.
10. Reyes, via Atty. Juan, in a letter, informed Riviera that their offer is not
accepted, and further, that they have failed to take advantage of their right of
first refusal which now is lost.
11. December 1988, Reyes confided to Traballo (close family friend and
President of Cypress) about the nearing of the expiry of the redemption period
for the foreclosed mortgaged property.
12. Traballo expressed interest in buying the said property, and gave an offer for
5.3k/sqm, Reyes accepted.
13. However, since Traballo did not have the amount on hand, he informed Reyes
that he’ll look first for a partner.
14. Sometime January 1989, with the expiration of the redemption period fast
approaching, Reyes once again went to Riviera, who after further
negotiations, gave his final offer at 5.3k/sqm.
15. February 1989 (1 month before expiration of redemption period!!!), Cypress
finally found a partner, Cornhill Trading Corp, and both finally came up with
the amount sufficient to cover the redemption money, to which Reyes paid to
Prudencial, to redeem the property.
16. May 1 1989, Reyes executed a Deed of Absolute Sale covering the property
in favor of Cypress and Cornhill, for Php 5,395,400.00.
17. On the same date, Cypris and Cornhill mortgaged the property to Urban
 Development Bank for Php 3M.
18. Later on, Riviera sought from Reyes, Cypress, and Cornhill, a resale of the
property and claims its right of first refusal was violated. A suit was
eventually filed by petitioner to compel the respondents to transfer the
disputed lands in their favor.
19. RTC dismissed the case, and ruled that the right of first refusal of the
petitioners was not at all violated, when it informed Reyes that it wasn’t
accepting any offer higher than 5k/sqm (with Reyes’ offer at 6k/sqm).
20. An appeal was filed before the CA who affirmed the RTC decision in its
entirety. It further mentioned the earnest efforts of Reyes to respect Riviera’s
contractual right to first refusal, for multiple times, when it offered and
offered but the latter did not accept. Hence, this petition.
ISSUE/s:
1. WoN Riviera’s right to first refusal was violated – NO
RULING: SC denied the petition and affirmed the CA ruling.
RATIO:
1. Riviera claims that its right of first refusal was totally violated by Reyes’ sale
to Cypress and Cornhill. That, the right of first refusal principally amounts to
a right to match in the sense that it needs another offer for the right to be
exercised.
2. The concept of such right began in the case of Guzman, Bocaling & Co v.
Bonnevie, where the Court held that a lease with a proviso granting the lessee
the right of first priority all things and conditions being equal meant that
there should be identity of the terms and conditions to be offered to the lessee
and all other prospective buyers, with lessee to enjoy the right of first priority.
A deed of sale executed in favor of a third party who cannot be deemed a
purchaser in good faith, and which is in violation of the right of first refusal
granted to the lessee is not voidable but rescissible under the Statute of
Frauds.
3. Subsequently in the case of Ang Yu Asuncion v. CA the SC departed from the
doctrine of Guzman and refused to rescind a contract of sale which violated
the right of first refusal. That, such right of first refusal cannot be deemed a
perfected contract of sale, hence a breach thereof does not entitle the
aggrieved party to a writ of execution of judgment but to an action for
damages in a proper forum for the purpose.
4. In the case of Equitorial Realty Devt v. Mayfair, the Court reverted to the
Guzman doctrine and said that rescission is the appropriated relief for
parties whom their right of first refusal is violated.
5. Accordingly, in Paranaque Kings Enterprises, Inc v. CA the SC affirmed and
summarized the doctrines of the above cases and held that, in order to have
full compliance with the contractual right of first refusal, the sale of the
properties for the price for which they were finally sold to a third person
should have likewise been first offered to the former.
6. 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.
7. Consequently, the court mentioned that the prevailing doctrine is that, a right
of first refusal means identity of terms and conditions to be offered to the
lessee and all other prospective buyers and a contract of sale entered into
in violation of a right of first refusal of another person, while valid, is
rescissible.
8. However, the SC noted that general propositions do not decide specific cases.
Rather, laws are interpreted in the context of the peculiar situation of
each proceeding. Each case has its own flesh and blood and cannot be rueld
uponthe basis of isolated clinical classroom principles. Analysis and
construction should NOT be limited to the words used in the contract, as
they may not reflect the true intent of the parties. The court MUST read
a contracat as the average person would readi t and should not give it a
strained or forced construction.
9. In relation to the present case, the SC finds this doctrine relevant and pressing.
Reyes and Riviera shaped their understanding and interpretation of the lease
provision on the right of first refusal to mean simply that should Reyes decide
to sell the subject property during the term of the lease, Riviera will be the
first to whom it will be offered. Which indeed was evidenced by the
negotiations that took place after Reyes’s decision to sell the property.
10. It is evident in the letters dated December 1988 and Feb 1989 that Riviera
was so sure of its position and took obvious advantage of the knowledge of
the time element in its negotiations with Reyes as the redemption period of
the subject foreclosed property drew near.
11. Riviera basically exhibited the “take-it-or-leave-it” vibe in its negotiations. It
was firm in its 5k/sqm offer, no more no less. It voiced that it had other
properties to consider, and even pressured Reyes to decide in 15 days.
Naturally, given such circumstance, Reyes would disagree as it is a highly
disadvantageous offer.
12. It was evident that there was no violent reaction when Reyes’ counsel
informed Riviera that it had lost its right of first refusal. Now, petitioner
cannot be heard that had it been informed of the offer of Cypress (5.3k/sqm),
it would’ve matched the said price.
13. In sum, the SC finds that in the interpretation of the right of first refusal as
understood by the parties of this case, the question as to what is to be included
therein or what is meant by the same, as in all other provisions of the contract,
is for the parties and not for the court to determine, and is a question that
cannot be resolved by what the parties might have provided had they thought
about it, which is evident from Riviera claims, or by what the court might
include regarding abstract fairness.
14. The SC held that it would be rewriting the contract between Reyes and
Riviera under the guise of construction were they to interpret the right
of first refusal as Riviera propounds it, despite a contrary construction
as exhibited by its actions.
15. SC has no right to make new contracts for parties or ignore what they have
already made.
 15 MACION v. GUIANI (Salve)
August 4, 1993 | Romero, J. | Contract to sell
PETITIONER: Henry Macion and Angeles Macion
RESPONDENTS: Hon. Japal M. Guiani, RTC and De la Vida Institute
SUMMARY: Macion owned 2 parcels of lot. These were proposed to be the
extension sites of the school, De la Vida. Macion and De la Vida entered into a
contract to sell. On the agreed date, the sale didn’t materialize. Macion filed for
unlawful detainer against De la Vida while De la Vida filed for reformation of the
contract to sell. Subsequently, Macion and De la Vida entered into a compromise
agreement where Maciano would give De la Vida 5 months to raise 2,060,000 (or
to secure a loan) and failure to do so, De la Vida should vacate the premises. De
la Vida now requests Maciano to execute the contract to sell because they have
allegedly negotiated a loan from BPI. Maciano filed for a motion for execution
of judgment since De la Vida failed to settle their obligations. Judge: denied
motion for execution. Ordered Maciano to execute a contract to sell because the
failure of De la Vida was due to the refusal of Maciano to execute the contract to
sell.
Issue: WoN respondent Judge committed grave abuse of discretion in ordering
Maciano to execute the contract to sell? NO
Despite par 7 of the compromise agreement obligates the execution of a deed of
sale and not a contract to sell, the contemporaneous interpretation of the
agreement showed that prior to the compromise agreement, the parties already
entered into a contract to sell. Where the seller promised to execute a deed of
absolute sale upon completing payment of the price, it is a contract to sell. Here,
the sale is still in the executory stage since the passing of title is subject to a
suspensive condition, namely, that if private respondent is able to secure the
needed funds to be used in the purchased of the 2 lots owned by Maciano. Hence,
no transfer of ownership yet. However, since the period in the compromise
agreement already lapsed, SC ordered RTC to fix a new period.
DOCTRINE:
The compromise agreement, having been signed by both parties, is tantamount to
a bilateral promise to buy and sell a certain thing for a price certain. Hence, this
gives the contracting parties rights in personam, such that each has the right to
demand from the other the fulfillment of their respective undertakings.
Demandability may be exercised at any time after the execution of the Deed.
In a contract to sell, there is no immediate transfer of ownership. In contracts to
sell, payment is a positive suspensive condition, failure of which does not
constitute a breach but an event that
FACTS:
1. The subject of this litigation revolves around 2 parcels of lot owned by
Macion. These lots are proposed to be extension sites of De la Vida Institute,
a school in Cotabato City.
2. Macion and De la Vida entered into a contract to sell where De la Vida
assured Macion that they would buy the lots on or before July 31, 1993 for
1,750,000. In the meantime, Macion surrendered the physical possession of
the lots to them. Because of this, de la vida built a building worth 800,000.
3. On July 31, 1993, the sale didn’t materialize. Thus, Macion filed a complaint
for unlawful detainer against De la Vida. De la vida filed a complaint for
reformation of the contract to sell.
4. On February 6, 1992, the parties entered into a compromise agreement.
Maciano would give De la Vida 5 months to raise 2,060,000. Failure to do
so, De la Vida should vacate the premises.
5. Compromise Agreement:
6. that upon the execution of this agreement, the defendant will furnish the
plaintiff with xerox copy of the land title for each lot which the latter may use
for the purpose of providing information in securing a loan from any
financing or banking institution of their choice.
7. that if within the period of five (5) months from and after February 6, 1992,
the plaintiff succeeds in obtaining funds for the purpose of settling their
obligations with defendants in the total sum of P2,060,000.00 the latter shall
oblige themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the subject of this
case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos.
T-22004 and T-22005 of the Registry of Deeds for the City of Cotabato.
8. De la Vida wrote to Maciano that they received a different compromise
agreement as to what was agreed upon. It was supposed to be 2,000,000 and
not 2,060,000
9. RTC: approved the compromise agreement dated February 6, 1992.
10. De la Vida now requests Maciano to execute the contract to sell because they
have allegedly negotiated a loan from BPI.
11. Maciano filed for a motion for execution of judgment since De la Vida failed
to settle their obligations.
12. Judge: denied motion for execution. Ordered Maciano to execute a contract
to sell because the failure of De la Vida was due to the refusal of Maciano to
execute the contract to sell.
ISSUES:
1. WoN respondent Judge committed grave abuse of discretion in ordering
Maciano to execute the contract to sell? NO
RULING: WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby
ordered to EXECUTE a contract to sell in favor of private respondents. On the other
hand, private respondent is ordered to DEPOSIT with the trial court current rentals
pending consummation of the transaction between the parties. The trial court is
ordered to FIX anew the period within which private respondents may be given the
opportunity to raise funds for the purchase of the two (2) adjoining lots owned by
petitioners.
RATIO:
1. Par. 7 of the compromise agreement: thereafter with the RTC.
2. that if within the period of five (5) months from and after February 6, 1992,
the plaintiff succeeds in obtaining funds for the purpose of settling their
obligations with defendants in the total sum of P2,060,000.00 the latter shall
oblige themselves to execute, sign and deliver to the former the
corresponding Deed of Sale for the two (2) lots which is the subject of this
case and turn-over to said plaintiff the owner's duplicate copy of TCT Nos.
T-22004 and T-22005 of the Registry of Deeds for the City of Cotabato.
3. From the aforecited paragraph, it is clear that the seller is obliged to execute
a Deed of Sale and not a Contract to Sell upon payment of the full price of
P2.06 million. Thereafter, the sellers would turn over to the buyers,
respondents herein, the owner's duplicate copy of Transfer Certificate of Title
Nos. T-22004 and T-22005.
4. Interpretation of the compromise agreement with the use of the
contemporaneous and subsequent acts of the parties:
5. Prior to the signing of the compromise agreement, the parties already entered
into a contract to sell.
6. Within the time frame agreed upon by the parties, De La Vida wrote three (3)
letters dated may 19, 20 and 26 requesting Maciano to execute a contract to
sell in its favor.
7. Where the seller promised to execute a deed of absolute sale upon completing
payment of the price, it is a contract to sell. In the case at bar, the sale is still
in the executory stage since the passing of title is subject to a suspensive
condition, namely, that if private respondent is able to secure the needed
funds to be used in the purchased of the two (2) lots owned by petitioners. A
mere executory sale, one where the sellers merely promise to transfer the
property at some future date, or where some conditions have to be fulfilled
before the contract is converted from an executory to an executed one, does
not pass ownership over the real estate being sold.
8. The compromise agreement, having been signed by both parties, is
tantamount to a bilateral promise to buy and sell a certain thing for a price
certain. Hence, this gives the contracting parties rights in personam, such that
each has the right to demand from the other the fulfillment of their respective
undertakings. Demandability may be exercised at any time after the execution
of the Deed.
9. In a contract to sell, there is no immediate transfer of ownership. In contracts
to sell, payment is a positive suspensive condition, failure of which does not
constitute a breach but an event that prevents the obligation of the vendor to
convey title from materializing.
10. Petitioners as promisors were never obliged to convey title before the
happening of the suspensive condition.
11. Since the period given by the petitioners under the compromise agreement
has already lapsed, the Court orders the trial court to fix anew a period within
which private respondents could secure the needed funds for the purchase.
12. (not part of the topic) De la Vida consigned their rent payments. The SC said
that it is proper that they be ordered to deposit monthly rentals collected
 MANILA METAL CONTAINER CORP v. PNB (LORENA)
December 20, 2006 | Collejo, Sr., J. | Essential Elements of a contract of Sale
PETITIONER: Manila Metal Container Corporation, Reynaldo C. Tolentino
[intervenor]
RESPONDENTS: Philippine National Bank, DMCI-Project Developers,
inc.[intervenor]
SUMMARY: Manila Corp executed a real estate mortgage over a parcel of land in
favor of PNB to secure a P900,000 loan, a credit accommodation of P1000,000 and
another loan of P653,000 it obtained from the said bank. On August 5, 1982, PNB
filed a petition for extrajudicial foreclosure of the real estate mortgage and sought
to have the property sold at public auction for P911,532.21. After due notice and
publication, the property was sold at public auction on September 28, 1982 where
PNB was declared the winning bidder for P1,000,000. Manila Corp sent a letter to
PNB, requesting that it be granted an extension of time to redeem/repurchase the
property. some PNB Pasay City Branch personnel informed Manila Corp that as a
matter of policy, the bank does not accept "partial redemption. Since Manila Corp
failed to redeem the property, the Register of Deeds issued a new title in favor of
PNB.
Meanwhile, SAMD had prepared a statement of account in which Manila Corp's
obligation amounted to P1,574,560.47 and SAMD recommended to the
management of PNB that Manila Corp be allowed to repurchase the property
for P1,574,560.00. The PNB management informed Manila Corp that it was
rejecting the offer and the recommendation of the SAMD. Instead, PNB suggested
that Manila Corp purchase the property for P2,660,000, its minimum market value.
Manila Corp declared that it had already agreed to the SAMD's offer to purchase
the property for P1,574,560.47, and deposited P725,000. The issue in this case is
WoN Manila Corp and PNB had entered into a perfected contract for Manila Corp
to repurchase the property from PNB. The SC ruled in the negative. The P725,000
Manila Corp had remitted to PNB was not "earnest money" which could be
considered as proof of the perfection of a contract of sale under Article 1482 of the
New Civil Code. It was merely a deposit to be applied as part of the purchase price
of the property, in the event that PNB would approve the recommendation of SAMD
for PNB to accept Manila Corp's offer to purchase the property for P1,574,560.47.
Unless and until the PNB accepted the offer on these terms, no perfected contract of
sale would arise.
DOCTRINE: Absent proof of the concurrence of all the essential elements
(Consent, Subject Matter, and Consideration) of a contract of sale, the giving
of earnest money cannot establish the existence of a perfected contract of
sale
FACTS:
1. Manila Metal Container Corporation (Manila Corp) was the owner of a 8,015
square meter parcel of land located in Mandaluyong. To secure a P900,000
loan it had obtained from Philippine National Bank (PNB), Manila Corp
executed a real estate mortgage over the lot.
2. PNB later granted Manila Corp a new credit accommodation of P1,000,000.
On November 16, 1973, Manila Corp executed an Amendment of Real Estate
Mortgage over its property
3. On May 31, 1981, Manila Corp secured another loan of P653,000 from PNB,
payable in quarterly installments of P32,650 plus interests and other charges.
4. On Augyst 5, 1982, PNB filed a petition for extrajudicial foreclosure of the
real estate mortgage and sought to have the property sold at public auction
for P911,532.21, Manila Corp’s outstanding obligation to PNB as of June 30,
1982, plus interests and attorney's fees.
5. After due notice and publication, the property was sold at public auction on
September 28, 1982 where PNB was declared the winning bidder
for P1,000,000. The period to redeem was to expire on February 17, 1984
because the contract of sale was registered on Feb 17, 1983.
6. Manila Corp sent a letter dated August 25, 1983 to PNB, requesting that it be
granted an extension of time to redeem/repurchase the property. PNB replied
on August 30, 1983, informing Manila Corp hat the request had been referred
to its Pasay City Branch for appropriate action and recommendation.
7. In a letter dated February 10, 1984, Manila Corp reiterated its request for a
one year extension from February 17, 1984 within which to
redeem/repurchase the property on installment basis. Meanwhile, some PNB
Pasay City Branch personnel informed Manila Corp that as a matter of policy,
the bank does not accept "partial redemption.
8. Since Manila Corp failed to redeem the property, the Register of Deeds issued
a new title in favor of PNB. Manila Corp’s offers had not yet been acted upon
by PNB.
9. Meanwhile, the Special Assets Management Department (SAMD) had
prepared a statement of account, and as of June 25, 1984 Manila Corp's
obligation amounted to P1,574,560.47. This included the bid price
of P1,056,924.50, interest, advances of insurance premiums, advances on
realty taxes, registration expenses, miscellaneous expenses and publication
cost.
10. When apprised of the statement of account, Manila Corp remitted P725,000
to PNB as "deposit to repurchase," and Official Receipt No. 978191 was
issued to it.
11. SAMD recommended to the management of PNB that Manila Corp be
allowed to repurchase the property for P1,574,560. In a letter dated
November 14, 1984, the PNB management informed Manila Corp that it was
rejecting the offer and the recommendation of the SAMD. It was suggested
that Manila Corp purchase the property for P2,660,000, its minimum market
value. PNB gave Manila Corp until December 15, 1984 to act on the proposal;
otherwise, its P725,000 deposit would be returned and the property would be
sold to other interested buyers.
12. Manila Corp, however, did not agree to PNB's proposal. Instead, it wrote
another letter dated December 12, 1984 requesting for a reconsideration.
13. PNB replied in a letter dated December 28, 1984, wherein it reiterated its
proposal that Manila Corp purchase the property for P2,660,000 PNB again
 informed Manila Corp that it would return the deposit should Manila Corp
desire to withdraw its offer to purchase the property.
14. On February 25, 1985, Manila Corp, through counsel, requested that PNB
reconsider its letter dated December 28, 1984. Manila Corp declared that it
had already agreed to the SAMD's offer to purchase the property
for P1,574,560.47, and that was why it had paid P725,000.00. Manila Corp
warned PNB that it would seek judicial recourse should PNB insist on the
position.
15. PNB informed Manila Corp that the PNB Board of Directors had accepted its
offer to purchase the property, but for P1,931,389.53 in cash less
the P725,000 already deposited with it. On page two of the letter was a space
above the typewritten name of Manila Corp's President, Pablo Gabriel, where
he was to affix his signature. However, Pablo Gabriel did not conform to the
letter but merely indicated therein that he had received it. Manila Corp did
not respond, so PNB requested Manila Corp in a letter dated June 30, 1988
to submit an amended offer to repurchase.
16. Manila Corp rejected PNB's proposal in a letter dated July 14, 1988. It
maintained that PNB had agreed to sell the property for P1,574,560.47, and
that since its P725,000.00 downpayment had been accepted, PNB was
proscribed from increasing the purchase price of the property. Manila Corp
averred that it had a net balance payable in the amount of P643,452.34.
17. PNB, however, rejected Manila Corp's offer to pay the balance
of P643,452.34 in a letter dated August 1, 1989.
18. On August 28, 1989, Manila Corp filed a complaint against PNB for
"Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or
Specific Performance with Damages."
19. Manila Corp later filed an amended complaint and supported its claim for
damages
20. In its Answer to the complaint, PNB averred, as a special and affirmative
defense, that it had acquired ownership over the property after the period to
redeem had elapsed. It claimed that no contract of sale was perfected between
it and Manila Corp after the period to redeem the property had expired.
21. While the case was pending, PNB demanded, on September 20, 1989, that
Manila Corp vacate the property within 15 days from notice, but Manila Corp
refused to do so.
22. On March 18, 1993, Manila Corp offered to repurchase the property
for P3,500,000. The offer was however rejected by PNB, in a letter dated
April 13, 1993. According to it, the prevailing market value of the property
was approximately P30,000,000, and as a matter of policy, it could not sell
the property for less than its market value
23. On June 21, 1993, Manila Corp offered to purchase the property
for P4,250,000 in cash. The offer was again rejected by PNB on September
13, 1993.
24. On May 31, 1994, the trial court ordered PNB to refund the P725,000 deposit
petitioner had made. It ruled that there was no perfected contract of sale
between the parties; hence, Manila Corp had no cause of action for specific
performance against PNB. The P725,000 remitted by Manila Corp to PNB
on June 4, 1985 was a "deposit," and not a downpayment or earnest money.
25. The CA rendered judgment on May 11, 2000 affirming the decision of the
RTC.
26. Manila Corp filed a motion for reconsideration, which the CA denied.
27. Thus, Manila Corp filed the instant petition for review on certiorari
ISSUE/s:
1. WoN Manila Corp and PNB had entered into a perfected contract for Manila
Corp to repurchase the property from PNB – NO
RULING: IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The assailed decision is AFFIRMED. Costs against petitioner Manila Metal
Container Corporation.
RATIO:
1. 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. Under Article 1318 of the New Civil Code, there is no contract unless
the following requisites concur:
a. Consent of the contracting parties;
b. Object certain which is the subject matter of the contract;
c. Cause of the obligation which is established
2. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent. The absence of any of the
essential elements will negate the existence of a perfected contract of sale.
3. When the contract of sale is not perfected, it cannot, as an independent source
of obligation, serve as a binding juridical relation between the parties.
4. the stages of a contract of sale are as follows:
a. negotiation
i. covering the period from the time the prospective
contracting parties indicate interest in the contract to the
time the contract is perfected;
ii. formally initiated by an offer, which, however, must be
certain
iii. At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation.
b. perfection
i. takes place upon the concurrence of the essential elements
of the sale which are the meeting of the minds of the parties
as to the object of the contract and upon the price;
c. consummation
i. begins when the parties perform their respective
undertakings under the contract of sale, culminating in the
extinguishment thereof.
 5. To convert the offer into a contract, the acceptance must be absolute and must
not qualify the terms of the offer; it must be plain, unequivocal, unconditional
and without variance of any sort from the proposal.
6. Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee consent
because any modification or variation from the terms of the offer annuls the
offer. The acceptance must be identical in all respects with that of the offer
so as to produce consent or meeting of the minds.
7. There was no perfected contract of sale between Metro Corp and PNB
over the subject property
a. Manila Corp had until February 17, 1984 within which to redeem
the property. However, since it lacked the resources, it requested for
more time to redeem/repurchase the property under such terms and
conditions agreed upon by the parties. The request, which was made
through a letter dated August 25, 1983, was referred to the PNB's
main branch for appropriate action. Before PNB could act on the
request, Manila Corp again wrote respondent.
b. When Manila Corp was told that PNB did not allow "partial
redemption," it sent a letter to PNB's President reiterating its offer
to purchase the property. There was no response to Manila Corp 's
letters dated February 10 and 15, 1984.
c. The statement of account prepared by the SAMD stating that the net
claim of PNB as of June 25, 1984 was P1,574,560.47 cannot be
considered an unqualified acceptance to Manila Corp 's offer to
purchase the property. The statement is but a computation of the
amount which Manila Corp was obliged to pay in case PNB would
later agree to sell the property, including interests, advances on
insurance premium, advances on realty taxes, publication cost,
registration expenses and miscellaneous expenses.
d. There is no evidence that the SAMD was authorized by PNB's Board
of Directors to accept Manila Corp's offer and sell the property
for P1,574,560.47. Any acceptance by the SAMD of Manila Corp's
offer would not bind PNB. A corporation can only execute its
powers and transact its business through its Board of Directors and
through its officers and agents when authorized by a board
resolution or its by-laws.
e. It appears that the SAMD had prepared a recommendation for PNB
to accept Manila Corp's offer to repurchase the property even
beyond the one-year period; it recommended that Manila Corp be
allowed to redeem the property and pay P1,574,560 as the purchase
price. PNB later approved the recommendation that the property be
sold to Manila Corp. But instead of the P1,574,560.47
recommended by the SAMD and to which Manila Corp had
5
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.
previously conformed, PNB set the purchase price at P2,660,000.00.
f. PNB's acceptance of Manila Corp's offer was qualified, hence can
be at most considered as a counter-offer. If Manila Corp had
accepted this counter-offer, a perfected contract of sale would have
arisen; as it turns out, however, Manila Corp merely sought to have
the counter-offer reconsidered. This request for reconsideration
would later be rejected by PNB.
g. The P725,000.00 Manila Corp had remitted to PNB was not "earnest
money" which could be considered as proof of the perfection of a
contract of sale under Article 14825 of the New Civil Code.
i. This was affirmed by the stipulation of facts which the
parties entered into in the trial court
1. On June 25, 1984, MMCC paid P725,000.00 to
PNB as deposit to repurchase the property. The
deposit of P725,000 was accepted by PNB on the
condition that the purchase price is still subject to
the approval of the PNB Board.
ii. The P725,000 was merely a deposit to be applied as part of
the purchase price of the property, in the event that PNB
would approve the recommendation of SAMD for PNB to
accept Manila Corp's offer to purchase the property
for P1,574,560.47. Unless and until the PNB accepted the
offer on these terms, no perfected contract of sale would
arise. Absent proof of the concurrence of all the
essential elements of a contract of sale, the giving of
earnest money cannot establish the existence of a
perfected contract of sale.
h. It appears that, per its letter to Manila Corp dated June 4, 1985, the
PNB had decided to accept the offer to purchase the property
for P1,931,389.53. However, this amounted to an amendment of
PNB's qualified acceptance, or an amended counter-offer, because
while the PNB lowered the purchase price, it still declared that its
acceptance was subject to the some terms and condition
i. It appears that although PNB requested Manila Corp to conform to
its amended counter-offer, Manila Corp refused and instead
requested PNB to reconsider its amended counter-offer. Manila
Corp's request was ultimately rejected and PNB offered to refund
its P725,000 deposit.

Villonco v. Bormaheco (Celaje)
G.R. No. L-26872 | July 25, 1975 | Aquino, J.
PETITIONER: VILLONCO REALTY COMPANY and EDITH PEREZ DE
TAGLE.
RESPONDENTS: BORMAHECO, INC., FRANCISCO N. CERVANTES and
ROSARIO N. CERVANTES,
SUMMARY: In the early part of February, 1964 there were negotiations for the
sale of the 3 lots located at 245 Buendia Avenue, Makati, Rizal with a total area
of 3,500 square meters (actually owned by Cervantes spouses, but represented by
the present of Bormaheco, Inc. as being owned by Bormaheco), between Romeo
Villonco of Villonco Realty Company and Bormaheco, Inc. represented by its
president, Francisco N. Cervantes. A contract of sale was eventually signed. But,
twenty-six days after the signing of the contract of sale, Cervantes rescinded
the contract, for failure of the condition that another property was to be
acquired to materialize. Villonco eventually filed a complaint for specific
performance against Bormaheco, Inc.
Supreme Court ruled in favor of Villonco Realty Company. Bormaheco's
acceptance of Villonco Realty Company's offer to purchase the Buendia Avenue
property, indubitably proves that there was a meeting of minds upon the subject
matter and consideration of the sale. Therefore, on that date the sale was
perfected. Cervantes also claims that it made a counter off that Villonco should
have re-accepted, but the alleged changes or qualifications in the revised counter-
offer are not material or are mere clarifications of what the parties had previously
agreed upon, thus nullifying the need for another acceptance. Examples of the
changes are, crossing out the word “Nassco” and putting “another property”
instead. Or putting the word “per annum” after the word interest did not make
Cervantes letter a counter offer, insofar as the parties must have intended the
interest to be per annum, or else it would have been an usurious interest. Further,
Cervantes mislead Villonco that Bormahecho had the authority to sell the 3 lots,
when it fact it didn’t. Justice demands that Cervantes should be estopped from
raising the defense of lack of authority to sell.
DOCTRINE: It is true that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance. 'So long as it is
clear that the meaning of the acceptance is positively and unequivocally to accept
the offer, whether such request is granted or not, a contract is formed. Thus, it
was held that the vendor's change in a phrase of the offer to purchase, which
change does not essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer
FACTS:
1. Francisco N. Cervantes and his wife, Rosario P. Navarra-Cervantes, are the
owners of 3 lots located at 245 Buendia Avenue, Makati, Rizal with a total
area of 3,500 square meters. The lots were mortgaged to the Development
Bank of the Phil (DBP) on April 21, 1959 as security for a loan of P441,000.
The mortgage debt was fully paid on July 10, 1969.
2. Cervantes is the president of Bormaheco, Inc., a dealer and importer of
industrial and agricultural machinery. The entire lots are occupied by the
building, machinery and equipment of Bormaheco, Inc. and are adjacent to
the property of Villonco Realty Company situated at 219 Buendia Avenue.
3. In the early part of February, 1964 there were negotiations for the sale of the
said lots and the improvements thereon between Romeo Villonco of Villonco
Realty Company "and Bormaheco, Inc., represented by its president,
Francisco N. Cervantes, through the intervention of Edith Perez de Tagle, a
real estate broker".
4. During the negotiations, Villonco Realty Company assumed that the lots
belonged to Bormaheco, Inc. and that Cervantes was duly authorized to sell
the same. Cervantes did not disclose to the broker and to Villonco Realty
Company that the lots were conjugal properties of himself and his wife and
that they were mortgaged to the DBP.
5. Bormaheco, Inc., through Cervantes, made a written offer dated February 12,
1964, to Romeo Villonco for the sale of the property. (3,500 sq. meters)
Pertinent parts of the offer are: (1) Offering to sell the Buendia property for
P400.00 per square meter. (2) The sale is to be consummated only after
Bormaheco has consummated purchase of another property located at Punta,
Sta. Ana, Manila. The property mentioned in Bormaheco's letter was the land
of the National Shipyards & Steel Corporation (Nassco). At the bidding held
on January 17, 1964 that land was awarded to Bormaheco, Inc., the highest
bidder, for the price of P552,000.
6. In the meanwhile, Bormaheco, Inc. and Villonco Realty Company continued
their negotiations for the sale of the Buendia Avenue property. As a result of
a final conference Villonco Realty Company, through Teofilo Villonco, in its
letter of March 4, 1964 made a revised counter- offer for the purchase of the
property. The counter-offer was accepted by Cervantes. Pertinent portions
are: (1) Accepted P400.00 per sq.m, including improvements. (2) Deal
cancelled if Nassco’s deal is not consummated.
7. Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six days
after the signing of the contract of sale, Cervantes returned the earnest
money, with interest amounting to P694.24 (at ten percent per annum).
Cervantes cited as an excuse the circumstance that "despite the lapse of 45
days from February 12, 1964 there is no certainty yet" for the acquisition of
the Punta property. Villonco Realty Company refused to accept the letter
and the checks of Bormaheco, Inc. Cervantes sent them by registered
mail. When he rescinded the contract, he was already aware that the
Punta lot had been awarded to Bormaheco, Inc.
8. Villonco eventually filed a complaint for specific performance against
Bormaheco, Inc.
 9. After trial, the lower court rendered a decision ordering the Cervantes spouses
to execute in favor of Bormaheco, Inc. a deed of conveyance for the three lots
in question and directing Bormaheco, Inc. (a) to convey the same lots to
Villonco Realty Company, (b) to pay the latter, as consequential damages,
the sum of P10,000 monthly from March 24, 1964 up to the consummation
of the sale, (c) to pay Edith Perez de Tagle the sum of P42,000 as broker's
commission and (d) pay P20,000 as to attorney's fees (Civil Case No. 8109).
10. Hence this petition.
ISSUES:
1. (1) W/N that no contract of sale was perfected because Cervantes made a
supposedly qualified acceptance of the revised offer contained in Exhibit D,
which acceptance amounted to a counter-offer, and because the condition that
Bormaheco, inc. would acquire the Punta land within the forty-five-day
period was not fulfilled. No and No.
2. (2) W/N Francisco N. Cervantes, as president of Bormaheco, Inc., can sell
the 3 lots which are owned by the conjugal partnership. Yes.
RULING: The Court ordered Spouses Cervantes to convey the 3 lots to Bormaheco,
Inc. Then the Court ordered Bormaheco Inc. to sell the property to Villonco Realty
Company for P1,300,000.00, at the price of P400.00 square meter.
RATIO:
1. We hold that the appeal, is devoid of merit.
2. Bormaheco's acceptance of Villonco Realty Company's offer to purchase
the Buendia Avenue property, as shown in Teofilo Villonco's letter dated
March 4, 1964, indubitably proves that there was a meeting of minds
upon the subject matter and consideration of the sale. Therefore, on that
date the sale was perfected. Acceptance by Bormaheco of P100,000 shows
sale was partially consummated subject to acquisition of Punta property.
3. On February 18, 1964 Bormaheco's bid for the Punta property was already
accepted by the Nassco which had authorized its General Manager to sign the
corresponding deed of sale.
4. Bormaheco, Inc. and the Cervantes spouses contend that the sale was not
perfected because Cervantes allegedly qualified his acceptance of Villonco's
revised offer and, therefore, his acceptance amounted to a counter-offer
which Villonco Realty Company should accept but no such acceptance was
ever transmitted to Bormaheco, Inc. which, therefore, could withdraw its
offer. That contention is not well-taken. No evidence as to what changes
were made by Cervantes. Also no evidence that Villonco did not assent to the
changes.
5. It is safe to assume that the alleged changes or qualifications made by
Cervantes were approved by Villonco Realty Company and that such
approval was duly communicated to Cervantes or Bormaheco, Inc. by the
broker as shown by the fact that Villonco Realty Company paid, and
Bormaheco, Inc. accepted, the sum of P100,000 as earnest money or down
payment. That crucial fact implies that Cervantes was aware that Villonco
Realty Company had accepted the modifications which he had made in
Villonco's counter-offer. The fact that Villonco Realty Company allowed its
check to be cashed by Bormaheco, Inc. signifies that the company was in
conformity with the changes made by Cervantes and that Bormaheco, Inc.
was aware of that conformity.
6. The truth is that the alleged changes or qualifications in the revised counter
— offer are not material or are mere clarifications of what the parties had
previously agreed upon.
7. Thus, Cervantes' alleged insertion in his handwriting of the figure and the
words "12th and" in Villonco's counter-offer is the same as the statement
found in the voucher-receipt for the earnest money.
8. Cervantes allegedly crossed out the word "Nassco" in paragraph 3 of
Villonco's revised counter-offer and substituted for it the word "another" so
that the original phrase, "Nassco's property in Sta. Ana", was made to read as
"another property in Sta. Ana". That change is trivial. What Cervantes did
was merely to adhere to the wording of paragraph 3 of Bormaheco's original
offer (Exh. B) which mentions "another property located at Sta. Ana." His
obvious purpose was to avoid jeopardizing his negotiation with the Nassco
for the purchase of its Sta. Ana property by unduly publicizing it.
9. Similarly, Cervantes' alleged insertion of the letters "PA" ( per annum) after
the word "interest" in that same paragraph 3 of the revised counter-offer (Exh.
D) could not be categorized as a major alteration of that counter-offer that
prevented a meeting of the minds of the parties. It was understood that the
parties had contemplated a rate of ten percent per annum since ten percent a
month or semi-annually would be usurious.
10. Appellants Bormaheco, Inc. and Cervantes further contend that Cervantes, in
clarifying in the voucher for the earnest money of P100,000 that Bormaheco's
acceptance thereof was subject to the terms and conditions embodied in
Bormaheco's letter of February 12, 1964 and your (Villonco's) letter of March
4, 1964" made Bormaheco's acceptance "qualified and conditional".
11. That contention is not correct. There is no incompatibility between
Bormaheco's offer of February 12, 1964 and Villonco's counter-offer of
March 4, 1964. The revised counter-offer merely amplified Bormaheco's
original offer. It is true that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance.
12. Thus, it was held that the vendor's change in a phrase of the offer to purchase,
which change does not essentially change the terms of the offer, does not
 amount to a rejection of the offer and the tender of a counter-offer (Stuart vs. properties of the Cervantes spouses. They aver that Cervantes in dealing with
Franklin Life Ins. Co., supra). the Villonco brothers acted as president of Bormaheco, Inc. and not in his
individual capacity and, therefore, he did not bind the conjugal partnership
13. Appellants' next contention is that the contract was not perfected because the
nor Mrs. Cervantes who was allegedly opposed to the sale.
condition that Bormaheco, Inc. would acquire the Nassco land within forty-
five days from February 12, 1964 or on or before March 28, 1964 was not 20. In truth, he concealed the fact that the three lots were registered in the name
fulfilled. That contention is predicated on the erroneous assumption that of the conjugal partnership. He certainly led the Villonco brothers to believe
Bormaheco, Inc. was to acquire the Nassco land within forty-five days or on that as president of Bormaheco, Inc. he could dispose of the said lots. The
or before March 28, 1964. pleadings disclose that Bormaheco, Inc. and Cervantes deliberately and
studiously avoided making the allegation that Cervantes was not authorized
14. The record does not support the theory of Bormaheco, Inc. and the Cervantes
by his wife to sell the three lots or that he acted merely as president of
spouses that the forty-five-day period was the time within which (a) the
Bormaheco, Inc.
Nassco property and two Pasong Tamo lots should be acquired, (b) when
Cervantes would secure his wife's consent to the sale of the three lots and (c) 21. It its first formal offer, Bormaheco, Inc. said it was the owner of the 3 lots in
when Bormaheco, Inc. had to decide what to do with the DBP encumbrance. question. However, it filed an amended answer dated May 25, 1964 wherein
it denied that it was the owner of the three lots. It revealed that the three lots
15. Cervantes in paragraph 3 of his offer of February 12, 1964 stated that the sale
"belong and are registered in the names of the spouses Francisco N. Cervantes
of the Buendia lots would be consummated after he had consummated the
and Rosario N. Cervantes."
purchase of the Nassco property. Then, in paragraph 5 of the same offer he
stated "that final negotiations on both properties can be definitely 22. In its affirmative defense, Bormaheco, Inc. pretended that it needed forty-
known after forty-five days.” five days within which to acquire the Nassco property and "to negotiate" with
the registered owner of the three lots. The absurdity of that pretension stands
16. It is deducible from the tenor of those statements that the consummation of
out in bold relief when it is borne in mind that the answers of Bormaheco,
the sale of the Buendia lots to Villonco Realty Company was conditioned on
Inc. were verified by Cervantes and that the registered owner of the three lots
Bormaheco's acquisition of the Nassco land. But it was not spelled out that
is Cervantes himself.
such acquisition should be effected within forty-five days from February 12,
1964. Had it been Cervantes' intention that the forty-five days would be the 23. Inasmuch as the sale was perfected and even partly executed, Bormaheco,
period within which the Nassco land should be acquired by Bormaheco, then Inc., and the Cervantes spouses, as a matter of justice and good faith, are
he would have specified that period in paragraph 3 of his offer. He could bound to comply with their contractual commitments.
have also specified that period in his "conforme" to Villonco's counter-offer
of March 4, 1964.
17. No such specification was made. The term of forty-five days was not a part
of the condition that the Nassco property should be acquired. It is clear that
the statement "that final negotiations on both property can be definitely
known after 45 days" simply is a surmise that after forty-five days it would
be known whether Bormaheco, Inc. would be able to acquire the Nassco
property and whether it would be able to sell the Buendia property.
18. It should be underscored that the condition that Bormaheco, Inc. should
acquire the Nassco property was fulfilled. As admitted by the appellants, the
Nassco property was conveyed to Bormaheco, Inc. on June 26, 1964. As early
as January 17, 1964 the property was awarded to Bormaheco, Inc. as the
highest bidder. It is reasonable to assume that had Cervantes been more
assiduous in following up the transaction, the Nassco property could have
been transferred to Bormaheco, Inc. on or before March 28, 1964, the
supposed last day of the forty-five-day period.
19. The appellants, in their fifth assignment of error, argue that Bormaheco, Inc.
cannot be required to sell the three lots in question because they are conjugal
 FIRST OPTIMA REALTY CORP vs SECURITRON SECURITY
SERVICES, INC. (Abs)
January 28, 2015 | Del Castillo, J. | Payment of the earnest money will not result in a
perfected contract of sale when the owner did not agree to sell his property
PETITIONER: First Optima Realty Corporation
RESPONDENTS: Securitron Security Services, Inc.
SUMMARY: Securitron offered to buy the subject property from First Optima,
which the latter declined. Thereafter, Securitron sent a letter and a check to First
Optima saying that the check is an earnest money for the property. Said check
was eventually deposited to First Optima’s bank account. After some time,
Securitron, through a demand letter, asked First Optima to proceed with the sale
of the property considering they accepted the earnest money. First Optima refused
saying that they did not agree yet to sell the property. The Court held that *see
Doctrine*
DOCTRINE: In a potential sale transaction, prior payment of earnest money
even before the owner can agree to sell his property is irregular, and cannot be
used to bind the owner to the obligations of a seller under an otherwise perfected
contract of sale. Property owner/prospective seller may not be legally obliged to
enter into a sale with a prospective buyer through the latter's employment of
questionable practices which prevent the owner from freely giving his consent to
the transaction.
FACTS:
1. Looking to expand its business, respondent Securitron, through its General
Manager Eleazar, offered to purchase the subject property from petitioner
First Optima.
2. Eleazar went to the office of the Executive VP of First Optima, Ms. Young,
with cash at hand, offering to buy the subject property. However, Young
declined to accept the payment and told Eleazar that prior approval of the
petitioner’s Board of Directors was required for the transaction, to which
Eleazar remark that they will instead await such approval.
3. On February 4, 2005, Securitron sent a Letter to the petitioner. This was
accompanied by a check issued for 100,000php payable to the petitioner. The
Letter states that the check was the earnest money for the subject property
and that full payment will be made upon clearing of the tenants of the
property and signing of the Deed of Sale.
4. However, said Letter and check was not delivered directly to Young but was
instead coursed through a receptionist who then issued a Provisional Receipt.
The check was eventually deposited and credited to petitioner’s bank
account.
5. Thereafter, Securitron, through a demand letter, asked First Optima to
proceed with the sale of the property. The petitioner replied stating that it was
Securitron who offered to buy the property, that it tendered an earnest money
despite the fact that they were still undecided whether to sell the property,
that no Board Resolution was issued that will authorize the sale, and that they
have no Contract for the earnest money nor Contract to Sell the said property
with Securitron.
6. Securitron, then, filed a case against First Optima for specific performance.
The RTC ruled in favor of Securitron on the ground that the acceptance of
the earnest money by First Optima indicated the existence of a perfected
contract of sale, that they were not forced to accept the earnest money, and
that Young was free to represent the corporation in negotiating with the
respondent for the sale thereof, thus, not needing a Board Resolution for such
transaction.
7. First Optima then appealed to CA but it merely affirmed the decision of the
RTC.
ISSUES:
1. WoN the acceptance of the earnest money resulted in the perfection of a
contract of sale between the parties. –NO
RULING: Wherefore, the Petition is GRANTED.
RATIO:
The trial and appellate courts failed to appreciate that respondent’s offer to
purchase the subject property was never accepted by the petitioner at any instance,
even after negotiations were held between them. Thus, as between them, there is no
sale to speak of. "When there is merely an offer by one party without acceptance of
the other, there is no contract."
Respondent’s subsequent sending of the February 4, 2005 letter and check to
petitioner – without awaiting the approval of petitioner’s board of directors and
Young’s decision, or without making a new offer – constitutes a mere reiteration of its
original offer which was already rejected previously; thus, petitioner was under no
obligation to reply to the February 4, 2005 letter.
Since there is no perfected sale between the parties, respondent had no
obligation to make payment through the check; nor did it possess the right to deliver
earnest money to petitioner in order to bind the latter to a sale. As contemplated under
Art. 1482 of the Civil Code, "there must first be a perfected contract of sale before we
can speak of earnest money." "Where the parties merely exchanged offers and counter-
offers, no contract is perfected since they did not yet give their consent to such offers.
Earnest money applies to a perfected sale."
This Court is inclined to accept petitioner’s explanation that since the check
was mixed up with all other checks and correspondence sent to and received by the
corporation during the course of its daily operations, Young could not have timely
discovered respondent’s check payment; petitioner’s failure to return the purported
earnest money cannot mean that it agreed to respondent’s offer.
In a potential sale transaction, the prior payment of earnest money even
before the property owner can agree to sell his property is irregular, and cannot be
used to bind the owner to the obligations of a seller under an otherwise perfected
contract of sale; to cite a well-worn cliché, the carriage cannot be placed before the
horse. The property owner-prospective seller may not be legally obliged to enter into
a sale with a prospective buyer through the latter’s employment of questionable
practices which prevent the owner from freely giving his consent to the transaction;
this constitutes a palpable transgression of the prospective seller’s rights of ownership
over his property, an anomaly which the Court will certainly not condone. An
agreement where the prior free consent of one party thereto is withheld or suppressed
will be struck down, and the Court shall always endeavor to protect a property owner’s
rights against devious practices that put his property in danger of being lost or unduly
disposed without his prior knowledge or consent. As this ponente has held before,
"[t]his Court cannot presume the existence of a sale of land, absent any direct proof of
it."
OESMER v. PARAISO DEVELOPMENT CORPORATION (Ram)
February 5, 2007 | Chico-Nazario, J. | Earnest Money v. Option Money
PETITIONER: Rizalino, substistuted by his heirs, Josefina Rolando and
Fernando, Ernesto, Leonora, Bibiano, Jr., Librado and Enriqueta, all surnamed
Oesmer
RESPONDENTS: Paraiso Development Corporation
SUMMARY: Oesmers are co-owners of undivided shares of 2 parcels of
agricultural and tenanted land in Carmona Cavite by virtue of right of succession.
Ernesto Oesmer (one of the heirs) met with Lee, President of Paraiso
Development Corp, in Manila for brokering the sale of the properties. A contract
to sell was entered into between Paraiso Dev. Corp and Ernesto as well as
Enriqueta. A check in the amount of P100,000 payable to Ernesto was given as
“option money”. Eventually, Rizalino, Leonora, Bibiano Jr, and Librado also
signed the Contract to Sell. However, 2 of their brothers, Adolfo and Jesus,
refused to sign the document. A couple of months after, the Oesmers informed
Paraiso (through a letter) that it is rescinding the Contract to Sell and returning
the option money. Petitioners who signed the document are contending that
Ernesto had no written authority to sell the property, that their signatures merely
conferred conditional consent subject to a suspensive condition (approval of the
sale by all the co-owners) and that the document did not bear the signature of the
respondent corporation. Hence, the Contract to Sell was not valid. RTC ruled in
favor of Paraiso, but only as to Ernesto’s 1/8 share. CA modified and declared the
Contract to Sell as valid and binding to all the signatories of the document. The
issue in this case is WoN the Contract to Sell is valid as to all co-owners and WoN
the P100,000 is considered as option money. The SC held that the Contract to Sell
was valid to all signatories, but not valid to those who did not. The co-owners
who affixed their signatures signify their act of directly selling their personal
shares to Paraiso Dev. Corp. and acceptance of what has been stipulated in the
contract. Moreover, a careful examination of the words used in the contract
indicates that the money is not option money but earnest money. It is shown by
its partial performance of tendering the P100,000 as part of the purchase price.
DOCTRINE:
OPTION MONEY EARNEST MONEY
Part of the purchase price The money given as a distinct
consideration for an option contrac
Given only where there is already a Applies to a sale not yet perfected
sale
When earnest money is given, the When the would-be buyer gives
buyer is bound to pay the balance option money, he is not required to
buy, but may even forfeit it depending
on the terms of the option.
FACTS:
1. Oesmers are co-owners of undivided shares of 2 parcels of agricultural and
tenanted land in Carmona Cavite, which are unregistered and originally
owned by their parents. When their parents died, they acquired the lots as
heirs by right of succession.
2. In 1989, Paular, a resident and former Mun. Sec. of Carmona Cavite, brought
Ernesto Oesmer (one of the heirs) to meet with Lee, President of Paraiso
Development Corp, in Manila for the purpose of brokering the sale of
Ernesto's properties to Paraiso Dev. Corp.
3. A contract to sell was entered into between Paraiso Dev. Corp and Ernesto as
well as Enriqueta. A check in the amount of P100,000 payable to Ernesto was
given as “option money”. Eventually, Rizalino, Leonora, Bibiano Jr, and
Librado also signed the Contract to Sell.
4. However, 2 of their brothers, Adolfo and Jesus, refused to sign the document.
5. A couple of months after, the Oesmers informed Paraiso (through a letter)
that it is rescinding the Contract to Sell and returning the option money.
6. However, Paraiso did not respond.
7. Oesmers filed a complaint for declaration of nullity of the Contract to Sell
with damages with the RTC, which ruled in favor of Paraiso Dev. Corp.
a. Contract to Sell is valid and binding only to the undivided
proportionate share of Ernesto who signed the document and
received the check.
b. Ernesto was ordered to execute the Contract of Absolute Sale as to
his 1/8 share over the subject two parcels of land.
8. On appeal, CA modified by declaring that the Contract to Sell is valid and
binding as to the undivided shares of the six signatories of the document.
9. Petitioners who signed the document are contending that:
a. Ernesto had no written authority to sell the property
b. Their signatures merely conferred conditional consent subject to a
suspensive condition (approval of the sale by all the co-owners) .
c. Document did not bear the signature of the respondent corporation.
d. Hence, the Contract to Sell was not valid.
ISSUES:
1. WON the Contract to Sell is valid as to all co-owners? – NO. Valid to all
those who signed it, but not valid to those who did not.
2. ISSUE related to the syllabus: WoN the P100,000 is considered as option
money? NO. It is not option money, but earnest money.
RULING: Wherefore, petition is DENIED. CA decision is affirmed.
RATIO:
Affixing their Signatures
1. It is true that the signatures of the 5 siblings did not confer authority on
Ernesto as agent to sell their respective shares in the properties, because such
authority to sell an immovable is required to be in writing.
 2. However, those signatures signify their act of directly (not through an agent) referred to as “option money.” However, a careful examination of the words
selling their personal shares to Paraiso Dev. Corp. used in the contract indicates that the money is not option money but earnest
3. The Contract to Sell was perfected when the petitioners consented to the sale money.
to the respondent of their shares in the subject parcels of land by affixing 3. Settled is the rule that in the interpretation of contracts, the ascertainment of
their signatures on the said contract. the intention of the contracting parties is to be discharged by looking to the
4. Such signatures show their acceptance of what has been stipulated in the words they used to project that intention in their contract, all the words, not
Contract to Sell and such acceptance was made known to Paraiso just a particular word or two, and words in context, not words standing alone.
Development Corporation when the duplicate copy of the Contract to Sell 

was returned to the it bearing petitioners’ signatures.
5. It cannot also have been subject to a suspensive condition because the terms
of the Contract to Sell did not mention of any condition. It is a cardinal rule
in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control.
6. As to petitioner Enriqueta’s claim that she merely signed as a witness to the
said contract, the contract itself does not say so.
7. There was no single indication in the said contract that she signed the same
merely as a witness.
8. The fact that her signature appears on the right-hand margin of the Contract
to Sell is insignificant.
9. The contract indisputably referred to the “Heirs of Bibiano and Encarnacion
Oesmer,” and since there is no showing that Enriqueta signed the document
in some other capacity, it can be safely assumed that she did so as one of the
parties to the sale.

Co-ownership
1. The signatories being owners of their respective undivided shares in the
subject properties, can dispose of their shares even without the consent of all
the co-heirs.
2. Article 493. Each co-owner shall have the full ownership of his part and of
the fruits and benefits pertaining thereto, and he may therefore alienate,
assign or mortgage it, and even substitute another person in its enjoyment,
except when personal rights are involved. But the effect of the alienation or
the mortgage, with respect to the co-owners, shall be limited to the portion
which may be allotted to him in the division upon the termination of the
coownership.
3. Even without the consent of the two co-heirs, Adolfo and Jesus, the Contract
to Sell is still valid and binding with respect to the 6/8 proportionate shares
of the petitioners.

Option Money vs. Earnest Money

1. The Contract to Sell is not void merely because it does not bear the signature
of the respondent corporation. The corporation’s consent to be bound by the
terms of the contract is shown by its partial performance of tendering the
P100,000 as part of the purchase price.
2. The consideration of P100,000.00 paid by respondent to petitioners was
 SPOUSES DALION V. CA (Nicolin)
February 28, 1990 | Medialdea, J. | How Form is Important in Contracts of Sale
PETITIONERS: SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-
DALION
RESPONDENTS: THE HONORABLE COURT OF APPEALS AND RUPERTO
SABESAJE, JR.
SUMMARY: Ruperto Sabesaje sued to recover ownership of a parcel of land from
Segundo Dalion based on a private document of absolute sale executed between
them. Dalion denies the sale contending that the document is fictitious, her wife’s
signature was forged and that the land is conjugal property sold to them by
Saturnina Sabesaje. Spouses Dalion deny the allegation that they pleaded with
Sabesaje to continue administering the land after the execution of the sale They
admitted, however, administrating 5 parcels of land of Sabesaje’s grandfather to
which they were entitled to 5% and 10% commission (which they never got). Trial
court ruled in favor of Sabesaje and ordered Dalion to deliver the land. On appeal,
CA affirmed. Dalion now contests the validity of the sale and the necessity of a
public document to effect ownership. SC held that the sale was valid as several
witness attest to the authenticity of the document. Furthermore, a public document
was not necessary for validity or enforceability of a sale.
DOCTRINE: The provisions of 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.
FACTS:
1. May 28, 1973, Ruperto Sabesaje (Sabesaje) sued to recover ownership of a
parcel of land based on a private document of absolute sale aka Exhibit A
(date July 1, 1965), allegedly executed by Dalion
a. Dalion denied the sale contending that the document is 1) fictitious
and that 2) his wife’s signature was forged, 3) that the land is
conjugal property, which he and his wife acquired in 1960 from
Saturnina Sabesaje (evidenced by the Escritura de Venta
Absoluta aka Exhibit B)
b. Dalion also denied Sabesaje’s claims that the Spouses Dalion
pleaded with them to still administer the land (even after the sale)
because they did not have any means of livelihood.
c. Dalion, however, admitted that they have been administering 5
parcels of land owned by Sabesaje’s grandfather, Leonardo. (but
they didn’t receive the agreed commission of 10% and 15% of the
sales of the products)
d. Dalion alleges that the suit was merely intended to harass, preempt
and forestall Dalion’s threat to sue for the unpaid commissions.
2. Lower court ruled in favor of Sabesaje and ordered Spouses Dalion to deliver
the parcel of land and execute the corresponding formal deed of conveyance
in a public document in favor of Sabesaje.
3. Dalion appealed the decision, but the CA upheld the validity of the sale of
the parcel of land between Dalion and Sabesaje. Hence, this petition.
ISSUES:
1. W/N the contract of sale of a parcel of land is valid – YES. Authenticity of
Dalion’s signature and genuineness of the document was proven.
2. W/N a public document is necessary to transfer ownership – NO. Public
instrument is only for convenience and not a requirement for the validity of
a contract of sale.
RULING: ACCORDINGLY, the petition is DENIED and the decision of the Court
of Appeals upholding the ruling of the trial court is hereby AFFIRMED. No costs.
RATIO:
1. SC upheld the findings and ruling
of CA:
a. Exhibit A and B have the
same description of the
subject land (boundaries
delineating the property
from adjacent lots are
identical)
b. Witnesses positively testified to the authenticity of the execution of
the subject deed.
c. Dalion never presented any witness or evidence to prove his claim
of forgery.
d. The questioned signatures and the specimens are very similar to
each other and appear to be written by one person. It may be noted
that two signatures of Segundo D. Dalion appear on the face of the
questioned document (Exh. A), one at the right corner bottom of the
document (Exh. A-2) and the other at the left hand margin thereof
(Exh. A-3). The second signature is already a surplusage. A forger
would not attempt to forge another signature, an unnecessary one,
for fear he may commit a revealing error or an erroneous stroke
2. Dalion’s ground that a private document does not convey title or right to the
lot in question is misplaced. The provisions of 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.
a. A contract of sale is a consensual contract, which means that the sale
is perfected by mere consent. No particular form is required for its
 validity. Upon perfection of the contract, the parties may
reciprocally demand performance (Art. 1475, NCC), i.e., the vendee
may compel transfer of ownership of the object of the sale, and the
vendor may require the vendee to pay the thing sold (Art. 1458,
NCC).
b. Under Art. 1498, NCC, when the sale is made through a public
instrument, the execution thereof is equivalent to the delivery of the
thing. Delivery may either be actual (real) or constructive. Thus
delivery of a parcel of land may be done by placing the vendee in
control and possession of the land (real) or by embodying the sale
in a public instrument (constructive).
c. Proper action is recovery of ownership. Sabesaje’s complaint
sufficiently alleged a cause of action to compel Dalion to execute a
formal deed of sale, and the suit for recovery of ownership merely
seeks consummation of said contract.
 SECUYA V. SELMA (Josef)
February 22, 2002 | Panganiban J. | Importance of Form in Contracts of Sale in
order to bind third parties
PETITIONER: BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO
SECUYA, CORAZON SECUYA, RUFINA SECUYA, BERNARDINO SECUYA,
NATIVIDAD SECUYA, GLICERIA SECUYA and PURITA SECUYA
RESPONDENT: GERARDA M. VDA. DE SELMA
SUMMARY: Maxima Caballero executed a document entitled "Agreement of
Partition," wherein she stipulated to transfer one-third (1/3) of the lot to and accepted by
Paciencia Sabellano (aunt). Paciencia thereafter sold the same to Dalmacio Secuya,
which was embodied in a private instrument. The document was, however, lost.
After the purchase of Dalmacio Secuya, the latter, together with his relatives took
physical possession of the land. Thereafter, the defendant-respondent Gerarda Selma
alleged that she bought a lot, in which the land of the petitioners was included.
Petitioners, heirs of Dalmacio Secuya, filed an action for quieting of title on the ground
that respondent's title is a cloud on their title as owners and possessors of the property
subject of litigation. Defendant-respondent alleged that she bought the property from
Cesaria Caballero, who was the widow of the Silvestre Aro, the said registered owner of
the lot. The trial court rendered judgment against the petitioners. CA affirmed.
The main issue is whether or not the petitioners have the requisite title that would enable
them to avail of the remedy of Quieting of Title. The Court held no. Petitioners insist
that Paciencia sold the disputed property to Dalmacio Secuya (predecessor-in-interest of
petitioners), and that the sale was embodied in a private document. However, such
document, which would have been the best evidence of the transaction, was never
presented in court, allegedly because it had been lost. While a sale of a piece of land
appearing in a private deed is binding between the parties, it cannot be considered
binding on third persons, if it is not embodied in a public instrument and recorded in the
Registry of Property. (See Issues and Ratio part below to also understand how the SC
resolved the other issues to solve the main issue)
DOCTRINE:
While sale of land appearing in a private deed is binding between the parties, it cannot
be considered binding on third persons, if it is not embodied in a public instrument and
recorded in the Registry of Deeds.
Facts:
1. The present Petition is rooted in an action for quieting of title filed before the
RTC by the Secuyas against Gerarda M. vda. de Selma.
2. The parcel of land subject of this case is a PORTION (3000 sqm.) of Lot 5679
of the Talisay-Minglanilla Friar Lands Estate. The property was originally
sold to Maxima Caballero Vda. de Cariño. Lot 5679 has an area of 12,750
square meters, more or less.
3. During the lifetime of Maxima Caballero, she entered into that
AGREEMENT OF PARTITION dated January 5, 1938 with Paciencia
Sabellona, whereby the former bound herself and parted with one-third (1/3)
portion of Lot 5679 in favor of the latter.
4. Paciencia Sabellona took possession and occupation of that one-third portion
of Lot 5679 adjudicated to her (however, the latter and her successors-in-
interest did nothing to assert their right like registering the said
Agreement of Partition, and thus it was sold to a certain Silvestre Aro by
the heirs of Maxima – relevant to fact no. 8). Later, she sold the three
thousand square meter portion thereof to Dalmacio Secuya, the precedessor-
in-interest of petitioners, on October 20, 1953, for a consideration of ONE
THOUSAND EIGHT HUNDRED FIFTY PESOS (P1,850.00), by means of
a private document which was lost. Such sale was admitted and confirmed
by Ramon Sabellona, only heir of Paciencia Sabellona per that instrument
denominated CONFIRMATION OF SALE OF UNDIVIDED SHARES.
5. After the purchase by Dalmacio Secuya of the property in litigation on
October 20, 1953, Dalmacio, together with his brothers and sisters, took
physical possession of the land and cultivated the same. Dalmacio Secuya
died on November 20, 1961. Thus his heirs — brothers, sisters, nephews and
nieces — are the plaintiffs in Civil Case No. CEB-4247 and now the
petitioners;
6. In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-meter
portion of Lot 5679. Then on February 19, 1975, she bought the bigger bulk
of Lot 5679, consisting of 9,302 square meters. The land in question, a
3,000-square meter portion of Lot 5679, is embraced and included within
the boundary of the later acquisition by respondent Selma.
7. Defendant-respondent Gerarda Selma lodged a complaint, and had the
plaintiffs-petitioners summoned, before the Barangay Captain of the place,
and in the confrontation and conciliation proceedings at the Lupong
Tagapayapa, defendant-respondent Selma was asserting ownership over the
land inherited by plaintiffs-petitioners from Dalmacio Secuya of which they
had long been in possession . . . in concept of owner.
8. Respondent Selma's version of the facts, on the other hand, was summarized
by the appellate court as follows:
• She is the registered owner of Lot 5679-C-120 consisting of 9,302
square meters, having bought the same sometime in February 1975
from Cesaria Caballero and have been in possession of the same
since then. Cesaria Caballero was the widow of Silvestre Aro,
registered owner of the mother lot, Lot. No. 5679 with an area of
12,750 square meters of the Talisay-Minglanilla Friar Lands Estate,
as shown by Transfer Certificate of Title No. 4752. Upon Silvestre
Aro's demise, his heirs executed an "Extrajudicial Partition and
Deed of Absolute Sale" wherein one-half plus one-fifth of Lot No.
5679 was adjudicated to the widow, Cesaria Caballero, from whom
defendant-appellee derives her title.
9. RTC: Dismissed petitioner’s claim of ownership
CA: Affirmed RTC
 • It held that respondent's title can be traced to a valid TCT. On the other
hand, it ruled that petitioners anchor their claim on an "Agreement of
Partition" which is void for being violative of the Public Land Act.
The CA noted that the said law prohibited the alienation or
encumbrance of land acquired under a free patent or homestead
patent, for a period of five years from the issuance of the said patent.
Ruling: WHEREFORE, the Petition is hereby DENIED and the assailed Decision
AFFIRMED.
Issues:
Main issue: W/N the petitioners have the requisite title that would enable them
to avail of the remedy of Quieting of Title – NO
In determining w/n the petitioners have the requisite title – a legal or an equitable
title to, or an interest in, the subject real property – that would enable them to avail
themselves of the remedy of Quieting of Title, the Court finds it relevant to resolve the
following issues below:
1. What is the real nature of the “Agreement to Partition?” – Express Trust
2. W/N the deed of sale to Dalmacio Secuya is valid – YES, but not to third
persons because it was in a private document. (Relevant topic)
3. W/N the private respondent has valid title – YES
Ratio:
First Issue: 
The Real Nature of the "Agreement of Partition"
AGREEMENT OF PARTITION
I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael Cariño, now
residing and with postal address in the Municipality of Dumaguete, Oriental Negros,
depose the following and say:
(Relevant provisions)
1. That I am the applicant of vacant lot No. 5679 of the Talisay-Minglanilla Estate
and the said application has already been indorsed by the District Land Officer,
Talisay, Cebu, for private sale in my favor;
4. That as soon as the application is approved by the Director of Lands, Manila,
in my favor, I hereby bind myself to transfer the one-third (l/3) portion of the
above mentioned lot in favor of my aunt, Paciencia Sabellana y Caballero, of legal
age, single, residing and with postal address in Tungkop, Minglanilla, Cebu.
6. I, Paciencia Sabellana y Caballero, hereby accept and take the portion herein
adjudicated to me by Mrs. Maxima Caballero of Lot No. 5679 Talisay-Minglanilla
Estate and will pay the corresponding portion to the government after the subdivision
of the same;
a) The Agreement: An Express Trust, Not a Partition
• Notwithstanding its purported nomenclature, this Agreement is not one
of partition, because there was no property to partition and the
parties were not co-owners. Rather, it is in the nature of a trust
agreement.
• As a result of the Agreement, Maxima Caballero held the portion
specified therein as belonging to Paciencia Sabellona when the
application was eventually approved and a sale certificate was issued in
her name. Thus, she (Maxima Caballero) should have transferred the
same to the latter, but she never did so during her lifetime. Instead,
her heirs sold the entire Lot No. 5679 to Silvestre Aro in 1955.
• From 1954 when the sale certificate was issued until 1985 when
petitioners filed their Complaint, Paciencia and her successors-in-
interest did not do anything to enforce their proprietary rights over
the disputed property or to consolidate their ownership over the
same. In fact, they did not even register the said Agreement with the
Registry of Property or pay the requisite land taxes.
b) The Repudiation of the Express Trust
• While no time limit is imposed for the enforcement of rights under
express trusts, prescription may, however, bar a beneficiary's action
for recovery, if a repudiation of the trust is proven by clear and
convincing evidence and made known to the beneficiary.
• There was a repudiation of the express trust when the heirs of
Maxima Caballero failed to deliver or transfer the property to
Paciencia Sabellona, and instead sold the same to a third person not
privy to the Agreement. In the memorandum of incumbrances of TCT
No. 308719 issued in the name of Maxima, there was no notation of the
Agreement between her and Paciencia. Equally important, the
Agreement was not registered; thus, it could not bind third persons.
Neither was there any allegation that Silvestre Aro, who purchased
the property from Maxima's heirs, knew of it. Consequently, the
subsequent sales transactions involving the land in dispute and the titles
covering it must be upheld, in the absence of proof that the said
transactions were fraudulent and irregular.
Second Issue: The Purported Sale to Dalmacio Secuya
a) The Absence of the Purported Deed of Sale (MOST relevant)
• Petitioners insist that Paciencia sold the disputed property to Dalmacio
Secuya on October 20, 1953, and that the sale was embodied in a
private document. However, such document, which would have been
the best evidence of the transaction, was never presented in court,
allegedly because it had been lost. While a sale of a piece of land
appearing in a private deed is binding between the parties, it cannot
be considered binding on third persons, if it is not embodied in a
public instrument and recorded in the Registry of Property.
b) The Questionable Value of the Deed Executed by Ramon Sabellona
 • To prove the alleged sale of the disputed property to Dalmacio,
petitioners instead presented the testimony of Miguel Secuya, one of the
petitioners; and a Deed confirming the sale executed by Ramon
Sabellona, Paciencia's alleged heir. The testimony of Miguel was a bare
assertion that the sale had indeed taken place and that the document
evidencing it had been destroyed. While the Deed executed by Ramon
ratified the transaction, its probative value is doubtful. His status as
heir of Paciencia was not affirmatively established. Moreover, he was
not presented in court and was thus not quizzed on his knowledge — or
lack thereof — of the 1953 transaction.

c) Petitioners' Failure to Exercise Owners' Rights to the Property

• Petitioners insist that they had been occupying the disputed
property for forty-seven years before they filed their Complaint for
quieting of title. However, there is no proof that they had exercised
their rights and duties as owners of the same. They argue that they
had been gathering the fruits of such property; yet, it would seem that
they had been remiss in their duty to pay the land taxes. If petitioners
really believed that they owned the property, they have should have been
more vigilant in protecting their rights thereto. As noted earlier, they
did nothing to enforce whatever proprietary rights they had over
the disputed parcel of land.

Third Issue: 
The Validity of Private Respondent's Title

• Petitioners contention: private respondent is not a purchaser in good faith

alleging that the latter was aware of the petitioner’s possession of the disputed
land. Thus, they cannot be entitled to the protection under the Torrens title.
• SC: Granting arguendo that private respondent knew that petitioners, through
Superales and his family, were actually occupying the disputed lot, we must
stress that the vendor, Cesaria Caballero, assured her that petitioners
were just tenants on the said lot. Private respondent cannot be faulted for
believing this representation, considering that petitioners' claim was not
noted in the certificate of the title covering Lot No. 5679.
• Moreover, the lot, including the disputed portion, had been the subject of
several sales transactions. The title thereto had been transferred several
times, without any protestation or complaint from the petitioners. In any
case, private respondent's title is amply supported by clear evidence, while
petitioners' claim is barren of proof.
 YUVIENCO v. DACUYCUY (Mark)
May 27, 1981| Barredo J. | Perfection of sale
PETITIONER: Suga Sotto Yuvienco, Britania Sotto, and Marcelino Sotto
RESPONDENTS: Hon. Auxencio C. Dacuycuy, (judge of the CFI of Leyte) Dely
Rodriquez et al.
SUMMARY: Petitioners own a property in Tacloban City which they intend to sell
for 6.5M. They gave the respondents the right to purchase the property nut only
until July 31, 1978. Respondents replied that they agree to buy the property and
they will negotiate for details. Petitioner sent another telegram informing
respondents that their proposal is accepted and a contract will be prepared. Lawyer
of petitioners, Atty. Gamboa, arrived bringing a contact with an altered mode of
payment which says that the balance payment should be paid withing 30 days
instead of the former 90 days. (Alleged original terms: 2M payment upon execution.
4.5M after 90 days). The issue is WON there was already a perfected contract of
sale between the parties.
SC held that there was no perfected contract of sale yet because both parties are
still under negotiation and hence, no meeting of the minds. Atty. Gamboa even
went to the respondents to negotiate for the sale. Even though there was an
agreement on the terms of payment, there was no absolute acceptance because
respondents still insisted on further details.
DOCTRINE: We hold that in any sale of real property on installments, the idea of
payment on installments must be in the requisite of a note or memorandum.
FACTS:
1. Petitioners own a property in Tacloban that they offered to sell for P6,500,000
to private respondents through a letter.
2. They gave the respondents Yao King Ong the right to purchase the property
only until July 31, 1978.
3. Respondents replied that they agree to buy the property and they will
negotiate for details.
4. Petitioner sent another telegram informing respondents that their proposal is
accepted and a contract will be prepared.
5. Respondent allege that Atty of the petitioners, Pedro Gamboa arrived
Tacloban City bringing with him the prepared contract to purchase and to sell
however, to the complete surprise of respondents, the petitioner without
giving notice to plaintiffs, changed the mode of payment with respect to the
balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount
within thirty (30) days from execution of the contract instead of the former
term of ninety (90) days
6. Petitioners applied for Petition for certiorari and prohibition to declare void
for being in grave abuse of discretion the orders of respondent judge which
denied the motion filed by petitioners to dismiss the complaint of private
respondents for specific performance of an alleged agreement of sale of real
property, the said motion being based on the grounds that the respondents'
complaint states no cause of action and/or that the claim alleged therein is
unenforceable under the Statute of Frauds.
7. Petitioners argue that although they did express willingness to sell to private
respondents the subject property, the respondents' reply that they were
agreeable was not absolute, so much so that when Atty. Gamboa went to
Cebu City with a prepared and duly signed contract for the purpose of
perfecting and consummating the transaction, respondents and said
representative found variance between the terms of payment stipulated in the
prepared document returned and the document remained unsigned by
respondents.
ISSUES:
1. WoN the complaint in controversy states sufficiently a cause of action. -NO
2. WoN there is perfected contract of sale between petitioners and Yao King
Ong. - NO
RULING: ACCORDINGLY, the impugned orders of respondent judge of November
2, 1978 and August 29, 1980 are hereby set aside and private respondents' amended
complaint, Annex A of the petition, is hereby ordered dismissed and the restraining
order heretofore issued by this Court on October 7, 1980 is declared permanent. Costs
against respondents.
RATIO:
1. In this respect, the governing legal provision is, of course, Article 1319 of
the Civil Code which provides:
ART. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are constitute the contract.
The offer must be certain the acceptance absolute. A qualified acceptance
constitute a counter-offer.
Acceptance made by letter or telegram does not bind offerer except from the
time it came to his knowledge. The contract, in a case, is presumed to have
been entered into in the place where the offer was made.
2. In the instant case, We can lay aside, for the moment, petitioners' contention
that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to respondents Yao
King Ong and his companions constitute an offer that is "certain", although
the petitioners claim that it was a mere expression of willingness to sell the
subject property and not a direct offer of sale to said respondents. What We
consider as more important and truly decisive is what is the correct juridical
significance of the telegram of respondents instructing Atty. Gamboa to
"proceed to Tacloban to negotiate details." We underline the word
"negotiate" advisedly because to Our mind it is the key word that
negates and makes it legally impossible for Us to hold that respondents'
 acceptance of petitioners' offer, assuming that it was a "certain" offer Separate Opinions
indeed, was the "absolute" one that Article 1319 above-quoted requires.
3. Importantly, it must be borne in mind that Yao King Ong's telegram simply AQUINO, J., concurring:
says "we agree to buy property". It does not necessarily connote acceptance
of the price but instead suggests that the details were to be subject of I concur in the result. Private respondents cannot prove any perfected sale which they
negotiation. can enforce.
4. Respondents now maintain that what the telegram refers to as "details" to be
"negotiated" are mere "accidental elements", not the essential elements of the (ITO NA YUNG BUONG CONCURRING NIYA HAHAHAHA)
contract. But to Our mind such alleged facts precisely indicate the failure of
any meeting of the minds of the parties, and it is only from the letter and
telegrams above-quoted that one can determine whether or not such meeting
of the minds did materialize.
5. The 90-day term for the balance of P4.5 M insisted upon by respondents
choices not appear in any note, writing or memorandum signed by either the
petitioners or any of them, not even by Atty. Gamboa.
6. Hence, looking at the argument of respondents that there was a perfected
agreement of purchase and sale between them and petitioners under which
they would pay in installments of P2 M down and P4.5 M within ninety 90)
days afterwards it is evident that such oral contract involving the "sale of real
property" comes squarely under the Statute of Frauds
7. We hold that in any sale of real property on installments, the Statute of Frauds
read together with the perfection requirements of Article 1475 of the Civil
Code must be understood and applied in the sense that the idea of payment
on installments must be in the requisite of a note or memorandum therein
contemplated.
8. Secondly, We are of the considered opinion that under the rules on proper
pleading, the ruling of the trial court that, even if the allegation of the
existence of a sale of real property in a complaint is challenged as barred from
enforceability by the Statute of Frauds, the plaintiff may simply say there are
documents, notes or memoranda without either quoting them in or annexing
them to the complaint, as if holding an ace in the sleeves is not correct.
9. Such a procedure is to tolerate and even encourage undue delay in litigation,
for the simple reason that to await the stage of trial for the showing or
presentation of the requisite documentary proof when it already exists and is
asked to be produced by the adverse party would amount to unnecessarily
postponing.
10. It would be inimical to the public interests in speedy justice for plaintiff to
play hide and seek at his own convenience, particularly, when, as is quite
apparent as in the instant case that chances are that there are no more writings,
notes or memoranda of the installment agreement alleged by respondents.
11. We consider it as sufficiently a grave abuse of discretion warranting the
special civil actions herein the failure of respondent judge to properly apply
the laws on perfection of contracts in relation to the Statute of Frauds and the
pertinent rules of pleading and practice
 ORTEGA V. LEONARDO (Regine)
May 28, 2956 | Bengzon, J. | Partial Performance
PETITIONER: MARTA C. ORTEGA
RESPONDENTS: DANIEL LEONARDO
SUMMARY: Long before and until her house had been completely destroyed
during the liberation of the City of Manila, Ortega occupied a parcel of land,
designated as Lot I, Block 3 located at San Andres Street, Malate, Manila. After
liberation she re-occupied it. When the administration and disposition of the said
lot was assigned by the government to Rural Progress Administration, Leonardo
asserted the same right. Leonardo asked Ortega to desist from pressing her claim
and promised that if he would succeed in getting the title to Lot I, he would sell
to her a portion (55.60 sqm at P25 per sqm). His other conditions included that
she paid for the surveying and subdivision and that she continue as tenant with a
monthly rental of P10 until said portion shall have been segregated and the
purchase price fully paid. Ortega accepted the offer and desisted from the claim.
After the plans of subdivision and segregation had been approved by the Bureau
of Lands, Ortega tendered to Leonardo the purchase price which the other refused
without reason. Ortega had already caused a survey and segregation of the portion
of the land they agreed upon, and in fact extended a portion of her son’s house
into the segregated portion. The CFI explained that an oral agreement to sell a
piece of land is not enforceable. However, the SC said that there was an
enforceable contract because there was partial performance. Ortega made
substantial improvements on the lot, desisted from the claim, continued
possession, paid for surveying and paid for the rentals. It is enough to hold that
the combination of all of these acts amounted to partial performance. It would be
a fraud upon the plaintiff if the defendant were permitted to oppose performance
of his part after he has allowed or induced the former to perform in reliance upon
the agreement.
DOCTRINE: It is enough to hold that relinquishment of rights, continued
possession, building of improvements and tender of payment amounted to partial
performance. Thus, making a contract enforceable.
FACTS:
1. Long before and until her house had been completely destroyed during the
liberation of the City of Manila, Ortega occupied a parcel of land, designated
as Lot 1, Block 3 etc. (hereinafter called Lot I) located at San Andres Street,
Malate, Manila.
2. After liberation she re-occupied it.
3. When the administration and disposition of the said Lot I (together with other
lots in the Ana Sarmiento Estate) were assigned by the Government to the
Rural Progress Administration, Ortega asserted her right thereto (as occupant)
for purposes of purchase.
4. Leonardo also asserted a similar right, alleging occupancy of a portion of the
land subsequent to Ortega’s.
5. During the investigation of such conflicting interests, Leonardo asked Ortega
to desist from pressing her claim and definitely promised that if and when he
succeeded in getting title to Lot I , he would sell to her a portion thereof with
an area of 55.60 square meters (particularly described) at the rate of P25.00
per square meter, provided she paid for the surveying and subdivision of the
Lot and provided further that after he acquired title, she could continue
holding the lot as tenant by paying a monthly rental of P10.00 until said
portion shall have been segregated and the purchase price fully paid.
6. Ortega accepted Leonardo’s offer, and desisted from further claiming Lot I.
7. Leonardo finally acquired title thereto.
8. Relying upon their agreement, Ortega caused the survey and segregation of
the portion which Leonardo had promised to sell incurring expenses therefor,
said portion being now designated as Lot I-B in a duly prepared and approved
subdivision plan; that in remodelling her son's house constructed on a lot
adjoining Lot I she extended it over said Lot I-B.
9. After Leonardo had acquired Lot I, Ortega regularly paid him the monthly
rental of P10.00.
10. After the plans of subdivision and segregation of the lot had been approved
by the Bureau of Lands, Ortega tendered to Leonardo the purchase price
which the latter refused to accept, without cause or reason.
11. Ortega sought to compel Leonardo to comply with their oral contract of sale
of a parcel of land.
12. CFI of Manila order the dismissal of the complaint and ruled that oral
agreement to sell a piece of land is not enforceable.
13. Ortega, however, argues that the contract in question, although verbal, was
partially performed because she desisted from claiming the portion of lot I in
question due to the promise of Leonard to transfer said portion to her after
the issuance of title to defendant.
14. Hence, this appeal.
ISSUE/s:
1. Whether or not there was an enforceable contract. YES.
RULING: The judgment will accordingly be reversed and the record remanded for
further proceedings. With costs against appellee.
RATIO:
1. If the above means that partial performance of a sale contract
occurs only when part of the purchase price is paid, it surely constitutes a
defective statement of the law.
2. 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.
3. Thus, it is stated that "The continuance in possession may, in a proper case,
be sufficiently referable to the parol contract of sale to constitute a part
performance thereof.
4. Continued possession under an oral contract of sale, by one already in
possession as a tenant, has been held a sufficient part performance, where
accompanied by other acts which characterize the continued possession and
refer it to the contract of purchase.
5. It is also stated that "The making of valuable permanent improvements on
the land by the purchaser, in pursuance of the agreement and with the
knowledge of the vendor, has been said to be the strongest and the most
unequivocal act of part performance by which a verbal contract to sell land is
taken out of the statute of frauds, and is ordinarily an important element in
such part performance.
6. Again, it is stated that "A tender or offer of payment, declined by the
vendor, has been said to be equivalent to actual payment, for the purposes of
determining whether or not there has been a part performance of the contract.
7. And the relinquishment of rights or the compromise thereof has likewise
been held to constitute part performance.
8. It would appear that the complaint in this case described several circumstance
indicating partial performance: relinquishment of rights, continued
possession, building of improvements, tender of payment plus the surveying
of the lot at Ortega's expense and the payment of rentals.
9. It is enough to hold that the combination of all of them amounted to
partial performance; and we do so line with the accepted basis of the
doctrine, that it would be a fraud upon Ortega if the Leonardo were permitted
to oppose performance of his part after he has allowed or induced the former
to perform in reliance upon the agreement.
10. Hence, as there was partial performance, the principle excluding parol
contracts for the sale of realty, does not apply.
 Claudel v. CA (Izzy)
July 12, 1991 | Sarmiento, J. | Partial execution - Statute of Frauds devised to protect
parties in contracts of sale of real property
PETITIONER: Heirs of Cecilio (also known as Basilio) Claudel
RESPONDENTS: Court of Appeals, Heirs of Macario, Esperidiona, Raymond
and Celestina Claudel
SUMMARY: Cecilio Claudel acquired a lot from the Bureau of Lands. He
occupied the same, declared it in his name and dutifully paid his taxes. After his
death, his heirs and siblings contested each other claiming ownership thereof. It
was his heirs who were in possession of the property. They partitioned it amongst
themselves, registered each portion under the Torrens System, and each paid their
respective taxes. However, SIBLINGS OF CECILIO filed a case for cancellation
of titles and reconveyance arguing that there was a verbal sale between Cecilio
and their parents over the lot 46 years ago. As evidence, they presented a
subdivision plan. CA ordered the cancellation of the TCTs in favor of the heirs.
The issue in the case is WoN the sale between Cecilio and his siblings can be
proven orally. The Court ruled in the negative stating that even though no form is
required in contracts of sale, the heirs had a right to rely upon their Torrens titles
which are more credible than the subdivision plans, as protection provided by the
Statute of Frauds.
DOCTRINE: The purpose of the Statute of Frauds is to 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.
FACTS:
1. December 28, 1922 - Basilio acquired from the Bureau of Lands, Lot No.
1230 of the Muntinlupa Estate Subdivision, located in Muntinlupa, Rizal
2. He secured a Transfer Certificate of Title (TCT) No. 7471 issued by the
Registry of Deeds for the Province of Rizal in 1923; he also declared the lot
in his name, the latest Tax Declaration being No. 5795.
3. He dutifully paid the real estate taxes until his death in 1937. Thereafter, his
widow Basilia and later, her son Jose (one of the petitioners) paid the taxes.
4. Two branches of Cecilio’s family contested the ownership over the land—on
one hand the children of Cecilio, namely, Modesta, Loreta, Jose, Benjamin,
Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita, Arsenia Villalon, and
Felisa Claudel, and their children and descendants, now the herein petitioners
(hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother
and sisters of Cecilio, namely, Macario, Esperidiona, Raymunda, and
Celestina and their children and descendants, now the herein private
respondents (hereinafter referred to as SIBLINGS OF CECILIO).
5. In 1972, HEIRS OF CECILIO partitioned this lot among themselves and
obtained the corresponding TCTs on their shares.
6. Four years later, on December 7, 1976, private respondents SIBLINGS OF
CECILIO, filed Civil Case No. 5276-P as already adverted to at the outset,
with the then Court of First Instance of Rizal, a “Complaint for Cancellation
of Titles and Reconveyance with Damages,” alleging that 46 years earlier, or
sometime in 1930, their parents had purchased from the late Cecilio Claudel
several portions of Lot No. 1230 for the sum of P30.00.
7. They admitted that the transaction was verbal. However, as proof of the sale,
the SIBLINGS OF CECILIO presented a subdivision plan of the said land,
dated March 25, 1930, indicating the portions allegedly sold to the
SIBLINGS OF CECILIO.
8. CFI of Rizal dismissed the complaint, disregarding the subdivision plan
presented by SIBLINGS OF CECILIO
a. Complaint was filed in the names of the respondents (as in the
summary box), without naming the different heirs involved who
wish to recover the lots
b. Court would not be able to apportion the property to the real party
in interest if ever they are entitled to it as the persons indicated
therein is in generic term
c. But most important of all the plaintiffs failed to present any
document evidencing the alleged sale of the property to their
predecessors in interest by the father of the defendants.
d. Considering that the subject mater of the supposed sale is a real
property the absence of any document evidencing the sale would
preclude the admission of oral testimony (Statute of Frauds).
e. Moreover, considering also that the alleged sale took place in 1930,
the action filed by the plaintiffs herein for the recovery of the same
more than thirty years after the cause of action has accrued has
already prescribed.
9. SIBLINGS OF CECILIO appealed to the CA, and the CA reversed the
decision of the trial court
a. The failure to bring and prosecute the action in the name of the real
party in interest, namely the parties themselves, was not a fatal
omission since the court a quo could have adjudicated the lots to the
SIBLINGS OF CECILIO, the parents of the herein respondents,
leaving it to them to adjudicate the property among themselves.
b. The fact of residence in the disputed properties by the herein
respondents had been made possible by the toleration of the
deceased Cecilio.
c. The Statute of Frauds applies only to executory contracts and not to
consummated sales as in the case at bar where oral evidence may be
admitted as cited in Iñigo v. Estate of Magtoto7 and Diana, et al. v.
Macalibo.
d. The defense of prescription cannot be set up against the herein
petitioners despite the lapse of over forty years from the time of the
alleged sale in 1930 up to the filing of the “Complaint for
 Cancellation of Titles and Reconveyance x x x” in 1976.
10. According to the CA, the 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. SIBLINGS OF CECILIO commenced their complaint for
cancellation of titles and reconveyance with damages on December 7, 1976,
only four years after the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates of Titles,
then there is no prescription of action yet.
11. The respondent court ordered the cancellation of the TCTs in the names of
the HEIRS OF CECILIO and corollarily ordered the execution of the deeds
of reconveyance to the SIBLINGS:
a. To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
b. To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
c. To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
d. To Macario Claudel, Lot 1230-D, with an area of 596 sq. m
12. The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927
square meters, respectively would go to Cecilio or his heirs, the herein
petitioners. Beyond these apportionments, the HEIRS OF CECILIO would
not receive anything else.
ISSUES:
1. WoN there was a valid contract of sale between Cecilio and the SIBLINGS
OF CECILIO that can be proven orally - NO, there was no valid contract of
sale
RULING: WHEREFORE, the petition is GRANTED. We REVERSE and SET
ASIDE the decision rendered in CAG. R. CV No. 04429, and we hereby REINSTATE
the decision of the then Court of First Instance of Rizal (Branch 28, Pasay City) in
Civil Case No. M-5276-P which ruled for the dismissal of the Complaint for
Cancellation of Titles and Reconveyance with Damages filed by the Heirs of Macario,
Esperidiona, Raymunda, and Celestina, all surnamed CLAUDEL. Costs against the
private respondents.
RATIO:
1. The rule of thumb is that a sale of land, once consummated, is valid
regardless of the form it may have been entered into.
2. For nowhere does law or jurisprudence prescribe that the contract of sale be
put in writing before such contract can validly cede or transmit rights over a
certain real property between the parties themselves.
3. However, 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 can not
present any proof of such sale and hence has no means to enforce the
contract.
4. Thus, the Statute of Frauds was 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. The
provisions of the Statute of Frauds pertinent to the present controversy, state:
a. Art. 1403 (Civil Code). The following contracts are unenforceable,
unless they are ratified: xxx xxx xxx 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: xxx xxx xxx
b. An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
5. The purpose of the Statute of Frauds is to 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.
6. Therefore, except under the conditions provided by the Statute of Frauds, the
existence of the contract of sale made by Cecilio with his siblings can not be
proved.
7. Above all, the torrens title in the possession of the HEIRS OF CECILIO
carries more weight as proof of ownership than the survey or subdivision
plan of a parcel of land in the name of SIBLINGS OF CECILIO.
8. The Court has invariably upheld the indefeasibility of the torrens title. No
possession by any person of any portion of the land could defeat the title of
the registered owners thereof.
Issue of prescription (not for class but just in case)
9. On the second issue, the belated claim of the SIBLINGS OF CECILIO who
filed a complaint in court only in 1976 to enforce a right acquired allegedly
as early as 1930, is difficult to comprehend.
10. Art. 1145. The following actions must be commenced within six years: (1)
Upon an oral contract
11. 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 six years had lapsed.
12. We do not agree with the parties SIBLINGS OF CECILIO when they reason
that an implied trust in favor of the SIBLINGS OF CECILIO was established
in 1972, when the HEIRS OF CECILIO executed a contract of partition over
the said properties.
13. Bornales v. IAC, the defense of indefeasibility of a certificate of title was
disregarded when the transferee who took it had notice of the flaws in the
transferor’s title. No right passed to a transferee from a vendor who did not
have any in the first place.
 ALFREDO V. BORRAS (DOM)
17 June 2003 | Carpio, J. | Statute of Frauds and Contract of Sale
PETITIONER: Spouses Godofredo and Carmen Alfredo, Spouses Arnulfo and
Editha Savellano, Danton Matawaran, Spouses Delfin and Estela Espiritu and
Elizabeth Tuazon
RESPONDENTS: Spouses Armando and Adelia Borras
SUMMARY: The subject of the controversy is the parcel of land located in
Hermosa, Bataan owned by petitioners Sps. Alfredo which they mortgaged to the
Development Bank of the Philippines. Later on, Sps. Alfredo entered into an oral
contract of sale with Sps. Borras. The object of the contract of sale is the land
mortgaged to the DBP. Both parties agreed on the object and with the
consideration of 15,000php plus payment of the mortgage fee in DBP worth
7,000php. Sps. Alfredo issued a receipt and transferred the owner’s duplicate of
the oct.
Few years later, Sps. Borras discovered that there were other people (subsequent
buyers-herein petitioners) who were claiming the same subject property saying
that Sps. Alfredo sold to them the same parcels of land and they claim to be buyers
in good faith.
Sps. Borras filed for an action for specific performance from Sps. Alfredo then
amended the complaint to a reconveyance including now the subsequent buyers
in the complaint. RTC and CA ruled in favor of Sps. Borras saying that there was
a perfected contract of sale between Sps. Alfredo and Sps. Borras and that there
was a constructive notice when the Sps. Borras registered the property. It is
therefore rightful also to conclude that the subsequent buyers are innocent
purchasers. SC also affirmed the challenged decision and ruled in favor of the Sps.
Borras. SC emphasized that the case at bar is beyond the ambit of Statutes of fraud
because the contract has been fully executed and evidenced by the receipt issued
by Sps. Alfredo
DOCTRINE: The Statute of Frauds provides that a contract for the sale of real
property shall be unenforceable unless the contract or some note or memorandum
of the sale is in writing and subscribed by the party charged or his agent. The
existence of the receipt dated 11 March 1970, which is a memorandum of the sale,
removes the transaction from the provisions of the Statute of Frauds.
The Statute of Frauds applies only to executory contracts and not to contracts
either partially or totally performed. In addition, a contract that violates the Statute
of Frauds is ratified by the acceptance of benefits under the contract. Godofredo
and Carmen benefited from the contract because they paid their DBP loan and
secured the cancellation of their mortgage using the money given by Armando and
Adelia. Godofredo and Carmen also accepted payment of the balance of the
purchase price.
FACTS:
1. A parcel of land measuring 81, 524 square meters located in Barrio Culis,
Mabiga Hermosa is the subject of the controversy in this case
2. The registered owners were the Spouses Godofredo and Carmen Alfredo.
3. The subject land is covered by an original certificate of title and it was issued
under a Homestead patent
4. On March 7 1994, the spouses Borras filed a complaint for specific
performance against Godofredo and Carmen before the RTC branch of
Bataan
5. The Sps. Borras alleged in their complaint that Sps. Alfredo mortgaged the
subject land for 7,000php with Development Bank of the Philippines (DBP).
6. To pay the debt, Sps. Alfredo sod the subject land to Sps. Borras for
15,000php, the buyers to pay the DBP loan and its accumulated interest and
the balance to be paid in cash to sellers
7. Sps. Borras gave the money to the Sps. Alfredo to pay the loan to DBP which
signed the release of mortgage and returned the owner’s duplicate copy to
Sps. Alfredo.
8. Sps. Borras then paid the subsequent balance of the purchase price of the
subject land for which Carmen Alfredo issued a receipt dated 11 March 1970.
9. Sps. Alfredo then delivered to Adelia Borras the owner’s duplicate copy with
the document of cancellation of mortgage, official receipts of realty tax
payments, and tax declaration in the name of Godofredo Alfredo.
10. Later on, Sps. Alfredo introduced Sps. Borras, as the new owners of the
subject land, to the Natanawans, who are the old tenants of the subject land.
11. Sps. Borras then on took possession of the land
12. In January 1994, Sps. Borras discovered that hired persons had entered the
subject land and were cutting trees under the instructions of allegedly other
owners of the subject land.
13. Subsequently the Sps. Borras found out that the Sps. Alfredo had re-sold
portions of the subject lands to several persons.
14. 8 February 19994, Sps. Borras filed an adverse claim with the Register of
deeds of Bataan. Sps. Borras discovered that the Sps. Alfredo had secured an
owner’s duplicate copy after filing a petition in court for the issuance of a
new copy. Sps. Alfredo claimed that they lost their duplicate copy and they
need a new one.
15. Sps. Borras wrote a letter to the Sps. Alfredo complaining about their acts,
but the latter did not reply. Thus Sps. Borras filed a complaint for specific
performance
16. 28 March 1994 Sps. Borras amended their complaint to include various
people as additional defendant. These people are those considered as the
“subsequent buyers”.
17. The subsequent buyers who are also petitioners in this case, purchased from
Sps. Alfredo the subdivided portions of the subject land.
18. The Register of deeds of bataan issued subsequent buers transfer certificates
of titles to the lots they purchased
19. Sps. Alfredo and the subsequent buyers (collectively the petitioners) argued
that the action is unenforceable under the statute of frauds.
20. Petitioners pointed out that there is no written instrument evidencing alleged
contract of sale over the subject land in favor of Sps. Borras.
21. Petitioners objected to whatever parole evidence the Sps. Borras introduced
or offered on the alleged sale unless the same was in writing and subscribed
by Sps. Alfredo
22. Petitioners also asserted that the subsequent buyers were buyers in good faith
and for value.
23. Trial then ensued both parties presented their own set of witnesses
24. The Trial court rendered its decision in favor of Sps. Borras and the
dispositive portion of the decision reads:
a. Declaring the deeds of absolute sale over the disputed parcel of land
executed by the Sps. Alfredo to the Sps. Sabellano and Espiritu, and
Tuazon as null and void
b. Declaring the TCTs in the name of Sps. Sabellano, Espiritu, and
Matawaran null and void and ordered to cancel said titles
c. Ordering the Sps. Alfredo to execute and deliver good and valid
Deed of Absolute Sale in favor of Sps. Borras within 10 days upon
finality of decision
d. Ordering the Sps. Alfredo to surrender their owner’s duplicate copy
of OCT issued to them by the Registry of Deeds in Bataan. The
registry of deeds is ordered ott cancel the same as there exists in the
possession of Sps. Alfredo
e. Sps. Alfredo are ordered to return the amount of their respective
purchase prices of sale to the disputed parcels of land
25. Petitioners appealed to the court of appeals and on 26TH of November 1999,
the CA issued its decision affirming the trial court
26. RTC ruling: It emphasizes that there was a perfected contract of sale between
the Sps. Alfredo and Borras. The trial court found that all the elements of a
contract of sale were present
a. Object: specifically identified as the 81.524 square meter of lot in
Hermosa Bataan
b. Price: the purchase price was fixed at P15,000, with the buyers
assuming to pay the sellers’ P7,000 DBP mortgage loan including
its accumulated interest.
c. Consent: meeting of the minds as to the two aforementioned
elements
27. The trial court found the following facts as proof of a perfected contract of
sale
a. Sps. Alfredo delivered the subject land to Sps. Borras
b. Sps. Borras treated as their own tenants the tenants of Sps. Alfredo
c. Sps. Alfredo turned over the documents such as the duplicate copy
of the subject land, tax declaration, and receipts to Sps. Borras
d. DBP cancelled the mortgage on the subject property upon payment
of the loan
e. Receipt issued by Carmen Alfredo which serves as an
acknowledgement if not a ratification, of the verbal sale between the
sellers
28. The trial court also concluded that the subsequent buyers were not innocent
purchasers
29. Not one of the bueyers testified in court how they purchased their respective
lots. They totally depended their testimony to a certain Constancia Calonso,
a broker who negotiated with Sps. Alfredo
30. Calonso, the broker admitted that the subject land was adjacent to her own
land and she said that she did not inquire on the nature of tenancy of the
Natanawans and on who owned the subject land. Instead, she bought out the
tenants for 150,000php. The buy out was embodied in a Kasnduan
31. Apolinario Natanawan testified that he and his wife accepted the money and
signed the Kasunduan because Calonso and the subsequent buyers threatened
them with forcible ejectment.
32. Calonso brought Apolinario to the Agrarian reform office where he was
asked to produce documents showing that Adelia Borras is the owner of the
subject land and because Apolinario cannot produce the documents the
officer told him that he would lose the case and thus Apolinario was
constrained to sign the Kasunduan.
33. CA affirmed the decision of RTC by saying indeed that there was a perfected
contract of sale and that the subsequent buyers were not innocent purchasers
34. The CA ruled that the handwritten receipt dated 11 March 1970 is a sufficient
proof that the land was sold to Sps. Borras upon payment of the balance of
the purchase price.
35. CA found the recitals in the receipt as sufficient to serve as the memorandum
or note as a writing under the statute of Frauds
36. CA grave credence to the testimony of Sps. Borras and their witnesses who
explained why the title of the subject land was not in the name of the said
spouses
37. The witnesses explained that Sps. Alfredo was then busy preparing to leave
for Davao. Godofredo Alfredo proised that he would sign all the papers once
they are ready and since the two families were close, they trusted Godfredo
and honored Carmen’s commitment
38. Sps. Borras had no reason to believe that the contract was not perfected
considering they had received the duplicate copy of OCT
39. CA held also that the contract is not void ieven if only Carmen signed the
receipt citing Felipo v. Heirs of Maximo by saying that the sale made by the
wife without husband’s consent is not void but merely voidable
40. In this case it binds the conjugal partnership because the proceeds were used
for the benefit of the conjugal partnership
41. Subsequent buyers of the conjugal partnership are not innocent urchasers for
 they had a constructive notice of the claims of Sps. Borras
ISSUES: Whether the alleged sale of the subject land in favor of Armando and Adelia
is valid and enforceable where:
• It was orally entered into and not in writing (IMPT. IN THIS CASE: YES-
it is still valid, a receipt was issued hence, Statute of frauds is not applicable)
• Carmen Alfredo did not obtain the consent of her husband
• It was entered during the 25-year prohibitive period for alienating lands
without approval of secretary of agriculture
OTHER ISSUES:
• W/N the action to enforce the alleged oral contract of sale brought after 24
years from its alleged perfection had been barred by prescription and by
laches - NO
• W/N the subsequent buyers are innocent purchasers - NO
RULING: WHEREFORE, the petition is DENIED and the appealed decision is
AFFIRMED. Treble costs against petitioners.
SO ORDERED.
RATIO:
VALIDITY OF THE CONTRACT OF SALE:
a.) enforceability of the oral contract of sale
1. The contract of sale between the spouses Godofredo and Carmen and the
spouses Armando and Adelia was a perfected contract. A contract is perfected
once there is consent of the contracting parties on the object certain and on
the cause of the obligation. In the instant case, the object of the sale is the
Subject Land, and the price certain is ₱15,000.00. The trial and appellate
courts found that there was a meeting of the minds on the sale of the Subject
Land and on the purchase price of ₱15,000.00. This is a finding of fact that
is binding on this Court. We find no reason to disturb this finding since it is
supported by substantial evidence.
2. The contract of sale of the Subject Land has also been consummated because
the sellers and buyers have performed their respective obligations under the
contract. In a contract of sale, the seller obligates himself to transfer the
ownership of the determinate thing sold, and to deliver the same, to the buyer
who obligates himself to pay a price certain to the seller. In the instant case,
Godofredo and Carmen delivered the Subject Land to Armando and
Adelia, placing the latter in actual physical possession of the Subject
Land. This physical delivery of the Subject Land also constituted a
transfer of ownership of the Subject Land to Armando and Adelia.
Ownership of the thing sold is transferred to the vendee upon its actual or
constructive delivery. Godofredo and Carmen also turned over to Armando
and Adelia the documents of ownership to the Subject Land, namely the
owner’s duplicate copy of OCT No. 284, the tax declaration and the receipts
of realty tax payments.
3. The trial and appellate courts correctly refused to apply the Statute of Frauds
to this case. The Statute of Frauds provides that a contract for the
sale of real property shall be unenforceable unless the contract or
some note or memorandum of the sale is in writing and subscribed
by the party charged or his agent. The existence of the receipt dated
11 March 1970, which is a memorandum of the sale, removes the
transaction from the provisions of the Statute of Frauds. (for
emphasis)
4. The Statute of Frauds applies only to executory contracts and not to
contracts either partially or totally performed. Thus, where one party has
performed one’s obligation, oral evidence will be admitted to prove the
agreement. In the instant case, the parties have consummated the sale of the
Subject Land, with both sellers and buyers performing their respective
obligations under the contract of sale. In addition, a contract that violates
the Statute of Frauds is ratified by the acceptance of benefits under the
contract. Godofredo and Carmen benefited from the contract because
they paid their DBP loan and secured the cancellation of their
mortgage using the money given by Armando and Adelia. Godofredo
and Carmen also accepted payment of the balance of the purchase
price. (for emphasis)
b.) sale without the consent of the husband
1. Godofredo can no longer question the sale. Voidable contracts are susceptible
of ratification. Godofredo ratified the sale when he introduced Armando and
Adelia to his tenants as the new owners of the Subject Land. The trial court
noted that Godofredo failed to deny categorically on the witness stand the
claim of the complainants’ witnesses that Godofredo introduced Armando
and Adelia as the new landlords of the tenants. That Godofredo and Carmen
allowed Armando and Adelia to enjoy possession of the Subject Land for 24
years is formidable proof of Godofredo’s acquiescence to the sale.
2. Moreover, Godofredo and Carmen used most of the proceeds of the sale to
pay their debt with the DBP. We agree with the Court of Appeals that the sale
redounded to the benefit of the conjugal partnership.
3. As to the approval of the Agriculture Secretary, The failure to secure the
approval of the Secretary does not ipso facto make a sale void. The absence
of approval by the Secretary does not nullify a sale made after the expiration
of the 5-year period, for in such event the requirement of Section 118 of the
 Public Land Act becomes merely directory or a formality. The approval may
be secured later, producing the effect of ratifying and adopting the transaction
as if the sale had been previously authorized.
4. Section 118 of Commonwealth Act No. 141, as amended, specifically enjoins
that the approval by the Department Secretary "shall not be denied except on
constitutional and legal grounds." There being no allegation that there were
constitutional or legal impediments to the sales, and no pretense that if the
sales had been submitted to the Secretary concerned they would have been
disapproved, approval was a ministerial duty, to be had as a matter of course
and demandable if refused. For this reason, and if necessary, approval may
now be applied for and its effect will be to ratify and adopt the transactions
as if they had been previously authorized.
sale.
5. Thus, to merit protection under the second paragraph of Article 154458 of
the Civil Code, the second buyer must act in good faith in registering the
deed. In this case, the Subsequent Buyers’ good faith hinges on whether they
had knowledge of the previous sale. Petitioners do not dispute that Armando
and Adelia registered their adverse claim with the Registry of Deeds of
Bataan on 8 February 1994. The Subsequent Buyers purchased their
respective lots only on 22 February 1994 as shown by the date of their deeds
of sale. Consequently, the adverse claim registered prior to the second sale
charged the Subsequent Buyers with constructive notice of the defect in the
title of the sellers, Godofredo and Carmen

OTHER ISSUES:
The action is not barred by prescription and laches

1. Article 1456 of the Civil Code provides that a person acquiring property
through fraud becomes by operation of law a trustee of an implied trust for
the benefit of the real owner of the property. The presence of fraud in this
case created an implied trust in favor of Armando and Adelia. This gives
Armando and Adelia the right to seek reconveyance of the property from the
Subsequent Buyers. The body of the pleading or complaint determines the
nature of an action, not its title or heading. Thus, the present action should be
treated as one for reconveyance.
2. To determine when the prescriptive period commenced in an action for
reconveyance, plaintiff’s possession of the disputed property is material. An
action for reconveyance based on an implied trust prescribes in ten years. The
ten-year prescriptive period applies only if there is an actual need to reconvey
the property as when the plaintiff is not in possession of the property.
However, if the plaintiff, as the real owner of the property also remains in
possession of the property, the prescriptive period to recover title and
possession of the property does not run against him. In such a case, an action
for reconveyance, if nonetheless filed, would be in the nature of a suit for
quieting of title, an action that is imprescriptible.
3. SC disagree with CA that it should be 4 years prescriptive period based on
fraud that should be discussed instead it shoud be ten years for this is an
obligation created by law (particularly an action for reconveyance based on
an implied or constructive trust)
Subsequent sale of portions of lands invalid
4. Godofredo and Carmen had already sold the Subject Land to Armando and
Adelia. The settled rule is when ownership or title passes to the buyer, the
seller ceases to have any title to transfer to any third person. If the seller sells
the same land to another, the second buyer who has actual or constructive
knowledge of the prior sale 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
 TOYOTA SHAW v. CA (KC)
May 23, 1995| Davide, Jr., J. | Receipt proves payment which takes the sale out of
the Statute of Frauds
PETITIONER: Toyota Shaw, Inc.
RESPONDENTS: Court of Appeals and Luna L. Sosa
SUMMARY: Respondent Sosa wanted to buy a car. Exhibit A was signed by
Bernardo wherein it only stated that a downpayment of P100,000 was to be paid.
A subsequent document called VSP was then printed which stated the name of the
customer, the home address, the model series of the vehicle, and that the payment
is by installment to be financed by B.A. The vehicle was not released because
respondent Sosa’s credit financing application was denied by B.A. Respondent
Sosa asked the downpayment back from petitioner Toyota and filed a case for
damages. The trial court and CA ruled in favor of respondent Sosa but SC said
that the two documents did were not contracts of sale. Exhibit A did not make any
reference to the determinate thing nor the purchase price The agreement as to the
manner of payment goes into the price such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price. On the otherhand, the
VSP created no obligation whatsoever because the credit financing application
was denied. At most both documents were part of the negotiation phase.
Therefore, there was no meeting of the minds.
DOCTRINE: The memorandum to take the sale transaction out of the coverage
of the Statute of Frauds, must contain within its four corners “all the essential
terms of the contract” of sale.
FACTS:
72. Sometime in June 1989, respondent Sosa wanted to purchase a Toyota Lite
Ace. It was a seller’s market (I think this means maraming bumibili?) and
Sosa was having a hard time finding a dealer with an available unit for sale.
73. Upon contacting Petitioner Toyota Shaw, Inc., he was told that there was an
available unit.
74. Respondent Sosa and his son Gilbert went to Shaw and met Popong Bernardo
who was a sales representative of Petitioner Toyota.
75. Respondent Sosa needed the car not later than June 17, 1989 because he and
his family with a balikbayan friend palnned to go home to their province
using the car.
76. Exhibit A titled “Agreements Between Mr. Sosa & Popong Bernardo of
Toyota Shaw, Inc.” was then signed by Bernardo. It said that the
downpayment of P100,000 will be paid by respondent Sosa on June 15, 1989
and that the remaining balance of the purchase price would be paid by credit
financing through B.A. Finance
77. Respondent Sosa paid the downpayment the following day and accomplished
a printed Vehicle Sales Proposal (VSP) on which Gilbert signed under the
subheading CONFORME. The VSP stated the name of the customer, the
home address, the model series of the vehicle, and that the payment is by
installment to be financed by B.A.
78. The Sales Supervisor of Bernardo even checked and approved the VSP.
79. On June 17, 1989 Bernardo called Gilberto and told him that the vehicle
would not be ready for pickup at 10:00 AM but on 2:00 PM that same day.
80. However, respondent Sosa and his son never got the car. Bernardo allegedly
told them “nasulot ang unit ng ibang malakas”
81. Petitioner Toyota Shaw on the other hand said that the vehicle was not
delivered because B.A. Finance disapproved the credit financing application
of Sosa. Petitioner Toyota gave respondent Sosa the option to purchase the
unit by paying the full purchase price in cash but Sosa refused.
82. Respondent Sosa asked for the downpayment which Toyota geve by issuing
a Far East Bank check.
83. Respondent Sosa then sent two demand letters to Petitioner Toyota asking
them to pay the P100,00 with interest and damages. And subsequently
demanded P1M representing said interest and damages.
84. Petitioner Toyoto refused to accede.
85. Respondent Sosa filed a complaint against Petitioner Toyota under Art. 19 &
21 of the Civil Code.
86. Petitioner Toyoto alleged that no sale was entered into between it and
respondent Sosa, and that Bernardo had no authority to sign Exhibi A for and
in its behalf. And that the VSP did not state a date of delivery nor did
respondent Sosa completed the documents required by the financing
company (B.A.) and as a matter of policy the vehicle could not be released.
87. The trial court and CA ruled in favor of respondent Sosa, saying that Exhibit
A was a valid perfect contract of sale and bound Petitioner Toyota to deliver
the vehicle.
88. Hence this appeal
ISSUE/s:
21. WoN there was a perfected contract of sale – NO
RULING: WHEREFORE, the instant petition is GRANTED. The challenged
decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch
38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED
and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The
counterclaim therein is likewise DISMISSED. No pronouncement as to costs.
RATIO:
57. Art. 1458 of the Civil Code defines a contract of sale as:
a. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent. A contract of sale may be absolute or conditional.

58. Art. 1457 specifically provides that:
a. 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 prince.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts
59. Exhibit A is not a contract of sale. No obligation on the part of petitioner
Toyota to transfer ownership of a determinate thing to respondent Sosa and
no correlative obligation on the part of the latter to pay therefor a price certain
appears therein.
Exhibit A:
4 June 1989
generation/negotiation stage of a contract of sale. Meanwhile, the VSP was
the second pahase of the generation/negotiation stage.
67. The VSP was a mere proposal which was aborted in lieu of the disapproval
of respondent Sosa’s credit financing application. In a sale on installment
basis there are three parties involved: the buyer who executes a note/notes for
the unpaid balance of the price, the seller who assigns the notes/discounts
them with a financing company and the financing company which is
subrogated in the place of the seller
68. Since B.A. did not approve respondent Sosa’s application there was then no
meeting of the minds on the sale on installment basis.
69. It follows therefore that the VSP created no demandable right in favor of
respondent Sosa for the delivery of the vehicle to him, and its non-delivery
did not cause any legally indemnifiable injury. And at the bottom of the claim
for damages it nothing but misplaced pride and ego. (Napahiya daw kasi siya
nung umuwi siya sa province without the car)

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF

TOYOTA SHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC.

(POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the
Province (Marinduque) where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15,

1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and
released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

Very truly yours,

(Sgd.) POPONG BERNARDO.
60. The provision on the downpayment made no mention of the specific
reference to a sale of a vehicle.
61. If it was intended for a contract of sale, it could only refer to a sale on
installment basis, as the VSP executed the following day confirmed. But
nothing was mentioned about the full purchase price and the manner the
installments were to be paid.
62. A definite agreement on the manner of payment of the price is an essential
element in the formation of a biding and enforceable contract of sale.
63. The agreement as to the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a failure to agree on
the price.
64. Definiteness as to the price is an essential element of a binding agreement to
sell a personal property
65. There was no meeting of the minds. Respondent Sosa did not even sign it.
66. At most, Exhibit A can only be considered as a part of the initial phase of the
 01 SANTOS vs. SANTOS (Elach)
October 2, 2001 | Quisumbing, J. | Transferring Ownership; Constructive delivery
PETITIONER: Zenaida M. Santos
RESPONDENTS: Calixto Santos, Alberto Santos, Rosa Santos-Carreon, and
Antonio Santos
SUMMARY: The spouses Jesus and Rosalia were the parents of Calixto,
Alberto, and Rosa, the respondents and Salvador Santos, the husband of the
petitioner, Zenaida Santos (So parents-in-law ni Zenaida sila Jesus and Rosalia).
The spouses owned a parcel of registered land with a four-door apartment
administered by Rosalia who rented them out. On January 19, 1959, the spouses
executed a deed of sale of the properties in favor of their children Salvador and
Rosa. Rosa in turn sold her share to Salvador on November 20, 1973, which
resulted in the issuance of new TCT. Despite the transfer of the property to
Salvador, Rosalia continued to lease and receive rentals from the apartment units.
On January 9, 1985, Salvador died, followed by Rosalia who died the following
month. Shortly after, petitioner Zenaida, claiming to be Salvador’s heir,
demanded the rent from Antonio Hombrebueno, a tenant of Rosalia. When the
latter refused to pay, Zenaida filed an ejectment suit against him with the
Metropolitan Trial Court of Manila, which eventually decided in Zenaida’s favor.
Private respondent instituted an action for reconveyance of property with
preliminary injunction against petitioner, Zenaida. in the RTC of Manila, where
they alleged that the two deeds of sale were simulated for lack of consideration.
The trial court decided in favor of private respondents in as much as the deeds of
sale were fictitious. Upon appeal, the Court of Appeals affirmed the trial court’s
decision. It held that the subject deeds of sale did not confer upon Salvador the
ownership over the subject property, because even after the sale, the original
vendors remained in dominion, control, and possession thereof. Issue is W/N a
sale through a public instrument is tantamount to delivery of the thing sold?
Petitioner in her memorandum invokes Article 1477 of the Civil Code which
provides that ownership of the thing sold is transferred to the vendee upon its
actual or constructive delivery. Article 1498, in turn, provides that when the sale
is made through a public instrument, its execution is equivalent to the delivery of
the thing subject of the contract. Petitioner avers that applying said provisions to
the case, Salvador became the owner of the subject property by virtue of the two
deeds of sale executed in his favor. Nowhere in the Civil Code, however, does
it provide that execution of a deed of sale is a conclusive presumption of
delivery of possession. The Code merely said that the execution shall be
equivalent to delivery.
DOCTRINE: There is nothing in Article 1498 that provides that execution of a
deed of sale is a conclusive presumption of delivery of possession; presumptive
delivery can be negated by the failure of buyer to take actual possession of the
land or the continued enjoyment of possession by the vendor.
FACTS:
1. Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of
private respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa
Santos-Carreon.
2. The spouses Jesus and Rosalia Santos (Parents of respondents and parents-
in-law of petitioner) owned a parcel of land located at Sta. Cruz Manila. On
it was a four-door apartment administered by Rosalia who rented them out.
The spouses had five children, Salvador, Calixto, Alberto, Antonio and Rosa.
3. On January 19, 1959, Jesus and Rosalia executed a deed of sale of the
properties in favor of their children Salvador and Rosa. Rosa in turn sold her
share to Salvador on November 20.
4. Despite the transfer of the property to Salvador, Rosalia continued to lease
receive rentals form the apartment units.
5. On November 1, 1979, Jesus died. Six years after or on January 9, 1985,
Salvador died, followed by Rosalia who died the following month.
6. Shortly after, petitioner Zenaida, claiming to be Salvador's heir, demanded
the rent from Antonio Hombrebueno, a tenant of Rosalia.
7. When the latter refused to pay, Zenaida filed and ejectment suit against him
with the MTC, which eventually decided in Zenaida's favor.
8. Subsequently, private respondents instituted an action for reconveyance of
property with preliminary injunction against petitioner in the RTC, where
they alleged that the two deeds of sale executed on January 19, 1959 and
November 20, 1973 were simulated for lack of consideration. They were
executed to accommodate Salvador in generation funds for his business and
providing him with greater business flexibility.
9. In her Answer, Zenaida denied the material allegations in the complaint as
special and affirmative defenses, argued that Salvador was the registered
owner of the property, which could only be subjected to encumbrances or
liens annotated on the title; that the respondents' right to reconveyance was
already barred by prescription and laches; and that the complaint state no
cause of action.
10. The trial court decided in favor of private respondents in as much as the deeds
of sale were fictitious, the action to assail the same does not prescribe.
11. Upon appeal, the Court of Appeals affirmed the trial court’s decision. It held
that the subject deeds of sale did not confer upon Salvador the ownership over
the subject property, because even after the sale, the original vendors
remained in dominion, control, and possession thereof.
ISSUES:
1. W/N a sale through a public instrument is tantamount to delivery of the thing
sold? – No it is not a conclusive presumption of delivery of possession, thus
no real transfer of ownership
RULING: WHEREFORE, the instant petition is DENIED. The assailed decision
dated March 10, 1998 of the Court of Appeals, which sustained the judgment of the
Regional Trial Court dated March 17, 1993, in favor of herein private respondents, is
AFFIRMED. Costs against petitioner.
RATIO:
1. Petitioner in her memorandum invokes Article 1477 of the Civil Code which
provides that ownership of the thing sold is transferred to the vendee upon its
actual or constructive delivery. Article 1498, in turn, provides that when the
sale is made through a public instrument, its execution is equivalent to the
delivery of the thing subject of the contract.
2. Petitioner avers that applying said provisions to the case, Salvador became
the owner of the subject property by virtue of the two deeds of sale executed
in his favor.
3. Nowhere in the Civil Code, however, does it provide that execution of a deed
of sale is a conclusive presumption of delivery of possession. The Code
merely said that the execution shall be equivalent to delivery. The
presumption can be rebutted by clear and convincing evidence. Presumptive
delivery can be negated by the failure of the vendee to take actual possession
of the land sold.
4. In Danguilan vs. IAC (1988), the SC held that for the execution of a public
instrument to effect tradition, the purchaser must be placed in control of
the thing sold. When there is no impediment to prevent the thing sold from
converting to tenancy of the purchaser by the sole will of the vendor,
symbolic delivery through the execution of a public instrument is sufficient.
But if, notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy nor make use of it
himself or through another in his name, then delivery has not been
effected.
5. As found by both the trial and appellate courts and amply supported by the
evidence on record, Salvador was never placed in control of the property.
The original sellers retained their control and possession. Therefore,
there was no real transfer of ownership.
6. Moreover, in Norkis Distributors, Inc. vs. CA, the Court held that the critical
factor in the different modes of effecting delivery, which gives legal effect to
the act is the actual intention of the vendor to deliver, and its acceptance by
the vendee. Without that intention, there is no tradition. In the instant case,
although the spouses Jesus and Rosalia executed a deed of sale, they did
not deliver the possession and ownership of the property to Salvador and
Rosa. They agreed to execute a deed of sale merely to accommodate
Salvador to enable him to generate funds for his business venture.
2. It is true that neither tax receipts nor declarations of ownership for taxation
purposes constitute sufficient proof of ownership. They must be supported by
other effective proofs.
3. These requisite proofs are present in this case. As admitted by petitioner,
despite the sale, Jesus and Rosalia continued to possess and administer the
property and enjoy its fruits by leasing it to third persons.
4. Both Rosa and Salvador did not exercise any right of ownership over it.
Before the second deed of sale to transfer her ½ share over the property was
executed by Rosa, Salvador still sought she permission of his mother.
5. Further, after Salvador registered the property in his name, he
surrendered the title to his mother. These are clear indications that
ownership still remained with the original owners.
6. In Serrano vs. CA (1985), the Court held that the continued collection of
rentals from the tenants by the seller of realty after execution of alleged deed
of sale is contrary to the notion of ownership.
7. Petitioner argues that Salvador, in allowing her mother to use the property
even after the sale, did so out of respect for her and out of generosity, a factual
matter beyond the province of this Court.
8. Significantly, in Alcos vs. IAC (1988), the SC noted that the buyer's
immediate possession and occupation of the property corroborated the
truthfulness and authenticity of the deed of sale. Conversely, the vendor's
continued possession of the property makes dubious the contract of sale
between the parties.

Issue on W/N CA erred in holding Jesus and Rosalia still owned the property
because the spouses continued to pay the realty taxes and possess the property

1. Petitioner, Zenaida, argues that tax declarations are not conclusive evidence
of ownership when not supported by evidence. She avers that Salvador
allowed his mother to possess the property out of respect to her in accordance
with Filipino values.
 02 DY, JR. v. CA (Karen)
July 8, 1991 | Guiterrez, Jr. J. | Constructive delivery: execution of public instrument
PETITIONER: Perfecto Dy Jr.
RESPONDENTS: Court of Appeals, Gelac Trading Inc., and Antonio V.
Gonzales
SUMMARY: Wilfredo Dy purchased a truck and a farm tractor through Libra
which was also mortgaged with the latter, as a security to the loan. Perfecto Dy
expresses his desire to purchased his brother’s tractor in a letter to Libra which
also includes his intention to shoulder its mortgaged. Libra approved the request.
At the time that Wilfredo executed a deed of absolute sale in favor of Perfecto, the
tractor and truck were in the possession of Libra for his failure to pay the
amortization. When Perfecto finally fulfilled its obligation to pay the tractor, Libra
would only release the same only if he would also pay for the truck. In order to
fulfill Libra’s condition, Perfecto convinced his sister to pay for the remaining
truck, to which she released a check of P22,000. Libra, however, insisted that the
check must be first cleared before it delivers the truck and tractor. Meanwhile,
another case penned “Gelac Trading Inc vs. Wilfredo Dy” was pending in Cebu
as a case to recover for a sum of money (P12,269.80). By a writ of execution the
court in Cebu ordered to seize and levy the tractor which was in the premise of
Libra, it was sold in a public auction to which it was purchased by Gelac. The
latter then sold the tractor to Antonio Gonzales. RTC rendered in favor of Perfecto.
CA dismissed the case, alleging that it still belongs to Wilfredo. The issue is WON
Wilfredo Dy is still the owner of the tractor when it was seized and levied by the
provincial sheriff. The SC held that per Article 1496 of the Civil Code states that
the ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501 or in any
other manner signifying an agreement that the possession is transferred from the
vendor to the vendee. Articles 1498 and 1499 are applicable in the case at bar. In
the instant case, actual delivery of the subject tractor could not be made. However,
there was constructive delivery already upon the execution of the public
instrument pursuant to Article 1498 and upon the consent or agreement of the
parties when the thing sold cannot be immediately transferred to the possession of
the vendee (Article 1499). In this case, the sale of the subject tractor was
consummated upon the execution of the public instrument (September 1979). At
this time constructive delivery was already effected. Hence, the subject tractor was
no longer owned by Wilfredo Dy when it was levied upon by the sheriff
(December 1979).
DOCTRINE: When actual delivery of the subject matter could not be made,
constructive delivery is possible upon the execution of the public instrument
pursuant to Article 1498 and upon the consent or agreement of the parties when
the thing sold cannot be immediately transferred to the possession of the vendee
(Article 1499).
ISSUE: Whether or not Wilfredo Dy is still the owner of the tractor when it was seized
FACTS:
89. The petitioner Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979,
Wilfredo Dy purchased a truck and a farm tractor through financing extended
by Libra Finance and Investment Corporation (Libra). Both truck and tractor
were mortgaged to Libra as security for the loan.
90. Perfecto wanted to buy the tractor from Wilfredo so he wrote a letter to Libra
requesting that he be allowed to purchase from Wilfredo the said tractor and
assume the mortgage debt of the latter. The request was then approved.
91. Thus, Wilfredo executed a deed of absolute sale in favor of the Perfecto over
the tractor in question. At this time, the subject tractor was in the possession
of Libra due to Wilfredo’s failure to pay the amortizations.
92. Despite the offer of full payment by Perfecto to Libra for the tractor, the
immediate release could not be effected because Wilfredo had obtained
financing not only for said tractor but also for a truck and Libra insisted on
full payment for both.
93. Perfecto was able to convince his sister, Carol Dy-Seno, to purchase the truck
so that full payment could be made for both. A PNB check P22,000 was
issued in favor of Libra, thus settling in full the indebtedness of Wilfredo.
Payment having been effected through an out-of-town check, Libra insisted
that it be cleared first before Libra could release the chattels in question.
94. Meanwhile, civil case entitled "Gelac Trading, Inc. v. Wilfredo Dy", a
collection case to recover P12,269.80 was pending in another court in Cebu.
95. On the strength of an alias writ of execution, the provincial sheriff was able
to seize and levy on the tractor which was in the premises of Libra in Carmen,
Cebu. The tractor was subsequently sold at public auction where Gelac
Trading (Gelac) was the lone bidder. Later, Gelac sold the tractor to one of
its stockholders, Antonio Gonzales.
96. It was only when the check was cleared that Perfecto learned about Gelac
having already taken custody of the subject tractor. Consequently, Perfecto
filed an action to recover the subject tractor against Gelac with the RTC of
Cebu City.
97. The RTC rendered judgment in favor of Perfecto. However, the CA reversed
the decision and held that tractor in question still belonged to Wilfredo when
it was seized and levied by the sheriff by virtue of the alias writ of execution.
98. Hence, the current petition.
and levied by the provincial sheriff. - NO
RULING: The petition is hereby GRANTED. The decision of the CA is SET ASIDE
and the decision of the RTC is REINSTATED.
RATIO:
70. The private respondents claim that at the time of the execution of the deed of
sale, no constructive delivery was effected since the consummation of the
sale depended upon the clearance and encashment of the check which was
issued in payment of the subject tractor.
71. However, the SC held that in the case of Servicewide Specialists Inc. v.
Intermediate Appellate Court: “The rule is settled that the chattel mortgagor
continues to be the owner of the property, and therefore, has the power to
alienate the same; however, he is obliged under pain of penal liability, to
secure the written consent of the mortgagee. The absence of the written
consent of the mortgagee to the sale of the mortgaged property in favor of a
third person, therefore, affects not the validity of the sale but only the penal
liability of the mortgagor under the Revised Penal Code and the binding
effect of such sale on the mortgagee under the Deed of Chattel Mortgage.”
72. In this case, there is no reason why Wilfredo, as the chattel mortgagor can
not sell the subject tractor. There is no dispute that the consent of Libra was
obtained in the instant case. In a letter, Libra allowed Perfecto to purchase
the tractor and assume the mortgage debt of his brother. The sale between the
brothers was therefore valid and binding as between them and to the
mortgagee, as well.
73. Article 1496 of the Civil Code states that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in any of the
ways specified in Articles 1497 to 1501 or in any other manner signing an
agreement that the possession is transferred from the vendor to the vendee.
Articles 14986 and 14997 are applicable in the case at bar.
74. In the instant case, actual delivery of the subject tractor could not be
made. However, there was constructive delivery already upon the
execution of the public instrument pursuant to Article 1498 and upon the
consent or agreement of the parties when the thing sold cannot be
immediately transferred to the possession of the vendee. (Art. 1499)
6 7
Art. 1498. When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which
is the object of the contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
75. The CA avers that the vendor must first have control and possession of the
thing before he could transfer ownership by constructive delivery. Here, it
was Libra which was in possession of the subject tractor due to Wilfredo's
failure to pay the amortization as a preliminary step to foreclosure. As
mortgagee, he has the right of foreclosure upon default by the mortgagor in
the performance of the conditions mentioned in the contract of mortgage. The
law implies that the mortgagee is entitled to possess the mortgaged property
because possession is necessary in order to enable him to have the property
sold.
76. While it is true that Wilfredo was not in actual possession and control of the
subject tractor, his right of ownership was not divested from him upon his
default. Neither could it be said that Libra was the owner of the subject tractor
because the mortgagee can not become the owner of or convert and
appropriate to himself the property mortgaged. (Article 2088, Civil Code)
Said property continues to belong to the mortgagor. The only remedy given
to the mortgagee is to have said property sold at public auction and the
proceeds of the sale applied to the payment of the obligation secured by the
mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767 [1953])
77. There is no showing that Libra Finance has already foreclosed the mortgage
and that it was the new owner of the subject tractor. Undeniably, Libra gave
its consent to the sale of the subject tractor to Perfecto. It was aware of the
transfer of rights to Perfecto.
78. Where a third person purchases the mortgaged property, he automatically
steps into the shoes of the original mortgagor. His right of ownership shall be
subject to the mortgage of the thing sold to him. In the case at bar, Perfecto
was fully aware of the existing mortgage of the subject tractor to Libra. In
fact, when he was obtaining Libra's consent to the sale, he volunteered to
assume the remaining balance of the mortgage debt of Wilfredo which Libra
undeniably agreed to.
79. The payment of the check was actually intended to extinguish the mortgage
obligation so that the tractor could be released to Perfecto. It was never
intended nor could it be considered as payment of the purchase price because
the relationship between Libra and Perfecto is not one of sale but still a
mortgage. The clearing or encashment of the check which produced the effect
of payment determined the full payment of the money obligation and the
Article 1499. The delivery of movable property may likewise be made
by the mere consent or agreement of the contracting parties, if the thing
sold cannot be transferred to the possession of the vendee at the time of
the sale, or if the latter already had it in his possession for any other
reason.
 release of the chattel mortgage. It was not determinative of the consummation
of the sale. The transaction between the brothers is distinct and apart from the
transaction between Libra and Perfecto. The contention, therefore, that the
consummation of the sale depended upon the encashment of the check is
untenable.

80. The sale of the subject tractor was consummated upon the execution of
the public instrument (September 1979). At this time constructive
delivery was already effected. Hence, the subject tractor was no longer
owned by Wilfredo Dy when it was levied upon by the sheriff (December
1979). Well settled is the rule that only properties unquestionably owned by
the judgment debtor and which are not exempt by law from execution should
be levied upon or sought to be levied upon. For the power of the court in the
execution of its judgment extends only over properties belonging to the
judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals,
G.R. No. 78771, January 23, 1991).
 03 ADDISON v. FELIX (DANNAH)
3 August 1918 | Fisher, J. | Sale Through Public Instrument (Art. 1498)
PLAINTIFF-APPELLANT: A. A. Addison
DEFENDANT-APPELLEES: Marciana Felix and Balbino Tioco
SUMMARY: Addison and Felix, with her husband Tioco’s consent, entered into
an agreement on June 1914 wherein Felix was to purchase from Addison four
parcels of land. (See installment plan and conditions in the contract in FACT 2).
Felix paid a downpayment of P3,000.
On January 1915, Addison filed in the CFI of Manila a complaint to compel Felix
to pay the first installment. Felix, on the other hand answered the complaint. She
asked to be absolved and that Addison be ordered to return the P3,000 she paid.
The trial court ruled in favor of Felix, holding the contract of sale to be rescinded
and ordering the return of the P3,000 with interest (citing a clause from their
contract, see FACT 2f). From this judgment Addison appealed.
The SC still ruled in favor of Felix, but for a different reason (since the condition
for the rescission of the contract under FACT 2f had not yet been fulfilled). This
is due to the fact that Addison did not deliver the thing sold. The Code imposes
upon the vendor the obligation to deliver the thing sold. The thing is considered
to be delivered when it is placed “in the hands and possession of the vendee.”
Moreover, the Court cited Art. 1498 (topic of this case in the syllabus), which
states “When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract,
if from the deed the contrary does not appear or cannot clearly be inferred….”
(But see doctrine to make sense of the case)
DOCTRINE: It is true that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had such control over the
thing sold that, at the moment of the sale, its material delivery could have
been made.
FACTS:
99. By a public instrument dated June 11, 1914, Addison sold to Felix, with the
consent of her husband Tioco, four parcels of land described in the
instrument.
100. Felix paid, at the time of the execution of the deed P3,000 on account of the
purchase price, and bound herself to pay the remainder in installments
a. First: P2,000 on July 15, 1914
b. Second: P5,000 thirty days after the issuance to her of a certificate of title
under the LRA
c. Further: Within 10 years from the date of issuance of said title, P10 for each
coconut tree bearing and P5 for each tree not bearing
d. Condition: Total price should not exceed P85,000
e. Felix was to deliver to Addison 25% of the value of the products she might
obtain from the four parcels “from the moment she takes possession of them
until the Torrens title be issued in her favor”
f. “Within one year from the date of the title in favor of Felix, she may rescind
the present contract of purchase in which case Felix shall be obliged to
return to Addison the net value of all the products of the four parcels sold,
and Addison be obliged to return to Felix all the sums she may have paid…”
101. On January 1915, Addison filed in the CFI of Manila a complaint to compel
Felix to make payment of the first installment (see 2a).
102. Felix, with her husband, answered the complaint and alleged that Addison
had absolutely failed to deliver to Felix the lands which were the subject
matter of the sale, notwithstanding their demands.
103. She asked to be absolved from the complaint, and that Addison be ordered to
refund the P3,000 she paid, plus damages.
104. It is shown that after the execution of the deed of sale, Addison at Felix’
request went to Lucena, accompanied by Felix’ representative, for the
purpose of designating and delivering the lands sold.
105. He was able to designate only 2 of the 4 parcels, and more than 2/3 of these
two was in the possession of one Villafuerte who claimed to be the owner of
the parts he occupied.
a. Addison admitted that Felix would have to bring suit to obtain possession
of these lands occupied by Fillafuerte.
106. In August 1914, a surveyor named Santamaria went to Lucena at the request
of Addison and accompanied by him, in order to survey the land sold to Felix;
but he surveyed only two parcels which were as mentioned, occupied by
Villafuerte.
107. Santamaria did not survey the other parcels, as they were not designated to
him by Addison.
108. In order to make said survey, it was necessary to obtain from the Land Court
a writ of injunction against Villafuerte et al.
109. For the purpose of the issuance of said writ, Felix filed in June 1914 an
application with the Land Court for the registration in her name of the four
parcels of land in the deed of sale.
110. The proceedings were dismissed for failure to present the required plans
within the period of the time allowed for the purpose.
111. The trial court ruled in favor of Felix, holding the contract of sale to be
rescinded and ordering the return of the P3,000 with interest. From this
judgment Addison appealed.
ISSUE/s:
22. WoN Felix can rescind the contract – YES, not because of the stipulation in
their contract but because of Article 1498 of the Civil Code
RULING: It is therefore held that the contract of purchase and sale entered into by and
between the plaintiff and the defendant on June 11, 1914, is rescinded, and the plaintiff is
ordered to make restitution of the sum of P3,000 received by him on account of the price of the
sale, together with interest thereon at the legal rate of 6 per annum from the date of the filing of
the complaint until payment, with the costs of both instances against the appellant. So ordered.
RATIO:
1. In decreeing the rescission of the contract, the trial judge rested his
conclusion solely on the indisputable fact that up to that time the lands sold
had not been registered under the Torrens system, and on the terms of the
clause in the contract (see 2f please!)
2. Addison objects, and rightly, that the cross-complaint is not founded on the
conventional rescission relied upon by the court, but on the failure of the land
sold.
3. He argues that the right to rescind by virtue of the special agreement does not
accrue until the land is registered.
a. The one year was to be counted “from the date of the certificate of title…”
b. The right to elect rescission was subject to a condition: the issuance of the
title
c. The condition has not yet been fulfilled
4. However, although not in agreement with the reasoning of the lower court, it
is correct in result.
5. The record shows that Addison did not deliver the thing sold.
6. With respect to two of the parcels, he was not even able to show them to
Felix, and as regards the other two, more than 2/3 of their area was in the
hostile possession of Villafuerte.
7. The Code imposes upon the vendor the obligation to deliver the thing sold.
The thing is considered to be delivered when it is placed “in the hands and
possession of the vendee.”8
8. It is true that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the object of
the contract, but, in order that this symbolic delivery may produce the effect
of tradition, it is necessary that the vendor shall have had such control over
the thing sold that, at the moment of the sale, its material delivery could have
been made.9
9. It is not enough to confer upon the purchaser the ownership and right of
possession. The thing sold must be placed in his control.
10. When there is no impediment whatever to prevent the thing sold passing into
the tenancy of the purchaser by the sole will of the vendor, symbolic delivery
through the execution of a public instrument is sufficient.
11. But if, notwithstanding the execution of the instrument, the purchaser cannot
have the enjoyment and material tenancy of the thing and make use of it
himself or through another in his name, because such tenancy and enjoyment
8
Art. 1497, NCC
9
Art. 1498: When the sale is made through a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or
cannot clearly be inferred.
are opposed by the interposition of another will, then fiction yields to reality
— the delivery has not been effected.
12. French Civil Code: The word “delivery” expresses a complex idea . . . the
abandonment of the thing by the person who makes the delivery and the
taking control of it by the person to whom the delivery is made.
13. The execution of a public instrument is sufficient for the purposes of the
abandonment made by the vendor; but it is not always sufficient to permit of
the apprehension of the thing by the purchaser.
14. SC of Spain interpreting the provision: It merely declares that when the sale
is made through the means of a public instrument, the execution of this latter
is equivalent to the delivery of the thing sold: which does not and cannot
mean that this fictitious tradition necessarily implies the real tradition of the
thing sold, for it is incontrovertible that, while its ownership still pertains to
the vendor (and with greater reason if it does not), a third person may be in
possession of the same thing; wherefore, though, as a general rule, he who
purchases by means of a public instrument should be deemed . . . to be the
possessor in fact, yet this presumption gives way before proof to the
contrary."
15. In the case at hand, it is evident that the mere execution of the instrument was
not a fulfillment of the vendors' obligation to deliver the thing sold, and that
from such non-fulfillment arises the purchaser's right to demand, as she has
demanded, the rescission of the sale and the return of the price.
16. If the sale had been made under the express agreement of imposing upon
Felix the obligation to take the necessary steps to obtain the material
possession of the thing sold, and if it were proven that she knew that the thing
was in possession of a third person claiming to have rights therein, such
agreement would be perfectly valid.
17. But nothing in the instrument indicates that such was the agreement.
18. The clause (see 2e please!) obviously shows that it was not foreseen that Felix
might be deprived of her possession during the course of the registration
proceedings, but that the transaction rested on the assumption that she was to
have, during said period, the material possession and enjoyment of the fourt
parcels of land.
With regard to movable property, its delivery may also be made by the delivery of the keys of the place or
depository where it is stored or kept
 04 Danguilan v. IAC (Cyria)
November 28, 1988 | Cruz, J. | Symbolic delivery
PETITIONER: Felix Danguilan
RESPONDENTS: Intermediate Appellate Court, Apolonia Melad
SUMMARY: Apolonia filed a complaint against Danguilan for the recovery of a
farm lot and residential lot. Apolonia claims that she purchased the property from
her father as evidenced by a Deed of Sale. Danguilan claims that the property was
donated to him and that neither Apolonia nor her mother lived in the land with
him. SC held that Danguilan owns the land. Apolonia failed to show that she
consummated the contract of sale by actual delivery of the properties to her and
her actual possession thereof in concept of purchaser-owner. Symbolic delivery
was not effected through the Deed of Sale.
DOCTRINE: In order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had such control over the thing
sold that, at the moment of the sale, its material delivery could have been made.
FACTS:
112. The subject of this dispute is the two lots owned by Domingo Melad which
is claimed by both Danguilan and Apolonia Melad (Apolonia).
113. Apolonia filed a complaint against Danguilan in CFI Cagayan for recovery
of a farm lot and a residential lot which she claimed she had purchased from
Domingo Melad in 1943 and were now being unlawfully withheld by the
Danguilan.
114. Danguilan averred that he was the owner of the said lots of which he had been
in open, continuous and adverse possession, having acquired them from
Domingo Melad in 1941 and 1943.
115. The case was dismissed for failure to prosecute but was refiled in 1967.
116. At the trial, Apolonia presented a deed of sale dated December 4, 1943,
purportedly signed by Domingo Melad and duly notarized, which conveyed
the said properties to her for the sum of P80.00. She said the amount was
earned by her mother as a worker at the Tabacalera factory. She claimed to
be the illegitimate daughter of Domingo Melad, with whom she and her
mother were living when he died in 1945. She moved out of the farm only
when in 1946 Felix Danguilan approached her and asked permission to
cultivate the land and to stay therein. She had agreed on condition that he
would deliver part of the harvest from the farm to her, which he did from that
year to 1958. The deliveries having stopped, she then consulted the municipal
judge who advised her to file the complaint against Danguilan. Her mother,
her only other witness, corroborated this testimony.
10
I will deliver this land except to him as he will be the one responsible for me in the event that I will die
and also for all other things needed and necessary for me, he will be responsible because of this land I am
giving to him
117. Danguilan testified that he was the husband of Isidra Melad, Domingo's
niece, whom he and his wife Juana Malupang had taken into their home as
their ward as they had no children of their own. He and his wife lived with
the couple in their house on the residential lot and helped Domingo with the
cultivation of the farm. Domingo Melad signed in 1941 a private instrument
in which he gave Danguilan the farm and in 1943 another private instrument
in which he also gave him the residential lot, on the understanding that the
latter would take care of the grantor and would bury him upon his death.
118. Danguilan presented three other witnesses to corroborate his statements and
to prove that he had been living in the land since his marriage to Isidra and
had remained in possession thereof after Domingo Melad's death in 1945.
Two of said witnesses declared that neither Apolonia nor her mother lived in
the land with Domingo Melad.
119. CFI: Danguilan was more believable and that the Apolonia’s evidence was
"unpersuasive and unconvincing." Apolonia’s own declaration that she
moved out of the property in 1946 and left it in the possession of the
defendant was contradictory to her claim of ownership. She was also
inconsistent when she testified first that the defendant was her tenant and later
in rebuttal that he was her administrator. Where there was doubt as to the
ownership of the property, the presumption was in favor of the one actually
occupying the same, which in this case was Danguilan.
120. IAC: Exhibits 2-b10 and 3-a,11 by virtue of which Domingo Melad had
conveyed the two parcels of land to Danguilan, were null and void because
they were donations of real property and as such should have been effected
through a public instrument. It then set aside the appealed decision and
declared the respondents the true and lawful owners of the disputed property.
ISSUE: WoN the symbolic delivery of the property was effected through the Deed of
Sale – NO
RULING: WHEREFORE, the decision of the respondent court is SET ASIDE and
that of the trial court REINSTATED, with costs against the private respondent.
RATIO:
Donation to Danguilan
1. Considering the language of the two instruments, that Domingo Melad did
intend to donate the properties to the petitioner, as the private respondent
contends. We do not think, however, that the donee was moved by pure
liberality. While truly donations, the conveyances
were onerous donations as the properties were given to the petitioner in
exchange for his obligation to take care of the donee for the rest of his
life and provide for his burial. Hence, it was not covered by the rule in
11
I have thought of giving him my land because he will be the one to take care of SHELTERING me or
bury me when I die and this is why I have thought of executing this document
 Article 749 of the Civil Code requiring donations of real properties to be
effected through a public instrument.
2. Apolonia argues that as there was no equivalence between the value of the
lands donated and the services for which they were being exchanged.
However, no evidence has been adduced to support her contention that the
values exchanged were disproportionate or unequal.
3. On the other hand, both the trial court and the respondent court have affirmed
the factual allegation that the petitioner did take care of Domingo Melad and
later arranged for his burial in accordance with the condition imposed by the
donor. It is alleged and not denied that he died when he was almost one
hundred years old, which would mean that Danguilan farmed the land
practically by himself and so provided for the donee (and his wife) during the
latter part of Domingo Melad's life. We may assume that there was a fair
exchange between the donor and the donee that made the transaction an
onerous donation.
Alleged sale to Apolonia
4. The deed of sale was allegedly executed when Apolonia was only three years
old and the consideration was supposedly paid by her mother, Maria Yedan
from her earnings as a wage worker in a factory. This was itself a suspicious
circumstance, one may well wonder why the transfer was not made to the
mother herself, who was after all the one paying for the lands. The sale was
made out in favor of Apolonia Melad although she had been using the
surname Yedan her mother's surname, before that instrument was signed and
in fact even after she got married.
5. The averment was also made that the contract was simulated and prepared
after Domingo Melad's death in 1945. It was also alleged that even after the
supposed execution of the said contract, Apolonia considered Domingo
Melad the owner of the properties and that she had never occupied the same.
6. Considering these serious challenges, IAC could have devoted a little more
time to examining Exhibit "E" and the circumstances surrounding its
execution before pronouncing its validity in the manner described above.
While it is true that the due execution of a public instrument is presumed, the
presumption is disputable and will yield to contradictory evidence, which in
this case was not refuted.
7. At any rate, even assuming the validity of the deed of sale, the record
shows that Apolonia did not take possession of the disputed properties
and indeed waited until 1962 to file this action for recovery of the lands
from the petitioner. If she did have possession, she transferred the same to
Danguilan in 1946, by her own sworn admission, and moved out to another
lot belonging to her step-brother. Her claim that Danguilan was her tenant
(later changed to administrator) was disbelieved by the trial court, and
properly so, for its inconsistency. In short, she failed to show that she
consummated the contract of sale by actual delivery of the properties to
her and her actual possession thereof in concept of purchaser-owner.
8. Ownership does not pass by mere stipulation but only by delivery, and the
execution of a public document does not constitute sufficient delivery where
the property involved is in the actual and adverse possession of third persons.
9. In our Civil Code it is a fundamental principle in all matters of contracts and
a well- known doctrine of law that "non mudis pactis sed traditione dominia
rerum transferuntur". In conformity with said doctrine as established in
paragraph 2 of article 609 of said code, that "the ownership and other property
rights are acquired and transmitted by law, by gift, by testate or intestate
succession, and, in consequence of certain contracts, by tradition". And as
the logical application of this disposition article 1095 prescribes the
following: "A creditor has the rights to the fruits of a thing from the time the
obligation to deliver it arises. However, he shall not acquire a real right" (and
the ownership is surely such) "until the property has been delivered to him."
10. The delivery of a thing constitutes a necessary and indispensable
requisite for the purpose of acquiring the ownership of the same by
virtue of a contract.
11. As for the argument that symbolic delivery was effected through the deed of
sale, which was a public instrument, the Court has held: In order that this
symbolic delivery may produce the effect of tradition, it is necessary that
the vendor shall have had such control over the thing sold that, at the
moment of the sale, its material delivery could have been made. It is not
enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control.
12. There is no dispute that it is Danguilan and not Apolonia who is in actual
possession of the litigated properties. Even if the respective claims of the
parties were both to be discarded as being inherently weak, the decision
should still incline in favor of Danguilan pursuant to the doctrine: If the claim
of both the plaintiff and the defendant are weak, judgment must be for the
defendant, for the latter being in possession is presumed to be the owner, and
cannot be obliged to show or prove a better right.
 05 POWER COMMERCIAL & INDUSTRIAL CORPORATION vs. CA
(Gueco)
June 20, 1997 | Panganiban, J. | Symbolic Delivery
PETITIONER: Power Commercial and Industrial Corporation
RESPONDENTS: Court of Appeals, Spouses Reynaldo and Angelita R.
Quiambao and Philippine National Bank
SUMMARY: Power Commercial, an asbestos manufacturer, needed a bigger
office space for its products, so it entered into a contract of sale with spouses
Quiambao. The subject matter of the sale was a parcel of land located in Makati.
In the contract, they agreed that Power Commercial would make a down payment
of P108,000 and the remaining balance to be paid upon the execution of the deed
of transfer of the title. Power Commercial also agreed to assume the existing
mortgage on the land, which the spouses made in favor of PNB. Subsequently,
the spouses again mortgaged the Makati land to PNB because they obtained a
loan from the said bank. Power Commercial knew about this and even agreed that
it will pay the loan of the spouses. Pursuant to this agreement, the spouses and
Power Commercial proceeded to execute a Deed of Absolute Sale with
Assumption of Mortgage. Afterwards, the general manager of Power Commercial
submitted to PNB a copy of the deed along with a formal application for the
assumption of mortgage. However, this application of mortgage was not accepted
because Power Commercial failed to submit the necessary papers. As a result, the
loan obtained by the spouses Quiambao became due and demandable. Power
Commercial made partial payments of the loan, but it defaulted in the end. So it
filed a civil case against the Spouses for the rescission of their contract plus
damages. Power Commercial alleged that there was a substantial breach in their
contract because the spouses failed to deliver actual possession of the property
and also because the spouses failed to eject the lessees that occupied the land.
Also, Power Commercial demanded from PNB the return of the payments that it
made to the latter. It contended that since its application for the assumption of
mortgage was not accepted, PNB had no right to receive payments from Power
Commercial. RTC ruled in favor of Power Commercial. It stated that the failure
of the spouses to deliver actual possession gave the corporation the right to
rescind their contract. On appeal, the CA reversed the decision of the RTC.
ISSUE: WoN the alleged failure of the spouses to deliver actual and physical
possession can be considered a substantial breach of condition—NO. RULING:
The Civil Code provides that delivery can either be actual or constructive.
Symbolic delivery is specie of constructive delivery, and it is effected by the
transfer of ownership through the execution of a public document. Its efficacy
can, however, be prevented if the vendor does not possess control over the
thing sold. In other words, for symbolic delivery to produce the effect of
tradition (delivery), it is first necessary that the vendor shall have had
control over the thing sold. It is not enough to confer upon the purchaser the
12
Asbestos refers to a set of six naturally occurring fibrous minerals
ownership and the right of possession unless the thing sold is placed in the
control of the buyer.
In this case, the lot sold had been placed under the control of Power Commercial;
thus, the filing of the ejectment suit was subsequently done. It signified that its
new owner intended to obtain for itself and to terminate said occupants' actual
possession thereof. Prior physical delivery or possession is not legally required
and the execution of the deed of sale is deemed equivalent to delivery. This
deed operates as a formal or symbolic delivery of the property sold and
authorizes the buyer to use the document as proof of ownership. Nothing
more is required.
DOCTRINE:
The Civil Code provides that delivery can either be actual or constructive.
Symbolic delivery is a specie of constructive delivery, and it is effected by the
transfer of ownership through the execution of a public document. Its efficacy
can, however, be prevented if the vendor does not possess control over the thing
sold. The key word is control, not possession, of the land. In order for symbolic
delivery to produce the effect of tradition (delivery), it is first necessary that the
vendor shall have had control over the thing sold. It is not enough to confer upon
the purchaser the ownership and the right of possession. The thing sold must also
be placed in his control.
FACTS:
1. Power Commercial & Industrial Development Corporation (“Power
Commercial”) is an asbestos12 manufacturer. It needed a bigger office space
and warehouse for its products, so it entered into a contract of sale with
spouses Reynaldo and Angelita Quiambao (“Spouses Quiambao”).
2. The subject of the sale was a parcel of land located at San Antonio Village of
Makati. In the contract, they agreed that Power Commercial would pay
P108,000 as down payment and the remaining balance would be paid upon
the execution of the deed of transfer of the title. Furthermore, Power
Commercial assumed the existing mortgage on the land, which was made in
favor of PNB.
3. Subsequently, on June 1979, spouses Quiambao mortgaged (again) the above
land to PNB in order to guarantee a loan (P145, 000). Power Commercial was
aware of this and even agreed to assume the payment of the spouses’ loan.
Spouses Quiambao and Power Commercial then executed a Deed of Absolute
Sale with Assumption of Mortgage. On the same day of the deed’s execution,
the general manager of Power Commercial submitted to PNB a copy of the
deed with a formal application for the assumption of mortgage.
4. On February 1980, however, PNB informed Spouses Quiambao that Power
Commercial failed to submit the necessary papers for the approval of their
 application to assume the mortgage; hence, their application with PNB is
deemed withdrawn and the outstanding balance of the loan is now due.
5. Power Commercial made partial payments of the loan but they still defaulted
in the end. So it filed a civil case against Spouses Quiambao for rescission
and damages.
6. Power Commercial then wrote a letter to PNB demanding the return of the
payments that it made since the assumption of the mortgage was never
approved.
7. Later on, PNB was impleaded as a party to the case filed by Power
Commercial because the subject mortgage was foreclosed and it was PNB
who was the highest bidder at the public auction.
8. RTC ruled that the Spouses’ failure to deliver actual possession to Power
Commercial entitled the latter to rescind the sale. Also, PNB is obliged to
return the payments made by Power Commercial since the latter’s assumption
of mortgage was never approved. (Side note: bigla nalang talaga nagkaroon
ng ruling regarding delivery.)
9. Spouses Quiambao and PNB appealed.
10. CA reversed the decision. It ruled that it held that the deed of sale between
the spouses and Power Commercial did not obligate the former to eject the
lessees from the land in question as a condition of the sale, nor was the
occupation thereof by said lessees a violation of the warranty against eviction.
Hence, there was no substantial breach to justify the rescission of said
contract or the return of the payments made. (Side note: wala din sinabi sa
facts about lessees occupying the land).
5. It is not enough to confer upon the purchaser the ownership and the right
of possession. The thing sold must also be placed in his control. When
there is no impediment whatsoever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor, symbolic delivery
through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have
the enjoyment and material tenancy of the thing and make use of it himself
or through another in his name, because such tenancy and enjoyment are
opposed by the interposition of another will, then fiction yields to reality —
the delivery has not been effected.
6. In this case, delivery was effected through the execution of the deed. The lot
sold had been placed under the control of Power Commercial; thus, the filing
of the ejectment suit was subsequently done. It signified that its new owner
intended to obtain for itself and to terminate said occupants' actual possession
thereof. Prior physical delivery or possession is not legally required and
the execution of the deed of sale is deemed equivalent to delivery. This
deed operates as a formal or symbolic delivery of the property sold and
authorizes the buyer to use the document as proof of ownership. Nothing
more is required.

ISSUES:
2. WoN the alleged failure of the spouses to deliver actual and physical
possession can be considered a substantial breach of condition—NO.

RULING: WHEREFORE, the petition is hereby DENIED, and the assailed Decision
is AFFIRMED.

RATIO:
1. Power Commercial asserts that there was no delivery because at the execution
of the deed of sale, transfer of possession of said lot was impossible due to
the presence of occupants on the lot sold. The Court does not agree with its
contention.
2. The Civil Code provides that delivery can either be (1) actual (Article 1497)
or (2) constructive (Articles 1498-1501). Symbolic delivery (Article 1498),
as a specie of constructive delivery, effects the transfer of ownership through
the execution of a public document. Its efficacy can, however, be prevented
if the vendor does not possess control over the thing sold.
3. The key word is control, not possession, of the land.
4. In order for symbolic delivery to produce the effect of tradition
(delivery), it is first necessary that the vendor shall have had control over
the thing sold.
 06 CHUA v. CA (REINE)
9 April 2003| Carpio, J | Steps in Selling Immovables
Petitioner/s:Tomas K. Chua
Respondent/s:Court of Appeals and Encarnion Valdes-Choy
Summary: Valdes-Choy advertised for sale a house and lot at San Lorenzo Village
in which Chua responded and eventually they both agreed on a purchase price of
P10.8 million payable in cash. Chua gave P100,000 as earnest money and P485,000
in order for Valdes-Choy to pay the capital gains tax. However, Chua did not want
to pay the balance of the purchase price until Valdes-Choy registered the property
under the name of Chua but Valdes-Choy stated that it was not part of the agreement
thus the two parties had reached an impasse (Disagreement). The deadline for the
payment of the purchase price had already lapsed (July 15) and there was still no
agreement and 2 days after (July 17), Chua filed a complaint for specific
performance with damages. The Trial Court ruled in favor of Chua but the CA
reversed the decision.
The SC affirmed the CA decision and ruled in favor of Valdes-Choy stating that the
contract was not a contract of sale but a contract to sell hence ownership is not
passed on to the buyer until payment of the full purchase price. Thus, Chua cannot
withhold payment of the purchase price by stating that the property be first registered
in his name because it was not part of the agreement.
Doctrine: In the absence of a contrary agreement, the submission by an individual
seller to the buyer of the following papers would complete a sale of real estate: (1)
owners duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3) tax
declaration; and (3) latest realty tax receipt. The buyer can retain the amount for the
capital gains tax and pay it upon authority of the seller, or the seller can pay the tax,
depending on the agreement of the parties.
Facts:
1.) Valdes-Choy (Seller) advertised for sale her paraphernal house and lot with 718
square meters located at San Lorenzo Village. Chua (buyer) responded to the
advertisement and after several meetings, Chua and Valdes-Choy agreed on a purchase
price of P10.8 million payable in cash. Valdes-Choy received from Chua a check for
P100,000.
2.) The receipt evidencing the transaction signed by Valdes-Choy as seller and Chua as
buyer reads: “RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in
the amount of ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as
EARNEST MONEY for the sale of the property located at 40 Tampingco cor. Hidalgo,
San Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters).The balance of TEN
MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before
15 July 1989. Capital Gains Tax for the account of the seller. Failure to pay balance on
or before 15 July 1989 forfeits the earnest money. This provided that all papers are in
proper order.
3.) In the morning of July 13, 1989, Chua secured from Philippine Bank of Commerce
(PBCom) a manager’s check for P480,000. In the afternoon of the same day, Chua and
Valdes-Choy met with their respective counsels to execute the necessary documents and
arrange the payments. Valdes-Choy and Chua signed two Deeds of Absolute Sale
(Deeds of Sale). The first Deed of Sale covered the house and lot for the purchase price
of P8 million. The second Deed of Sale covered the furnishings, fixtures and movable
properties contained in the house for P2.8 million. The computation of capital gains
amounted to P485K.
4.) On July 14, 1989 (the next day) the parties met at the office of Valdes-Choy’s
counsel. Chua handed to Valdes-Choy the PBCom managers check for P485,000.00 so
Valdes-Choy could pay the capital gains tax as she did not have sufficient funds to pay
the tax. Valdes-Choy issued a receipt showing that Chua had a remaining balance
of P10,215,000.00 after deducting the advances made by Chua. The receipt reads:
“…The total purchase price of the above-mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken down as follows: SELLING
PRICE P10,800,000.00 EARNEST MONEY P100,000.00
PARTIAL PAYMENT 485,000.00 585,000.00 BALANCE DUE TO ENCARNACION VALDEZ-
CHOY P10,215,000.00 PLUS P80,000.00 for documentary stamps paid in advance by
seller 80,000.00
5.) On the same day, Valdes-Choy accompanied by Chua deposited the P485,00 check
to her account with Traders Royal Bank (TRB). She then purchased a Traders Royal
Bank managers check for P480,000 payable to the Commission of Internal Revenue for
the capital gains tax and both parties returned to the office of Valdes-Choy’s counsel
and gave the TRB check to counsel to pay the capital gains tax. It was also then that
Chua showed to Valdes-Choy a PBCom manager’s check for P10, 215,000 representing
the balance of the purchase price but Chua did not give this check because the property
was still registered under Valdes-Choy. Chua required that the property be registered
first in his name before he would turn over the check to Valdes-Choy which angered
Valdes-Choy who tore up the Deeds of Sale claiming that what Chua required was not
part of the agreement.
6.)On July 15 (Deadline for payment of balance of purchase price), Valdes-Choy
suggested to her counsel that Chua should deposit in escrow the P10, 215,000 balance.
Upon such deposit, Valdes-Choy was willing to cause the issuace of new TCT in the
name of Chua. Valdes-Choy believed this was the only way she could protect herself if
the certificate of title is transferred in the name of Chua before she is fully paid. This
was relayed to Chua but there was no response from Chua.
7.) On July 17, Chua filed a complaint for specific performance against Valdes-Choy
which was dismissed and then he re-filed his complaint for specific performance with
damages. This time, the Trial Court rendered judgment in favor of Chua. The Trial Court
found that the transaction reached an impasse (situation in which no progress is possible
due to disagreement) wherein Valdes-Choy wanted to be paid first the full consideration
before a new TCT would be issued in the name of Chua while Chua did not want to pay
unless a new TCT is first issued in his name. The Trial Court held that Chua complied
with the terms of the contract to sell such as when he was prepared to pay the
consideration before the deadline and the purchasing of manager’s checks payable to
Valdes-Choy. On the other hand, Valdes-Choy did not perform her obligation under the
contract to sell to put all the papers in order and the non-payment of the balance by Chua
was due to the fault of Valdes-Choy.
8.) The CA reversed the ruling of the Trial Court wherein the CA ruled that Chua’s
stance to pay the consideration only after the Property is registered in his name was not
the agreement of the parties. Although Chua demonstrated his capacity to pay, this could
not be equated with actual payment which he refused to do. The CA did not consider
the non-payment of the capital gains tax as failure by Valdes-Choy to put the papers in
order since the payment of the capital gains tax has no bearing on the validity of Deeds
of Sale (NOTE: Counsel of Valdes-Choy did not pay the capital gains tax so this was
one of the defense of Chua of Valdes-Choy not putting the papers in order).
Issue: WoN there is a perfected contract of sale of immovable property or a mere
contract to sell? Contract to Sell
WoN Chua can compel Valdes-Choy to cause the issuance of a new TCT in Chua’s
name even before payment of the full purchase price? NO
Ruling: The Decision of the CA is affirmed in toto.
Ratio:
1.) Chua has consistently before the Trial Court and Appellate Courts characterized his
agreement with Valdes-Choy as evidenced by Receipt as a contract to sell and this is the
first time he pleads that there is a perfected contract of sale. The SC held that Chua’s
theory is not well taken since an issue not raised in the lower courts cannot be raised for
the first time on appeal as this is offensive to the basic rules of fair play, justice and due
process.
2.) The SC held that the agreement between Valdes-Choy and Chua was a contract to
sell not a contract of sale. The distinction is as follows: 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.
3.) The Receipt shows the true agreements between the parties was a contract to sell.
The Receipt provides that the earnest money will be forfeited in case the buyer fails to
pay the balance of the purchase price on or before July 15 and in such event, Valdes-
Choy can sell the property to other interested parties. Second, the agreement between
Chua and Valdes-Choy was embodied in a receipt rather than in a deed of sale,
ownership not having passed between them, the absence of a formal deed of conveyance
is a strong indication that parties did not intend immediate transfer of ownership. Third,
Valdes-Choy retained possession of the certificate of title and all other documents
relative to the sale which are additional proof that the agreement did not transfer to Chua,
either by constructive or actual delivery the ownership of the Property.
4.) It is true that Article 1482 of the Civil Code provides that Whenever earnest money
is given in a contract of sale, it shall be considered as part of the price and proof of
the perfection of the contract. However, this article speaks of earnest money given
in a contract of sale. In this case, the earnest money was given in a contract to
sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a
forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay
the balance of the purchase price. Valdes-Choy should have the right to compel Chua to
pay the balance of the purchase price. Chua, however, has the right to walk away from
the transaction, with no obligation to pay the balance, although he will forfeit the earnest
money. Clearly, there is no contract of sale.
5.) Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the
full payment of the purchase price partakes of a suspensive condition. The non-
fulfillment of the condition prevents the obligation to sell from arising and ownership is
retained by the seller without further remedies by the buyer.
Withholding of Payment of Balance of Purchase Price:
6.) Chua insists that he was ready to pay the balance of the purchase price but withheld
payment because Valdes-Choy did not fulfill her contractual obligation to put all the
papers in proper order. Specifically, Chua claims that Valdes-Choy failed to show that
the capital gains tax had been paid after he had advanced the money for its payment. For
the same reason, he contends that Valdes-Choy may not forfeit the earnest money even
if he did not pay on time. SC Ruling: In a contract to sell, the seller is not obligated
to transfer ownership to the buyer. Neither is the seller obligated to cause the
issuance of a new certificate of title in the name of the buyer. However, the seller
must put all his papers in proper order to the point that he is in a position to
transfer ownership of the real property to the buyer upon the signing of the
contract of sale. In the instant case, Valdes-Choy was in a position to comply with
all her obligations as a seller under the contract to sell. First, she already signed
the Deeds of Sale in the office of her counsel in the presence of the buyer.Second,
she was prepared to turn-over the owners duplicate of the TCT to the buyer, along
with the tax declarations and latest realty tax receipt.Clearly, at this point Valdes-
Choy was ready, able and willing to transfer ownership of the Property to the buyer
as required by the contract to sell. Chua, however, refused to give to Valdes-Choy
the PBCom managers check for the balance of the purchase price. Chua imposed
the condition that a new TCT should first be issued in his name, a condition that is
found neither in the law nor in the contract to sell as evidenced by the Receipt.Thus,
at this point Chua was not ready, able and willing to pay the full purchase price
which is his obligation under the contract to sell.
7.) In the absence of a contrary agreement, the submission by an individual seller to
the buyer of the following papers would complete a sale of real estate: (1) owners
duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3) tax
declaration; and (3) latest realty tax receipt. The buyer can retain the amount for
the capital gains tax and pay it upon authority of the seller, or the seller can pay
the tax, depending on the agreement of the parties.The buyer has more interest in
having the capital gains tax paid immediately since this is a pre-requisite to the issuance
of a new Torrens title in his name. Nevertheless, as far as the government is concerned,
the capital gains tax remains a liability of the seller since it is a tax on the sellers gain
from the sale of the real estate. Payment of the capital gains tax, however, is not a
pre-requisite to the transfer of ownership to the buyer. The transfer of ownership
takes effect upon the signing and notarization of the deed of absolute sale.
8.) In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers
that customarily would complete the sale, and to pay as well the capital gains tax. On
the other hand, Chuas condition that a new TCT be first issued in his name before he
pays the balance of P10,215,000.00, representing 94.58% of the purchase price, is not
customary in a sale of real estate. Such a condition, not specified in the contract to sell
as evidenced by the Receipt, cannot be considered part of the omissions of stipulations
which are ordinarily established by usage or custom. Chua had no reason to fear being
swindled. Valdes-Choy was prepared to turn-over to him the owners duplicate copy of
the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax
receipt. There was no hindrance to paying the capital gains tax as Chua himself had
advanced the money to pay the same and Valdes-Choy had procured a managers check
payable to the Bureau of Internal Revenue covering the amount. It was only a matter of
time before the capital gains tax would be paid. Chua acted precipitately in filing the
action for specific performance a mere two days after the deadline of 15 July 1989 when
there was an impasse.
 07 Vive Eagle Land v. CA (Steph)
November 26, 2005 | Callejo, Sr., J. | Expenses for registration must be shouldered
by the vendor in the absence of a stipulation to the contrary.
PETITIONER: Vive Eagle Land Inc. and Virgilio O. Cervantes
RESPONDENTS: Court of Appeals, Genuino Ice Co., Inc.
SUMMARY: Spouses first sold 2 lots to TATIC, then TATIC sold 2 lots to
VELI. VELI then sold one of the lots to Genuino. Genuino is ordering VELI to
pay the capital gains tax over the lot. (So there are 3 deeds of sale.) However,
VELI disagrees as in its previous Deeds of Absolute Sale it was agreed that the
Broker Tobias would pay the capital gains tax. The Court ruled that VELI must
shoulder expenses for registration and eviction of squatters because Genuino is
not bound by the terms and conditions of the two previous deeds of sale even if
VELI assigned its rights to Genuino. However, VELI is not liable for capital gains
tax because the law applicable at the time of the third deed of sale does not require
them to pay such tax, and the current law cannot be applied retroactively.
DOCTRINE: Under Article 1487, expenses for the registration of the sale should
be shouldered by the vendor unless there is a stipulation to the contrary.
FACTS:
18. Spouses Flores sold 2 lots to TATIC.
19. TATIC loaned money from Makati Rural Bank to pay for the lots.
20. Spouses Flores entered into a Deed of Absolute Sale in favor of TATIC for
P 7.9 M. Also, Spouses Flores, Tobias (the broker of TATIC), TATIC, and
the Bank entered into a Memorandum of Agreement (so 2 contracts)
a. Tobias the broker undertook to clear the titles and Spouses Flores
undertook to give necessary documents to broker.
b. Broker also undertook to pay all taxes, receipts to be presented to
the Bank because the Bank will advance money on the loan provided
TATIC executes a promissory note in favor of Bank. The taxes will
be deducted from the purchase price.
c. Broker and TATIC is in charge of removing squatters from the lots,
with help from spouses Flores.
d. Estimated expense for all these matters is roughly 790 000, and if it
exceeds that it will be deducted from whatever the Broker was
supposed to receive (in short kaltas sa kita niya).
21. While the torrens titles were still with the Bank, TATIC sold the 2 lots to
Vive Eagle Land Inc. (VELI) for P 6.9 M. TATIC warranted in the Deed of
Sale that it would deliver the torrens titles.
22. AND THEN, VELI executed a Deed of Absolute Sale and sold one of the
lots to Genuino Ice Co. for P 4.9 M. VELI assigned its rights in the Deed of
Absolute Sale between Spouses Flores and TATIC to Genuino, as far as that
one lot is concerned.
23. Genuino wrote a letter to VELI demanding that VELI must pay the capital
gains tax. VELI rejected these demands.
24. Genuino filed a Complaint against VELI for specific performance and
damages in the RTC. RTC ruled in favor of Genuino and ordered VELI to
pay capital gains tax, transfer title in favor of Genuino, and evict the squatters,
because Genuino is not a party to the initial deed of sale (between Spouses
Flores and TATIC, and between TATIC AND VELI), thus not bound by any
of that.
25. CA affirmed.
ISSUES: Is VELI obliged to pay for registration and capital gains tax? Yes for
registration, no for capital gains tax because laws cannot be applied retroactively.
RULING: IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 51933 is
hereby AFFIRMED WITH MODIFICATION. That portion of the Decision of the
Court of Appeals mandating petitioner Vive Eagle Land, Inc. to pay capital gains tax
for the November 11, 1988 sale of the property covered by TCT No. 241846 to
respondent Genuino Ice Co., Inc. is DELETED. No costs.
RATIO:
7. VELI is Obliged to Cause the Registration of the Deed of Absolute
Sale in Favor of Genuino, the Issuance of a Torrens Title in the Name
of Genuino and the Eviction of the Tenants/Occupants from the
Property at the Expense of the VELI.
8. Remember that there are 3 Deeds of Absolute Sale:
a. Spouses Flores and TATIC (Tobias the Broker of TATIC),
wherein Tobias would pay capital gains tax on behalf of
TATIC
b. TATIC and VELI (TATIC DID NOT OBLIGE TO PAY
CAPITAL GAINS TAX)
c. VELI and Genuino
9. Indeed, under the third deed of absolute sale, petitioner VELI did not oblige
itself to spend for the registration of the said deed; to secure a torrens title
over the property to and under the name of the respondent; or to cause the
eviction of the tenants/occupants on the property. Nevertheless, petitioner
VELI is liable for registration expenses because, under Article 1487 of
the New Civil Code, the expenses for the registration of the sale should
be shouldered by the vendor unless there is a stipulation to the contrary.
10. By virtue of the deed of assignment yes Genuino got the rights in the first
deed of sale between Spouses Flores and VELI, HOWEVER, VELI
CANNOT ENFORCE THE TERMS AND CONDITIONS OF THE FIRST
DEED OF SALE BECAUSE GENUINO IS NOT A PARTY TO THAT.
11. This deed of assignment also did not relieve VELI from its obligation to evict
the squatters.
12. In the third deed of sale, the squatters have not been evicted yet by VELI,
thus it can’t be said that there was delivery already of the property. Moreover,
 Genuino had a right to withhold 300 000 of the purchase price if the squatters
haven’t been evicted yet, according to their Deed of Sale.
13. BUT VELI is NOT liable to pay capital gains tax for the sale.
a. During the first and second deeds of sale, the National Internal
Revenue Code (NIRC), as amended by Batas Pambansa Blg. 37, and
Executive Order No. 237 were still in effect. Under these laws,
Spouses Flores were liable as vendors in the first sale, but in the
second sale neither VELI or TATIC had to pay capital gains tax
because they are corporations.
b. During the third deed of sale (which was executed in 1988), VELI
is not liable to pay corporate gains tax. But, NIRC was amended in
1997 and now requires corporations to pay capital gains tax. But,
this cannot be applied retroactively, thus VELI is still not liable.
14. SO, in sum, VELI has to pay registration expenses and evict squatters
and pay for whatever costs they may incur in that, however VELI is not
liable for corporate gains tax.
 08 CHUA v. CA (ARIELLE)
April 9, 2003 | Carpio, J. | Contract of Sale vs. Contract to Sell; Forfeiture of Earnest
Money
PETITIONER: Tomas K. Chua
RESPONDENTS: Court of Appeals and Encarnacion Valdes-Choy
SUMMARY: Valdes-Choy advertised her house and lot, to which Chua
responded to. Valdes-Choy and Chua then agreed on a purchase price of
P10,800,000 payable in cash. Chua gave Valdes-Choy a check for P100,000 as
earnest money, as embodied in a receipt. Chua then secured from PBCom a
managers check but the latter immediately gave a stop payment order claiming
that his check for P480,000 was lost. The contracting parties met again with their
counsels and Chua gave Valdes-Choy a PBCom managers check for P485,000.
Valdes-Choy then issued a receipt showing that Chua had a remaining balance of
P10,215,000. Chua did not give to Valdes-Choy the managers check because the
TCT was still registered in the name of Valdes-Choy. Chua wanted the property
to be registered first in his name before he would turn over the check to Valdes-
Choy, which the latter claimed was not part of their agreement. Since the deadline
for the payment of the balance was nearing, Valdes-Choy suggested that Chua
deposit the check in escrow and upon such deposit, Valdes-Choy would cause the
issuance of a new TCT in Chua’s name even without receiving the balance. Chua
filed a complaint for specific performance which the trial court dismissed, but
upon re-filing, the trial court rendered judgment in favor of Chua. Valdes-Choy
appealed to the CA which reversed the trial court’s decision and declared the
P100,000 earnest money as forfeited. Hence this appeal. The issue is WoN there
is a perfected contract of sale, and WoN the earnest money can be forfeited.
The SC held that there is no perfected contract of sale, but only a contract to sell.
A perusal of the Receipt shows that the true agreement between the parties was a
contract to sell. Ownership over the property was retained by Valdes-Choy and
was not to pass to Chua until full payment of the purchase price. The agreement
between Chua and Valdes-Choy was embodied in a receipt rather than in a deed
of sale, ownership not having passed between them. The signing of the Deeds of
Sale came later when Valdes-Choy was under the impression that Chua was about
to pay the balance. Absence of a formal deed of conveyance is a strong indication
that the parties did not intend immediate transfer of ownership, but only a transfer
after full payment of the purchase price. The SC also held that the earnest money
can be forfeited in favor of Valdes-Choy because The Receipt provides that the
earnest money shall be forfeited in case the buyer fails to pay the balance. In such
event, Valdes-Choy can sell the property to other interested parties. There is in
effect a right reserved in favor of Valdes-Choy not to push through with the sale
upon Chua’s failure to remit the balance before the deadline. It is true that Art.
1482 of the Civil Code provides that whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the
perfection of the contract. However, this article speaks of earnest money given in
a contract of sale.
DOCTRINE: In a contract of sale, the title of 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.
FACTS:
1. Valdes-Choy advertised for sale her paraphernal house and lot with an area
of 718 square meters located at San Lorenzo Village, Makati City. Chua
responded to the advertisement. After several meetings, Chua and Valdes-
Choy agreed on a purchase price of P10,800,00.00 payable in cash.
2. Valdes-Choy received from Chua a check for P100,000.00. The receipt of the
transaction was signed by Valdes-Choy as seller, and Chua as buyer. The
receipt provided that Valdes-Choy received from Mr. Chua a PBCom Check
as Earnest Money for the sale of the property in San Lorenzo Village.
3. Chua then secured from PBCom a managers check for P480,000.00.
Strangely, after securing the managers check, Chua immediately gave
PBCom a verbal stop payment order claiming that his managers check for
P480,000 was lost/misplaced.
4. Chua and Valdes-Choy met with their counsels to execute documents and
arrange the payments. Valdes-Choy as vendor and Chua as vendee signed
two Deeds of Absolute Sale. The first Deed of Sale covered the house and lot
for P8M. The second Deed of Sale covered the furniture and movable
properties contained in the house for P2.8M.
5. The parties met again at the office of Valdes-Choy’s counsel. Chua handed
to Valdes-Choy the PBCom managers check for P485,000 so Valdes-Choy
could pay the capital gains tax as she did not have sufficient funds to pay the
tax.
6. Valdes-Choy then issued a receipt showing that Chua had a remaining
balance of P10,215,000.
7. Valdes-Choy accompanied by Chua deposited the P485,000 managers check
to her account with Traders Royal Bank. She purchased a managers check for
P480,000 payable to the CIR for the capital gains tax. Chua showed to
Valdes-Choy a PBCom managers check for P10,215,000 representing the
balance of the purchase price.
8. However, Chua did not give this PBCom managers check to Valdes-Choy
because the TCT was still registered in the name of Valdes-Choy.
9. Chua wanted the property to be registered first in his name before he would
turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up
the Deeds of Sale, claiming that what Chua required was not part of their
agreement.
10. Chua then confirmed his stop payment order by submitting to PBCom and
affidavit of loss. PBCom’s Assistant VP however, testified that the managers
check was still honored because Chua subsequently verbally advised the bank
 that he was lifting the stop payment order due to his special arrangement with
the bank.
11. The deadline for the payment of the balance of the purchase price was nearing
so Valdes-Choy suggested to her counsel that to break the impasse, Chua
should deposit in escrow the P10,215,000 balance. Upon such deposit,
Valdes-Choy was willing to cause the issuance of a new TCT in Chua’s name
even without receiving the balance.
12. Valdes-Choy believed that this was the only way she could protect herself if
the certificate of title is transferred in the name of the buyer before she is fully
paid. Valdes-Choy’s counsel promised to relay her suggestion to Chua but
nothing came out of it.
13. Chua filed a complaint for specific performance against Valdes-Choy which
the trial court dismissed. Chua re-filed his complaint and the trial court
rendered judgment in favor of Chua, ordering Valdes-Choy to deliver to the
Court the owners duplicate of TCT No. 162955 under her name and the two
deeds of sale, among others.
14. Valdes-Choy appealed to the CA which reversed the decision of the trial
court. The CA ruled that Chua’s stance to pay the full consideration only after
the property is registered in his name was not the agreement of the parties.
The CA noted that there is a whale of difference between the phrases all
papers are in proper order as written on the Receipt, and transfer of title as
demanded by Chua.
ISSUE/s:
1. WoN there is a perfected contract of sale of immovable property – NO; only
a contract to sell
2. WoN the earnest money in the amount of P100,000.00 can be forfeited – YES
RULING: WHEREFORE, the Decision of the Court of Appeals is AFFIRMED in
toto.
RATIO:
Contract to Sell
1. There is no dispute that Valdes-Choy is the absolute owner of the property
registered under her name, free from all liens and encumbrances. She was
ready, able, and willing to deliver to Chua the owners duplicate copy of the
TCT, the signed Deeds of Sale, tax declarations and realty tax receipt.
2. There is also no dispute that Valdes-Choy received PBCom check for
P100,000 as earnest money from Chua.
3. As embodied in the Receipt, Valdes-Choy and Chua agreed to:
a. The balance of P10,215,000 is payable on or before July 15 1989;
b. The capital gains tax is for the account of Valdes-Choy and
c. If Chua fails to pay the balance of P10,215,000, Valdes-Choy has the right
to forfeit the earnest money, provided that all papers are in proper order.
4. Chua has consistently characterized his agreement with Valdes-Choy as
evidenced by the Receipt, as a contract to sell and not a contract of sale.
5. Chua now pleads for the first time that there is a perfected contract of sale
rather than a contract to sell. He contends that there was no reservation in the
contract of sale that Valdes-Choy shall retain title to the property until after
the sale.
6. Chua’s theory is not well taken. An issue not raised in the court below cannot
be raised for the first time on appeal because this is offensive to the basic
rules of fair play.
7. However, to put doubts to rest, the Court holds that the agreement between
Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell
and not a contract of sale.
8. In a contract of sale, the title of 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.
9. A perusal of the Receipt shows that the true agreement between the
parties was a contract to sell. Ownership over the property was retained by
Valdes-Choy and was not to pass to Chua until full payment of the purchase
price.
10. The agreement between Chua and Valdes-Choy was embodied in a receipt
rather than in a deed of sale, ownership not having passed between them. The
signing of the Deeds of Sale came later when Valdes-Choy was under the
impression that Chua was about to pay the balance. Absence of a formal
deed of conveyance is a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after full payment
of the purchase price.
11. Valdes-Choy also retained possession of the certificate of title and all other
documents relative to the sale. When Chua refused to pay Valdes-Choy the
purchase price, Valdes-Choy also refused to turn over to Chua the documents.
These are additional proof that the agreement did not transfer to Chua, either
by actual or constructive delivery, ownership of the property.
12. It is true that Art. 1482 of the Civil Code provides that whenever earnest
money is given in a contract of sale, it shall be considered as part of the
price and proof of the perfection of the contract. However, this article
speaks of earnest money given in a contract of sale.
13. The Receipt evidencing the contract to sell stipulates that the earnest money
is a forfeitable deposit, to be forfeited if the sale is not consummated should
Chua fail to pay the balance of the purchase price.
14. If there is a contract of sale, Valdes-Choy should have the right to compel
Chua to pay the balance. However, Chua has the right to walk away from the
transaction with no obligation to pay the balance, although he will forfeit the
earnest money. Clearly, there is no contract of sale.
15. Since the agreement between Valdes-Choy and Chua is a mere contract
to sell, the full payment of the purchase price partakes of a suspensive
condition. The non-fulfillment of the condition prevents the obligation to sell
from arising and ownership is retained by the seller without further remedies
by the buyer.
Earnest Money
16. Chua insists that he was ready to pay the balance but withheld payment
because Valdes-Choy did not fulfill her contractual obligation to put all the
papers in proper order. Chua then claims that Valdes-Choy cannot forfeit the
earnest money even if he did not pay on time.
17. There is no dispute that as long as the papers are in proper order, Valdes-
Choy has the right to forfeit the earnest money if Chua fails to pay the
balance.
18. The Receipt provides that the earnest money shall be forfeited in case
the buyer fails to pay the balance. In such event, Valdes-Choy can sell
the property to other interested parties. There is in effect a right reserved
in favor of Valdes-Choy not to push through with the sale upon Chua’s failure
to remit the balance before the deadline.
19. It is true that Art. 1482 provides that “Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the
perfection of the contract.” However, this article speaks of earnest money
given in a contract of sale. In this case, the earnest money was given in a
contract to sell.
20. The Receipt evidencing the contract to sell stipulates that the earnest money
is a forfeitable deposit, to be forfeited if the sale is not consummated should
Chua fail to pay the balance of the purchase price.
21. The earnest money forms part of the consideration only if the sale is
consummated upon full payment of the purchase price. Clearly, there is
no contract of sale in this case. The earnest money was given in a contract
to sell, so Art. 1482 is not applicable.
22. The trial court interpreted the phrase (papers in proper order) to include
payment of the capital gains tax, with the BIR receipt as proof of payment.
The CA held otherwise, and said that the Revenue Code provides that the
amount realized from the sale shall be the sum of money received plus the
fair market value of the property received.
23. The CA is correct. In a contract to sell, the obligation of the seller to sell
becomes demandable only upon the happening of the suspensive
condition. In this case, the suspensive condition is the full payment of the
purchase price by Chua.
24. It is only upon the existence of the contract of sale that the seller becomes
obligated to transfer the ownership of the thing sold to the buyer.
25. Prior to the existence of the contract of sale, the seller is not obligated to
transfer ownership to the buyer, even if there is a contract to sell between
them. It is also upon the existence of the contract of sale that the buyer is
obligated to pay the purchase price to the seller.
26. In a contract of sale, the obligations of the seller are to transfer the
ownership of and deliver, as well as warrant the thing which is the object of
the sale.
27. The obligation of the seller is to transfer to the buyer the ownership of
the thing sold. In the sale of real property, the seller is not obligated to
transfer ownership in the name of the buyer a new certificate of title, but
rather to transfer ownership of the real property. This means that the buyer
may become the owner of the real property even if the certificate of title is
still registered in the name of the seller.
28. As between the seller and buyer, ownership is transferred not by the
issuance of a new certificate of title but by the execution of the instrument
of sale in a public document.
29. Delivery is not only a necessary condition for the enjoyment of the thing, but
is a mode of acquiring dominion and determines the transmission of
ownership, the birth of the real right.
30. In a contract of sale of real property, delivery is effected when the instrument
of sale is executed in a public document. When the deed of absolute sale is
signed by the parties and notarized, then delivery of the real property is
deemed made by the seller to the buyer.
31. Similarly, in a contract to sell real property, once the seller is ready, able and
willing to sign the deed of absolute sale, the seller is in a position to transfer
ownership to the buyer.
32. In the instant case, Valdes-Choy was in a position to comply with all her
obligations as a seller under the contract to sell. First, she already signed the
Deeds of Sale in the presence of the buyer.
33. She also prepared to turn over the owners duplicate of the TCT to Chua, along
with the tax declarations and latest realty tax receipt.
34. Chua, however, refused to give to Valdes-Choy the PBCom managers check
for the balance of the purchase price. Chua imposed the condition that a
new TCT should first be issued in his name, a condition that is found
neither in the law nor in the contract to sell.
35. Thus, at this point, Chua was not ready, able and willing to pay the full
purchase price which is his obligation under the contract to sell.
36. The contract to sell stipulated that Chua should pay the balance of the
purchase price on or before 15 July 1989. The signed Deeds of Sale also
stipulated that the buyer shall pay the balance of the purchase price upon
signing of the deeds.
37. However, on the agreed date, Chua refused to pay the balance of the purchase
price. Chua was therefore in default and has only himself to blame for the
rescission by Valdes-Choy.
38. Valdes-Choy had all her papers in proper order. In the absence of a contrary
agreement, the submission by an individual seller of the owners duplicate
copy, signed deed of absolute sale, tax declaration, latest realty tax, would
complete a sale of real estate.
39. In this case, Valdes-Choy was ready, able and willing to submit to Chua all
the papers that customarily would complete the sale, and to pay the capital
gains tax.
40. But Chua’s condition that a new TCT first be issued in his name is not
customary in a sale of real estate. Such a condition not specified in the
contract to sell cannot be considered part of the omissions of stipulations
which are established by usage or custom.
41. What is increasingly becoming customary is to deposit in escrow the balance
of the purchase price pending the issuance of a new certificate of title. Valdes-
 Choy suggested this to Chua but it drew no response.
42. Chua acquired no right to compel Valdes-Choy to transfer ownership to
him because the suspensive condition did not happen.
 09 and 11 Behn Meyer v. Yangco (Jolina)
Sept. 18, 1918 | Malcolm, J. | Free on Board (FOB); Costs, Insurance, Freight (CIF)
PETITIONER: Behn, Meyer & Co. (Ltd.)
RESPONDENTS: Teodoro Yangco
SUMMARY: The contract between Behn Meyer and Yangco state that the former
ships from New York to the latter in Manila “80 drums of caustic soda of 76%
‘Carabao’ brand” with the goods received from Neuss Hesslein & Co. However,
71 of the shipment of the drums were removed after the ship was detained in
Malaysia by British authorities. Yangco wants to rescind the contract for a
substantial breach in the failure of delivering the goods while Behn Meyer claims
damages for a supposed fulfillment of the obligation since Yangco already owned
the goods upon shipment. The Court ruled in favor of Yangco, stating that Manila
being the destination of the delivery, Behn Meyer still had a duty over the goods
till it reached its destination as evidenced by the “c.i.f. Manila” found in the
contract.
DOCTRINE: CIF found in British contracts stand for costs, insurance, freight,
signifying that the price fixed covers not only the cost of goods but also the
expense of freight and insurance to be paid by the seller.
FOB stands for “free on board” from American origin, which means that the seller
shall bear all expenses until the goods are delivered where they are to be “FOB”.
According as to whether the goods are delivered “FOB” at the point of shipment
or at the point of destination determines the time when property passes.
Both “CIF” and “FOB” merely make rules of presumption which yield to proof of
contrary intention.
FACTS: [case discusses per part of the contract not as a story, so copying that lang]
Subject Matter and Consideration
121. The contract provides for “80 drums Caustic Soda 76% ‘Carabao’ brand al
precio de Dollar Gold Nine and 75/100 per 100-lbs” (fact #7 provides a
clearer explanation of the whole contract). The merchandis was shipped from
New York on the steamship Chinese Prince.
122. The steamship was detained by the British authorities at Penang, Malaysia,
with part of the cargo removed – 71 drums of caustic soda.
123. Yangco refuses to accept delivery of the 9 remaining drums of soda for the
goods were in bad order. He also refused the optional offer of Behn Meyer of
waiting for the remainder of the shipment until its arrival or accepting a
substitute of the 71 drums of caustic soda of similar grade from Behn Meyer’s
stock.
124. Behn Meyer claims damages computed at 80 drums of caustic soda of
P6,352.89 deducted from the sum of the selling price of P10,063.86.
Place of Delivery [RELEVANT TOPIC]
125. The contract provides for “c.i.f. Manila, pagadero against delivery of
documents”.
Time of Delivery
126. The contract provided “Embarque: March 1916”. The merchandise was
shipped from New York on Chinese Prince on April 12, 1916.
Contract
127. The contract between the parties was for 80 drums of caustic soda, 76%
‘Carabao’ brand at the price of $9.75 per 100lbs with cost, insurance and
freight included, to be shipped during March 1916, to be delivered at Manila
and paid for on delivery of the documents.
ISSUE/s:
23. WoN Behn Meyer is liable for its duty to deliver the goods as seen in the
contract. –YES, for the goods do not transfer to Yangco till it reaches Manila.
RULING: Trial court judgment is affirmed, ordering the plaintiff take nothing by its
action without special findings as to costs. (Basically, no damages for Behn Meyer)
RATIO:
Subject Matter and Consideration
81. The soda which Behn Meyer offered was never tendered for it was not the
‘Carabao’ brand agreed upon and the offer of drums of the other kind of soda
was not made within the time that a March shipment would normally have
been available as provided by a provision of the contract (seen in fact #6).
Place of Delivery [RELEVANT TOPIC]
82. Determination of place of delivery is always resolved into a question of fact.
If the contract is silent as to the person or mode by which the goods are sent,
delivery by the vendor to a common carrier in usual and ordinary course of
business transfers the property to the vendee.
83. A specification in the contract relative to the payment of freight can indicate
the intention of the parties in regard to the place of delivery. If the buyer pays
freight, it is reasonable to suppose he does so because the goods become his
at the point of shipment. If the seller is to pay the freight, the intention is
said to be that the seller’s duty is to have the good transported to their
ultimate destination and that the title to property does not pass until the
goods have reached their destination.
84. CIF found in British contracts stand for costs, insurance, freight, signifying
that the price fixed covers not only the cost of goods but also the expense
of freight and insurance to be paid by the seller.
85. FOB stands for “free on board” from American origin, which means that the
seller shall bear all expenses until the goods are delivered where they are
to be “FOB”. According as to whether the goods are delivered “FOB” at the
 point of shipment or at the point of destination determines the time when
property passes.

Both “CIF” and “FOB” merely make rules of presumption which yield to
proof of contrary intention.
86. The Court believes that “Manila” in conjunction with “c.i.f” in the
contract must mean that the contract price covering costs, insurance,
and freight signifies that delivery was to be made at Manila. If Behn
Meyer thought that the place of delivery was NY and not Manila, then it
would not have attempted to substitute the goods and just permitted the loss
of the shipment to fall on Yangco.
87. The goods were not shipped nor consigned from NY to Yangco. The bill of
lading was for goods received from Neuss Hesslein & Co. The documents
evidence the shipment sent by Neuss Hesslein to the Bank of the Philippine
Islands with a draft upon Behn Meyer and with instructions to deliver the
same, thus transfering the property to Behn Meyer when and if Behn Meyer
pays the draft.

The place of delivery was Manila and Behn Meyer has not legally
excused default in delivery of the specified merchandise at that place.

Performance
88. Behn Meyer has not proved performance on its part of the condition
precedent in the contract. The warranty of the seller to the buyer has not been
complied with and therefore the buyer may rescind the contract of sale
because of substantial breach.
89. Article 1451 of the CC provides that the vendee can demand the fulfillment
of the contract, and if it be shown to be impossible, is relieved of his
obligation. There being sufficient ground for rescission, Yangco is not liable.
 10 GENERAL FOODS v. NACOCO (Megan) port of discharge, this market price to be fixed by the Executive Committee
Nov. 20, 1956 | Reyes, J. | CIF Sales of the National Institute of Oilseeds Products.

PETITIONER: General Foods Corp. xxxx

RESPONDENTS: National Coconut Corporation
SUMMARY: NACOCO sold to General Foods 1500 tons of copra for $164. The
sale was subject to the terms and conditions embodied in its contract (see Facts 4 for
the important parts of the contract). NACOCO shipped 1054.6278 tons of copra. 5.
The cargo was weighed by Luzon Brokerage and determined the net weight. On the
basis of the net weight, NACOCO prepared the corresponding bills of lading and 6.
other documents and withdrew from General Food’s letter of credit a total of $
136,686.95. Upon arrival in New York, it only weighed 898.792 short tons. General 7.
Foods demanded for refund a refund which NACOCO acknowledged and promised
to pay. NACOCO was subsequently abolished and liquidated. General Foods again
demanded for the refund but they refused payment. The trial court ruled in favor of
NACOCO however the Supreme Court reversed the ruling and ordered NACOCO to
8.
pay the refund (di ko din alam bakit CFI to SC agad). It found that the express
agreement of the parties is that the “Net Landed Weights” were to govern.
9.
DOCTRINE: C.I.F. found in British contracts stand for costs, insurance, and
freight; they signify that the price fixed covers not only the costs of the foods, 10.
but the expense of freight and insurance to be paid by the seller.
FACTS: 11.
1. Appellant General Foods Corp. (General Foods) is a foreign corp. organized 12.
under the laws of the State of Delaware, USA and licensed to do business in
the Philippines. 13.
2. Appelle National Coconut Corp. (NACOCO) was a corporation create by
Commonwealth Act No. 518. 14.
3. NACOCO sold to General Foods 1500 (later reduced to 1000) tons of copra 15.
at $164 (reduced to 163) per ton of 2000 pounds. 16.
4. The sale was subject to the terms and conditions embodied in its contract.
(NOTE: take note of the highlighted parts of the contracts as this will be used
in their arguments)
17.
“CONTRACT NO. RH-3551
xxxx
PRICE: One hundred and sixty-four dollars ($164) per ton of 2,000
pounds, CIF New York.”
NACOCO shipped 1054.6278 short tons of copra to General Foods on board
the S. S. “Mindoro”
The cargo was weighed by Luzon Brokerage and determinded the net weight
of the cargo.
On the basis of the computed net weight, NACOCO prepared and remitted
to General Foods the corresponding bills of lading and other documents and
withdrew from General Food’s letter of credit 95% of the invoice value of
the shipment or a total of $ 136,686.95. (The price was based on the net
weight)
Upon arrival in New York, the net cargo was reweighed and was found to
weigh only 898.792 short tons. (there were tons that was either lost or
destroyed).
General Foods demanded NACOCO for a refund in the amount of $24,
154.59.
NACOCO, through its officers-in-charge, acknowledged its liability for the
deficiency in the outturn weights through a letter and promised payment as
soon as funds were available.
NACOCO was subsequently abolished by EO 3727 and went into liquidation.
General Foods submitted its claim to the Board of Liquidators but they
refused to pay.
General Foods therefore files an action in the CFI to recover from NACOCO
the amount.
The CFI ruled in favor of NACOCO and dismissed the complaint.
General Foods appealed to the SC.
General Foods contends that although the sale was quoted a CIF New York
price, the agreement contemplated the payment of the price according to the
weight and quality of the cargo upon arrival in New York, therefore the risk
is on the seller.
NACOCO on the other hand insists that the contract in question is an ordinary
CIF agreement wherein delivery to the carrier is delivery to the buyer, and
that the shipment having been delivered to the buyer and the latter having
paid its price, the sale was consummated.

QUANTITY: Fifteen Hundred (1500) tons of 2,240 pounds each. Seller has
the option of delivering 5 per cent more or less of the contracted quantity,
such surplus or deficiency to be settled as follows: On the basis of the
delivered weight up to 3 percent at the contract prince and any excess or
deficiency beyond this 3 percent at market price of the day of arrival at
ISSUE/s:
1. WoN the price of the copra should be based on the weight and quality of the
cargo upon its arrival in New York – YES
RULING: Wherefore, the judgment appealed from is reversed and the Appellee
National Coconut Corporation is ordered to pay the Appellant General Foods 9. NACOCO contends that as it was only the “balance due to be paid”
Corporation the equivalent in Philippine currency of the amount of $24,154.59, that was to be ascertained and based “upon outturn weights and quality
at port of discharge”, as provided in the contract, there was no more
balance due to be ascertained at the port of discharge because it had
RATIO:
already received full payment of the copra it sent to the General Foods
1. C.I.F. found in British contracts stand for costs, insurance, and
when it withdrew $136,686.95 from the latter’s letter of credit.
freight; they signify that the price fixed covers not only the costs of
10. The argument is untenable. The provision regarding the ascertainment
the foods, but the expense of freight and insurance to be paid by the
of the balance due based upon outturn weight and quality of the
seller. (This is not found in the case but the doctrine in the outline)
shipment at the port of discharge, should not be construed separately
2. under an ordinary C.I.F. agreement, delivery to the buyer is complete
from the stipulation that the “net landed weight” was to control. The
upon delivery of the goods to the carrier and tender of the shipping
manifest intention of the parties was for the total price to be finally
and other documents required by the contract and the insurance policy
ascertained only upon determining the net weight and quality of the
taken in the buyer’s behalf.
goods upon arrival in New York
3. In the transaction now in question, despite the quoted price of CIF
New York, and the right of the seller to withdraw 95 per cent of the
invoice price from the buyer’s letter of credit upon tender of the
shipping and other documents required by the contract, the express
agreement that the “Net Landed Weights” were to govern.
4. The provision that the balance of the price was to be ascertained on
the basis of outturn weights and quality of the cargo at the port of
discharge, indicate an intention that the precise amount to be paid by
the buyer depended upon the ascertainment of the exact net weight of
the cargo at the port of destination.
5. That is furthermore shown by the provision that the seller could
deliver 5 per cent more or less than the contracted quantity, such
surplus or deficiency to be paid “on the basis of the delivered weight”.
6. While the risk of loss was apparently placed on the General Foods
after delivery of the cargo to the carrier, it was nevertheless agreed
that the payment of the price was to be according to the “net landed
weight”
7. Although the evidence shows that the estimated weight of the
shipment when it left Manila was 1,054.6278 tons, the NACOCO had
the burden of proof to show that the shortage in weight upon
arrival in New York was due to risks of the voyage and not the
natural drying up of the copra while in transit, or to reasonable
allowances for errors in the weighing of the gross cargo and the
empty bags in Manila.
8. In the absence of such proof on the part of the shipper, we are
constrained to hold that the net landed weight of the shipment in New
York should control, as stipulated in the agreement, and that therefore,
the NACOCO should be held liable for the amount of $24,154.59
which it had overdrawn from General Food’s letter of credit.
 12 PACIFIC VEGETABLE OIL v. ANGEL SINGZON (Armand)
1947 |, J. | “c.i.f”
PETITIONER: Pacific Vegetable Oil
RESPONDENTS: Angel Singzon
SUMMARY: Singzon acting through a broker in San Francisco, sold to Pacific
500 tons of copra. Thus Bank of California, on behalf of Pacific opened an
irrevocable letter of credit with China Bank in the Philippines. Singzon failed to
ship the 500 tons of copra, but upon negotiation through the broker, a conditional
amicable settlement was arrived at under which Singzon promised to ship on
February 1948, the amount of 300 tons of copra with the understanding that if he
ships the said 300 tons of copra not later than February, the original contract
would be considered cancelled. But that should he fail to ship said 300 tons,
Singzon shall pay Pacific $10,000 as damages and shall furthermore be obliged
to fulfill all his obligations under original contract. Singzon still failed to ship the
300 tons of copra. Pacific then demanded from Singzon the payment of $10,000
to no avail. Pacific was then forced to purchase from another company and thus
incurred additional expenses. Hence, the present action by Pacific for the
recovery of the sum of P157,760 as damages. Singzon filed a motion to dismiss
on the ground that Pacific failed to obtain a license to transact business in the
Philippines hence it had no personality to file the action. RTC denied, and so was
the MR. CA reversed and dismissed the case holding that Pacific had no
personality to institute the case even if it afterwards obtained a license on the
theory that a belated act of procuring a license would not cure the defect. WoN
appellant transacted business in the Philippines in contemplation of law - NO, it
was transacted in the US. However a foreign corporation who transacted business
abroad may still seek redress in Philippine courts. (see ratio #5) WoN Singzon
(vendor) is liable to pay not only the cost of the goods, but also the freight and
insurance expenses (due to the “c.i.f” arrangement) – YES (see doctrine below)
DOCTRINE: Under an arrangement “c.i.f. U.S. Pacific Coast”, the vendor is to
pay not only the cost of the goods, but also the freight and insurance expenses,
and, as it was judicially interpreted, this is taken to indicate that the delivery is to
be made at the port of destination.
*”c.i.f.” found in British contracts stands for costs, insurance, and freight; they
signify that the price fixed covers not only the costs of the goods, but the expense
of freight and insurance to be paid by the seller.
*NOTE: THIS CASE IS UNREPORTED SO I CANT FIND THE CASE
ONLINE SO THIS IS JUST A SUMMARY OF THE DIGEST I FOUND
COMBINED WITH THE INFO FROM THE SYLLABUS
FACTS:
10. This is an action instituted by the plaintiff, a foreign corporation, against the
defendant to recover the sum of P157,760 as damages suffered by plaintiff as
a consequence of the failure of the defendant to deliver 300 tons of copra
which he sold and bound himself to deliver to the plaintiff.
11. Singzon in August 1947, acting through a broker in San Francisco, sold to
Pacific 500 tons of copra for shipment in September and October 1947. The
agreed price to be covered by an irrevocable letter of credit for the contract
price. Thus, pursuant to this, the Bank of California, on behalf of Pacific,
opened an irrevocable letter of credit with China Bank in the Philippines.
12. Singzon failed to ship the 500 tons of copra, but upon negotiation through the
broker, a conditional amicable settlement was arrived at under which Singzon
promised to ship on February 1948, the amount of 300 tons of copra with the
understanding that if he ships the said 300 tons of copra not later than
February, the original contract would be considered cancelled. But that
should he fail to ship said 300 tons, Singzon shall pay Pacific $10,000 as
damages and shall furthermore be obliged to fulfill all his obligations under
original contract.
13. Singzon failed to ship and deliver the 300 tons of copra to Pacific according
to their agreement. Thereafter, Pacific demanded from Singzon the payment
of $10,000 but he failed and refused to ship the 500 tons of copra. As a result
of the default, Pacific was forced to purchase copra from the world marker
and thus incurred additional expenses. Hence, this action is filed by Pacific.
14. Singzon, in defense, filed a motion to dismiss on the ground that Pacific
Vegetable Oil Corp. (Pacific) failed to obtain license to transact business in
the Philippines and consequently, it had no personality to file the action. RTC
denied the motion. It also denied MR.
15. However, the Court of Appeals reversed and dismissed the case holding that
Pacific had no personality to institute the present case even if it afterwards
obtained a license to transact business upon the theory that this belated act
did not have the effect of curing the defect.
ISSUES:
2. WoN appellant transacted business in the Philippines in contemplation of law
- NO, it was transacted in the US. However a foreign corporation who
transacted business abroad may still seek redress in Philippine courts. (see
ratio #5)
3. WoN Singzon (vendor) is liable to pay not only the cost of the goods, but also
the freight and insurance expenses (due to the “c.i.f” arrangement) – YES
(see doctrine)
RULING: Decision of CA is reversed.
RATIO:
12. It appears from the facts that the copra in question was actually sold by the
defendant to the plaintiff in the US. It also appears that the contract was
entered into in the US by appellee’s broker and appellant’s representatives.
13. It further appears that the payment of the price was to be made at San
Francisco, California, through a letter of credit to be opened at the Bank of
California. And with respect to the delivery of copra, it likewise appears that
the price agreed upon was $142 per 2,000 lbs., c.i.f. Pacific Coast.
14. This means that the vendor was to pay not only the cost of the goods, but
 also the freight and insurance expenses, and, it was judicially
interpreted, this is taken to indicate that the delivery is to be made at the
port of destination.
15. It is therefore clear that the contract covering the copra has not only
entered into in the US but it was agreed to be consummated there. It
follows that Pacific has not transacted business in the Philippines in
contemplation of Sections 68 and 69 of the Corporation Law which require
any foreign corporation to obtain a license before it could transact business,
or before it could have personality to file suit in the Philippines.
16. It appearing that Pacific has not transacted business in the Philippines and as
such it is not required to obtain a license before acquiring personality to bring
court action, it may be stated that the appellant, even if a foreign corporation,
can maintain the present action because, as aptly said by this Court, “it was
never the purpose of the Legislature to exclude a foreign corporation which
happens to obtain an isolated order for business in the Philippines, from
securing redress in the Philippine courts, and thus, in effect, to permit persons
to avoid their contracts made with such foreign corporation.” Wherefore, the
decision appealed from is reversed. Pacific is entitled to prosecute its claim
in the Philippine courts against Singzon.
 13 LIETZ v. CA (IYA) the property,
December 19, 2005 | TInga, J. | Topic b. the annulment of the lease agreement between respondents, and
c. the restoration of the amount paid by petitioner in excess of the value
of the property sold to him.
PETITIONER: Rudolf Lietz, Inc.
9. Turatello and Sani filed answers raising the defense of lack of case of action
RESPONDENTS: Court of Appeals, Agapito Buriol, Tiziana Turatello, and
and claimed for damages.
Paola Sani
10. Trial court dismissed Lietz’ complaint and Turatello and Sani’s claim for
damages.
SUMMARY: Buriol sold his parcel of land to Lietz. In the Deed of Absolute
11. The CA affirmed the dismissal of Lietz’ complaint and awarded damages in
Sale, the parcel was described as being 5 hectares. Lietz then later discovered that
favor of Tratello and Sani.
only 3 hectares was delivered to it for Burial only actually owed 4 hectares and 1
12. Hence, the instant petition before the Supreme Court brought by Lietz
hectare was leased to Turatello and Sani.
ISSUE/s:
Lietz then filed a case for the reduction of the purchase price. The RTC and CA
1. Whether or not petitioner Lietz is entitled to the delivery of the entire five
dismissed his petition. The Supreme Court upheld the CA ruling and stated that
hectares or its equivalent
the sale was that of a lump sum, therefore the price in the contract is controlling
and no reduction may be awarded to Lietz.
RULING: WHEREFORE, the instant petition for review on certiorari is GRANTED
in PART. The Court of Appeals Decision in CA-G.R. CV No. 38854 is AFFIRMED
DOCTRINE: According to Article 1542 of the Civil Code, in the sale of real
with the MODIFICATION that the award of moral and exemplary damages is
estate, made for a lump sum and not at the rate of a certain sum for a unit of
DELETED.
measure or number, there shall be no increase or decrease of the price although
there be a greater or lesser area or number than that stated in the contract.
RATIO:
1. Lietz contends that it is entitled to the corresponding reduction of the
FACTS: purchase price because the agreement was for the sale of 5 hectares although
1. Agapito Buriol previously owned a parcel of unregistered land situated at Burial only owned 4 hectares.
Capsalay Island, Port Barton, San Vicente, Palawan. 2. Lietz relies on Article 1539 of the Civil Code which states:
2. On August 15, 1986, respondent Buriol entered into a lease agreement with Art. 1539. The obligation to deliver the thing sold includes that of placing
Flavia Turatello, Tiziana Turatello and Paola Sani, all Italian citizens, in the control of the vendee all that is mentioned in the contract, in
involving one (1) hectare of respondent Buriol’s property. conformity with the following rules:
3. The lease agreement was for a period of 25 years, renewable for another 25
years. The lessees took possession of the land after paying respondent Buriol If the sale of real estate should be made with a statement of its area, at
a down payment of ₱10,000.00. the rate of a certain price for a unit of measure or number, the vendor
4. The lease agreement, however, was reduced into writing only in January shall be obliged to deliver to the vendee, if the latter should demand it,
1987. all that may have been stated in the contract; but, should this be not
5. However, in the year 1986, Buriol sold to Rudolf Lietz, Inc. the same parcel possible, the vendee may choose between a proportional reduction of the
of land for the amount of P30,000 as evidenced by a Deed of Absolute Sale. price and the rescission of the contract, provided that, in the latter case,
6. The Deed mentioned a sale of 5 hectares of land. the lack in the area be not less than one-tenth of that stated.
7. Lietz later discovered that Buriol owned only 4 hectares and that 1 hectare of 3. The Court of Appeals declared as inapplicable the above provision and ruled
it was covered by a lease. Therefore only 3 hectares was only delivered to it. that Lietz is no longer entitled to a reduction of price based on Art 1542 of
8. Lietz then instituted a complaint for Annulment of Lease with Recovery of the Civil Code which states:
Possession with Injunction and Damages against respondents Buriol, et. al. Art. 1542. In the sale of real estate, made for a lump sum and not at the
a. The complaint sought the issuance of a restraining order and a writ rate of a certain sum for a unit of measure or number, there shall be no
of preliminary injunction to prevent Flavia Turatello and increase or decrease of the price, although there be a greater or lesser
respondents Turatello and Sani from introducing improvements on area or number than that stated in the contract.
4. The same rule shall be applied when two or more immovables are sold for a
single price; but if, besides mentioning the boundaries its area or number
should be designated in the contract, the vendor shall be bound to deliver all
that is included within said boundaries.
5. Should he not be able to do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number, unless the contract is
rescinded because the vendee does not accede to the failure to deliver what
has been stipulated.
6. Article 1539 governs a sale of immovable by the unit, that is, at a stated rate
per unit area. In a unit price contract, the statement of area of immovable is
not conclusive and the price may be reduced or increased depending on the
area actually delivered.
7. If the vendor delivers less than the area agreed upon, the vendee may oblige
the vendor to deliver all that may be stated in the contract or demand for the
proportionate reduction of the purchase price if delivery is not possible.
8. In the case where the area of the immovable is stated in the contract based on
an estimate, the actual area delivered may not measure up exactly with the
area stated in the contract.
9. According to Article 1542 of the Civil Code, in the sale of real estate,
made for a lump sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or decrease of the price
although there be a greater or lesser area or number than that stated in
the contract.
10. As correctly noted by the trial court and the Court of Appeals, the sale
between petitioner and respondent Buriol involving the latter’s property
is one made for a lump sum.
11. The Deed of Absolute Sale shows that the parties agreed on the purchase
price on a predetermined area of five hectares within the specified
boundaries and not based on a particular rate per area.
12. In accordance with Article 1542, there shall be no reduction in the
purchase price even if the area delivered to petitioner is less than that
stated in the contract.
13. In the instant case, the area within the boundaries as stated in the contract
shall control over the area agreed upon in the contract.
 14 Roble v. Arbasa(Lij)
July 31, 2001 | Pardo, J. | More or less
PETITIONER: Veronica Roble, Lilibeth R. Portugaliza and Bobby Portugaliza
RESPONDENTS: Dominador Arbasa and Adelaida Arbasa
SUMMARY: Arbasa and Adelaida Roble bought from Fidela Roble a parcel of
land. The Deed of sale stated that the total area was 240 square meters. Through
their efforts, they reclaimed a portion of the sea so that the land increased 884
sqm. Adelaida toterated the stay of her sister Fidela and also their nieces Veronica
and Lilibeth. After Fidela’s death, Veronica and lilibeth claimed portion of theland
amounting to 664 sqm. There was a dispute on the amount conveyed, whether it
was 240 or 884. The sc ruled in the sale of real estate, there shall be no increase
or decrease of the price although there be a greater or lesser area or number than
stated in the contract. This basically means that a difference between actual area
and what is stated in the contract is allowed. When the land is sold with the
description “more or less” or similar description it will pertain only to a reasonable
excess or deficiency. The excess of 644 is not reasonable.
DOCTRINE: In a sale of real estate, the description of more or less would allow
a reasonable excess or deficiency in the actual area to the area in the ontract
FACTS:
24. Jan. 2, 1976, Sposes Dominador Arbasa and Adelaida Roble (Respondent
Spouses) purchased from Fidela Roble an unregistered parcel of land located
at Poblacion, Isabel, Leyte. The deed of sale stated that the property had a
total land area of 240 square meters. Through diligent efforts in reclaiming a
portion of the sea, using stones, sand and gravel, the original size went up to
884 square meters.
25. 1976 to present, respondent spouses have been in actual open, peaceful, and
continuous possession of the entire parcel of land in the concept of owners.
Included in the sale were the improvements found on the land, consisting
mainly of the house of Fidela.
26. Adelaiba tolerated her sister Fidela’s continued stay at the house. Living with
Fidela in the same house were their nieces, Veronica and LIlibeth Roble
(dauthers of the deceased brother of Fidela and Adelaida).
27. Shortly after Fidela died in 1989, petitioner Veronica and Lilibeth Roble
claimed ownership of the house on the southern portion of the land with an
area of 644 square meters.
28. Respondent spouses tried to have them vacate the house and desist from
claiming the parcel of land but this failed. Hence Arbasa filed with the RTC
an action for quieting of title with damages.
29. Petitioners denied the allegations and said that the the total area which
respondents bought from Fidela consisted only of 240 square meters, located
at the northern portion of he property. They said that the property was
formerly shoreland but through the efforts of Ireneo Roble (father of Fidela,
Adelaida, and Gualberto) in 1957, a portion of the sea was reclaimed and
filled up.
30. Attached to their answer was the deed of sale describing the property and that
it was 240 square meters more or less.
31. There are contravening facts from the start of the case: so I guess the claim
of the respondents was that they were the ones who reclaimed but the other
side found that Ireneo Roble was the one who reclaimed it (father of Fidela,
Adleaida and Gualberto (brother)) [note: seems like the sc sided with the
respondents were the one who reclaimed; not entirely sure as to that]
32. So Ireneo reclaimed the land..the 664 square meter was divided into two lots
of equal proportion. Constructed over the 884 square meters were 3 concrete
houses. One in the portion that was bought and the the other two in the other
two lots.
33. So at the pre trial they agreed to the issue of whether the deed of sale execute
on Jan 2, 1975 by Fidela Roble in favor of respondents conveyed either the
884 square meters including the house of Fidela or it covered only the 240
meters located in te norther portion of the property
34. Trial Court: Sale was only for the 240 portion of theland and not thhe entire
884 sq meters. Moreover they added that the house of Fidela was not included
in the sale. They ruled that the deed of sale was the best evidence of the
contents of the agreement.
35. Respondents appealed to the CA, petitioners appealed insofar as their claims
for damages. CA affirmed the finding of the trial court that the Deed of sale
only conveyed 240 square meters. But they set aside the judgement and
declared the respondents the lawful owners of the 884 sqm.
36. The CA observed from the wording of the deed of sale Fidela sold “whole
parcel or residential land” bounded on the “south by the seashore”. This lent
credence to the claim of petitioners that they reclaimed the 644 square meters.
The court said that that if the 644 sqm was already present the deed would be
phrased differently.
37. MR was denied. Hence this appeal.
ISSUE
1. Whether or not the land conveyed was only
RULING: Petition is granted; CA decision is set aside
RATIO:
90. The sale on Jan 2, 1976 was one of cuerpo cierto or a sale for lump sum.
Pursuant to Art. 1542, Civil Code, in the sale of real estate made for a lump
sum and not at the rate of a certain sum for a unit of measure or number, there
 shall be no increase or decrease of the price although there be a greter or
lesser are or number than that stated in the contract.
91. This rule admits exception. A vendee of land, when sold in gross or with the
description “more or less” with reference to its area, does not thereby ipso
facto take all risks of quantity in the land. The use of “more or less” or similar
words designating quantity covers only a reasonable excess or deficiency.
92. An area of 644 sq m is not reasonable excess or deficiency to be deemed
included in the subject deed of sale.
93. Moreover, at the time of the sale, the only existing piece was 240 sqm.
Adelaida admitted that the houses of Fidela and Gualberto constructed in
1971 were situated on foreshore lands adjacent to the property. This lends
credence to the claim that only 240 meters were sold.
94. As held by the trial court, when the terms of an agreement ad been reduced
to writing, it is considered as containing all the terms agreed upon. The SC
found no ambiguity in the terms and stipulations of the deed of sale. Contracts
are the laws between the contracting parties. It shall be fulfilled in the literal
sense of their stipulations
95. Sale by its nature is a consensual contract because it is perfected by mere
consent. All the elements of a sale are present: Consent, Subject matter; and
price certain in money or its equivalent.
96. Moreover, parol evidence rule forbids any addition to the terms of a written
instrument by testimony or other evidence. Parties cannot add evidence to
prove practices that would alter the written agreement. This rule is found on
the long experience that written evidence is so much more certain and
accurate than that which rests in fleeting memory only. It would be unsafe to
when parties expressed the terms in writing to admit weaker evidence.
97. Exception to the parol evidence rule: (1) Intrinsic ambiguity, mistake or
imperfection in the written agreement; (2) the failure of written agreement to
express the true intent; (3) validity of the written agreement; (4) the existence
of other terms agreed after the execution of thewritten agreement. None of
them apply to this case.
 15 NAAWAN COMMUNITY v. CA (See)
January 13, 2003 | Corona, J. | Double Sales: Primacy of Torrens System
PETITIONER: Naawan Community Rural Bank Inc.
RESPONDENTS: Court of Appeals and Spouses Alfredo and Annabelle Lumo
SUMMARY: Spouses Lumo bought property from Comayas. Before buying it, they
went to the Office of the Register of Deeds of CDO to check where the property is
located and the Bureau of Land to check on the legal status of the vendor’s title. They
found out that the property was mortgaged for P8,000 to a certain Mrs. Galupo and
that the owner’s copy of the Certificate of Title to said property was in her
possession. So Spouses told Comayas to redeem the property and gave P10,000 for
that purpose. The property was released from the mortgage so a deed of sale was
executed. After obtaining a TCT, the Spouses wanted to have the property tax
declared in their name but they found out that it was tax declared in the name of
Naawan Community Rural bank. Apparently, before Comayas sold the property to
the Spouses, he obtained a loan from Naawan using the property as security. At the
time said contract of mortgage was entered into, the subject property was then an
unregistered parcel of residential land, tax declared in the name of a certain Balibay
while the residential one-storey house was tax declared in the name of Comayas.
Balibay made an SPA authorizing Comayas to borrow money and use the lot as
security but the SPA and the Deed of Real Estate Mortgage was registered not in
CDO but in Misamis Oriental since at that time, there was only 1 register of deeds
for the entire province. Comayas failed to pay its debt to Naawan so the property was
foreclosed with Naawan being the highest bidder. Thereafter, the sheriff’s certificate
of sale was issued and registered under Act 3344 in the Register of Deeds of the
Province of Misamis Oriental. The land was then registered under the LRA. A TCT
was then issued in the name of Comayas in Register of Deeds in CDO. Comayas and
Balibay failed to redeem so it was delivered to Naawan and was registered under Act
3344 and so Naawan got a tax declaration under its name. The issue in this case is
WoN Spouses Lumo should be considered innocent pruchasers for value. – YES.
The SC held that the spouses were innocent purchasers for value and that Art 1544
won’t apply in this case since the lands are unregistrered lands. (please see doctrine.)
DOCTRINE: Invoking the rules on double sales and “priority in time” under Art.
1544 would be misplaced by a first buyer who bought the land not within the Torrens
system but under Act No. 3344, as against the second buyer who bought the same
property when it was already registered under the Torrens system, because: (i) of the
“well-known rule in this jurisdiction that persons dealing with registered land have
the legal right to rely on the fact of the Torrens Certificate of Title and to dispense
with the need to inquire further, except when the party concerned has actual
knowledge of facts and circumstances that would impel a reasonably cautious man
to make such inquiry;” and (ii) the Torrens system rule that formal registration
proceedings undertaken on the property and the subsequent issuance of a title over
the land had under the Torrens system had the legal effect of cleansing title on the
property of all liens and claims not annotated therein.
FACTS:
18. Guillermo Comayas offered to sell to Spouses Alfredo and Annabelle Lumo,
a 340sqm property with a house located in Pinikitan, Camaman-an, CDO
City.
19. Wanting to buy the lot, Spouses Lumo went to the Office of the Register of
Deeds of CDO to check where the property is located and the Bureau of Land
to check on the legal status of the vendor’s title.
20. They found out that the property was mortgaged for P8,000 to a certain Mrs.
Galupo and that the owner’s copy of the Certificate of Title to said property
was in her possession. So Spouses told Comayas to redeem the property and
gave P10,000 for that purpose.
21. On May 30, 1988, a release of the adverse claim of Galupo was annotated on
TCT No. T41499 which covered the subject property.
22. In the meantime, on May 17, 1988, even before the release of Galupo’s
adverse claim, Spouses Lumo and Guillermo Comayas, executed a deed of
absolute sale. The subject property was allegedly sold for P125,000 but the
deed of sale reflected the amount of only P30,000 which was the amount
private respondents were ready to pay at the time of the execution of said
deed, the balance payable by installment.
23. The deed of absolute sale was then registered and a new TCT was issued in
favor of the Spouses.
24. After obtaining their TCT, the Spouses requested the issuance of a new tax
declaration certificate but they found out that the property was declared for
tax purposes in the name of Naawan Community Rural Bank. In the records
of the City Assessor, the TCT of the Spouses had a note, “This lot is also
declared in the name of Naawan Community under T/D #71210.”
25. Apparently, before Comayas sold the property to the Spouses, he obtained a
loan from Naawan using the property as security. At the time said contract of
mortgage was entered into, the subject property was then an unregistered
parcel of residential land, tax declared in the name of a certain Sergio A.
Balibay while the residential one-storey house was tax declared in the name
of Comayas.
26. Balibay made an SPA authorizing Comayas to borrow money and use the lot
as security but the SPA and the Deed of Real Estate Mortgage was registered
not in CDO but in Misamis Oriental since at that time, there was only 1
register of deeds for the entire province.
27. Comayas failed to pay its debt to Naawan so the property was foreclosed with
Naawan being the highest bidder. Thereafter, the sheriff’s certificate of sale
 was issued and registered under Act 3344 in the Register of Deeds of the
Province of Misamis Oriental.
28. On April 17, 1984, the subject property was registered in original proceedings
under the Land Registration Act. Title was entered in the registration book of
the Register of Deeds of Cagayan de Oro City as Original Certificate of Title
No. 0820, pursuant to Decree No. N189413.
29. On July 23, 1984, Transfer Certificate of Title No. T41499 in the name of
Guillermo P. Comayas was entered in the Register of Deeds of Cagayan de
Oro City.
30. Meanwhile, on September 5, 1986, the period for redemption of the
foreclosed subject property lapsed and the MTCC Deputy Sheriff of Cagayan
de Oro City issued and delivered to Naawan the sheriffs deed of final
conveyance. This time, the deed was registered under Act 3344 and recorded
in the registration book of the Register of Deeds of Cagayan de Oro City.
31. By virtue of said deed, Naawan obtained a tax declaration for the subject
house and lot.
32. Then, Naawan filed a case to eject Comayas from the property. The MCTC
decided in favor of Naawan and the RTC affirmed this. The RTC issued a
writ of execution but when the writ was served, the property was no longer
occupied by Comayas since it was already the Spouses Lumo that stayed in
the property.
33. Alarmed by the prospect that they might be ejected, the Spouses filed a case
for quieting of title. The RTC ruled in favor of the Spouses stating that they
were purchasers in good faith and for value.
34. The CA affirmed the RTC ruling; hence, this petition.
ISSUE/s:
2. WoN Spouses Lumo should be considered innocent pruchasers for value. –
YES
RULING: Wherefore, petition is hereby denied. So ordered.
RATIO:
1. Both parties cite Article 154413 of the Civil Code which governs the double
sale of immovable property.
2. Naawan contends that its earlier registration of the sheriff’s deed of final
conveyance under Act 3344 should prevail over the later registration of
Spouses Lumo under Act 496 as amended by PD 1529.
3. This contention has no leg to stand on. It has been held that, where a person
claims to have superior proprietary rights over another on the ground that he
derived his title from a sheriff’s sale registered in the Registry of Property,
13
“x x x. Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.”
Article 1473 (now Article 1544) of the Civil Code will apply only if said
execution sale of real estate is registered under Act 496.
4. Unfortunately, the subject property was still untitled when it was acquired by
Naawan by virtue of a final deed of conveyance. On the other hand, when
Spouses Lumo purchased the same property, it was already covered by the
Torrens System.
5. Naawan also relies on the case of Bautista vs. Fule where the Court ruled that
the registration of an instrument involving unregistered land in the Registry
of Deeds creates constructive notice and binds third person who may
subsequently deal with the same property.
6. However, a close scrutiny of the records reveals that, at the time of the
execution and delivery of the sheriff’s deed of final conveyance on
September 5, 1986, the disputed property was already covered by the
Land Registration Act and Original Certificate of Title No. 0820
pursuant to Decree No. N189413 was likewise already entered in the
registration book of the Register of Deeds of Cagayan De Oro City as of
April 17, 1984.
7. Thus, from April 17, 1984, the subject property was already under the
operation of the Torrens System. Under the said system, registration is the
operative act that given validity to the transfer or creates a lien upon the land.
8. Moreover, the issuance of a certificate of title had the effect of relieving the
land of all claims except those noted thereon. Accordingly, Spouses Lumo,
in dealing with the subject registered land, were not required by law to go
beyond the register to determine the legal condition of the property. They
were only charged with notice of such burdens on the property as were noted
on the register or the certificate of title. To have required them to do more
would have been to defeat the primary object of the Torrens System which is
to make the Torrens Title indefeasible and valid against the whole world.
9. The rights created by the PD 1529 of course do not and cannot accrue under
an inscription in bad faith. Mere registration of title in case of double sale is
not enough; good faith must concur with the registration.
10. The “priority in time” principle being invoked by Naawan is misplaced
because its registration referred to land not within the Torrens System
but under Act 3344. On the other hand, when Spouses Lumo bought the
subject property, the same was already registered under the Torrens System.
It is a well-known rule in this jurisdiction that persons dealing with registered
land have the legal right to rely on the face of the Torrens Certificate of Title
and to dispense with the need to inquire further, except when the party
concerned has actual knowledge of facts and circumstances that would imple
a reasonably cautious make to make such inquiry.
11. In this case, the Spouses Lumo exercised the required diligence to be
considered innocent purchaser for value. Before buying the property, they
check the Registry of Deeds and the Bureau of Lands regarding the status of
the vendor. No liens or encumbrances were found to have been annotated on
the certificate of title.
12. Neither were private respondents aware of any adverse claim or lien on the
property other than the adverse claim of a certain Geneva Galupo to whom
Guillermo Comayas had mortgaged the subject property. But this claim of
Galupo was already settled.
 16 NAVAL v. CA (PERRAL)
Feb. 22, 2006 | Ynares-Santiago, J. | Double Sales: Immovable
PETITIONER: Juanita Naval
RESPONDENTS: Court of Appeals, Juanito Camalla, Jaime Nacion, Conrado
Balila, Ester Moya and Porferia Aguirre.
SUMMARY: Idelfonso sold a parcel of land to Gregorio in the year 1969, in which
the deed of sale was recorded in the Registry of Property of the Registry of Deeds of
Camarines Sur pursuant to Act 3344 the law governing registration of all instruments
on unregistered lands. Subsequently, Gregorio sold portions of the subject land to
different buyers, herein respondents, on different dates. Controversy in this case
arose when an OCT was issued by the Registry of Deeds in favor of Petitioner Naval,
great granddaughter of Idelfonso, on April 1, 1975 (prior to the several sales made
by Gregorio). She claims that the subject property was sold to her by Idelfonso back
in the year 1972. With this, Petitioner Naval filed an action against respondent for
the recovery of the subject land contending that she has a superior right over the
propery as eveidence and strengthened by the OCT (under the torrens title) issued in
her name. However, the case was dimissed due to the failure to prosecute the action
for unreasonable length of time. 20 years after, petitioner re-filed the complaint for
recovery of possession and damages before the MCTC against respondents. MCTC
ruled in favor of petitioner ordering respondents to vacate the premise and dec. that
petitioner Naval is the legal owner. Respondents appealed to the RTC which affirmed
the MCTC’s ruling. Undaunted, respondents brought the matter to the CA, which
ruled that the registration of the deed of sale of the land pursuant to Act 3344 serves
as a constructive notice to the subsequent buyers, thus reversed the ruling of the RTC.
Hence, petitioner elevated the matter to the SC. SC agreed with CA’s decision that
the respondents have superior right over the subject property, however, did not apply
art. 1544 of CC in setting forth this resolution. Instead, it applied Act 3344 which is
the law applicable when the land is not registered under the Torrens System. In
applying Act 3344, SC held that the registration/recording of the subject land when
it was sold to Gregorio, in pursuant to the said act, is considered a constructive notice
to herein petitioner that can defeat her right as such buyer in good faith. Also,
Idelfonso was no longer the owner of the Land when he sold it to Naval since prior
to this sale, Gregorio was already the owner of the said land. Thus, there was no
transfer of ownership between Idelfonso and Naval. Lastly, SC held that, Certificate
of title registered under the Torrens System is not an absolute shield or it cannot be
used to protect usurper from the true owner. This case falls under the Exception on
the “incontrovertible nature” of Torrens Title.
DOCTRINE: The rule in Article 1544 of the Civil Code is inapplicable when the
subject property was unregistered at the time of the first sale. The registration
contemplated in the said Article refer to registration under the Torrens system.
When the land is not registered under the Torrens System (as in this case) and
there would be a “double sale”, and the sale was recorded in in the Registry of
Property of the Registry of Deeds pursuant to Act no. 3344, such Act is the
applicable law. Act 3344 which provides for the registration of all instrument on
land neither covered by the Spanish Mortgage Law nor the Torrens System. Under
this law, registration by the 1st buyer is constructive notice to the 2nd buyer that
can defeat his right as such buyer in good faith. The issue of good faith and bad
faith of buyer is relevant only where the subject of the sale is registered land…
FACTS:
1. Dec. 2, 1969: Idelfonso sold a parcel of land located in Sto. Tomas,
Camarines Sur, consisting of 858 sq.m to Gregorio B. Galarosa.
2. The sale was recoded in the Registry of Property of the Registry of Deeds
of Camarines Sur on Dec. 3 of the same year pursuant to Act no. 3344, the
law governing registration of all instruments on unregistered lands.
3. Subsequently, Gregorio sold portions of the land to different buyers on
different dates:
a. Balilla- Nov. 1976
b. Nacion- Jan. 1977
c. Sps. Moya- July 1977
d. Camalla- Sept. 1987
4. Controversy arose when Juana Idelfonso, great granddaughter of Idelfonso,
was issued in her favor, on April 1, 1975 (prior to the subsequent sales
made by the 1st buyer, Gregorio), by the Register of Deeds of Camarines
Sur an OCT covering 733 sq. m of the said land. She claimed that she
bought the subject property from Idelfonso in 1972.
5. Nov. 1977: petitioner filed complaint for recovery of possession against the
respondents herein. However, the case was dismissed w/o prejudice,for
failure to prosecute the action for unreasonable length of time.
6. 20 years after, petitioner Naval re-filed the complaint for recovery of
possession with damages before the MCTC against the respondents (some
are predecessor-in- interest already), MCTC ruled in favor of petitioner
Naval declaring her to be the legal owner and ordering respondents to
vacate.
7. Respondents appealed to the RTC which aAFFIRMED the assailed decision
of MCTC. Aggrieved, the respondents elevated the case to the CA, latter
finding that the prior registration of the deeds of sale between Idelfonso and
Groegorio with the Register of Deeds as constructive notice to subsequent
buyers, the appellate court REVERED the decision of RTC. Petitioner was
not happy about the said decision, hence, this petition.
ISSUE/s:
 3. W/N the petitioner Naval has a superior right (or title) over the land as
against the respondents herein as evidenced and strengthened by the
OCT under the Torrents title issued in the name of the former– NO.
Since Act 3344 is applicable and not Article 1544 of Civil Code. (see
Ratio)
RULING: The Petition is DENIED. The SC AFFIRMED the decision rendered by
Court of Appeals.
RATIO:
1. It not disputed that the subject land belonged to IDelfonso and that it was not
registered under the Torrens System when it was sold to Gregorio in 1969
and to petitioner Naval in 1972. Further the deed of sale bet. Idelfonso and
Gregorio was registered with the Register of Deeds pursuant to Act no.
3344 (as shown by an Inscription at the back).
2. In holding that respondent have a better right to possess the subject land in
view ot the bona fide registration of the sale with the Register of Deeds by
Idelfonso and Greogorio, CA applied Article 1544 of the Civil Code which
the SC, while agreeing with CA that respondents have superior right,
nevertheless held that Aricle 154414 of CC is not applicable in this case.
3. Article 1544 of CC is not applicable to the case at bar since the subject land
was unregistered at the time of the first sale. The registration contemplated
under this provision has been held to refere to registration under the Torrens
System, which considers the act of registration as the operative act that binds
land. Carumba case: held that art 1544 of CC has not application to land
not registered under Torrens System.
4. The law applicable therefore is Act 3344 which provides for the registration
of all instrument on land neither covered by the Spanish Mortgage Law nor
the Torrens System. Under this law, registration by the 1st buyer is
constructive notice to the 2nd buyer that can defeat his right as such
buyer in good faith.
5. Bautista v Faule: held that the registration of an instrument involving
unregistered land in the Registry of Deeds creates constructive notice and
binds third person who may subsequently deal with the same property.
14
Article 1544. If the same things should have been sold to different
vendees, the ownership shall be transferred to the person who may have
first taken possession thereof in good faith, if it should be movable
property.
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith recorded it in the Registry of
Property.
6. Bayoca v Nogales: registration by the first buyer under Act No. 3344 can
have the effect of constructive notice to the second buyer that can defeat his
right as such buyer. On account of the undisputed fact of registration
under Act No. 3344 by [the first buyers], necessarily, there is absent good
faith in the registration of the sale by the [second buyers] for which they
had been issued certificates of title in their names. It follows that their title
to the land cannot be upheld.
7. Even if petitioner argues that she purchased and registered the subject land
in good faith and without knowledge of any adverse claim thereto,
respondents still have superior right over the disputed property. We held
in Rayos v. Reyes: The issue of good faith or bad faith of the buyer is
relevant only where the subject of the sale is registered land and the
purchaser is buying the same from the registered owner whose title to
the land is clean…in such case the purchaser who relies on the clean
title of the registered owner is protected if he is a purchaser in good
faith for value. Since the properties in question are unregistered lands,
petitioners as subsequent buyers thereof did so at their peril. Their claim of
having bought the land in good faith, i.e., without notice that some other
person has a right to or interest in the property, would not protect them if it
turns out, as it actually did in this case, that their seller did not own the
property at the time of the sale.
8. Idelfonso was no longer the owner of the subject property when he sold
it to Juana Naval.
a. It is an established principle that no one can give what on does not
have. Once can sell only what one owns or is authorized to sell,
and the buyer can acquire no more than what the seller can transfer
legally.
b. In the case at bar, since Ildefonso no longer owned the subject land
at the time of the sale to the petitioner, he had nothing to sell and
the latter did not acquire any right to it.
9. Even if Article 1544 would be applied, the respondents and their pred-in-
interest registered first the source of their ownership and possession (the
1969 deed of sale, and possessed the subject land at the earliest time).
Should there be no inscription, the ownership shall pertain to
the person who in good faith was first in possession; and in the absence
thereof, to the person who presents the oldest title, provided there is
good faith.
 Applying the doctrine of "priority in time, priority in rights", respondents o CA correctly held that an action for reconveyance does not
are still entitled to the ownership and possession of the subject land. prescribe when the plaintiff is in possession of the land to be
10. Certificate of title registered under the Torrens System is not an reconveyed.
absolute shield or it cannot be used to protect usurper from the true o Vda. De Cabrera case: held that, “An action for reconveyance of a
owner. (Exception on the incontrovertible nature of Torrens Title) parcel of land based on implied or constructive trust prescribes in
a. True, a certificate of title, once registered, should not thereafter be ten years, the point of reference being the date of registration of the
impugned, altered, changed, modified, enlarged or diminished deed or the date of the issuance of the certificate of title over the
except in a direct proceeding permitted by law. property, but this rule applies only when the plaintiff or the person
b. Moreover, Section 32 of Presidential Decree No. 1529 provides enforcing the trust is not in possession of the property, since if a
that "upon the expiration of said period of one year, the decree of person claiming to be the owner thereof is in actual possession of
registration and the certificate of title shall become the property, as the defendants are in the instant case, the right to
incontrovertible." seek reconveyance, which in effect seeks to quiet title to the
c. However, it does not deprive an aggrieved party of a remedy in property, does not prescribe. The reason for this is that one who is
law. What cannot be collaterally attacked is the certificate of in actual possession of a piece of land claiming to be the owner
title and not the title or ownership which is represented by such thereof may wait until his possession is disturbed or his title is
certificate. Ownership is different from a certificate of title. attacked before taking steps to vindicate his right, the reason for
d. The fact that petitioner was able to secure a title in her name did the rule being, that his undisturbed possession gives him a
not operate to vest ownership upon her of the subject land. continuing right to seek the aid of a court of equity to ascertain and
Registration of a piece of land under the Torrens System does not determine the nature of the adverse claim of a third party and its
create or vest title, because it is not a mode of acquiring effect on his own title, which right can be claimed only by one who
ownership. is in possession.”
e. A certificate of title is merely an evidence of ownership or title
over the particular property described therein.37 It cannot be used
to protect a usurper from the true owner; nor can it be used as
a shield for the commission of fraud; neither does it permit one
to enrich himself at the expense of others.
f. CA correctly held tha, notwithstanding the indefeasibility of the
Torrens title, the registered owner may still be compelled to
reconvey the registered property to its true owners. The rationale
for the rule is that reconveyance does not set aside or re-subject to
review the findings of fact of the Bureau of Lands. In an action for
reconveyance, the decree of registration is respected as
incontrovertible. What is sought instead is the transfer of the
property or its title which has been wrongfully or erroneously
registered in another person’s name, to its rightful or legal owner,
or to the one with a better right.
11. Paramount reason for this exception is based on the theory that registration
proceedings could not be used as a shield for fraud. Moreover, to hold
otherwise would be to put premium on land-grabbing and transgressing the
broader principle in human relations that no person shall unjustly enrich
himself at the expense of another.

- Issue on prescription (just in case atty. Will ask)

 17 GOPIAO v. METROPOLITAN BANK & TRUST (PAT)
July 28, 2014 | Peralta, J. | Double Sale
Petitioner: Juanito Gopiao
Respondent: Metropolitan Bank & Trust Co.
SUMMARY: Case stemmed when Metrobank filed for a Writ of Possession of 3 properties
of the Legaspis. This is because the Legaspis loaned from Metrobank but they most likely
failed to pay, so the bank foreclosed, a public auction was held, and Metrobank was the
highest bidder. RTC issued a Writ of Possession in favor of Metrobank and a Notice to
Vacate was served on the Legaspis. Gopiao found out about this and filed the following: (a)
Affidavit of Third Party Claim, (b) Very Urgent Motion for Intervention, and (c) Recall
and/or Stop the Enforcement/Implementation of Writ of Possession. Gopiao claims that he
is in actual possession of the properties and that he owns them based on the fact that a Deed
of Sale was executed between him and Legaspis. RTC denied his claim and MR. On appeal
to the CA, they also denied his claim and MR. Hence, this petition. The issues in this case
are whether or not CA erred in ruling that the RTC committed no grave abuse of discretion
when it denied Gopiao’s intervention and whether or not CA erred in ruling that there exists
a double sale in this case and that good faith is material. With regard to first issue, the SC
held that CA did not err. This is because although the issuance of a writ of possession is a
ministerial function, thus can’t be enjoined or restrained, the rule admits of an exception:
when a third party in possession of the property claims a right adverse to the debtor-
mortgagor. But in Gopiao’s case, he wasn’t able to prove that a sale actually occurred
because the titles did not have any annotations evidencing that a sale actually happened. As
to the second issue, the SC held that jurisprudence provides that the rule on double sale
would apply in a case wherein 1 of the 2 sales was conducted in a public auction. In addition,
the CA’s discussion re double sale and good faith were on the assumption that the Legaspis
sold to Metrobank and Gopiao. But it has already been established that the sale to Gopiao
is doubtful. So even assuming arguendo that Gopiao is able to establish his possession, he
still has to overcome the rule on double sale where good faith of Metrobank is material.
DOCTRINE: Art. 1544: “If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession thereof in
good faith, if it should be movable property. Should it be immovable property, ownership
shall belong to the person acquiring it who in good faith recorded it in the Registry of
Property. Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.” Even assuming arguendo
that Gopiao is able to establish his possession, he still has to overcome the rule on double
sale where good faith of Metrobank is material.
FACTS:
9. The case stemmed from LRC Case No. 666 which was a Petition for the
Issuance of Writ of Possession of 3 real properties, filed by Metropolitan
Bank (Metrobank).
10. The RTC of Pampanga issued a writ of possession in favor of Metrobank
when it purchased the said properties at a public auction and subsequently
registered it.
11. A Notice to Vacate was served on Green Asia Construction and Development
Corp. represented by the Spouses Renato and Delia Legaspi (Legaspis).
12. Juanito Gopiao (Gopiao) learned of this notice, and so he filed the following:
a. Affidavit of Third Party Claim
b. Very Urgent Motion for Intervention
c. Recall and/or Stop the Enforcement/Implementation of Writ of
Possession.
13. In these actions, Gopiao claims that he is in actual occupation of the
properties and he claimed ownership by virtue of a Deed of Sale.
14. RTC denied his claims, so he filed for a Motion for Reconsideration but it
was likewise denied.
15. He elevated his claim to the CA via petition for certiorari but the CA
dismissed the case; he also filed for a MR but it was also denied.
ISSUE/S:
1. WON CA erred in ruling that the RTC committed no grave abuse of
discretion in denying Gopiao’s intervention even if the RTC violated existing
jurisprudence. – NO.
2. WON CA erred in ruling that there exists a double sale in this case and that
good faith is material. – NO.
HELD: WHEREFORE, premises considered, the instant petition is DENIED. The
Orders of the Regional Trial Court and the Decision and Resolution of the Court of
Appeals are hereby AFFIRMED.
RATIO:
On whether CA erred in ruling that RTC did not commit GAOD.
• Gopiao: RTC gravely abused its discretion by ordering the writ of possession
because since he is a third party in possession of the properties and he is
claiming a right adverse to that of the Legaspis, the writ should not be
implemented against him. Invoked the ff jurisprudene:
o Heirs of Nicolas v. Metrobank: heirs should not be deprived of their
legitime by the enforcement of the writ of possession.
o Dayot v. Chemical Company: RTC was without authority to grant the ex
parte writ of possession in favor of Dayot since Shell has been
indisputably in possession of the lots.
o PNB v. CA: Ex parte writ could only be rightfully recognized against the
judgment debtors but not against private respondents who assert a right
adverse to the judgment debtors.
• SC: Writ of possession – executed to enforce judgment to recover possession
of land. Issuance of such is a ministerial function, thus it can’t be enjoined or
 restrained, but this rule admits of exceptions: when a third party in possession
of the property claims a right adverse to that of the debtor-mortgagor.
o Cases above are not identical with the facts of this case. Main difference:
certainty of possession. In all those cases, the possession of the adverse
third party is undisputed.
o But in this case, Gopiao’s possession of the property is questionable
since the Deed of Absolute Sale relied upon by him is neither complete
nor in due form. There were essential details that were missing: tax
account numbers, names of the witnesses, and it wasn’t notarized.
o He did not present other evidence to substantiate his claim.
o The claim that there was a Deed of Sale can’t be inferred from the titles
because it was not annotated in the titles.
o Metrobank found the titles and latest tax declarations to be registered still
under the Legaspis and they also found that there were no occupants in
the property.

On whether the CA erred in ruling that there exists a double sale in this case and
thus good faith is material.
• Gopiao: rule on double sales under Art. 1544 of the CC is inapplicable
since there is no double sale to speak of; 1st transaction: sale, 2nd:
mortgage.
• SC: Several jurisprudence would show that the rule on double sale
applies to cases where 1 of the 2 sales was conducted in a public auction.
o Expresscredit v. Sps.Velasco: Property was sold first to spouses by
DOAS and then to Expresscredit in a foreclosure sale. SC ruled in
favor of spouses because Expresscredit was in bad faith since they
were aware of the earlier sale to spouses.
o CA applied good faith of Metrobank in this case because prior to the
approval of the loan application of the Legapsis, they did the
following: a) Checked the records in the Register of Deeds to see if
the titles were clean and b) Inspected premises and found no
occupants. Hence, Metrobank can’t be said to be in bad faith.
o CA’s discussion on double sale and good faith was based on
assumption, for the sake of argument, that Legaspis actually sold to
both Gopiao and Metrobank, but there is doubt whether Legaspis
actually sold to Gopiao.
o What can be derived from CA’s decision: even if Gopiao is able to
establish his possession, he would still have to overcome the rule on
double sale where good faith of Metrobank is material.
 18 CARILLO v. CA (MICA)
Sept. 26, 2006 | Quisumbing, J. | Double sale
PETITIONER: Hon. Dominador F. Carillo, Presiding Judge, RTC XI-19 Digos,
Davao del Sur; Bonifactio J. Guyot, Clerk of Court and Provincial Sheriff of
Davao del Sur; Alfredo C. Senoy, Deputy Prov. Sheriff assigned to RTC XI-19
Digos, Davao del Sur; and Maria Gonzales
RESPONDENTS: Hon. Court of Appeals, Maria Paz Dabon and Rosalina Dabon
SUMMARY: Gonzales bought a lot with improvements from Priscilla Manio.
Priscilla Manio’s son, Aristotle, is the owner of the property but through a special
power of attorney, Priscilla became an agent. Gonzales paid P10,000 as
downpayment but Priscilla did not execute the deed of sale. Gonzales then, filed
an action for specific performance with damages and attorney’s fees. TC ruled in
favor of Gonzales and eventually, declared void the owner’s duplicate of the TCT
and ordered that a new TCT be issued in Gonzales’ name. Dabons filed a petition
to annul judgment and orders alleging that they were fraudulently deprived of their
right to due process and that there was a lack of jurisdiction over them, who are
the real parties in interest. CA cancelled the TCT under the name of Gonzales. The
issue in this case is whether or not the doctrine of double sale holds relevance in
this case. NO. No double sale in this case. (check doctrine) SC did not discuss it
because it is outside the scope of the petition for review. The appellate court only
allowed the reception of extraneous evidence to determine extrinsic fraud. To
determine which sale was valid, review of evidence is necessary. “This we cannot
do in this petition.” An action for annulment of judgment is independent of the
case where the judgment sought to be annulled is rendered and is not an appeal of
the judgment therein.
DOCTRINE: (According to Art. 1544): Where it is immovable property that is
the subject of double sale, ownership shall be transferred: (1) To the person
acquiring it who in good faith first recorded it in the Registry of Property; (2) In
default thereof, to the person who in good faith was first in possession; and (3) In
default thereof, to the person who presents the oldest title, provided there is good
faith. The requirement of the law is two-faold: acquisition in good faith and
registration in good faith
FACTS: *it was not stated directly but I think lahat ng before pumasok yung
Dabons, yun part ng Civil Case No. 2647
1. April 2, 1990 – Maria Gonzales filed a complaint against the spouses Priscilla
and Jose Manio with the RTC of Digos, Davao del Sur, Branch19
2. Gonzales sought the execution of the deed of sale in her favor for the property
she bought from Priscilla Manio. (Also asked for damages and attorney’s
fees)
3. The owner of the land is Priscilla’s son (Aristotle)
4. April 26, 1988 – Gonzales paid P10,000 to Priscilla as downpayment on the
P400,000 purchase price of the lot with improvements since Priscilla had a
special power of attorney from her son
5. Agreed that the balanced would be paid within 3 months after the execution
of the deed of sale (The deed of sale was not executed even after the period
and repeated demands)
6. Gonzales filed an action for specific performance against the spouses
7. The Spouses failed to answer so they were declared in default and Gonzales
presented evidence ex parte
8. Trial court rendered judgment in favor of Gonzales.
a. Part of judgment: to execute the final deed of sale and transfer of the
property mentioned in par. 4 above to plaintiff, or should the
defendant refuse to execute the deed of sale, the Clerk of Court be
directed to execute the same upon plaintiff’s depositing of the sum
of P390,000 with the Clerk of Court as complete and valid payment
thereof to defendant Priscilla Manio
b. She needs to give 390,000 cause she only paid 10,000 so far.
9. Gonzales deposited the amount with the Clerk of Court and filed a motion for
execution. However, she withdrew the motion because the trial court’s
decision was not properly served on the defendants
10. After numerous delays, the sheriff personally served a copy of the decision
to Priscilla at 12 midnight
11. The Trial court’s decision became final and executory but the writ of
execution was not served because the sheriff said that the defendants cannot
be located. The Sheriff also informed the Trial court that the money judgment
could be satisfied by the petitioner’s cash deposit should the TC grant the
motion to release the cash deposit filed by Gonzales
12. Gonzales filed a motion asking the Clerk of Court to be the one to execute a
deed of conveyance. She also filed a motion to withdraw the cash deposit to
offset the award of damages – granted both but modified to P207,800
13. Oct. 29, 1990 – Gonzales filed a petition for the nullification of the Owner’s
Duplicate Certificate and asked that a new certificate be issued in her name
(granted by the TC)
14. Dec. 14, 1990 – Maria Paz Dabon and Rosalina Dabon, claiming to have
bought the aforementioned lot from Aristotle Manio, filed before the CA a
petition for annulment of judgment and orders of the RTC in Civil Case No.
2647, Maria Gonzales v. Priscilla Manio and Jose Manio
15. The allegations of the Dabons:
a. Judgment of the trial court was void
b. Because of lack of jurisdiction over their persons, as the real parties
in interest
c. And they were fraudulently deprived of their right to due process
16. Also prayed for temporary restraining order and for preliminary prohibitory
 injunction against Gonzales
17. Gonzales filed before the TC a motion for the issuance of a writ of possession
18. The Dabons filed an opposition:
a. The writ of possession cannot be enforced because the defendants
named in the writ, the Manios, were no longer in possession of the
property
b. They had bought the lot with the improvements therein and had
taken possession, although they had not yet registered their
ownership with the Register of Deeds
c. The Court did not acquire jurisdiction over them as the real parties
in interest
19. CA: issued a resolution restraining the trial court from implementing its
decision and its subsequent orders until further notice from the CA
20. CA:
a. Contract of sale between Gonzales and Priscilla was unenforceable
because the sale was evidenced by a handwritten note which was
vague as to the amount and which was not notarized
b. The TC did not acquire jurisdiction over the indispensable parties
c. Proceedings were attended with fraud
d. Cancelled the TCT under Gonzales’ name
ISSUE/s:
1. Whether or not the doctrine of double sale holds relevance in this case - NO
RULING: The petition is denied for lack of merit. The decision of the CA is affirmed.
RATIO:
1. Gonzales’ contentions:
a. Respondents do not have standing before the CA to file a petition for
annulment of the judgment in Civil Case No. 2647 because respondents
were not parties therein
b. Respondents have no right that could be adversely affected by the judgment
because they are not the owners of the property
c. CA should have applied the doctrine of double sale (YUP THIS IS THE
IMPORTANT DOCTRINE IN THIS CASE) to settle the issue of
ownership and declare her the true owner of the property
d. Did not implead Aristotle as defendant in Civil case no. 2647 since a
decision against Priscilla, Aristotle’s attorney-in-fact, would bind Aristotle
also
2. Maria Paz and Rosalina Dabon: they are parties in interest as buyers, owners and
possessors of the contested land and that they had been fraudulently deprived of their
day in court during the proceedings in the trial court
a. No other remedy
3. Gonzales should be reminded of Section 3 of Rule 3 of the Rules on Civil Procedure
which states that an action should be brought against the real party in interest
4. Also, in case the action is brought against the agent, the action must be brought against
an agent acting in his own name and for the benefit of an undisclosed principla without
joining the principal, except when the contract involves things belonging to the
principal
5. Real party in interest: party who would be benefited or injured by the judgment or is
the party entitled to the avails of the suit.
6. An attorney-in-fact is not a real party in interest and that there is no law permitting an
action to be brought by and against an attorney-in-fact
7. Here, Gonzales filed an action to compel Priscilla to execute a deed of sale, involving
real property which, however, does not belong to Priscilla but to Aristotle Manio
8. Priscilla does not have interest and can have no interest whatever in any judgment
rendered
9. She did not act on her own name nor for the benefit of an undisclosed principal
10. Also, a person need not be a party to the judgment sought to be annulled. What is
essential is that he can prove his allegation that the judgment was obtained by fraud
or collusion and he would be adversely affected thereby (only needs preponderance
of evidence)
11. So, even if the respondents were not parties to the case, they can annul judgment if
there’s a finding that there was extrinsic fraud and this would adversely affect the
respondents’ ownership
12. Sec. 2 of Rule 47 of the Rules on Civil Procedure: 2 grounds for annulment of
judgment:
a. Extrinsic fraud: when a party has been prevented by fraud or deception from
presenting his case. This prevented a party from having his day in court
(intrinsic fraud: acts of a party at a trail which prevented a fair and just
determination of the case, and which could have been litigated and
determined at the trial or adjudication of the case)
i. CA found that indices of fraud attended the case: deliberately
excluding the Dabons despite knowledge that the Dabons had
alleged that they had bought the land from Aristotle; Sheriff’s
return was served on a Saturday, at midnight; TC ordered the
deposit of full amount then ordered its withdrawal; no notice
given to the person named in the cert of title
ii. Failure to comply with the notification requirement in the petition
for the cancellation of title amounts to extrinsic fraud
b. Lack of jurisdiction: Under Rule 47: the judgment is void over the persons
of the real parties in interest (Aristotle and the Dabons)
ITO NA YUNG TOPIC FOR SALE FINALLY:
13. Petitioner insists that the contract of sale between her and Priscilla was valid
and enforceable because under the provision on double sale, she onwed the
land because she bought the lot on April 26, 1988, while the same was
allegedly sold to the Dabons on Oct. 19, 1989
14. Doctrine on double sale holds no relevance in this case
15. Civil Code:
a. Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may
have first possession thereof in good faith, if it should be movable
party.
 Should it be immovable property, the ownership shall belong the
person acquiring it who in good faith recorded it in the Registry of
Property
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in possession; and in the absence
thereof; to the person who presents the oldest title, provided there is
good faith
16. Where it is immovable property that is the subject of double sale, ownership
shall be transferred:
a. To the person acquiring it who in good faith first recorded it in the
Registry of Property
b. In default thereof, to the person who in good faith was first in
possession; and
c. In default thereof, to the person who presents the oldest title,
provided there is good faith.
17. The requirement of the law is two-faold: acquisition in good faith and
registration in good faith
18. It was emphasized that the action for annulment of judgment under Rule 47
of the Rules of Court does not involve the merits of the final order of the trial
court.
19. The issue of whether this is a case of double sale is outside the scope of the
present petition for review.
20. The appellate court only allowed the reception of extraneous evidence to
determine extrinsic fraud. To determine which sale was valid, review of
evidence is necessary. “This we cannot do in this petition.”
21. An action for annulment of judgment is independent of the case where the
judgment sought to be annulled is rendered and is not an appeal of the
judgment therein.
22. The extraneous evidence presented to the appellate court cannot be used to
supplant the evidence in the records of the specific performance case because
the extraneous evidence was not part of the records on the merits of the case.
23. Again, the extraneous evidence was only allowed merely to prove the
allegations of extrinsic fraud.
24. Annulment of judgment is a recourse equitable in character and allowed only
in exceptional cases as where there is no available or other adequate remedy.
25. This case falls under said exception.
26. In this case, where it was found that the trial court did not have jurisdiction
over the real parties in interest, and that notices were deliberately not given,
amount to extrinsic fraud. The Court of Appeals did not err in granting the
annulment of the judgment in Civil Case No. 2647 and the orders subsequent
thereto, for lack of jurisdiction and extrinsic fraud.
 19 Carbonell v. CA (Cristelle)
January 26, 1976| Makasiar, J. | art. 1544 & primus tempore, potior jure
PETITIONER: ROSARIO CARBONELL
RESPONDENTS: HONORABLE COURT OF APPEALS, JOSE PONCIO, EMMA
INFANTE and RAMON INFANTE
SUMMARY: Poncio is the owner of the parcel of land subject of this dispute. Such land
is also the subject of a mortgage in favor of the Republic Savings Bank. Since he is
unable to continue with the payment of mortgage, he offered to sell it his neighbor,
Carbonell, who was willing to buy it at P9.50 per sqm. They executed a memorandum
on their agreement. When Carbonell was preparing to execute a formal Deed of Sale
with Poncio, the latter refused to do so because he actually sold the lot to his
other neighbors, the Sps. Infante who paid a higher price. Upon learning
this, Carbonell wanted to meet with the Infantes but they did not entertain her request.
Carbonell then registered the land under her name on Feb. 8, 1955. Once the formal
Deed of Sale with the Infantes was finalized, they also registerd the land under their
name on Feb. 12, 1955 with an annotation of the adverse claim of Carbonell. Carbonell
is now seeking to have the sale between Poncio and Infantes nullified and that she be
declared the rightful owner. The contention of the Infantes, on the other hand, is that the
sale with Carbonell is unenforceable
as the same was not written in a public document.
Issue: Whether or not Carbonell had the better right to the lot? SC ruled in favor of
Carbonell. In order to claim the benefit of Art. 1544, the buyer of realty must register
the property in good faith. It is a pre-condition to a superior title. In this case, Infante
was not in good faith, thus the prior sale to Carbonell must prevail. Infante registered
her claim 4 days after the adverse claim was registered, she had notice that Carbonell
paid off the mortgage debt as the mortgage passbook was already in his possession. She
likewise ignored Carbonell and refused to talk to here. These are badges of bad faith that
taint her registration.
It is shown that the Sps. Infante were purchasers in bad faith. They refused to
meet with Carbonell. Carbonel was in possession of the mortgage passbook and that the
Sps. Infante never bothered to inquire why it was with her at the time they purchased the
land from Poncio. Carbonell’s registration of the land was also earlier than that of the
spouses. The memorandum executed between Poncio and Carbonell is sufficient to
prove that there was a valid sale between them as the elements of sale, such as
consideration was present. There was also partial performance done by Carbonell so as
to remove their sale from the restrictions of the Statute of Fraud.
DOCTRINE: Ownership of an immovable property which is the subject of a double
sale shall be transferred: (1) to the person acquiring it who in good faith first recorded it
in the Registry of Property; (2) in default thereof, to the person who in good faith was
first in possession; and (3) in default thereof, to the person who presents the oldest titled,
provided there is good faith. The requirement of the law then is two-fold: acquisition in
good faith and registration in good faith. Good faith must concur with registration.
Additonal Doctrine: The principle of primus tempore, potior jure (first in time,
stronger in right) gains greater significance in case of a double sale of immovable
property. When the thing sold twice is an immovable, the one who acquires it and
first records in the Registry of Property, both made in good faith, shall be deemed the
owner. Verily, the act of registration must be coupled with good faith – that is, the
registrant must have no knowledge of the defect or lack of title of his vendor or must
not have been aware of facts which would have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his
vendor.
FACTS:
1. Jose Poncio, a native of the Batanes Islands, was the owner of the parcel of
land herein involve with improvements situated at 179 V. Agan St., San Juan,
Rizal, having an area of some one hundred ninety-five (195) square meters,
more or less, covered by TCT No. 5040 and subject to mortgage in favor of
the Republic Savings Bank for the sum of P1,500.00. Petitioner Rosario
Carbonell, a cousin and adjacent neighbor of respondent Poncio, and also
from the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.
2. This land is subject to mortgage in favor of the Republic Savings Bank
for the sum of P1,500. Carbonell is the cousin and adjacent neighbor of
Poncio.
3. Carbonell offered to buy the disputed land from Poncio. Since Poncio
was unable to keep up with the installments due on the mortgage, he
offered to sell the lot to Carbonell, to which she accepted and proposed
the price of P9.50 per sqm.
4. Poncio accepted the proposed price on the condition that from the purchase
price would come the money to be paid to the bank.
5. In the presence of a witness, both parties made and executed a memorandum
in the Batanes dialect, which was later translated into English, containing
their contract of sale.
6. They stipulated that Poncio can still live on the lot sold for 1 year during
which he will not pay any rent to Carbonell. They went to the Republic
Saving Bank to seek the consent of the bank president and afterwards,
Carbonell assumed the obligation of paying the mortgage.
7. Carbonell then asked for the preparation of a formal deed of sale with Poncio.
8. Both petitioners Rosario Carbonell and respondent Emma Infante
offered to buy the said lot from Poncio.
9. However, Poncio informed Carbonell that he had actually given the lot
to the Emma Infante and that he could not withdraw the sale to the
Infantes even if he will go to jail.
10. In their agreement, Infante bought the lot for P2,357. 52 higher price than
what Carbonell paid and assumed the responsibility of paying the existing
mortgage debt.
 11. Carbonell then sought after the Infante but the latter refused to meet.
During this time, Carbonell, with the assistance of counsel, initiated the
registration of the land. The land was registered under Carbonell’s name
on Feb. 8, 1955.
12. Once the Deed of Sale with Infante was finalized, she registered the lot under
her name on Feb. 12, 1955.
13. The Transfer Certificate of Title that was issued to her was annotated with
the adverse claim of Carbonell. Infante took immeditate possession of the lot
involved and spent an amount of P11,929 worth of improvements.
14. Carbonell filed a complaint against the Infantes and Poncio praying that:
a. she be declared the lawful owner of the questioned parcel of land
b. subsequent sale between the Infantes and Poncio declared null and
void
c. Poncio be ordered to execute the corresponding deed of conveyance
of said land
d. Damages and attorney’s fees
15. The respondents filed a motion to dismiss on the grounds that the sale
between Poncio and Carbonell was unenforceable under the Statue of Frauds
for not being evidenced by a written document.
16. RTC: initially ruled in favor of Carbonell and declared that the sale between
Poncio and Infante was null and void. But a re-hearing of the trial occurred
wherein the Infantes presented new evidence regarding the improvements
they made on the land. Thus, the decision was reversed in favor of the
Infantes.
17. CA: reversed the last decision declaring Carbonell to have a superior right to
the land and condemning the Infantes to reconvey to the petitioner the
property and with reimbursement.
ISSUE: W/N Carbonell had a superior right to the lot? YES
RULING: WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT
OF APPEALS OF OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO
CARBONELL IS HEREBY DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN
QUESTION AND IS HEREBY DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS
INFANTES THE SUM OF ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00)
RATIO:
1. Art. 1544 of the Civil Code states: If the same thing should have been sold to
different vendees, the ownership shall be transferred to the person who may
have first taken possession thereof in good faith, if it should be movable
property. Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the Registry
of Property. Should there be no inscription, the ownership shall pertain to
the person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is good
faith.
2. It is essential that the buyer of realty must act in good faith in registering his
deed of sale to merit the protection of the second paragraph of said Article
1544.
3. Unlike the first and third paragraphs of said Article 1544, which accord
preference to the one who first takes possession in good faith of personal or
real property, the second paragraph directs that ownership of immovable
property should be recognized in favor of one "who in good faith first
recorded" his right. Under the first and third paragraph, good faith must
characterize the act of anterior registration.
4. Should there be no inscription, the ownership shall pertain to the person who
in good faith was first in the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
5. If there is no inscription, what is decisive is prior possession in good faith.
If there is inscription, as in the case at bar, prior registration in good
faith is a pre-condition to superior title.
6. When Carbonell bought the lot from Poncio on January 27, 1955, she was the
only buyer thereof and the title of Poncio was still in his name solely
encumbered by bank mortgage duly annotated thereon. Carbonell was not
aware and she could not have been aware of any sale of Infante as there was
no such sale to Infante then.
7. Carbonell's prior purchase of the land was made in good faith. Her good
faith subsisted and continued to exist when she recorded her adverse
claim four (4) days prior to the registration of Infantes's deed of sale.
Carbonell's good faith did not cease after Poncio told her on January 31,
1955 of his second sale of the same lot to Infante.
8. When she tried to approach Infante to settle the dispute, the latter ignored her
with an aristocratic disdain unworth of the good breeding of a good Christian
and good neighbor. It was then only proper for Carbonell to protect her right
and register the land.
9. Indication of bad faith on the part of Infante - Infante refused to see
Carbonell, Carbonell was already in possession of the mortgage passbook
and Poncio’s copy of the mortgage contract when Poncio sold the lot to
Carbonell, who after paying the arrears of Poncio assumed the balance of his
mortgage, Poncio was no longer in possession of his mortgage passbook
should have compelled Infante to inquire from Poncio why he was no longer
in possession of the mortgage passbook, Carbonell registered on February 8,
1955 her adverse claim, which was accordingly annotated on Poncio's title, 4
days before Infante registered on February 12, 1955 her deed of sale executed
on February 2, 1955. Here she was again on notice of the prior sale to
Carbonell. Such registration of adverse claim is valid and effective and
Infante offered to buy at a higher price but Poncio refused. It is therefore
logical to presume that Infante was told by Poncio and consequently knew of
the offer of Carbonell.
 10. It can be deduced from the foregoing that Poncio was induced by the Infantes
to sell the land to them because they offered a higher price. Also, these parties
are neighbors that’s why there is no reason why Infante refuse to meet with
Carbonell since they just live near each other. They were clearly in bad faith.
11. The existence of the prior sale to Carbonell was also duly established.
a. The memorandum between Carbonell and Poncio shows that the
sale of property in favor of Carbonell is already an accomplished
act.
b. There was actualy performance on the part of Carbonell when she
paid P247.76 to Poncio (as shown in his bank deposit book) which
would effectively remove it from the ambit of the Statute of Frauds.
c. The memorandum also shows a sufficient description of the lot sold
to Carbonell.
12. There is also adequate consideration or price for the sale in favor of
Carbonell. It is to be remembered that Poncio sold the lot because he could
not pay the remainder of his mortgage. To forestall the foreclosure, he sold
the lot to Carbonell to which she agreed to assume the obligation of the
mortgage on top of her payment of P9.50 per sqm to Poncio.
13. While petitioner Carbonell has the superior title to the lot, she must however
refund to respondents Infantes the amount of P1,500.00, which the Infantes
paid to the Republic Savings Bank to redeem the mortgage.
14. It appearing that the Infantes are possessors in bad faith, their rights to the
improvements they introduced to the disputed lot are governed by Articles
546 and 547 of the New Civil Code.
a. Their expenses consisting of P1,500.00 for draining the property,
filling it with 500 cubic meters of garden soil, building a wall around
it and installing a gate and P11,929.00 for erecting a bungalow
thereon, are useful expenditures, for they add to the value of the
property
15. Reimbursement for improvement: Since the Infantes paid a reasonable
amount for the improvement, Carbonell should reimburse them. But, if the
lawful possessor can retain the improvements introduced by the possessor in
bad faith for pure luxury or mere pleasure only by paying the value thereof at
the time he enters into possession (Article 549), as a matter of equity, the
Infantes, although possessors in bad faith, should be allowed to remove the
aforesaid improvements, unless petitioner Carbonell chooses to pay for their
value at the time the Infantes introduced said useful improvements in 1955
and 1959.
a. The Infantes cannot claim reimbursement for the current value of
the said useful improvements; because they have been enjoying such
improvements for about two decades without paying any rent on the
land and during which period herein petitioner Carbonell was
deprived of its possession
Opinion:
1. Teehankee Concurring - who between the two buyers in good faith should
prevail is provided in the second paragraph of Article 1544 which ordains
that "the ownership of the immovable property shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property."
Since Carbonell (the first buyer) did not have a formal registrable deed
of sale, she did the next best thing to protect her legal rights and
registered on February 8, 1955 with the Rizal Register of Deeds her
adverse claim as first buyer entitled to the property. The second buyer
Infante registered the deed of sale in her favor with the Rizal Register of
Deeds only on February 12, 1955 (notwithstanding its having been executed
ten days earlier on February 2, 1955), and therefore the transfer certificate
of title issued in her favor carried the duly annotated adverse claim of
Carbonell as the first buyer.
Both these registrations were in good faith and hence, as provided by the cited code
article, the first buyer Carbonell as also the first registrant is legally entitled to the
property.
The governing principle here is prius tempore, portior jure (first in time, stronger
in right). Knowledge gained by the first buyer of the second sale cannot defeat
the first buyer's rights except only as provided by the Civil Code and that is where
the second buyer first registers in good faith the second sale ahead of the first.
Such knowledge of the first buyer does not bar her from availing of her rights
under the law, among them, to register first her purchase as against the second
buyer. But in other so knowledge gained by the second buyer of the first sale
defeats his rights even if he is first to register the second sale, since such
knowledge taints his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the second buyer being
able to displace the first buyer: that before the second buyer can obtain priority over
the first, he must show that he acted in good faith throughout the time of acquisition
until the title is transferred to him by registration or failing registration, by delivery of
possession. The second buyer must show continuing good faith and innocence or lack
of knowledge of the first sale until his contract ripens into full ownership through prior
registration as provided by law.
2. Munoz Palma Dissenting -Rosario Carbonell cannot be held to have a title
superior to that of Emma Infante for even if We were to concede that the
notation of her adverse claim on February 8, 1955, was in the nature of
registration of title as required in Art. 1544 the same was not
accomplished in good faith. At the time Carbonell caused the
annotation of her adverse claim she was, therefore, cognizant of facts
which impaired her title to the property in question, and taking
advantage of the situation that the second purchaser hadnot as yet
registered her deed of sale, she went ahead of the second buyer and
annotated what was only in the nature of an adverse claim inasmuch as she
had no registrable document of sale at the time. That annotation of
Carbonell's adverse claim did not produce any legal effects as to place her
in a preferential situation to that of Infante, the second purchaser, for the
simple reason that a registration made in bad faith is equivalent to no
registration at all. It is a settled rule that the inscription in the registry,
to be effective, must be made in good faith.
 20 CHENG v GENATO (CLARK)
December 29, 1998 | Martinez, J. | Double Sale Rule
PETITIONER: Ricardo Cheng
RESPONDENTS: Ramon B. Genato and Ernesto R. Da Jose & Socorro Da Jose
SUMMARY: Ramon Genato is owner of 2 parcels of land located in Paradise
Farms, Bulacan. Genato entered an agreement w/ spouses Da Jose at P80/sqm.
On Oct 4 1989, Da Jose spouses, not having finished verifying the titles, asked
for and was granted by Genato an extension of another 30 days to verify titles.
Pending effectivity and without notice to Da Jose spouses, Genato executed an
Affidavit to Annul the Contract to Sell on Oct 13, 1989. On Oct. 24, 1989,
Ricardo Cheng went to Genato’s residence and expressed interest to buy. Genato
showed Cheng copies of the TCT and annotations at the back of contract to sell.
Genato also showed Affidavit to Annul the Contract to Sell w/c has not been
annotated at the back of titles. Cheng then issued a handwritten receipt, which
caused Genato the registration of the Affidavit to Annul the Contract to Sell in
Registry of Deeds. In the said Registry of Deeds, Genato met the Da Jose
spouses by coincidence. After being reminded that Genato had given the Da Jose
spouses an additional 30-day period to finish their verification of his titles, that
the period was still in effect, and that they were willing and able to pay the
balance of the agreed down payment, Genato decided to continue the Contract he
had with them. Genato sent a letter to Cheng enclosing a BPI Cashier’s Check
for P50,000 and expressed regret for his inability to consummate his transaction
with him. Cheng instituted a complaint for specific performance to compel
Genato to execute a deed of sale to him of the subject properties plus damages
and prayer for preliminary attachment. Cheng averred that the P50,000 check he
gave was a partial payment to the total agreed purchase price of the subject
properties and considered as an earnest money for which Genato acceded. Thus,
their contract was already perfected. The RTC ruled in favor of Cheng. The CA
reversed the decision. The issue is W/N was correct in ruling that there was no
valid and effective rescission of resolution of the Da Jose spouses Contract to
Sell. SC held that the CA was correct. No default can be ascribed to the Da Jose
spouses since the 30-day extension period has not yet expired. For with or
without the aforesaid affidavit their non-payment to complete the full
downpayment of the purchase price avoids their contract to sell, it being
subjected to a suspensive condition. not only was the contract between herein
15
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
respondents first in time; it was also registered long before petitioners intrusion
as a second buyer.
DOCTRINE: The governing principle of Article 1544 of the New Civil Code15
should apply in this situation. Jurisprudence teaches us that the governing
principle is PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in
right). This principle only applies when the special rules provided in the aforecited
article of Civil Code do not apply or fit the specific circumstances mandated under
said law or by jurisprudence interpreting the article.
FACTS:
1. Ramon B. Genato is the owner of two parcels of land located at Paradise
Farms, San Jose Del Monte, Bulacan with an aggregate area of 35,821 square
meters. On September. 6, 1989, Genato entered into an agreement with
spouses Ernesto and Socorro Da Jose over the two parcels of land. The
agreement culminated in the execution of a contract to sell for which the
purchase price was P80.00 per square meter. The contract was in a public
instrument and was duly annotated at the back of the two certificates of title
on the same day. Clauses 1 and 3 provide:
a. Purchase price: P80/sqm; partial down payment of P50,000 paid by
vendee to vendor at the time of execution of this Contract to Sell
b. Vendee, 30 days after execution, and only after having satisfactorily
verified and confirmed the truth and authenticity of documents,
Vendee shall pay Vendor P950,000 representing full payment of the
agreed Down Payment, after which possession of the property shall
be given to the Vendee
2. On October 4, 1989, Da Jose spouses, not having finished verifying the titles
mentioned in clause 3 as aforequoted, asked for and was granted by
respondent Genato an extension of another 30 days or until November 5,
1989. However, according to Genato, the extension was granted on condition
that a new set of documents is made 7 days from October 4, 1989. This was
denied by the Da Jose spouses.
3. Pending the effectivity of the aforesaid extension period, and without due
notice to the Da Jose spouses, Genato executed an Affidavit to Annul the
Contract to Sell, on October 13, 1989. Moreover, no annotation of the said
affidavit at the back of his titles was made right away. The affidavit
contained:
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith. (1473)
 a. That it was agreed between the parties that the agreed downpayment
of P950,000 shall be paid 30 days after the execution of the
Contract, that is on or before October 6, 1989
b. The supposed vendees failed to pay the said full downpayment even
up to this writing, a breach of contract
c. That this affidavit is being executed to Annul the aforesaid Contract
to Sell for the vendee having committed a breach of contract for not
having complied with the obligation as provided in the Contract to
Sell
4. On October 24, 1989, Ricardo Cheng went to Genato’s residence and
expressed interest in buying the properties. Genato showed Cheng copies of
his TCT and annotations at the back of his contract to sell with the Da Jose
spouses. Genato also showed the Affidavit to Annul the Contract to Sell
which has not been annotated at the back of the titles.
5. Despite these, Cheng went ahead and issued a handwritten receipt for
P50,000.
6. On October 25, 1989, Genato deposited Cheng’s check. Cheng also called up
Genato reminding him to register the affidavit to annul contract to sell.
7. on October 26, 1989, acting on Cheng’s request, Genato caused the
registration of the Affidavit to Annul the Contract to Sell in the Registry of
Deeds, Meycauayan, Bulacan
8. While the Da Jose spouses were at the Office of the Registry of Deeds of
Meycauayan, Bulacan on October 27, 1989, they met Genato by
coincidence. It was only then that the Da Jose spouses discovered about the
affidavit to annul their contract. The latter were shocked at the disclosure and
protested against the rescission of their contract. After being reminded that
Genato had given the Da Jose spouses an additional 30-day period to finish
their verification of his titles, that the period was still in effect, and that they
were willing and able to pay the balance of the agreed down payment, later
on in the day, Genato decided to continue the Contract he had with them. The
agreement to continue with their contract was formalized in a conformed
letter dated October 27, 1989.
9. Genato advised Cheng of his decision to continue his contract with the Da
Jose spouses and the return of Chengs P50,000 check. On October 30, 1989,
Cheng’s lawyer sent a letter to Genato demanding compliance with their
agreement to sell the property to him stating that the contract to sell between
him and Genato was already perfected and threatening legal action.
10. On November 2, 1989, Genato sent a letter to Cheng enclosing a BPI
Cashier’s Check for P50,000 and expressed regret for his inability to
consummate his transaction with him. After having received the letter of
Genato on November 4, 1989, Cheng, however, returned the said check to
the former via RCPI telegram dated November 6, 1989, reiterating that our
contract to sell your property had already been perfected. Cheng also
executed an affidavit of adverse claim and had it annotated on the subject
TCTs.
11. Consistent with the decision of Genato and the Da Jose spouses to continue
with their Contract to Sell of September 6, 1989, the Da Jose spouses paid
Genato the complete down payment of P950,000 and delivered to him three
postdated checks (all dated May 6, 1990, the stipulated due date) in the total
amount of P1,865,680 to cover full payment of the balance of the agreed
purchase price. However, due to the filing of the pendency of this case, the
three postdated checks have not been encashed.
12. Cheng instituted a complaint for specific performance to compel Genato to
execute a deed of sale to him of the subject properties plus damages and
prayer for preliminary attachment. Cheng averred that the P50,000 check he
gave was a partial payment to the total agreed purchase price of the subject
properties and considered as an earnest money for which Genato
acceded. Thus, their contract was already perfected.
13. Genato alleged that the agreement was only a simple receipt of an option-bid
deposit, and never stated that it was a partial payment, nor is it an earnest
money and that it was subject to the condition that the prior contract with the
Da Jose spouses be first cancelled. Also, Da Jose spouses asserted that they
have a superior right to the property as first buyers. They alleged that the
unilateral cancellation of the Contract to Sell was without effect and
void. They also cited Cheng’s bad faith as a buyer being duly informed by
Genato of the existing annotated Contract to Sell on the titles.
14. The lower Court ruled in favor of Cheng:
a. Ruled that the receipt issued by Genato to Cheng meant a sale and
not just a priority or an option to buy.
b. The transaction could not have been subject to condition or
reservation like the priority in favor of the Da Jose spouses as first
buyer because if it were otherwise, the receipt would have provided
such condition or reservation especially because Genato made the
receipt in his own hand
c. There was valid recision of Contract to Sell by virtue of Affidavit to
Annul the Contract to Sell. Time is of the essence in the execution
of the agreement between Genato and Cheng, under this
circumstance demand, extrajudicial or judicial, is not necessary. It
falls under the exception to the rule provided in Article 1169 of the
Civil Code. The right of Genato to unilaterally rescind the contract
is said to be under Article 1191 of the Civil Code.
15. The Court a Quo reversed the decision:
a. The prior contract to sell in favor of the Da Jose spouses was not
validly rescinded, and that the subsequent contract to sell between
Genato and Cheng, embodied in the handwritten receipt, was
without force and effect due to the failure to rescind the prior
contract;
 b. That Cheng should pay damages to the respondents herein being
found to be in bad faith
ISSUE:
1. WoN CA is correct in ruling that there was no valid and effective rescission
of resolution of the Da Jose spouses Contract to Sell – YES
2. Is the contract one of a Contract to Sell or one of a Conditional Contract of
Sale – Contract to Sell
RULING: WHEREFORE, premises considered, the instant petition for review is
DENIED and the assailed decision is hereby AFFIRMED EN TOTO. SO ORDERED.
RATIO:
1. In a Contract to Sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a breach, casual or
serious, but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. It is one where the
happening of the event gives rise to an obligation. Thus, for its non-
fulfillment there will be no contract to speak of, the obligor having failed
to perform the suspensive condition which enforces a juridical relation.
a. In fact with this circumstance, there can be no rescission of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet. Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code is the obligor’s
failure to comply with an obligation already extant, not a failure of
a condition to render binding that obligation.
2. No default can be ascribed to the Da Jose spouses since the 30-day extension
period has not yet expired. The Da Jose spouses contention that no further
condition was agreed when they were granted the 30-days extension period
from October 7, 1989 in connection with clause 3 of their contract to sell
dated September 6, 1989 should be upheld for the following reason:
a. If this were not true, Genato could not have been persuaded to
continue his contract with them and later on agree to accept the full
settlement of the purchase price knowing fully well that he himself
imposed such sine qua non condition in order for the extension to
be valid;
b. Genato could have immediately annotated his affidavit to annul the
contract to sell on his title when it was executed on October 13, 1989
and not only on October 26, 1989 after Cheng reminded him of the
annotation;
c. Genato could have sent at least a notice of such fact, there being no
stipulation authorizing him for automatic rescission, so as to finally
clear the encumbrance of his titles and make it available to other
would be buyers
3. Even if the Da Jose spouses defaulted as claimed by Genato, in their Contract
to Sell, the execution by Genato of the affidavit to annul the contract is not
even called for. For with or without the aforesaid affidavit their non-payment
to complete the full downpayment of the purchase price avoids their contract
to sell, it being subjected to a suspensive condition.
4. When a contract is subject to a suspensive condition, its birth or
effectivity can take place only if and when the event which constitutes
the condition happens or is fulfilled. If the suspensive condition does not
take place, the parties would stand as if the conditional obligation had
never existed.
5. Nevertheless, Genato is not relieved from the giving of a notice, verbal or
written, to the Da Jose spouses for decision to rescind their contract.
6. Jurisprudence provides that even though we upheld the validity of a
stipulation in a contract to sell authorizing automatic rescission for a violation
of its terms and conditions, at least a written notice must be sent to the
defaulter informing him of the same. The act of a party in treating a contract
as cancelled should be made known to the other. For such act is always
provisional. It is always subject to scrutiny and review by the courts in case
the alleged defaulter brings the matter to the proper courts.
a. The party who deems the contract violated may consider it resolved
or rescinded, and act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether
the action taken was or was not correct in law. But the law definitely
does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extajudicial
steps to protect its interest. (UP v de Los Angeles)
7. In the case at hand, Cheng’s contention that the Contract to Sell between
Genato and the Da Jose spouses was rescinded or resolved due to Genato’s
unilateral rescission finds no support in this case.
8. Even if we are to assume that the receipt, is to be treated as a conditional
contract of sale, it did not acquire any obligatory force since it was
subject to suspensive condition that the earlier contract to sell between
Genato and the Da Jose spouses should first be cancelled or rescinded; a
condition never met, as Genato, to his credit, upon realizing his error,
redeemed himself by respecting and maintaining his earlier contract
with the Da Jose spouses. In fact a careful reading of the receipt, alone
would not even show that a conditional contract of sale has been entered
by Genato and Cheng. When the requisites of a valid contract of sale are
lacking in said receipt, therefore the sale is neither valid nor enforceable.
9. Petitioner invokes Coronel v CA to support his theory that the transaction was
a conditional contract of sale. But the facts in Coronel is not on all fours with
those in the case at bar.
 a. In Coronel, the petitioners therein clearly intended to transfer title
to the buyer which petitioner themselves admitted in their
pleading. The agreement of the parties therein was definitively
outline in the Receipt of Down Payment. In the instant case, even by
a careful perusal of the receipt alone such, kind of circumstances
cannot be ascertained without resorting to the exceptions of the Rule
on Parol Evidence.
10. The governing principle of Article 1544 of the New Civil Code16 should
apply in this situation. Jurisprudence teaches us that the governing
principle is PRIMUS TEMPORE, PORTIOR JURE (first in time,
stronger in right).
a. For not only was the contract between herein respondents first
in time; it was also registered long before petitioners intrusion
as a second buyer.
b. This principle only applies when the special rules provided in
the aforecited article of Civil Code do not apply or fit the specific
circumstances mandated under said law or by jurisprudence
interpreting the article.
11. In the case at bar, the knowledge gained by the Da Jose spouses, as first
buyers, of the new agreement between Cheng and Genato will not defeat their
rights as first buyers except where Cheng, as second buyer, registers or
annotates his transaction or agreement on the title of the subject properties in
good faith ahead of the Da Jose spouses. Although the Da Jose spouses, as
first buyers, knew of the second transaction it will not bar them from availing
of their rights granted by law, among them, to register first their agreement
as against the second buyer. In contrast, knowledge gained by Cheng of the
first transaction between the Da Jose spouses and Genato defeats his rights
even if he is first to register the second transaction, since such knowledge
taints his prior registration with bad faith.
12. Registration, as defined by Soler and Castillo, means any entry made in the
books of the registry, including both registration in its ordinary and strict
sense and cancellation, annotation, and even marginal notes. In its strict
acceptation, it is the entry made in the registry which records solemnly and
permanently the right of ownership and other real rights.
a. When a Deed of Sale is inscribed in the registry of property on the
original document itself, what was done with respect to said entries
or annotations and marginal notes amounted to a registration of the
sale.
16
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
b. In this light, we see no reason why we should not give priority in
right the annotation made by the Da Jose spouses with respect to
their Contract to Sell dated September 6, 1989.
13. Good faith must concur with registration for such prior right to be
enforceable. In the instant case, the annotation made by the Da Jose spouses
on the titles of Genato of their Contract to Sell more than satisfies this
requirement. Whereas in the case of Genatos agreement with Cheng such is
unavailing. For even before the receipt was issued to Cheng information of
such pre-existing agreement has been brought to his knowledge which did
not deter him from pursuing his agreement with Genato.
14. Cheng himself admitted that it was he who sought Genato in order to inquire
about the property and offered to buy the same. Since Cheng was fully aware,
or could have been if he had chosen to inquire, of the rights of the Da Jose
spouses under the Contract to Sell duly annotated on the transfer certificates
of titles of Genato, he is indeed in bad faith in entering into such agreement.
15. Good faith, or lack of it, is in its last analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given occasion, we
are controlled by the evidence as to the conduct and outward acts by which
the inward motive may, with safety, be determined. So it is that the honesty
of intention, the honest lawful intent, which constitutes good faith implies a
freedom from knowledge and circumstances which ought to put a person on
inquiry, and so it is that proof of such knowledge overcomes the presumption
of good faith in which the courts always indulge in the absence of the proof
to the contrary. (Leung Yee v F.L. Machinery Strong Co
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith. (1473)
 21 SAN LORENZO DEV. CORP. v. CA (Ella)
January 21, 2005 | Tinga J. | Contract to Sell
PETITIONER: San Lorenzo Development Corp.
RESPONDENTS: Court of Appeals, Pablo Babasanta, Spouses Miguel & Pacita
Lu
SUMMARY: Spouses Lu owned 2 parcels of land. They purportedly sold these
lands to Babasanta. Babasanta paid downpayment of P50,000, and several other
payments totaled P200,000. In 1989, Babasant a wrote a letter to Spouses Lu
demanding that a deed of sale be executed in his favor so that he could effect full
payment of the price. He also notified the spouses that he received information
that the latter have sold the land to another w/o his knowledge and consent.
Babasanas is demanding that the 2nd sale be cancelled. In their reply, spouses Lu
said that they have indeed agreed to sell the land to Babasanas. But spouses Lu
reminded him that when his request for the reduction of the purchase has been
refused by the spouses, Babasanas backed out. That their relationship had
originally been creditor (Babasanas) & debtor (Lu), when his request was refused,
the Babasanas rescinded the contract to sell and that the original loan transaction
be carried out. Babasanas filed an action against the spouses for specific
performance. Meanwhile, petitioner San Lorenzo Dev’t. Corp (SLDC), filed a
motion for intervention. It alleged that the subject property had been sold to it
through a deed of sale with absolute mortgage. It allege that it was a buyer in good
faith. Issue is WON SLDC has a better right over the property than Babasanas. SC
held that SLDC has a better right. First, contract between Babasanas and Spouses
Lu was actually a perfected contract to sell not a contract of sale. Spouses Lu never
intended to transfer ownership to Babasana except upon full payment of the price.
Babasanta himself recognized that ownership of the property would not be
transferred to him until such time as he shall have effected full payment of the
price. Thus, the receipt issued by the spouses recognizing Babasanas’ partial
payments should legally be considered as a perfected contract to sell. The
perfected contract to sell imposed upon Babasanta the obligation to pay the
balance of the purchase price. But he never did make the proper tender of payment
& consignation required by law. Thus, the obligation on the part of the sellers to
convey title never acquired obligatory force.
DOCTRINE: The main distinctions that set apart the Contract to Sell (as opposed
to a contract of sale) are 1) By agreement the ownership is reserved in the vendor
and is not to pass until the full payment of the price. 2) Title is retained by the
vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming effective.
FACTS:
8. respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu)
owned two (2) parcels of land situated in Sta. Rosa, Laguna.
9. On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land
to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of
P15.00 per square meter. Babasanta made a downpayment of P50,000.00 as
evidenced by a memorandum receipt issued by Pacita Lu of the same date.
Several other payments totaling P200,000.00 were made by Babasanta.
10. Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the
execution of a final deed of sale in his favor so that he could effect full
payment of the purchase price. In the same letter, Babasanta notified the
spouses about having received information that the spouses sold the same
property to another without his knowledge and consent. He demanded
that the second sale be cancelled and that a final deed of sale be issued in his
favor.
11. In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged
having agreed to sell the property to him at P15.00 per square meter. She,
however, reminded Babasanta that when the balance of the purchase price
became due, he requested for a reduction of the price and when she refused,
Babasanta backed out of the sale. Pacita added that she returned P50,000.00
to Babasanta through Eugenio Oya.
12. So respondent Babasanta, as plaintiff, filed before the Regional Trial Court
(RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific
Performance and Damages 1 against his co-respondents herein, the Spouses
Lu.
13. The Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and
when the total advances of Pacita reached P50,000.00, the latter and
Babasanta, without the knowledge and consent of Miguel Lu, had verbally
agreed to transform the transaction into a contract to sell the two parcels of
land to Babasanta with the fifty thousand pesos P50,000.00 to be considered
as the downpayment for the property and the balance to be paid on or before
31 December 1987.
14. Respondents Lu added that as of November 1987, total payments made by
Babasanta amounted to only P200,000.00 and the latter allegedly failed to
pay the balance of P260,000.00 despite demands.
15. Babasanta had purportedly asked Pacita for a reduction of the price from
P15.00 to P12.00 per square meter and when the Spouses Lu refused to grant
Babasanta's request, the latter rescinded the contract to sell and declared that
the original loan transaction just be carried out in that the spouses would be
indebted to him in the amount of P200,000.00
16. On 19 January 1990, herein petitioner San Lorenzo Development
Corporation (SLDC) filed a Motion for Intervention before the trial court.
SLDC alleged that it had legal interest in the subject matter under litigation
 because on 3 May 1989, the two parcels of land involved had been sold to it
in a Deed of Absolute Sale with Mortgage. It alleged that it was a buyer in
good faith and for value and therefore it had a better right over the property
in litigation.
ISSUE/s:
38. WON SLDC has a better right than Babasanta over the subject parcel of lands
in view of the successive transactions executed by Spouses Lu. = SLDC has
better right.
RULING: WHEREFORE, the instant petition is hereby GRANTED. The decision of
the Court of Appeals appealed from is REVERSED and SET ASIDE and the decision
of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No
costs.
RATIO:
10. The agreement between Babasanta and the Spouses Lu is not a contract of
sale, but a contract to sell.
11. The receipt signed by Pacita Lu merely states that she accepted the sum of
fifty thousand pesos (P50,000.00) from Babasanta as partial payment. While
there is no stipulation that the seller reserves the ownership of the property
until full payment of the price which is a distinguishing feature of a contract
to sell, the subsequent acts of the parties shows that the Spouses Lu never
intended to transfer ownership to Babasanta except upon full payment of the
purchase price.
12. Babasanta's letter stated therein that despite his repeated requests for the
execution of the final deed of sale in his favor so that he could effect full
payment of the price. In effect, Babasanta himself recognized that ownership
of the property would not be transferred to him until such time as he shall
have effected full payment of the price.
13. Moreover, had the sellers intended to transfer title, they could have easily
executed the document of sale in its required form simultaneously with their
acceptance of the partial payment, but they did not. Doubtlessly, the receipt
signed by Pacita Lu should legally be considered as a perfected contract to
sell.
CONTRACT OF SALE CONTRACT TO SELL
Title passes to the vendee upon the By agreement the ownership is reserved
delivery of the thing sold in the vendor and is not to pass until the
full payment of the price
The vendor has lost and cannot recover Title is retained by the vendor until the
ownership until and unless the contract full payment of the price, such payment
is resolved or rescinded being a positive suspensive condition
and failure of which is not a breach but
an event that prevents the obligation of
the vendor to convey title from
becoming effective.
14. The perfected contract to sell imposed upon Babasanta the obligation to pay
the balance of the purchase price.
15. There being an obligation to pay the price, Babasanta should have made the
proper tender of payment and consignation of the price in court as required
by law. Mere sending of a letter by the vendee expressing the intention to pay
without the accompanying payment is not considered a valid tender of
payment.
16. Babasanta did not even attempted to make the proper consignation of the
amounts due, thus, the obligation on the part of the sellers to convey title
never acquired obligatory force.
17. Furthermore there is no delivery (actual or constructive) of the subject matter
of the sale in favor of Babasanta which is essential to transfer of ownersip of
property. Thus, respondent Babasanta did not acquire ownership by the mere
execution of the receipt by Pacita Lu acknowledging receipt of partial
payment for the property. Reasons: 1) the agreement between Babasanta and
the Spouses Lu, though valid, was not embodied in a public instrument.
Hence, no constructive delivery of the lands could have been effected. 2)
Babasanta had not taken possession of the property at any time after the
perfection of the sale in his favor or exercised acts of dominion over it despite
his assertions that he was the rightful owner of the lands.
18. Judicial relationship between parties in case of double sale, principle
of primus tempore, potior jure (first in time, stronger in right) gains
greater significance in case of double sale of immovable property.
19. When the thing sold twice is an immovable, the one who acquires it and first
records it in the Registry of Property, both made in good faith, shall be
deemed the owner.
20. SLDC registered the sale with the Registry of Deeds after it had acquired
knowledge of Babasanta's claim. SLDC qualifies as a buyer in good faith
since there is no evidence extant in the records that it had knowledge of the
prior transaction in favor of Babasanta. At the time of the sale of the property
to SLDC, the vendors were still the registered owners of the property and
were in fact in possession of the lands. (Notice of lis pendens is irrelevant to
the good faith & bad faith character of the purchaser).
 22 Adalin v. CA (EMAR)
October 10, 1997| HERMOSISIMA, JR., J.| Conditional Sales/Contracts to Sell and
Adverse Claims
PETITIONER: CARLOS CALINGASAN, DEMETRIO ADAYA and MAGNO
ADALIN (lessees) LORETO ADALIN (Adalin)
RESPONDENTS: THE HON. COURT OF APPEALS, FAUSTINO L. YU,
ANTONIO T. LIM, (Original Buyers) ELENA K. PALANCA, JOSE PALANCA,
EDUARDA K. VARGAS, JOSE VARGAS, MERCEDES K. CABALLERO,
EBERHARDO CABALLERO, ISABEL K. VILLAMOR, FEDERICO
VILLAMOR, JOSE KADO, URSULA KADO, MARIA K. CALONZO, BAYANI
L. CALONZO, TEOFILA KADO, NESTOR KADO and LILIA KADO (Kado
siblings/vendors)
SUMMARY: Vendors commissioned Bautista to sell their 5-door property in front
of Imperial Hotel. Bautista offered to sell to Yu and Lim (owners of Imperial Hotel,
original buyers) who agreed to buy together with Adalin. The vendors, original
buyers and Adalin had a conference wherein the vendor said to the original buyers
that the other tenants were not interested to buy the property. They met again to
finalize their sale, this time, lessee Magno was present and he said that they weren’t
interested to buy the property because they can’t afford it but he said that each lessee
was entitled to a disturbance fee of P50k. They executed a “Deed of Conditional
Sale” where vendors, original buyers and Adalin agreed that the buyers will pay
P300k as downpayment and as soon as the former secures the eviction of the tenants,
they will be paid the balance of P2.3m. Vendor Elena sent letters to each of the
lessees informing them that someone was interested to buy the property and
requested them to vacate the property within 30d unless all of them could buy the
property at the same price. The vendors filed a letter complaint for unlawful detainer
because the lessees refused to vacate. The lessees sent letters informing the vendors
that they wanted to purchase the doors that they were leasing for the purchase price
of P600k/door. Vendor Elena accepted the offer and returned the downpayment of
the original buyers but they refused to accept. The issue is whether the transaction
entered into by the original buyers with the vendors is an absolute sale or conditional
sale as denominated in the document signed by said parties. The lower court ruled
that it was a conditional sale wherein the condition wasn’t fulfilled but the CA
reversed the ruling and decided that it was a perfect deed of absolute sale. The SC
agreed with the CA using Article 1544 of the Civil Code which states that “if the
same thing should have been sold to different lessees, the ownership shall pertain to
the person who in good faith was first in the possession; and, in the absence thereof,
to the person who presents the oldest title, provided there is good faith.” The Lessees
are estopped from claiming that the property had not been delivered to the original
buyers. They cannot use their gross bad faith as a shield to frustrate the enforcement
of the Deed of Conditional Sale. They were in bad faith for buying the property
although knowing that there was a previous sale of the same property.
DOCTRINE: If the same thing should have been sold to different vendees, should
there be no inscription, the ownership shall pertain to the person who in good faith
was first in the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.
FACTS:
1. Kado siblings (vendors), were the owners of a parcel of land with a 5-door,
building constructed thereon, fronting the Imperial Hotel
2. Lessees Calingasan (1 door), Adaya (1) Magno (2) and Adalin (1) paid
P1.5k/door/month.
3. Vendors commissioned Bautista to look for and negotiate with prospective
buyers for the sale of their property for the price of P3m.
4. Bautista offered the property for sale, to the owners of the Imperial Hotel, Yu
and Lim (original buyers) and each agreed to buy 2 doors and Adalin will
buy 1 door, all for the price of P2.6m.
5. The original buyers inquired from vendor Elena if the lessees were interested
to buy the property and she said no.
6. Sept 2 1987: Unknown to the original buyers, Elena sent letters to each of the
lessees informing them that someone was interested to buy the property and
requested them to vacate the property within 30d unless all of them could
buy the property at the same price.
7. Sept 2 1987 Conference: original buyers, Adalin and vendors, Atty. Calonzo,
the husband of vendor Maria, Atty. Soyao, counsel of the original buyers and
lessee Magno, in behalf of the lessees, were present.
8. When asked by the original buyers if the lessees were interested to buy the
property, Magno replied that they’re not, because they can’t afford its
price but he claimed that the lessees were entitled to P50k each as disturbance
money, in consideration for their vacating the property, to be borne by the
vendors.
9. Original buyers, Adalin and the vendors agreed that each of the original
buyers will buy 2 doors while the 5th door leased by Adalin will be purchased
by him, all for the purchased price of P2.6m and that the original buyers and
Adalin will pay P300k as downpayment for the property, the balance to be
payable upon the eviction of the lessees from the property and the execution
of a Deed of Absolute Sale.
10. Atty. Calonzo assured the original buyers that he could secure the eviction of
the lessees from the property within a month because they were close.
11. Original buyers and Adalin and the vendors, met in the office of the Appellant
Yu at the Imperial Hotel and executed the Deed of Conditional Sale (DCS)
prepared by Atty. Soyao.
12. The original buyers and Adalin each contributed P100k and gave the total
amount of P300k to Elena as the downpayment for the property for which the
vendors signed an Acknowledgment Receipt.
13. Original buyers deferred registration of the deed until after the eviction
of the lessees and the payment of the balance of the purchase price of the
property to the vendors as agreed upon under the DCS.
14. The vendors wrote a letter complaint against the lessees with the Barangay
Captain for unlawful detainer.
15. Lessees Magno, Demetrio and Calingasan wrote a letter to the vendors,
informing their intent to purchase the doors they were leasing for the
purchase price of P600k/door.
16. Inspite of the prior sale of the property to the original buyers and Adalin, the
vendors decided to back out from said sale to the original buyers and to
sell the property to the lessees and to return the P200k downpayments of
the original buyers with interest, procuring 2 checks, both worth
P101,416.66 payable to original buyers Yu and Lim and transmitted the same
to the Original buyers with a covering letter. The original buyers were
shocked and refused to receive the said letter and checks and insisted,
instead, that the vendors comply with the DCS.
17. Original buyers wrote a letter to the vendors, and copies were sent to lessees,
inquiring if the appropriate action has been undertaken towards the eviction
of the lessees.
18. Vendors ignored the letter and instead, signed a Deed of Sale of Registered
Land under which they sold the said property to the lessees, including Adalin
for the price of only P1m (much lower than the price of the Appellant under
the DCS).
19. It appears that the deed was notarized by Atty. Calonzo, however, it does not
bear any number in the notarial register of the lawyer.
20. Vendors signed another Deed of Sale of Registered Land under which they
sold to the lessees and Adalin the property for the considerably increased
price of P3m. The deed was notarized by Atty. Calonzo. However, both
deeds were not filed with the Register of Deeds.
21. The vendors, signed a third Deed of Sale of Registered land under which they
purportedly sold to the lessees and Adalin, the aforesaid property for the
much reduced price of only P860k. However, the deed was not immediately
filed with the Register of Deed.
22. The vendors filed before the RTC a petition against the original buyers for
the consignation of their downpayment of P200k
23. Original buyers filed a complaint with the Barangay captain for Breach of
Contract against the vendors.
24. The Barangay Captain issued summons to the vendors for them to appear for
a conference. Invitations were also sent to the lessees. During the conference
the original buyers agreed to buy only 1 door each so that lessee Magno could
purchase only 1 of the 2 doors he was occupying. However, Magno refused,
claiming that he was already the owner of the 2 doors.
25. When original buyer Lim asked Magno to show the Deed of Sale for the two
doors, Magno walked out.
26. Atty. Calonzo stated that there was no need to show the deed of sale. No
settlement was forged and the Barangay Captain issued the Certification
to File Action.
RTC
It’s a conditional sale wherein the condition wasn’t fulfilled.
27. The original buyers filed their complaint for Specific Performance against
the vendors and Adalin in the court.
28. The original buyers caused the annotation of a Notice of Lis Pendens at the
dorsal portion of TCT under the names of the lessees.
29. The lessees filed a Motion for Intervention, adding a copy of the Deed of Sale
of Registered land signed by the vendors.
30. Lessees filed the Deed of Sale of Registered Land with the Register of Deeds
on the basis of which TCT No. 24791 over the property was issued under
their names. On the same day, the lessees filed in the Court a Motion To
Admit Complaint-In-Intervention. Attached to the Complaint-In-
Intervention was the 'Deed of Sale of Registered land signed by the lessees.
31. Original buyers were shocked to learn that the vendors had signed the said
deed. As a counter-move, the Appellants filed a motion for leave to amend
Complaint and filed their Amended Complaint adding the lessees as
defendants.
32. RTC dismissed the Petition of the vendors for consignation.
33. Adalin died and was substituted by his heirs.
34. After trial, the Court rendered judgment in favor of the lessees.
35. In the opinion of the court a quo, the lessees became the owners of the parcel
of land in question with the 5-door, 1 storey commercial building standing
thereon, when they purchased the same following the offer and the 30-
day option extended to them by Elena in her letter to them.
36. The trial court disregarded the fact that the vendor siblings had already
finished transacting with original buyers and had in fact entered into a
conditional sale with them respecting the same property.
37. The trial court brushed aside this fact as it reasoned that:
1. In conditional deed of sale, ownership is only transferred after
1. purchase price is fully paid or the fulfillment of the
condition and
2. execution of a definite or absolute deed of sale
2. It states in the DCS that the balance of the price of P2.3m shall be
paid only after all the defendants-lessees shall have vacated and
surrendered the premises to the vendors but the tenants did not
leave the premises. In fact they opted to buy the property.
Moreover, at that time, the property was legally leased to the
lessees.
3. The condition set forth in the said DCS between the original buyers
and vendors was not fulfilled and therefore, there was no transfer
of ownership of the property from the vendors to the buyers.
 4. The letters of Elena to the lessees gave them the
option/preferential right to purchase the property.
5. When the vendors accepted lessees’ option to buy, the vendors
returned the initial payment of P200k to the original buyers but they
refused to accept it. The refusal however did not diminish the
effect of the acceptance of the option to buy, which in fact led to
the execution of the said Deed of Sale of Registered Land and the
subsequent issuance of the TCT in the names of the lesees.
6. The vendors acted in bad faith when, while during the effectivity
of the period of the option to buy they gave to the lessees, they
executed a DCS in favor of the original buyers. This was only 6
days from date of the option.
7. The conditional sale of the subject property to original buyers and
the sale of the same property to petitioners, did not involve a double
sale to warrant the application of Art. 154417 of the Civil Code
1. The plaintiffs assert that this case is one of double sale (1st
sale to Lim and Yu; 2nd sale to the lessees) and should be
governed by Art. 1544 of the CC.
2. The execution of the DCS did not transfer ownership to
the original buyers, hence, there can be no double sale.
3. Mendoza vs. Kalaw: Article 1544 does not apply to
situations where one sale was subject to a condition
which was not complied with. This is because a
conditional sale, before the performance of the
condition, can hardly be said to be a sale of property,
specially where the condition has not been performed
or complied with.
CA
It’s a perfect deed of absolute sale.
38. The original buyers appealed to the CA which ruled in their favor and
declared that the DCS executed by the vendors in favor of the original buyers
was an absolute deed of sale & not a conditional sale.
39. It looked into the context of the contract in its entirety and not merely
specific words or phrases therein, standing alone, as well as the
contemporaneous and subsequent acts of the parties. It bears stressing that
the title of the contract is not conclusive of its nature.
40. A contract may be denominated a DCS/Agreement to Sell but in reality a
deed of absolute sale or a contract of sale.
17
Art. 1544. If the same thing should have been sold to different
vendees, should there be no inscription, the ownership shall pertain to
the person who in good faith was first in the possession; and, in the
41. A contract of sale sale may be absolute or conditional. (Art. 1458 par.2, CC)
A contract may be conditional when the ownership of the thing sold is
retained until the fulfillment of a positive suspensive condition, generally
the payment of the purchase price, the breach of which condition will
prevent the onset of the obligation to deliver title.
42. A sale of immovables is absolute where the contract does not contain any
provision that title to the property sold is reversed to the Vendors or that
the Vendor is entitled to unilaterally rescind the same.
43. The Court believes that the deed is conditional, its efficacy is dependent
upon a suspensive condition--that of the payment by the original buyers
of the purchase price of the property, after the lessees shall have vacated
the same and the Deed of Absolute Sale shall have been executed in favor
of the original buyers; and, since the condition was not fulfilled, the sale
never became effective.
44. A reading of the deed will readily show absence of any stipulation that the
title to the property was reserved to the Vendors until the balance of the
purchase price was paid nor giving them the right to unilaterally rescind
the contract if the original buyers failed to pay the said amount upon the
eviction of the lessees.
45. Even if there was no delivery of the property to the original buyers, the
vendors may have delayed their delivery of physical possession of the
property to the original buyers only after the lessees shall have vacated the
property, however, the right of retention of the vendors of title to or
ownership over the property cannot thereby be inferred.
46. Non-payment of the balance & the consequent eviction of the lessees were
not conditions which suspended the efficacy of the Deed of Conditional
Sale. Rather, if due to the fault of the original buyers, merely accorded the
vendors the option to rescind the already existing and effective sale.
47. Because the original buyers and vendors entered into an absolute sale, the
original buyers had every right to demand that the vendors performed their
prestation under the deed (eviction of the lessees) so that the Appellants may
then pay the balance of the purchase price of the property
48. The contention of the lower court that “the sale had not been consummated
and title to and ownership over the property had not been transferred to the
original buyers because there had been neither constructive nor actual
delivery of the property” cannot be true because evidence in the record
shows that the original buyers and vendors met in the house of Appellee Elena
shows that lessee Magno did not object to the sale of the property to the
absence thereof, to the person who presents the oldest title, provided
there is good faith.
 original buyers but merely insisted that each of the lessee be given P50k as the property to the Appellants.
disturbance fee by the vendors to which the latter acquiesced 2. It would be the peak of inequity to allow the vendors to invoke the occupation by
49. Moreover, when the vendors wrote letters to the lessees giving them the the lessees, as of the property, as a justification to ignore their obligation to have them
option to match the price offered by the Appellants, they didn’t respond. It evicted and for them to give P50k as disturbance fee for each of the lessees and a
was only after the execution of the Deed of Conditional Sale, that the lessees justification for the latter to hold on to the possession of the property.
finally decided to purchase the property. 3. Non-consummation of the DCS because of non-delivery to of the property does not
50. Lessees are estopped from claiming that the property had not been delivered mean that the Deed of Sale of Registered Land executed by the lessees and vendors
to the original buyers. They cannot use their gross bad faith as a shield to should be given preference. The lower court erred in not applying the second and third
frustrate the enforcement of the Deed of Conditional Sale. paragraphs of Article 154418.
51. The vendors cannot invoke the refusal of the lessees to vacate the property 4. Evidence shows that the lessees were able to register the Deed of Sale of Registered
and their decision to themselves purchase the property as a valid justification Land and procure TCT under their names, and that they were, as of said date, in
to renege on and turn their backs against their obligation to deliver/cause the physical possession of the property, however, the evidence in the record shows that
eviction. the lessees were in gross evident bad faith because at the time they executed their
52. CA declared the sale to the original buyers valid and the sale to the lessees sale (December 1987), they were aware that the vendors and the original buyers
void and ordered: had executed their DCS (September 1987)
1. Original buyers to pay the balance of the purchase price (P1.88m) 5. The SC reiterated the reasons of the CA.
2. Lessees
1. vacate within 30d from the finality of this Decision
2. pay P1.5k/month per door to original buyers, from
November, 1987, up to the time the property is vacated
3.
3. Vendors
1. execute a Deed of Absolute Sale in favor of the original
buyers
2. to refund to the lessees the amount of P840k which they
paid for the property without interest bec. bad faith
4. pay to each of the original buyers the amount of P120k for damages
and P20k for attys fee

ISSUE: WoN the transaction entered into by private respondents Yu and Lim with
private respondents Kado siblings, is one of an absolute sale and not merely a
conditional sale as denominated in the document signed by said parties –DEED OF
ABSOLUTE SALE.

RULING: WHEREFORE, the instant petition is HEREBY DISMISSED.

RATIO:
1. Vendors cannot invoke the refusal of the lessees to vacate the property and the latters
decision to themselves purchase the property as a valid justification to not do their
obligation to cause the eviction of the lessees from and deliver physical possession of

18
If the same thing should have been sold to different vendees, should good faith was first in the possession; and, in the absence thereof, to the
there be no inscription, the ownership shall pertain to the person who in person who presents the oldest title, provided there is good faith.
 23 CHENG v. GENATO (Therese)
December 29, 1998| Martinez J. | Contract to Sell
FACTS:
PETITIONER: Ricardo Cheng
RESPONDENTS: Ramon Genato and Ernesto R. Da Jose and Socorro B. Da Jose
SUMMARY: Genato was the owner of two parcels of land and he entered into a
contract to sell with spouses Da Jose. In their agreement, the vendee is given 30 days
after the execution of the said contract to verify the authenticity of documents and
that no restrictions, limitations, and developments imposed on and/or affecting the
subject property and after which they should pay the price. Pending the period given
to the spouses, Genato entered into an agreement with Cheng concerning the same
land. Cheng knew about the prior agreement but nonetheless pursued the transaction
holding on to Genato’s claim that the contract to sell with the spouses will be
annulled. Then the spouses knew about this then Genato decided to pursue the
contract to sell with the spouses, to which Cheng of course, objected to. Court said
that In a Contract to Sell, the payment of the purchase price is a positive suspensive
condition, the failure of which is not a breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory
force. In this case, the spouses had not yet complied with their obligation to pay and
the period given to them for which to pay has not yet expired. Furthermore, genato
did not give the spouses notice that their contract had been rescinded. Thus, there
was no valid cancellation of the contract to sell. As to the nature of the agreement
between genato and Cheng, even if it was a conditional contract of sale, it will still
have no obligatory force as the contract with the spouses was still subsisting. Court
also applied Article 1544, wherein it states that if the same thing should have been
sold to different vendees, Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith first recorded it in the
Registry of Property. Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in possession; and in the
absence thereof, to the person who presents the oldest title, provided there is
good faith. In this case, Cheng can never be a good faith buyer as he had knowledge
of the transaction between Genato and the Spouses Da Jose.
DOCTRINE: In rescinding a contract, there must be a written notice given to the
parties and in case that if the same thing should have been sold to different vendees,
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property. Should there be no
inscription, the ownership shall pertain to the person who in good faith was first in
possession; and in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
1. Respondent Ramon B. Genato(Genato) is the owner of two parcels of land
located at Paradise Farms, San Jose Del Monte, Bulacan with an aggregate
area of 35,821 square meters, more or less.
2. Respondent Genato entered into an agreement with respondent-spouses
Ernesto R. Da Jose and Socorro B. Da Jose (Da Jose spouses) over the above-
mentioned two parcels of land.
a. The agreement culminated in the execution of a contract to sell for
which the purchase price was P80.00 per square meter.
b. The contract was in a public instrument and was duly annotated at
the back of the two certificates of title on the same day.
c. Clauses 1 and 3 thereof provide:
i. That the purchase price shall be (P80.00) per square
meter, of which the amount of (P50,000.00) shall be paid
by the VENDEE to the VENDOR as partial down
payment at the time of execution of this Contract to Sell.
ii. That the VENDEE, thirty (30) DAYS after the execution
of this contract, and only after having satisfactorily
verified and confirmed the truth and authenticity of
documents, and that no restrictions, limitations, and
developments imposed on and/or affecting the property
subject of this contract shall be detrimental to his
interest, the VENDEE shall pay to the VENDOR,
(P950,000.00) representing the full payment of the
agreed Down Payment, after which complete possession
of the property shall be given to the VENDEE to enable
him to prepare the premises and any development
therein.
3. Da Jose spouses, not having finished verifying the titles mentioned asked for
and was granted by respondent Genato an extension of another 30 days.
a. However, according to Genato, the extension was granted on
condition that a new set of documents is made seven (7) days from
October 4, 1989.
b. This was denied by the Da Jose spouses.
4. Pending the effectivity of the aforesaid extension period, and without due
notice to the Da Jose spouses, Genato executed an Affidavit to Annul the
Contract to Sell, on October 13, 1989.
a. Moreover, no annotation of the said affidavit at the back of his titles
was made right away.
b. The affidavit contained, inter alia, the following paragraphs;
 i. That it was agreed between the parties that the agreed
downpayment of P950,000.00 shall be paid thirty (30)
days after the execution of the Contract, that is on or
before October 6, 1989;
ii. The supposed VENDEES failed to pay the said full
downpayment even up to this writing, a breach of
contract.
iii. That this affidavit is being executed to Annul the
aforesaid Contract to Sell for the vendee having
committed a breach of contract for not having complied
with the obligation as provided in the Contract to Sell
5. Petitioner Ricardo Cheng (Cheng) went to Genatos residence and expressed
interest in buying the subject properties.
a. On that occasion, Genato showed to Ricardo Cheng copies of his
transfer certificates of title and the annotations at the back thereof of
his contract to sell with the Da Jose spouses.
b. Genato also showed him the aforementioned Affidavit to Annul the
Contract to Sell which has not been annotated at the back of the
titles.
c. Despite these, Cheng went ahead and issued a check for P50,000.00
upon the assurance by Genato that the previous contract with the Da
Jose spouses will be annulled for which Genato issued a handwritten
receipt
d. Genato deposited Chengs check.
6. On the same day, Cheng called up Genato reminding him to register the
affidavit to annul the contract to sell.
a. Acting on Chengs request, Genato caused the registration of the
Affidavit to Annul the Contract to Sell in the Registry of Deeds,
Meycauayan, Bulacan
7. While the Da Jose spouses were at the Office of the Registry of Deeds of
Meycauayan, Bulacan they met Genato by coincidence.
a. It was only then that the Da Jose spouses discovered about the
affidavit to annul their contract.
b. The latter were shocked at the disclosure and protested against the
rescission of their contract.
c. After being reminded that he (Genato) had given them (Da Jose
spouses) an additional 30-day period to finish their verification of
his titles, that the period was still in effect, and that they were willing
and able to pay the balance of the agreed down payment, later on in
the day, Genato decided to continue the Contract he had with them.
8. Thereafter, Ramon Genato advised Ricardo Cheng of his decision to continue
his contract with the Da Jose spouses and the return of Chengs P50,000.00
check.
a. Chengs lawyer sent a letter to Genato demanding compliance with
their agreement to sell the property to him stating that the contract
to sell between him and Genato was already perfected and
threatening legal action.
b. Genato returned the P50,000.00 and expressed regret for his
inability to consummate his transaction with him.
c. Cheng, however, returned the said check to the former via RCPI
telegram reiterating that their contract to sell your property had
already been perfected.
9. Cheng executed an affidavit of adverse claim and had it annotated on the
subject TCTs.
a. On the same day, consistent with the decision of Genato and the Da
Jose spouses to continue with their Contract to Sell, the Da Jose
spouses paid Genato the complete down payment of P950,000.00
and delivered to him three (3) postdated in the total amount
of P1,865,680.00 to cover full payment of the balance of the agreed
purchase price.
b. However, due to the filing of the pendency of this case, the three (3)
postdated checks have not been encashed.
10. Cheng instituted a complaint for specific performance to compel Genato to
execute a deed of sale to him of the subject properties plus damages and
prayer for preliminary attachment.
a. In his complaint, Cheng averred that the P50,000.00 check he gave
was a partial payment to the total agreed purchase price of the
subject properties and considered as an earnest money for which
Genato acceded.
b. Thus, their contract was already perfected.
11. Genato alleged that the agreement was only a simple receipt of an option-bid
deposit, and never stated that it was a partial payment, nor is it an earnest
money and that it was subject to the condition that the prior contract with the
Da Jose spouses be first cancelled.
12. The Da Jose spouses asserted that they have a superior right to the property
as first buyers.
a. They alleged that the unilateral cancellation of the Contract to Sell
was without effect and void.
b. They also cited Chengs bad faith as a buyer being duly informed by
Genato of the existing annotated Contract to Sell on the titles.
13. Trial court: contract between Genato and Da Jose spouses rescinded in
accordance with Article 1191.
14. CA: reversed the judgment and ruled that the prior contract to sell in favor of
the Da Jose spouses was not validly rescinded, that the subsequent contract
to sell between Genato and Cheng, embodied in the handwritten receipt, was
without force and effect due to the failure to rescind the prior contract; and
 that Cheng should pay damages to the respondents herein being found to be
in bad faith.
15. Hence this petition
ISSUES: Whether or not the agreement between Genato and the Da Jose was
validly rescinded so as to entitle Cheng to the sale of the subject properties
RULING: NO.
WHEREFORE, premises considered, the instant petition for review is DENIED
and the assailed decision is hereby AFFIRMED EN TOTO.
RATIO:
16. The petition must be denied for failure to show that the Court of Appeals
committed a reversible error which would warrant a contrary ruling.
17. In a Contract to Sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a breach, casual or serious,
but a situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force.
a. It is one where the happening of the event gives rise to an
obligation.
b. Thus, for its non-fulfillment there will be no contract to speak of,
the obligor having failed to perform the suspensive condition which
enforces a juridical relation.
c. In fact with this circumstance, there can be no rescission of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet
d. Emphasis should be made that the breach contemplated in Article
1191 of the New Civil Code is the obligors failure to comply with
an obligation already extant, not a failure of a condition to render
binding that obligation.
18. Obviously, the foregoing jurisprudence cannot be made to apply to the
situation in the instant case because no default can be ascribed to the Da Jose
spouses since the 30-day extension period has not yet expired.
a. The Da Jose spouses contention that no further condition was agreed
when they were granted the 30-days extension period from October
7, 1989 in connection with clause 3 of their contract to sell dated
September 6, 1989 should be upheld for the following reason:
i. firstly, If this were not true, Genato could not have been
persuaded to continue his contract with them and later on
agree to accept the full settlement of the purchase price
knowing fully well that he himself imposed such sine
qua non condition in order for the extension to be valid;
ii. secondly, Genato could have immediately annotated his
affidavit to annul the contract to sell on his title when it
was executed on October 13, 1989 and not only on
October 26, 1989 after Cheng reminded him of the
annotation;
iii. thirdly, Genato could have sent at least a notice of such
fact, there being no stipulation authorizing him for
automatic rescission, so as to finally clear the
encumbrance of his titles and make it available to other
would be buyers. It likewise settles the holding of the
trial court that Genato needed money urgently.
19. Even assuming in gratia argumenti that the Da Jose spouses defaulted, as
claimed by Genato, in their Contract to Sell, the execution by Genato of the
affidavit to annul the contract is not even called for.
a. For with or without the aforesaid affidavit their non-payment to
complete the full downpayment of the purchase price ipso
facto avoids their contract to sell, it being subjected to a suspensive
condition.
b. When a contract is subject to a suspensive condition, its birth or
effectivity can take place only if and when the event which
constitutes the condition happens or is fulfilled.
c. If the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed.
20. Nevertheless, this being so Genato is not relieved from the giving of a notice,
verbal or written, to the Da Jose spouses for decision to rescind their contract.
a. In many cases, even though we upheld the validity of a
stipulation in a contract to sell authorizing automatic rescission
for a violation of its terms and conditions, at least a written
notice must be sent to the defaulter informing him of the same.
b. The act of a party in treating a contract as cancelled should be made
known to the other.
c. For such act is always provisional. It is always subject to scrutiny
and review by the courts in case the alleged defaulter brings the
matter to the proper courts.
d. University of the Philippines vs. De Los Angeles:
i. the party who deems the contract violated may consider
it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk.
ii. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the
action taken was or was not correct in law.
iii. But the law definitely does not require that the
contracting party who believes itself injured must first
file suit and wait for a judgment before taking
extajudicial steps to protect its interest.
 iv. Otherwise, the party injured by the others breach will
have to passively sit and watch its damages accumulate
during the pendency of the suit until the final judgment
of rescission is rendered when the law itself requires that
he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
e. This rule validates, both in equity and justice, contracts such as the
one at bat, in order to avoid and prevent the defaulting party from
assuming the offer as still in effect due to the obligees tolerance for
such non-fulfillment.
i. Resultantly, litigations of this sort shall be prevented and
the relations among would-be parties may be preserved.
21. Thus, Ricardo Chengs contention that the Contract to Sell between Genato
and the Da Jose spouses was rescinded or resolved due to Genatos unilateral
rescission finds no support in this case.
Issue on the nature of the agreement between Cheng and Genato:
22. The records of this case are replete with admissions that Cheng believed it to
be one of a Contract to Sell and not one of Conditional Contract of Sale which
he, in a transparent turn-around, now pleads in this Petition.
a. This ambivalent stance of Cheng is even noted by the appellate
court, thus:
b. plaintiff-appellee was inconsistent in characterizing the contract he
allegedly entered into. In his complaint, Cheng alleged that
the P50,000.00 down payment was earnest money.
c. And next, his testimony was offered to prove that the transaction
between him and Genato on October 24, 1989 was actually a
perfected contract to sell.
23. This patent twist only operates against Chengs posture which is indicative of
the weakness of his claim.
24. But even if we are to assume that the receipt, Exh. D, is to be treated as a
conditional contract of sale, it did not acquire any obligatory force since it
was subject to suspensive condition that the earlier contract to sell between
Genato and the Da Jose spouses should first be cancelled or rescinded a
condition never met, as Genato, to his credit, upon realizing his error,
redeemed himself by respecting and maintaining his earlier contract with the
Da Jose spouses.
a. Reading of the receipt alone would not even show that a conditional
contract of sale has been entered by Genato and Cheng.
b. When the requisites of a valid contract of sale are lacking in said
receipt, therefore the sale is neither valid or enforceable.
25. To support his now new theory that the transaction was a conditional contract
of sale, petitioner invokes the case of Coronel vs. Court of Appeals
a. We do not agree. Apparently,
b. the factual milieu in Coronel is not on all fours with those in the
case at bar.
c. In Coronel, this Court found that the petitioners therein clearly
intended to transfer title to the buyer which petitioner themselves
admitted in their pleading. The agreement of the parties therein was
definitively outline in the Receipt of Down Payment both as to
property, the purchase price, the delivery of the seller of the property
and the manner of the transfer of title subject to the specific
condition that upon the transfer in their names of the subject
property the Coronels will execute the deed of absolute sale.
d. Whereas, in the instant case, even by a careful perusal of the receipt,
Exh. D, alone such kind of circumstances cannot be ascertained
without however resorting to the exceptions of the Rule on Parol
Evidence.
26. Article 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
a. Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
b. Should there be no inscription, the ownership shall pertain to
the person who in good faith was first in possession; and in the
absence thereof, to the person who presents the oldest title,
provided there is good faith
27. This provision connotes that the following circumstances must concur:
i. (a) The two (or more) sales transactions in the issue
must pertain to exactly the same subject matter,
and must be valid sales transactions.
ii. (b) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each represent
conflicting interests; and
iii. (c) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each have bought
from the very same seller.
b. These situations obviously are lacking in a contract to sell for
neither a transfer of ownership nor a sales transaction has been
consummated. The contract to be binding upon the obligee or the
vendor depends upon the fulfillment or non-fulfillment of an event.
28. Court is of the view that the governing principle of Article 1544, Civil
Code, should apply in this situation.
a. Jurisprudence teaches us that the governing principle is PRIMUS
TEMPORE, PORTIOR JURE (first in time, stronger in right).
 b. For not only was the contract between herein respondents first in c. Whereas in the case of Genatos agreement with Cheng such is
time; it was also registered long before petitioners intrusion as a unavailing. For even before the receipt, Exh. D, was issued to Cheng
second buyer. information of such pre-existing agreement has been brought to his
c. This principle only applies when the special rules provided in the knowledge which did not deter him from pursuing his agreement
aforcited article of Civil Code do not apply or fit the specific with Genato.
circumstances mandated under said law or by jurisprudence 33. Such bad faith, coupled with his wrongful interference with the contractual
interpreting the article. relations between Genato and the Da Jose spouses, which culminated in his
29. The rule exacted by Article 1544 of the Civil Code for the second buyer to filing of the present suit and thereby creating what the counsel for the
be able to displace the first buyer are: respondents describes as a prolonged and economically unhealthy
a. (1) that the second buyer must show that he acted in good faith (i.e. gridlock on both the land itself and the respondents rights provides ample
in ignorance of the first sale and of the first buyers rights) from the basis for the damages awarded.
time of acquisition until title is transferred to him by registration or 34. Based on these overwhelming evidence of bad faith on the part of herein
failing registration, by delivery of possession; petitioner Ricardo Cheng, we find that the award of damages made by the
b. (2) the second buyer must show continuing good faith and appellate court is in order.
innocence or lack of knowledge of the first sale until his contract
ripens into full ownership through prior registration as provided by
law.
30. Thus, in the case at bar, the knowledge gained by the Da Jose spouses, as
first buyers, of the new agreement between Cheng and Genato will not
defeat their rights as first buyers except where Cheng, as second buyer,
registers or annotates his transaction or agreement on the title of the subject
properties in good faith ahead of the Da Jose spouses.
a. Moreover, although the Da Jose spouses, as first buyers, knew of
the second transaction it will not bar them from availing of their
rights granted by law, among them, to register first their agreement
as against the second buyer.
b. In contrast, knowledge gained by Cheng of the first transaction
between the Da Jose spouses and Genato defeats his rights even
if he is first to register the second transaction, since such
knowledge taints his prior registration with bad faith.
31. We have ruled before that when a Deed of Sale is inscribed in the registry of
property on the original document itself, what was done with respect to said
entries or annotations and marginal notes amounted to a registration of the
sale.
a. In this light, we see no reason why we should not give priority in
right the annotation made by the Da Jose spouses with respect to
their Contract to Sell dated September 6, 1989.
32. Moreover, registration alone in such cases without good faith is not
sufficient.
a. Good faith must concur with registration for such prior right to be
enforceable.
b. In the instant case, the annotation made by the Da Jose spouses on
the titles of Genato of their Contract to Sell more than satisfies this
requirement.
 24 BADILLA v. BRAGAT (SEE)
April 22, 2015 | Peralta, J. | Multiple Sales of the same property
PETITIONER: Spouses Magdalino and Cleofe Badilla
RESPONDENTS: Fe Bragat
SUMMARY: Spouses Pastrano owned a 1015sqm parcel of land in Tablon, CDO as
evidenced by and OCT. Before the said OCT was issued, they sold the land to
Ledesma in 1968. Spouses Badilla claim that in 1970, Ledesma sold to them 200sqm
of the land via installment and they have been in possession and occupation of the
land since then. In 1978, Spouses Bragat bought 991sqm from Ledesma. In 1984,
Spouses Pastrano then again sold to Fe Bragat (Bragat), the whole lot (1015sqm). On
the same day, Azur Pastrano, filed and affidavit for the loss of owner’s duplicate
copy of OCT but it was Bragat who petitioned the court and a new OCT was issued.
In 1987, Spouses Pastrano then again sold the same 1015sqm lot to Bragat so the
OCT was cancelled and a TCT was issued in Bragat’s name. Bragat then told Spouses
Badilla to vacate but the latter refused. RTC ruled in favor of Bragat which the CA
affirmed with modifications (only 991sqm was owned by Bragat and 24 sqm was
owned by Spouses Badilla). So Spouses Badilla raised the issue to the SC. The issue
in this case is WoN Bragat, who registered the property first, is the proper owner of
the whole property. The SC ruled that Bragat only owns 863sqm while Spouses
Badilla own 152sqm. In such a situation of multiple sales, Article 1544 of the Civil
Code relates that ownership shall belong to the person acquiring the property who,
in good faith, first recorded such acquisition. Presently, however, it cannot be said
that Bragat’s recording of her 1987 purchase was in good faith because that sale was
simulated and Bragat was aware of other persons who have an interest on the
property. That the 1987 sale is void is further revealed by evidence to show that one
of its signatories, Profitiza Pastrana was already dead when it was executed. Bragat
herself also admitted that she knew of the Spouses Badillas’ occupation prior to her
purchase. In that case, the same Article 1544 of the Civil Code provides that when
neither buyer registered, in good faith, the sale of the properties with the register of
deeds, the one who took prior possession of the properties shall be the lawful owner
thereof. Such prior possessors, at least with respect to the 152sqm. portion, are
indisputably the Spouses Badilla.
DOCTRINE: Article 1544 of the Civil Code relates that ownership shall belong to
the person acquiring the property who, in good faith, first recorded such acquisition.
FACTS:
35. Azur Pastrano and his wife, Profitiza Ebaning (Spouses Pastrano) were the
original owners of Lot 19986 which is 1,015sqm in area, located in Tablon,
Cagayan de Oro City. The OCT was in the name of Azur Pastrano.
36. Before the issuance of the OCT, Spouses Pastrano, on November 18, 1968,
sold the lot to Eustaquio Ledesma (Ledesma), as evidenced by a Deed of
Definite Sale of Unregistered Coconut and Residential Land.
37. Petitioners, Spouses Magdalino and Cleofe Badilla (Spouses Badilla) claim
that in 1970, Ledesma sold to them, on installment basis, 200sqm (Lot 19986-
B) of the lot. The sale was not in writing but possession of the 200sqm was
transferred to them .
38. On April 18, 1978, Spouses Florito and Fe Bragat (Spouses Bragat) bought
991sqm from Ledesma via Deed of Absolute Sale of Residential Lot. 2 tax
declarations were allegedly issued as a result of the sale: (1) Lot 19986-A
with an area of 642sqm; and (2) Lot 19986-B with an area of 349sqm.
39. On May 5, 1984, Spouses Pastrano executed another Deed of Absolute Sale
of registered land with Fe Bragat (Bragat) for the whole land (1015sqm). On
the same day, Azur filed an Affidavit of Loss reporting the loss if the owner’s
duplicate copy of the OCT.
40. It was Bragat, however, who petitioned the court for the issuance of a new
owner’s duplicate copy of the OCT so the RTC issued a new one.
41. On October 2, 1987, Spouses Pastrano executed another Deed of Sale of
registered land in favor of Bragat, with the same land as the subject, the whole
property with an area of 1015sqm. So the OCT was cancelled and a TCT was
issued in the name of Bragat.
42. On March 1991, Bragat, through counsel, demanded that the Spouses Badilla
vacate the land. Spouses Badilla, also through counsel, refused and raised the
earlier sale of the land to them by Ledesma who bought the land from Spouses
Pastrano.
43. Bragat filed her Complaint for Recovery of Posession and Damages against
the spouses Magdalino and Cleofe Badilla on June 5, 1992, alleging therein
that she is the absolute owner of Lot No. 19986, covered by TCT. She claimed
to have purchased the property, first, from Ledesma, but later, when she
found out that Ledesma was “unauthorized” to sell, she again allegedly made
another purchase of the same property from Azur Pastrano, on May 5, 1984.
This led to the cancellation of Pastrano’s OCT and the issuance of Bragat’s
TCT. Thus, she prays for the Spouses Badilla to be ordered to vacate the
around 149sqm portion that they occupy in the property.
44. On June 11, 1992, the Spouses Badilla filed their own Complaint for Quieting
of Title, Declaration of Nullity of TCT and Damages against Bragat, claiming
that the Spouses Badilla are the lawful owners and possessors of Lot No.
19986-B (a portion of Lot No. 19986), having acquired it in 1970 from
Ledesma. The latter, on his part, allegedly bought the bigger Lot No. 19986
from Pastrano earlier on November 18, 1968. The Spouses Badilla alleged
that they took possession of and built a house on the property upon their
purchase thereof from Ledesma and has since remained in possession.
However, they claimed that Pastrano was subsequently able to obtain a free
patent and a title, OCT, over Lot No. 19986. According to the Badillas,
 Pastrano made a sale to Bragat on October 2, 1987, but such sale is not valid
since Pastrano was no longer the owner of the property on that date.
Consequently, the Spouses Badilla prayed that TCT issued to Bragat pursuant
to that sale be declared null and void.
45. The RTC ruled in favor of Bragat noting the following:
1. The sketch map shows the 152sqm portion occupied by the Spouses
Badilla is within the titled property of Bragat.
2. It also found Bragat’s title as valid for what it saw as the result of a
purchase in good faith and for value.
46. The trial court observed a lack of evidence of the Spouses Badilla.
1. The latter allegedly presented handwritten and typewritten receipts
which were purportedly signed by Ledesma, dated March 5, 1989,
March 1, 1991 and March 23, 1991 acknowledging Ledesma’s
receipt of certain amounts, but the court claimed that it found no
evidence of (Ledesma’s) absolute ownership on these dates.
2. The court noted that Ledesma had sold previously to the Spouses
Bragat via a Deed of Absolute Sale of Residential Land dated April
18, 1978. Hence, in the trial court’s view, on March 5, 1989, March
1, 1991 and March 23, 1991, Ledesma no longer owned the land and
transferred nothing to the Badillas.
47. The CA affirmed the RTC decision but modified it. The CA declared that
only 991sqm was transferred to Bragat in 1978 so the remaining 24sqm was
validly transferred to Badillas in 1991. It also removed the award of damages.
48. Hence this petition by the Spouses Badilla.
49. Contention of Spouses Badilla:
1. ownership of the 200sqm. portion was transferred to them when they
purchased the same and possession was delivered to them by
Ledesma in 1970.
2. that when OCT No. P2035 was actually issued in 1980, it was first
delivered by Pastrano to Ledesma and the latter delivered the same
to them (the Badillas). Thus, Bragat allegedly falsely claimed the
“loss” of the title when she petitioned the court for a new duplicate
original, because such title was not lost but had been with the
Badillas all along.
3. Another fraud that Bragat allegedly committed was the Deed of Sale
dated October 2, 1987, in which Profitiza Pastrano signed (in marital
consent) although she had been dead since March 30, 1985
50. Bragat claims:
1. that the sale of October 2, 1987 was only a re-execution of the sale
of May 5, 1984, in order to avoid tax surcharges.
2. Badilla’s documentary evidence were all executed only after she had
the property in her name.
ISSUE/s:
4. WoN Bragat, who registered the property first, is the proper owner of the
whole property.-NO
RULING: WHEREFORE, premises considered, the petition is GRANTED. The
assailed Decision dated October 9, 2008 and Resolution dated February 12, 2009 of
the Court of Appeals in C.A.G. R. CV No. 70423-MIN are hereby REVERSED and
SET ASIDE. Transfer Certificate of Title No. T47759 is DECLARED VOID, and, in
its place, two (2) new transfer certificates of titles are ORDERED ISSUED, namely:
(1) in the name of the Spouses Magdalino and Cleofe Badilla, covering the 152 sq. m.
that they are occupying, and (2) in the name of Fe Bragat, covering the remaining 863
sq. m. of the property, of which measurements are to be based on Exhibits “N” and
Exhibit “N2.” SO ORDERED.
RATIO:
11. Spouses Pastrano had previously sold the land on November 18, 1968 to
Ledesma. So as early as 1968, Spouses Pastrano no longer had ownership of
the property. Then, as Ledesma sold, in 1970, a portion of the property to
Spouses Badilla, who took possession of it despite payment being in
installments. That the parties intended for ownership to be transferred may
be inferred from their lack of any agreement stipulating that ownership of the
property is reserved by the seller and shall not pass to the buyer until the latter
has fully paid the purchase price.33 The fact is, Ledesma even delivered to
the Badillas the owner’s duplicate copy of OCT No. P2035. The Civil Code
states that ownership of the thing sold is transferred to the vendee upon the
actual or constructive delivery of the same.
12. Therefore, since Spouses Badilla already owned and occupied the 152sqm
portion, the TCT issued to Bragat covering the said portion was wrongfully
issued.
13. Also, the TCT issued to Bragat was on the strength of the Deed of Sale dated
October 2, 1987 but this Deed of Sale is void for being simulated since both
Azur Pastrano and Bragat knew that at the time of its execution of the
Pastrano’s lack of ownership over Lot No. 19986, the property being sold. At
that time, it was not Pastrano but Ledesma who was absolute owner of the
property by virtue of the latter’s earlier purchase of Lot No. 19986 from the
Spouses Pastrano on November 18, 1968, via a Deed of Definite Sale of
Unregistered Coconut and Residential Land. Bragat herself knew this, as she
and her husband themselves first bought the property from Ledesma through
a Deed of Absolute Sale of Residential Land dated April 18, 1978.
14. Pastrano could no longer sell any part of the property to Bragaton such later
dates since he had already sold the same as early as November 18, 1968 to
Ledesma. Wellsettled is the rule that no one can give what one does not have
— nemo dat quod non habet — and, accordingly, one can sell only what one
owns or is authorized to sell, and the buyer acquires no better title than the
seller.44 Thus, the sales made on the dates May 5, 1984 and October 2, 1987
 are void for being simulated and for lack of a subject matter. On these sales,
Bragat cannot claim good faith as she herself knew of Pastrano’s lack of
ownership.
15. Bragat’s property which she bought from Ledesma in 1978 does not include
the 152sqm portion already owned by Spouses Badilla. So Bragat is only
entitled to a new TCT based on the Deed of Sale dated April 18, 1978
excluding the 152sqm portion of the Spouses Badilla.
16. 2 new TCTs should be issued. (1) in the name of Spouses Badilla for the
152sqm portion; and (2) in the name of Bragat for the 863sqm portion.
17. In such a situation of multiple sales, Article 1544 of the Civil Code relates
that ownership shall belong to the person acquiring the property who, in good
faith, first recorded such acquisition. Presently, however, it cannot be said
that Bragat’s recording of her 1987 purchase was in good faith because
that sale was simulated and Bragat was aware of other persons who have
an interest on the property. That the 1987 sale is void is further revealed
by evidence to show that one of its signatories, Profitiza Pastrana was
already dead when it was executed. Bragat herself also admitted that she
knew of the Spouses Badillas’ occupation prior to her purchase.
18. In that case, the same Article 1544 of the Civil Code provides that when
neither buyer registered, in good faith, the sale of the properties with the
register of deeds, the one who took prior possession of the properties
shall be the lawful owner thereof. Such prior possessors, at least with
respect to the 152sqm. portion, are indisputably the Spouses Badilla.
 25 CRB v. DELA CRUZ (Siapno)
January 17, 2005| Tinga, J. | 1544 applies when party has right & power to dispose
PETITIONERS: Consolidated Rural Bank (Cagayan Valley), Inc.
RESPONDENTS: The Honorable Court of Appeals and Heirs of Teodoro Dela
Cruz
SUMMARY: Madrid brothers subdivided a lot and Rizal sold his share, Lot No.
7036-A-7, to Gamiao (southern portion) and Dayag (northern portion). They
failed to register it with the Office of the Register of Deeds in 1957, they only
declared the property for taxation purposes in their names. In 1964, Gamiao and
Dayag sold the land to Dela Cruz and Hernandez. In 1976, the Madrid brothers, at
that time they were no longer the owners, conveyed all their rights and interests
over Lot No. 7036-A-7 to Marquez. Marquez subdivided the lots and some lots
were mortgaged to CRB, and RBC. The heirs of Dela Cruz filed a case for
reconveyance and damages, while the successor-in-interest of Hernandez filed
with leave of court a Complaint in Intervention wherein she claimed the northern
portion of the lot. Marquez alleged that apart from being the first registrant, he
was a buyer in good faith and for value. He also argued that the sale executed by
Madrid to Gamiao and Dayag was not binding upon him, it being unregistered.
Banks said they are mortgagees in good faith and that they had the right to rely on
the titles of Marquez which were free from any lien or encumbrance. Lower courts
resolved the present controversy by applying the rule on double sale provided in
Article 1544 of the Civil Code. The RTC made CRB and the other defendants win,
while the CA decided the case in favor of the Heirs. Issue is WON Marquez is
the rightful owner? SC ruled that both courts erred in using Art 1544. The
provision is not applicable in the present case. It contemplates a case of double or
multiple sales by a single vendor and covers a situation where a single vendor sold
one and the same immovable property to two or more buyers. It is necessary that
the conveyance must have been made by a party who has an existing right in the
thing and the power to dispose of it. It cannot be invoked where the two different
contracts of sale are made by two different persons, one of them not being the
owner of the property sold. In the case at bar, the subject property was not
transferred to several purchasers by a single vendor. In the first deed of sale, the
vendors were Gamiao and Dayag whose right to the subject property originated
from their acquisition thereof from Madrid. On the other hand, the vendors in the
other or later deed were the Madrid brothers but at that time they were no longer
the owners since they had long before disposed of the property in favor of Gamiao
and Dayag. Second issue is WON the Banks are mortgagees in good faith? SC
held that CRB is a mortgagee in bad faith because banks are expected to exercise
more care and prudence, their business being impressed with public interest,
DOCTRINE: For Article 1544 to apply, it is necessary that the conveyance
must have been made by a party who has an existing right in the thing and the
power to dispose of it. It cannot be invoked where the two different contracts of
sale are made by two different persons, one of them not being the owner of the
property sold. And even if the sale was made by the same person, if the second
sale was made when such person was no longer the owner of the property,
because it had been acquired by the first purchaser in full dominion, the second
purchaser cannot acquire any right.
FACTS:
1. Rizal, Anselmo, Gregorio, Filomeno and Domingo Madrid (Madrid brothers),
were the registered owners of Lot 7036-A situated in San Mateo, Isabela. Lot
was subdivided into several lots.
2. 1957: Rizal sold part of his share identified as Lot No. 7036-A-7, to Aleja
Gamiao and Felisa Dayag by virtue of a Deed of Sale, the rest of the Madrid
brothers did not object in their Joint Affidavit.
3. The deed of sale was not registered with the Office of the Register of Deeds of
Isabela. However, Gamiao and Dayag declared the property for taxation
purposes in their names
4. 1964: Gamiao and Dayag sold the southern half of the lot to Teodoro dela Cruz,
and the northern half, to Restituto Hernandez. They both took possession of and
cultivated the portions of the property respectively sold to them.
5. Restituto Hernandez eventually donated the northern half to his daughter,
Evangeline Hernandez-del Rosario. The children of Teodoro dela Cruz
continued possession of the southern half after their father's death
6. 1976: In a Deed of Sale, the Madrid brothers conveyed all their rights and
interests over Lot No. 7036-A-7 to Pacifico Marquez.
7. Subsequently, Marquez subdivided Lot No. 7036-A-7 into 8 lots:
a. Mortagaged 4 lots to the Consolidated Rural Bank, Inc. of Cagayan Valley
(CRB) to secure a loan of P100,000.00.
b. Marquez mortgaged another lot to the Rural Bank of Cauayan (RBC) to
secure a loan of P10,000.00.
c. Marquez sold another lot to Romeo Calixto but reacquired the same so walang effect. (just in
case sir asks)
8. Marquez defaulted so CRB caused the foreclosure of the mortgages in its favor
and the lots were sold to it as the highest bidder.
9. The Heirs of dela Cruz and successors-in-interest of Hernandez claimed all of
this to be null and void.
10. Heirs of Teodor Dela Cruz filed a case for reconveyance and damages of the
southern portion of Lot No. 7036-A against Marquez, Calixto, RBC and CRB.
11. Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed
with leave of court a Complaint in Intervention wherein she claimed the
northern portion of Lot No. 7036-A-7.
12. Marquez alleged that apart from being the first registrant, he was a buyer in
good faith and for value. He also argued that the sale executed by Rizal Madrid
 to Gamiao and Dayag was not binding upon him, it being unregistered.
13. CRB & RBC insisted that they were mortgagees in good faith and that they had
the right to rely on the titles of Marquez which were free from any lien or
encumbrance.
14. RTC declared Marquez to be the lawful owner of Lots 7036-A-7 and the
mortgages to CRB and RBC as valid saying that Marquez was a buyer in good
faith because the conveyances were not registered and relied on Article 1544
(provided in the Ratio) of the Civil Code.
15. CA reversed RTC’s decision saying that Marquez failed to prove his good faith
and declared null and void the sale between Marquez and Madrid brothers and
also the mortages. CA ordered Marquez to reconvey lot to the heirs of Teodoro
dela Cruz and Evangeline Hernandez-del Rosario.
16. Marquez admitted having knowledge that the subject property was "being
taken" by the Heirs at the time of the sale. The Heirs were also in possession of
the land at the time. CA held that circumstances along with the subject
property's attractive location — it was situated along the National Highway and
was across a gasoline station — should have put Marquez on inquiry as to its
status. Instead, Marquez closed his eyes to these matters and failed to exercise
the ordinary care expected of a buyer of real estate.
17. As to the mortgagees RBC and CRB, CA found that they were mortgagees in
bad faith because they merely relied on the certificates of title of the mortgaged
properties. They did not ascertain the status and condition thereof according to
standard banking practice.
18. Hence, the instant CRB petition. However, both Marquez and RBC elected not
to challenge the Decision of the appellate court.
ISSUE: WoN Marquez is the rightful owner? NO, Gamiao & Dayag’s heirs
WoN RBC and CRB are mortgagees in bad faith? YES
HELD: WHEREFORE, the Petition is DENIED. The dispositive portion of the
Court of Appeals' Decision, as modified by its Resolution dated 5 January 1998, is
AFFIRMED. Costs against petitioner.
SO ORDERED.
RATIO:
IMPT: Art 1544 only applies when vendor has the right to dispose the thing sold
19. Lower courts, although used Art 1544, arrived at different conclusions. The RTC
made CRB and the other defendants win, while the CA decided the case in favor
of the Heirs.
20. ART. 1544 provides: “If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.”
21. The provision is not applicable in the present case. It contemplates a case of
double or multiple sales by a single vendor. Art 1544 covers a situation where a
single vendor sold one and the same immovable property to two or more buyers.
22. It is necessary that the conveyance must have been made by a party who has an
existing right in the thing and the power to dispose of it. It cannot be invoked
where the two different contracts of sale are made by two different persons, one
of them not being the owner of the property sold.
23. And even if the sale was made by the same person, if the second sale was made
when such person was no longer the owner of the property, because it had been
acquired by the first purchaser in full dominion, the second purchaser cannot
acquire any right.
24. In the case at bar, the subject property was not transferred to several purchasers
by a single vendor. In the first deed of sale, the vendors were Gamiao and
Dayag whose right to the subject property originated from their acquisition
thereof from Rizal. On the other hand, the vendors in the other or later deed
were the Madrid brothers but at that time they were no longer the owners
since they had long before disposed of the property in favor of Gamiao and
Dayag. Art 1544 of the Civil Code presupposes the right of the vendor to
dispose of the thing sold.
When not all the requisites are present to warrant the application of Art 1544
25. The principle of prior tempore, potior jure or simply "he who is first in time is
preferred in right," should apply. The only one who can invoke this is the first
vendee. Undisputedly, he is a purchaser in good faith because at the time he
bought the real property, there was still no sale to a second vendee.
26. In the instant case, the sale to the Heirs by Gamiao and Dayag, who first bought
it from Rizal Madrid, was anterior to the sale by the Madrid brothers to
Marquez. The Heirs also had possessed the subject property first in time. Thus,
applying the principle, the Heirs, without a scintilla of doubt, have a superior
right to the subject property.
27. Moreover, it is an established principle that no one can give what one does not
have — nemo dat quod non habet. Accordingly, one can sell only what one
owns or is authorized to sell, and the buyer can acquire no more than what the
seller can transfer legally.
28. In this case, since the Madrid brothers were no longer the owners of the subject
property at the time of the sale to Marquez, the latter did not acquire any right
to it.
Assuming arguendo that Art 1544 applies
29. The claim of Marquez still cannot prevail over the right of the Heirs since
according to the evidence he was not a purchaser and registrant in good faith.
30. Following Article 1544, in the double sale of an immovable, the rules of standard procedure in its operations, we agree with the Court of Appeals that
preference are: (a) the first registrant in good faith; (b) should there be no entry, CRB is a mortgagee in bad faith.
the first in possession in good faith; and (c) in the absence thereof, the buyer
who presents the oldest title in good faith.
31. Prior registration of the subject property does not by itself confer ownership or
a better right over the property. Article 1544 requires that before the second
buyer can obtain priority over the first, he must show that he acted in good faith
from the time of acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession.
32. The actions of Marquez have not satisfied the requirement of good faith from the
time of the purchase of the subject property to the time of registration. Found by
the CA, Marquez knew at the time of the sale that the subject property was being
claimed or "taken" by the Heirs. This was a detail which could indicate a defect
in the vendor's title which he failed to inquire into. Marquez also admitted that
he did not take possession of the property and at the time he testified he did not
even know who was in possession.
33. The rule of caveat emptor requires the purchaser to be aware of the supposed title
of the vendor and one who buys without checking the vendor's title takes all the
risks and losses consequent to such failure. Instead, Marquez willfully closed his
eyes to the possibility of the existence of these flaws. For failure to exercise the
measure of precaution which may be required of a prudent man in a like situation,
he cannot be called a purchaser in good faith.
34. The requirement of good faith in the possession of the property finds no
application in cases where there is no second sale. In the case at bar, Teodoro
dela Cruz took possession of 18 years before the Heirs had knowledge of the
registration of said sale. Thus, there was no need for the appellate court to
consider the issue of good faith or bad faith with regard to Teodoro dela Cruz's
possession of the subject property.
35. Also, the regularity of the sale to Gamiao and Dayag was never contested by
Marquez. RTC upheld the validity of this sale, holding that the Madrid brothers
are bound by the sale by virtue of their Joint Affidavit.
36. Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v.
Heirs of Mariano E. Santiago, tax declarations "are good indicia of possession
in the concept of an owner, for no one in his right mind would be paying taxes
for a property that is not in his actual or constructive possession."
CRB and RBS are mortgagees in bad faith
37. This rule equally applies to mortgagees of real property. It is a well-settled rule
that a purchaser or mortgagee cannot close his eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor or mortgagor.
38. Banks, their business being impressed with public interest, are expected to
exercise more care and prudence than private individuals in their dealings, even
those involving registered lands. Hence, for merely relying on the certificates of
title and for its failure to ascertain the status of the mortgaged properties as is the
 26 Carbonell v CA (Mel)
January 26, 1976| Makasiar, J.| First in time, stronger in right
PETITIONER: Rosario Carbonell
RESPONDENTS: Honorable Court of Appeals, Jose Poncio, Emma Infante and
Ramon Infante
SUMMARY: Poncio, a Batanes native, owned a parcel of land, which he offered
to sell to Carbonell and Infante. The land was mortgaged to Republic Bank.
Poncio, unable to keep up with the installments due on the mortgage, approached
Carbonell one day and offered to sell to the said lot, excluding the house wherein
respondent lived. Poncio assumed to pay the mortgage in favor of the bank.
Poncio and Carbonell executed an instrument where Carbonell allowed Poncio to
remain in the premises in spite of the sale for a period of 1 year. Later on, when
the Formal Deed of Sale was to be executed, Poncio told Carbonell that he could
no longer proceed with the sale as he had already sold the same to Infante for a
better price. Carbonell immediately sought to register adverse claim; 4 days later,
Infante registered the sale with the adverse claim annotated thereto. Infante
thereafter introduced significant improvements on the property. The trial court
declared the claim of Infante to be superior to that of the first buyer Carbonell.
The Court of Appeals (Fifth Division) reversed the decision of the trial court,
declaring Carbonell to have a superior right to the land in question, and
condemning Infante to reconvey to the former, after reimbursement of expenses,
the land in question and all its improvements. On motion for reconsideration, a
special division of five of the said appeals court ruled in favor of the respondents.
Carbonell moved to reconsider the Resolution of the Special Division of Five,
which motion was denied by Minute Resolution. The issue in this case is who has
a better title, Carbonell or Infante? The Supreme Court held that Carbonell has a
better title to the land. In order to claim the benefit of Art. 1544, the buyer of
realty must register the property in good faith. It is a pre-condition to a superior
title. In this case, Infante was not in good faith, thus the prior sale to Carbonell
must prevail. There was a showing of bad faith by Infante in the following
circumstances: Infante registered her claim 4 days after the adverse claim was
registered, she had notice that Carbonell paid off the mortgage debt as the
mortgage passbook was already in his possession and she ignored Carbonell and
refused to talk to her.
DOCTRINE: (from syllabus, wasn’t expressly mentioned in the majority
opinion but was mentioned in Teehankee’s concurring opinion) MAIN RULE
UNDER ART. 1544: “Primus Tempore, Portior Jure”. – FIRST IN TIME,
STRONGER IN RIGHT
The buyer of realty must act in good faith in registering his deed of sale to merit
the protection of the second paragraph of Article 1544 of the New Civil Code
which directs that ownership of immovable property should be recognized in
favor of one "who in good faith recorded" his right.
FACTS:
1. Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes
Islands, was the owner of the parcel of land herein involve with
improvements situated at 179 V. Agan St., San Juan, Rizal, having an area of
some 195 square meters covered by TCT No. 5040 and subject to mortgage
in favor of the Republic Savings Bank for the sum of P1,500.00.
2. Petitioner Rosario Carbonell, a cousin and adjacent neighbor of respondent
Poncio, and also from the Batanes Islands, lived in the adjoining lot at 177 V.
Agan Street.
3. Both petitioners Rosario Carbonell and respondent Emma Infante offered to
buy the said lot from Poncio.
4. Poncio, unable to keep up with the installments due on the mortgage,
approached Carbonell one day and offered to sell to the said lot, excluding
the house wherein he lived.
5. Carbonell accepted the offer and proposed the price of P9.50 per square
meter. Poncio accepted the price proposed by Carbonell, on the condition that
from the purchase price would come the money to be paid to the bank.
6. Carbonell and Poncio then went to the Republic Savings Bank and secured
the consent of the President thereof for her to pay the arrears on the mortgage
and to continue the payment of the installments as they fall due. The amount
in arrears reached a total sum of P247.26. But because respondent Poncio had
previously told her that the money, needed was only P200.00, only the latter
amount was brought by Carbonell constraining Poncio to withdraw the sum
of P47.00 from his bank deposit with Republic Savings Bank. But the next
day, Carbonell refunded to Poncio the sum of P47.00.
7. On January 27, 1955, Carbonell and Poncio, in the presence of a witness,
made and executed a document in the Batanes dialect, which, translated into
English, reads:
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM JOSE PONCIO Beginning
today January 27, 1955, Jose Poncio can start living on the lot sold by him to me, Rosario
Carbonell, until after one year during which time he will not pay anything. Then if after said one
year, he could not find a place where to move his house, he could still continue occupying the
site but he should pay a rent.
8. Carbonell asked Atty. Salvador Reyes to prepare the formal deed of sale,
which she brought to Poncio together with the amount of some P400.00, the
balance she still had to pay in addition to her assuming the mortgaged
obligation to Republic Savings Bank.
9. Upon arriving at Poncio's house, however, Poncio told Carbonell that he
could not proceed any more with the sale, because he had already given the
lot to Emma Infante; and that he could not withdraw from his deal with
Infante, even if he were to go to jail. Carbonell then sought to contact Infante
 but the latter refused to see her.
10. On February 5, 1955, Carbonell saw Infante erecting a wall around the lot
with a gate.
11. Carbonell then consulted Atty. Jose Garcia, who advised her to present an
adverse claim over the land in question with the Office of the Register of
Deeds of Rizal. Atty. Garcia actually sent a letter of inquiry to the Register
of Deeds and demand letters to Poncio and Infante.
12. In his answer, Poncio admitted "that on January 30, 1955, Mrs. Infante
improved her offer and he agreed to sell the land and its improvements to her
for P3,535.00"
13. In a private memorandum agreement, Poncio indeed bound himself to sell to
his corespondent Emma Infante, the property for the sum of P2,357.52, with
respondent Emma Infante still assuming the existing mortgage debt in favor
of Republic Savings Bank in the amount of P1,177.48. Infante lives just
behind the houses of Poncio and Rosario Carbonell.
14. On February 2, 1955, respondent Jose Poncio executed the formal deed of
sale in favor of respondent Mrs. Infante in the total sum of P3,554.00 and on
the same date, the latter paid Republic Savings Bank the mortgage
indebtedness of P1,500.00. The mortgage on the lot was eventually
discharged.
15. Informed that the sale in favor of respondent Emma Infante had not yet been
registered, Atty. Garcia prepared an adverse claim for petitioner, who signed
and swore to and registered the same on February 8, 1955.
16. The deed of sale in favor of respondent Mrs. Infante was registered only on
February 12, 1955. As a consequence, thereof, a Transfer Certificate of Title
was issued to her but with the annotation of the adverse claim of Carbonell.
17. Emma Infante took immediate possession of the lot involved, covered the
same with 500 cubic meters of garden soil and built therein a wall and gate,
spending the sum of P1,500.00. She further contracted the services of an
architect to build a house; but the construction only started in 1959 — years
after the litigation actually began and during its pendency.
18. Carbonell filed a second amended complaint against private respondents,
praying that she be declared the lawful owner of the questioned parcel of
land; that the subsequent sale to respondents Infanet be declared null and
void, and that Poncio be ordered to execute the corresponding deed of
conveyance of said land in her favor and for damages and attorney's fees.
19. Respondents first moved to dismiss the complaint on the ground that
Carbonell's claim is unenforceable under the Statute of Frauds, the alleged
sale in her favor not being evidenced by a written document and when said
motion was denied without prejudice to passing on the question raised therein
when the case would be tried on the merits, respondents filed separate
answers, reiterating the grounds of their motion to dismiss.
20. During the trial, when Carbonell started presenting evidence of the sale of the
land in question to her by Poncio, part of which evidence was the agreement
written in the Batanes dialect aforementioned, Infantes objected to the
presentation by petitioner of parole evidence to prove the alleged sale
between her and respondent Poncio. The trial court sustained the objection
and dismissed the complaint.
21. Carbonell appealed to the Supreme Court which ruled that the Statute of
Frauds, being applicable only to executory contracts, does not apply to the
alleged sale between Carbonell and Poncio, which Carbonell claimed to have
been partially performed, so that Carbonell is entitled to establish by parole
evidence "the truth of this allegation, as well as the contract itself." The order
appealed from was thus reversed, and the case remanded to the court a quo
for further proceedings.
22. After trial in the court a quo; a decision was, rendered declaring the second
sale by respondent Jose Poncio to his co-respondents Ramon Infante and
Emma Infante of the land in question null and void and ordering respondent
Poncio to execute the proper deed of conveyance of said land in favor of
Carbonell.
23. Respondent Infantes filed a motion for re-trial to adduce evidence for the
proper implementation of the court's decision in case it would be affirmed on
appeal which motion was opposed by Carbonell for being premature.
24. Before their motion for re-trial could be resolved, respondent Infantes, filed
another motion for new trial, claiming that the decision of the trial court is
contrary to the evidence and the law which motion was also opposed by
Carbonell.
25. The trial court granted a new trial at which re-hearing only the respondents
introduced additional evidence consisting principally of the cost of
improvements they introduced on the land in question.
26. After the re-hearing, the trial court ruled that the claim of the respondents was
superior to the claim of Carbonell. Carbonell appealed.
27. The Court of Appeals rendered judgment reversing the decision of the trial
court, declaring Carbonell to have a superior right to the land in question, and
condemning the defendant Infantes to reconvey to Carbonell after her
reimbursement to them of the sum of P3,000.00 plus legal interest, the land
in question and all its improvements
28. Respondents sought reconsideration of said decision and acting on the motion
for reconsideration, the Appellate Court, three Justices (Villamor, Esguerra
and Nolasco) of Special Division of Five, ruled in favor of the respondents.
29. Carbonell moved to reconsider the Resolution of the Special Division of Five,
which motion was denied by Minute Resolution (but with Justices Rodriguez
and Gatmaitan voting for reconsideration)
ISSUE:
Who has a better title, Carbonell or Infante? – Carbonell.
RULING:
WHEREFORE, THE DECISION OF THE SPECIAL DIVISION OF FIVE OF THE COURT OF APPEALS OF
OCTOBER 30, 1968 IS HEREBY REVERSED; PETITIONER ROSARIO CARBONELL IS HEREBY
DECLARED TO HAVE THE SUPERIOR RIGHT TO THE LAND IN QUESTION AND IS HEREBY
DIRECTED TO REIMBURSE TO PRIVATE RESPONDENTS INFANTES THE SUM OF ONE THOUSAND
FIVE HUNDRED PESOS (P1,500.00) WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION; AND THE REGISTER OF DEEDS OF RIZAL IS HEREBY DIRECTED TO CANCEL TRANSFER
CERTIFICATE OF TITLE NO. 37842 ISSUED IN FAVOR OF PRIVATE RESPONDENTS INFANTES
COVERING THE DISPUTED LOT, WHICH CANCELLED TRANSFER CERTIFICATE OF TITLE NO. 5040
IN THE NAME OF JOSE PONCIO, AND TO ISSUE A NEW TRANSFER CERTIFICATE OF TITLE IN
FAVOR OF PETITIONER ROSARIO CARBONELL UPON PRESENTATION OF PROOF OF PAYMENT BY
HER TO THE INFANTES OF THE AFORESAID AMOUNT OF ONE THOUSAND FIVE HUNDRED PESOS
(P1,500.00). PRIVATE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED USEFUL
IMPROVEMENTS FROM THE LOT WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS
DECISION, UNLESS THE PETITIONER ROSARIO CARBONELL ELECTS TO ACQUIRE THE SAME AND
PAYS THE INFANTES THE AMOUNT OF THIRTEEN THOUSAND FOUR HUNDRED TWENTY-NINE
PESOS (P13,429.00) WITHIN THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION. SHOULD
PETITIONER CARBONELL FAIL TO PAY THE SAID AMOUNT WITHIN THE AFORESTATED PERIOD
OF THREE (3) MONTHS FROM THE FINALITY OF THIS DECISION, THE PERIOD OF THREE (3)
MONTHS WITHIN WHICH THE RESPONDENTS INFANTES MAY REMOVE THEIR AFOREMENTIONED
USEFUL IMPROVEMENTS SHALL COMMENCE FROM THE EXPIRATION OF THE THREE (3) MONTHS
GIVEN PETITIONER CARBONELL TO PAY FOR THE SAID USEFUL IMPROVEMENTS.
RATIO:
1. Article 1544, New Civil Code, which is decisive of this case, recites:
If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith
2. It is essential that the buyer of realty must act in good faith in registering
his deed of sale to merit the protection of the 2nd paragraph of said Art
1544.
3. Unlike the first and third paragraphs of said Article 1544, which accord
preference to the one who first takes possession in good faith of personal or
real property, the second paragraph directs that ownership of immovable
property should be recognized in favor of one "who in good faith first
recorded" his right. Under the first and third paragraph, good faith must
characterize the act of anterior registration.
4. If there is no inscription, what is decisive is prior possession in good faith. If
there is inscription, as in the case at bar, prior registration in good faith
is a pre-condition to superior title.
5. When Carbonell bought the lot from Poncio on January 27, 1955, she
was the only buyer thereof and the title of Poncio was still in his name
solely encumbered by bank mortgage duly annotated thereon.
6. Carbonell was not aware — and she could not have been aware — of any sale
of Infante as there was no such sale to Infante then. Hence, Carbonell's prior
purchase of the land was made in good faith.
7. Her good faith subsisted and continued to exist when she recorded her
adverse claim 4 days prior to the registration of Infantes's deed of sale.
Carbonell's good faith did not cease after Poncio told her on January 31, 1955
of his second sale of the same lot to Infante. Because of that information,
Carbonell wanted an audience with Infante, which desire underscores
Carbonell's good faith.
8. With an aristocratic disdain unworthy of the good breeding of a good
Christian and good neighbor, Infante snubbed Carbonell like a leper and
refused to see her. So Carbonell did the next best thing to protect her right —
she registered her adversed claim on February 8, 1955. Under the
circumstances, this recording of her adverse claim should be deemed to
have been done in good faith and should emphasize Infante's bad faith
when she registered her deed of sale 4 days later on February 12, 1955.
9. Bad faith arising from previous knowledge by Infante of the prior sale
to Carbonell is shown by the following facts:
(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was
informed by Poncio that he sold the lot to Infante but several days before Infante
registered her deed of sale. This indicates that Infante knew of the prior sale of the lot
by Poncio to Carbonell. Ordinarily, one will not refuse to see a neighbor. Infante lives
just behind the house of Carbonell. Her refusal to talk to Carbonell could only mean
that she did not want to listen to Carbonell's story that she (Carbonell) had previously
bought the lot from Poncio.
(2) Carbonell was already in possession of the mortgage passbook and Poncio's
copy of the mortgage contract, when Poncio sold the lot Carbonell who, after paying
the arrearages of Poncio, assumed the balance of his mortgaged indebtedness to the
bank, which in the normal course of business must have necessarily informed
Infante about the said assumption by Carbonell of the mortgage indebtedness of
Poncio. Before or upon paying in full the mortgage indebtedness of Poncio to the
Bank.
(3) The fact that Poncio was no longer in possession of his mortgage passbook and
that the said mortgage passbook was already in possession of Carbonell, should have
compelled Infante to inquire from Poncio why he was no longer in possession of the
mortgage passbook and from Carbonell why she was in possession of the same. The
only plausible and logical reason why Infante did not bother anymore to make
such injury was because in the ordinary course of business the bank must have
told her that Poncio already sold the lot to Carbonell who thereby assumed the
mortgage indebtedness of Poncio and to whom Poncio delivered his mortgage
passbook.
(4) Carbonell registered her adverse claim, which was accordingly annotated on
Poncio's title, 4 days before Infante registered her deed of sale. Here she was again
on notice of the prior sale to Carbonell. Such registration of adverse claim is valid and
effective.
(5) In his answer Poncio alleged that both Mrs. Infante and Mrs. Carbonell offered to
buy the lot at P15.00 per square meter, which offers he rejected as he believed that his
lot is worth at least P20.00 per square meter. It is therefore logical to presume that
Infante was told by Poncio and consequently knew of the offer of Carbonell which
fact likewise should have put her on her guard and should have compelled her to
inquire from Poncio whether or not he had already sold the property to
Carbonell.
10. The Existence of Prior Sale to Carbonell Duly Established. The Supreme
Court pointed out to the rulings of the lower court which showed that there
was a previous sale by Poncio to Carbonell and the document they executed
allowed Poncio to continue stayin in the premises for one year. The document
having been written originally in a dialect well understood by Poncio, he
signed with full knowledge and consciousness of the terms and consequences
thereof.
11. There was adequate consideration or price for the sale in favor of
Carbonell. It should be emphasized that the mortgage on the lot was about
to be foreclosed by the bank for failure on the part of Poncio to pay the
amortizations thereon. To forestall the foreclosure and at the same time to
realize some money from his mortgaged lot, Poncio agreed to sell the same
to Carbonell at P9.50 per square meter, on condition that Carbonell [1] should
pay (a) the amount of P400.00 to Poncio and 9b) the arrears in the amount of
P247.26 to the bank; and [2] should assume his mortgage indebtedness.
12. The sale did not include Poncio's house on the lot. And Poncio was given the
right to continue staying on the land without paying any rental for one year,
after which he should pay rent if he could not still find a place to transfer his
house. All these terms are part of the consideration of the sale to
Carbonell. It is evident therefore that there was ample consideration, and not
merely the sum of P200.00, for the sale of Poncio to Carbonell of the lot in
question.
13. But Poncio, induced by the higher price offered to him by Infante,
reneged on his commitment to Carbonell and told Carbonell, who
confronted him about it, that he would not withdraw from his deal with
Infante even if he is sent to jail.
14. Inevitably evident therefore from the foregoing discussion, is the bad faith
of Emma Infante from the time she enticed Poncio to dishonor his
contract with Carbonell, and instead to sell the lot to her (Infante) by
offering Poncio a much higher price than the price for which he sold the
same to Carbonell. Being guilty of bad faith, both in taking physical
possession of the lot and in recording their deed of sale, the Infantes cannot
recover the value of the improvements they introduced in the lot.
15. While Carbonell has the superior title to the lot, she must however refund to
respondents Infantes the amount of P1,500.00, which the Infantes paid to the
Republic Savings Bank to redeem the mortgage.
16. It appearing that the Infantes are possessors in bad faith, their rights to the
improvements they introduced op the disputed lot are governed by Articles
546 and 547 of the New Civil Code.
17. As a matter of equity, the Infantes, although possessors in bad faith, should
be allowed to remove the aforesaid improvements, unless Carbonell chooses
to pay for their value at the time the Infantes introduced said useful
improvements in 1955 and 1959. The Infantes cannot claim reimbursement
for the current value of the said useful improvements; because they have been
enjoying such improvements for about two decades without paying any rent
on the land and during which period Carbonell was deprived of its possession
and use.
TEEHANKEE, J., concurring:
- The answer to the question of who between the two buyers in good faith
should prevail is provided in the second paragraph of Article 1544 of the Civil
Code which ordains that "the ownership of the immovable property shall
belong to the person acquiring it who in good faith first recorded it in the
Registry of Property."
- In the case at bar, the seller executed on January 27, 1955 the private
memorandum of sale of the property in favor of the first buyer Carbonell,
However, six days later on February 2, 1955, the seller sold the property for
a second time for an improved price, this time executing a formal registrable
deed of sale in favor of the second buyer Infante.
- The facts of record amply show that Carbonell had a written memorandum
of sale, which was partially executed with the advance payment made by her
for the Poncio’s mortgage account with the bank, and which was perfected
and binding in law by their accord on the subject matter and price.
- The governing principle here is prius tempore, portior jure (first in time,
stronger in right). Knowledge gained by the first buyer of the second sale
cannot defeat the first buyer's rights except only as provided by the Civil
Code and that is where the second buyer first registers in good faith the
second sale ahead of the first. Such knowledge of the first buyer does not bar
her from availing of her rights under the law, among them, to register first
her purchase as against the second buyer. But in other so knowledge gained
by the second buyer of the first sale defeats his rights even if he is first to
register the second sale, since such knowledge taints his prior registration
with bad faith.
MUÑOZ PALMA, J., dissenting:

- We are here confronted with a double sale made by Poncio, the solution to
which is found in Art. 1544 of the Civil Code, more particularly the second
paragraph thereof which provides that should the thing sold be immovable
property, the ownership shall belong to the person acquiring it who in good
with first recorded it in the Registry of property.
- The two purchasers, namely, petitioner Rosario Carbonell and case was decided by the CA, considering that Rosario Carbonell is being
respondent Emma Infante, are both purchasers in good faith. That given the option either to order the removal of the house or to acquire it at
Rosario Carbonell is a buyer in good faith cannot be disputed P13,429.00.
- That Emma Infante is likewise a buyer in good faith is supported by the
express finding of the the lower courts: also must it be remembered that
Emma L. Infante, when she bought the property on 2 February, 1955, neither
had she before then been, preliminary informed of the first sate to Rosario
- Departing from a well-entrenched rule set that factual findings of the trial
court and of the Court of Appeals are generally binding and conclusive, and
that on appeal by certiorari, questions of fact are not to be determined nor
reviewed by Us the Majority Opinion of my colleagues however undertakes
a fact-finding process of its own, and concludes that Emma Infante was a
buyer in bad faith
- The next question to be resolved is who of the two first registered her
purchase or title in good faith. In applying Art. 1544, it is not enough that
the buyer bought the property in good faith, but that the registration of her
title must also be accomplished in good faith. This requirement of good faith
is not only applicable to the second or subsequent purchaser but to the first
as well. Carbonell cannot be held to have a title superior to that of Emma
Infante for even if We were to concede that the notation of her adverse claim
on February 8, 1955, was in the nature of registration of title as required in
Art. 1544, the same was not accomplished in good faith.
- At the time Carbonell caused the annotation of her adverse claim she was
cognizant of facts which impaired her title to the property in question, and
taking advantage of the situation that the second purchaser had not as yet
registered her deed of sale, she went ahead of the second buyer and annotated
what was only in the nature of an adverse claim inasmuch as she had no
registrable document of sale at the time. That annotation of Carbonell's
adverse claim did not produce any legal effects as to place her in a preferential
situation to that of Infante, the second purchaser, for the simple reason that a
registration made in bad faith is equivalent to no registration at all. It is a
settled rule that the inscription in the registry, to be effective, must be made
in good faith.
- The act of the registration of Infante's deed of sale was but a formality in the
sense that it simply formalized what had already been accomplished earlier,
that is, the registration of Infantes purchase as against Carbonell. We have
long accepted the rule that knowledge is equivalent to registration. Infante
also took immediate physical possession of the property by erecting a fence
with a gate around the lot on February 5, at least tree days prior to Carbonell’s
registration.
- On top of all these, equity is on the side of Emma Infante. Under the Majority
Opinion, Emma Infante stands to lose the lot she bought in good faith which
was fully paid for plus the building she erected thereon for which she spent
little less than P14,000.00, or equivalent to about P40,000.00 at the time the
 27 CRB v. CA (PAUL)
Jan. 5, 2005 | Tinga, J. | Application of Art. 1544 (Double Sale)
PETITIONER: Consolidated Rural Bank (Cagayan Valley) Inc.
RESPONDENTS: The Honorable Court of Appeals, and Heirs of Teodoro Dela
Cruz
SUMMARY: Here, Madrid brothers sold the same parcel of land two times. First,
Rizal Madrid, with the concurrence of his other brothers, sold it to Gamiao and
Dayag, who subsequently sold it to Teodoro Dela Cruz and Restituto Hernandez. 18
years after, the brothers sold the same land to Marquez, who later subdivided it, and
mortgages some of the sub-parcels to Consolidated Rural Bank. When petitioner was
trying to foreclose, Heirs of Teodoro Dela Cruz sought to have the sale to Marquez,
and the mortgages declared void. RTC: Ruled in favor of Heirs; and the CA ruled in
favor of Marquez. Both courts used Art. 1544.
The SC held that Art. 1544 is not applicable here because the article contemplates
the sale to 2 or more people by the same vendor. Moreover, that person should have
the right to convey such land. Clearly here, because of the first sale Gamiao and
Dayag, the Madrid brothers did not anymore have the right to sell it to Marquez.
Moreover, Marquez, and mortgagee banks were not held to be in good faith because
they ignored the fact that Heirs were in actual possession when the sale and
mortgages were executed.
DOCTRINE: Art. 1544 contemplates a case of double or multiple sales by a single
vendor. Therefore, the conveyance must have been made by a party who has an
existing right in the thing and the power to dispose of it. It cannot be invoked
where the different contracts of sale are made by two different persons, one of them
not being the owner of the property.
FACTS:
1. Rizal, Anselmo, Gregorio, Filomeno, and Domingo Madrid (Madrid
brothers) were the owners of a parcel of land with Lot. No. 7036-A in Isabela,
covered by a TCT.
2. This was subdivided into several lots, and one of the resulting lots was Lot.
No. 7036-A-7.
3. First Sale:
a. August 1957: Rizal Madrid sold Lot No. 7036-A-7 to Aleja Gamiao
and Felisa Dayag evidenced by a deed of sale. The co-owners -
other brothers - did not object as evidenced by a joint affidavit. This
deed was not registered in the Registry of Deeds, but both Gamiao
and Dayag declared the property for taxation purposes under their
name.
b. Gamiao and Dayag then sold the southern half to Teodoro Dela
Cruz and the northern half to Restituto Hernandez.
c. Both of them immediately took possession of the land and cultivated
it.
d. Restituto Hernandez eventually donated his parcel to his daughter
Evangeline Del Rosario; and the children of Teodoro dela Cruz
continued the possession of his land after his death.
4. Second Sale:
a. June 1976: Madrid brothers sold the same lot - 7036-A-7 to Pacifico
Marquez. This sale was subsequently registered in the Registry of
Deeds in Isabela.
b. Marquez then subdivided the lot in to 8 parts. Marquez then
mortgaged 4 lots to Consolidated Rural bank (Cagayan Valley)
to obtain a loan of Php 100,000; and mortgaged 1 lot to Rural Bank
of Cauayan to obtain a loan of Php 10,000. These mortgages were
registered in the Register of Deeds as well.
c. Marquez defaulted in his payments to both banks sought to foreclose
the mortgages.
d. Marquez then sold 1 more parcel to Romeo Calixto.
5. Because of the foreclosure, Heirs of Dela Cruz wanted to declared the sale to
Marquez, and the subsequent mortgages null and void.
6. Marquez said that he was a buyer in good faith and for value. Furthermore,
he said that the sale to Gamiao and Dayag should not bind him because it was
unregistered.
7. CRB and RBC also argued that they were mortgagees in good faith and they
only relied on Marquez’s titles which were free from any lien or
encumbrance.
8. RTC: Applied Art. 1544 of the Civil Code which said that if there are two
sales over the same property (immovable), the ownership shall belong to the
person acquiring it in good faith and first records it in the Registry of
Property. They declared Marquez to be the rightful owners. The RTC said
that he was a buyer in good faith and there was nothing to show that he had
any knowledge that heirs were claiming ownership.
9. Heirs then appealed to the CA. CA reversed the RTC. It held that Marquez
was not a buyer in good faith because he apparently admitted that he had the
knowledge that the property was “being taken” at the time of sale. Moreover,
the heirs were actually in possession of the land. Because of these facts, in
addition to the fact that the property was in an attractive location - National
Highway + across a gas station - should have put Marquez in inquiry.
Furthermore, mortgagees RBC an CRB relied on Marquez’s certificates of
titles but they did not ascertain the status and condition of the property which
is in contravention to the standard banking practice. Thus, they declared the
Heirs to be the rightful owners.
 10. CRB argues now that there was no finding that Heirs acted in good faith, nor
did Gamiao and Dayag ever took possession. Furthermore, they argued that
Marquez’s claim should prevail because he was the registered owner.
ISSUE/s:
1. W/N the Heirs are the rightful owners of the land? YES, but not because of
Art. 1544 which governs double sales.
RULING: WHEREFORE, the Petition is DENIED. The dispositive portion of the
Court of AppealsÊ Decision, as modified by its Resolution dated 5 January 1998, is
AFFIRMED. Costs against petitioner.
RATIO:
1. Both RTC and CA tried to use Art. 154419 to justify their decisions.
2. This is NOT APPLICABLE to this case. Art. 1544 contemplates a case of
double or multiple sales by a single vendor. Therefore, the conveyance must
have been made by a party who has an existing right in the thing and the
power to dispose of it.
3. It cannot be invoked where the different contracts of sale are made by two
different persons, one of them not being the owner of the property.
4. Moreover, even if the second sale was made by the same person when he/she
was no longer the owner, Art. 1544 still cannot be applied because it had
already been acquired by the first purchaser in full dominion, and therefore,
the second purchaser cannot acquire any right.
5. Clearly, Art. 1544 is not applicable here.
a. In the first deed of sale (the one talking about the sale to Teodoro
Dela Cruz and Restituto Hernandez), the vendors were Gamiao and
Dayag who got their right from Rizal Madrid, in concurrence with
his other brothers in 1957. Gamiao and Dayag also declared the
property under their names for tax declaration purposes.
b. On the other hand, the vendors were the Madrid brothers but they
were no longer the owners since they had already disposed it to
Gamiao and Dayag.
6. SC cited the case of Carpio v. Exevea:
a. The conveyor must have the right and the will to convey the thing.
Intention to transfer is not sufficient because it only constitutes the
will. If he did not have the right, he could not juridically perform the
act, because he could not transfer a right which he did not possess.
19
ART. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good faith, if
it should be movable property. Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the Registry of Property. Should
Even if Art. 1473 (this was the exact replica of Art. 1544 in the Old
Civil Code) does not expressly provide this, this is one of the
circumstances which constitutes an assumption upon which the
article is based.
b. In this case, Millante sold the property to Carpio, and subsequently
sold to Exevea on the same date. The CA and the SC then did not
apply Art. 1473 (same as Art. 1544), because Millante did not have
the right anymore over the land.
7. In situations where Art. 1544 is not applicable, then the principle of prior
tempore, potion jure will apply - he who is first in time is preferred in right.
a. The only essential requisite of this rule is priority in time - the one
who can invoke this is the first vendee.
8. Clearly, in this case, Gamiao and Dayag who first bought it from Rizal
Madrid, are the one who can invoke this. Not only did they buy the property,
but they also took possession of it. There is no doubt that they have the
superior right.
9. Moreover, as mentioned, one can only sell what one owns or is authorized to
sell; and that the buyer can acquire no more than what the seller can legally
transfer.
10. At the time of the sale to Marquez, the Madrid brothers were no longer the
owners of the property, so Marquez did not acquire any right over it.
11. Assuming that Art. 1544 is applicable, the Heirs would still have the superior
right because Marquez is not a purchaser/registrant in good faith.
12. In Art. 1544, the rules of preference in a double sale are as follows:
a. The first registrant in good faith;
b. If there is no entry, the first in possession in good faith; and
c. In the absence thereof, the buyer who presents the oldest title in good
faith.
13. Prior registration does not itself confer ownership or a better right. Art. 1544
requires that the second buyer should show that he was in good faith
throughout - from the time of acquisition until the title is transferred by
registration or delivery of possession.
14. As the CA stated, Marquez already knew that the property was being claimed
at the time of the sale to him. He also admitted that he did not take possession,
nor did he knows who was in possession then.
15. The purchaser of real property which is in actual possession of another,
should make an inquiry with regard to the rights of the actual possessors.
16. The principle of caveat emptor is applicable here - requires the purchaser to
there be no inscription, the ownership shall pertain to the person who in good faith was first in
possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.
 be aware of the supposed title of the vender and he who buys without
checking it takes all the risks and losses consequent to such failure.
17. Marquez did not even fight for the possession, and he just willfully closed his
eyes to the possibility of these flaws being true.
18. This rule equally applies to the mortgagees of the property. A mortgagee
cannot just exercise mere refusal to believe that defects exist - this will not
make him a mortgagee in good faith.
19. Banks are impressed with public interest and they are expected to exercise
extraordinary diligence. Petitioner was negligent here because it merely
relied on Marquez’s certificates and it did not ascertain the property’s status
which is in contravention of standard banking procedures.
20. Marquez cannot also argue that just because he had a Torrens Title, means
that he automatically has the superior right. He had actual knowledge that
someone else was possessing the land in the concept of an owner. The
Torrens system cannot be used to shield fraud nor protect an usurper from the
true owner.
21. Here, Teodoro Dela Cruz was the one in good faith - he bought the property
18 years before Marquez did, and he has been taking possession ever since.
22. Moreover, the tax declarations by Gamiao and Dayag were good indications
that possession was in the concept of an owner.
 28 SLDC v. CA (Eliel)
January 21, 2005 | Tinga, J. | Requisites of Double Sale: Two VALID sales
PETITIONER: San Lorenzo Development Corporation
RESPONDENTS: CA, Pablo Babasanta, Sps. Miguel Lu and Pacita Lu
SUMMARY: Sps. Lu purportedly sold 2 parcels of land with the area of 3.6
ha in Laguna to Babasanta at P15 per sqm. Babasanta made a downpayment
of P50,000 and several other payments totaling P200,000. Subsequently,
Babasanta demanded that Sps. Lu executed the final deed of sale, and
notified Sps. Lu about the information he received that the land was being
sold to other persons. Sps. Lu replied that she acknowledged the receipt but the
sale was rescinded when Sps. Lu refused to accept the offer of Babasanta to
reduce the price. Babasanta then filed a complaint for specific performance
and damages, but Sps. Lu replied that it was only a contract to sell. Babasanta
then amended the complaint and prayed for a preliminary injunction to sell the
parcels of land, with which SLDC intervened. SLDC claimed that the parcels
of land was sold to them evidence by a Absolute Deed of Sale with Mortgage.
The RTC ruled in their favor but the CA set aside the judgment and ruled in favor
of Babasanta because SLDC was a purchaser in bad faith. Hence this petition.
The issue before the court is who between Babasanta and SLDC has a better right
over the parcels of land.
The SC ruled in favor of SLDC. First the agreement between Sps. Lu and
Babasanta was only a contract to sell, and no transfer of ownership was given
to Babasanta. It was conditioned upon the payment of the full purchase price. A
contract to sell only confers upon the vendee the title but it is not a mode of
acquiring ownership. The mode of acquiring ownership is through delivery, of
which SLDC evidently took constructive possession of the parcels of land
evidenced by the Absolute Deed of Sale with Mortgage. And that according to
Art. 1544 of the Civil Code, if the immovable property is sold to different
vendors, the preference of ownership will be given to the person who
acquired the property in good faith and first recorded it in the Registry of
Deeds. In this case, SLDC acquired the property in good faith and indeed
recorded the sale of the property as soon as the Deed was executed in their favor.
Moreover, the SC ruled that the issue on Double sale is moot and academic
since Art. 1544 does not apply to a contract to sell and a contract of sale.
DOCTRINE: In Dichoso v. Roxas, we had the occasion to rule that Article 1544
does not apply to a case where there was a sale to one party of the land itself while
the other contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land. Accordingly, there was no
double sale of the same land in that case.
FACTS:
1. Sps. Miguel and Pacita Lu (Sps. Lu) owned 2 parcels of land in Sta. Rosa
Laguna. Both measuring 15,808 sqms or 3.6 ha. The Sps. Lu purportedly sold
the 2 parcels of land to Babasanta, for the price of P15 per sqm.
2. Babasanta made a downpayment of P50,000 as evidenced by a memorandum
receipt issued by Pacita Lu, and several other payments totaling P200,000.
3. Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed
of sale in his favor so that he could effect full payment of the purchase price.
In the same letter, Babasanta notified the Sps. Lu about having received
information that the Sps. Lu sold the same property to another without his
knowledge and consent. He demanded that the second sale be cancelled and
that a final deed of sale be issued in his favor.
4. Pacita Lu wrote a letter to Babasanta wherein she acknowledged having
agreed to sell the property to him at P15 per sqm. She, however, reminded
Babasanta that when the balance of the purchase price became due, he
requested for a reduction of the prce and when she refused, Babasanta backed
out of the sale. Pacita added that she returned the sum of P50,000 to
Babasanta through Oya.
5. Babasanta then filed for a Complaint for Specific Performance and Damages.
The Sps. Lu answered that Pacita Lu obtained loans from Babasanta and
when the total advances of Pacita reached P50,000, the latter and Babasanta,
without the knowledge and consent of Miguel Lu, had verbally agreed to
transform the transaction into a contract to sell the 2 parcels of land to
babasanta with the P50,000 to be considered as the downpayment for the
property and the balance to be paid on or before 31 December 1987.
6. Babasanta later filed an Amended Complaint praying for the issuance of a
writ of preliminary injunction to restrain the transfer or conveyance by the
Sps. Lu of the subject property to other persons.
7. SLDC filed a Motion for Intervention and alleged that it had legal interest
because the 2 parcels of land involved, had been sold to it ina Deed of
Absolute Sale with Mortgage. It alleged that it was a buyer in good faith and
for value and therefore it had a better right over the property in litigation.
8. SLDC averred that the Sps. Lu executed in its favor an Option to Buy the ots
subject of the complaint. That it paid an option money in the amount of
P316,160 out of the total consideration for the purchase of the 2 lots of
P1,264,640. After the Sps. Lu received a total amount of P632,320 they
executed a Deed of Absolute Sale with Mortgage in its favor.
9. SLDC added that the certificates of title over the property were delivered to
it by the spouses clean and free from any adverse claims and/or notice of lis
pendens.
10. The RTC ruled in favor of SLDC applying Art 1544 of the Civil Code since
SLDC is the buyer who first acquired possession of the property. The CA
however set aside the decision of the RTC and ruled that Babasanta is the
owner because the Deed of Sale with Mortgage of SLDC is null and void
 because it is a buyer in bad faith. Hence this petition.
ISSUES:
1. Who between SLDC and Babasanta has a better right over the 2 parcels of
land – SLDC
RULING: WHEREFORE, the instant petition is hereby GRANTED. The decision
of the Court of Appeals appealed from is REVERSED and SET ASIDE and the
decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is
REINSTATED. No costs.
RATIO:
CONTRACT OF SALE v. CONTRACT TO SELL
1. Contracts, in general, are perfected by mere consent, which is manifested by
the meeting of the offer and the acceptance upon the thing which are to
constitute the contract. The offer must be certain and the acceptance absolute
Moreover, contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
2. The receipt signed by Pacita Lu merely states that she accepted the sum of
P50,000 from Babasanta as partial payment of 3.6 hectares of farm lot
situated in Laguna. While there is no stipulation that the seller reserves
the ownership of the property until full payment of the price which is a
distinguishing feature of a contract to sell, the subsequent acts of the
parties convince us that the Sps. Lu never intended to transfer ownership
to Babasanta except upon full payment of the purchase price.
3. In effect, Babasanta himself recognized that ownership of the property
would not be transferred to him until such time as he shall have effected
full payment of the price. Moreover, had the sellers intended to transfer title,
they could have easily executed the document of sale in its required form
simultaneously with their acceptance of the partial payment, but they did not.
Doubtlessly, the receipt signed by Pacita Lu should legally be considerd as a
perfected contract to sell.
4. The distinction between a contract to sell and a contract of sale is quite
germane. In a contract of sale, title passes to the vendee upon the delivery of
the thing sold; whereas in a contract to sell, by agreement the ownership is
reserved in the vendor and is not to pass until the full payment of the price.
5. In a contract of sale, the vendor lost and cannot recover ownership until and
unless the contract is resolved or rescinded; whereas in a contract to sell,
title is retained by the vendor until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not
a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective.
6. The perfected contract to sell imposed upon Babasanta the obligation to pay
the balance of the purchase price. There being an obligation to pay the price,
Babasanta should have made the proper tender of payment and consignation
of the price in court as required by law.
7. Glaringly absent from the records is any indication that Babasanta even
attempted to make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never acquired obligatory
force.
8. On the assumption that the transaction between the parties is a contract
of sale and not a contract to sell, Babasanta’s claim of ownership should
nevertheless fail.
9. Sale, being a consensual contract, is perfected by mere consent and from the
moment, the parties may reciprocally demand performance. The essential
elements of a contract of sale, to wit: (1) consent or meeting of the minds,
that is, to transfer ownership in exchange for the price; (2) object certain
which is the subject matter of the contract; (3) cause of the obligation which
is established.
10. Contracts only constitute titles or rights to the transfer or acquisition of
ownership, while delivery or tradition is the mode of accomplishing the same.
Therefore, sale by itself does not transfer or affect ownership; the most
that sale does is to create the obligation to transfer ownership. It is
tradition or delivery, as a consequence of sale, that actually transfers
ownership.
11. Following the above disquisition, Babasanta did not acquire ownership by
the mere execution of the receipt by Pacita Lu acknowledging receipt of
partial payment of the property. For one, the agreement between Babasanta
and the Sps Lu, though valid, was not embodied in a public instrument.
Hence, no constructive delivery of the lands could have been effected.
12. For another, Babasanta had not taken possession of the property at any time
after the perfection of the sale in his favor or exercised acts of dominion over
it despite his assertions that he was the rightful owner of the lands.
13. Simply stated, there was no delivery to Babasanta, whether actual or
constructive, which is essential to transfer ownership of the property.
Thus, even on the assumption that the perfected contract between the
parties was a sale, ownership could not have passed to Babasanta in the
absence of delivery, since in a contract of sale ownership is transferred
to the vendee only upon the delivery of the thing sold.
DOUBLE SALE
14. However, it must be stressed that the juridical relationship between the parties
in a double sale is primarily governed by Article 1544 which lays down the
rules of preference between the two purchasers of the same property.
15. Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable property.
16. Should it be immovable property, the ownership shall belong to the
 person acquiring it who in good faith first recorded it in the Registry of faith in contrast to Babasanta, who neither registered nor possessed the
Property. property at any time, SLDC’s right is definitely superior to that of
17. Should there be no inscription, the ownership shall pertain to the person Babasanta’s.
who in good faith was first in the possession; and, in the absence thereof, 26. At any rate, the above discussion on the rules of double sale would be purely
to the person who presents the oldest title, provided there is good faith. academic for as earlier stated in this decision, the contract between Babasanta
18. The principle of primus tempore, potior jure (first in time, stronger in and the Sps. Lu is not a contract of sale but merely a contract to sell.
right) gains greater significance in case of double sale of immovable 27. In Dichoso v. Roxas, we had the occasion to rule that Article 1544 does
property. When the thing sold twice is an immovable, the one who not apply to a case where there was a sale to one party of the land itself
acquires it and first records it in the Registry of Property, both made in while the other contract was a mere promise to sell the land or at most
good faith, shall be deemed the owner. an actual assignment of the right to repurchase the same land.
19. Verily, the act of registration must be coupled with good faith – that is, the Accordingly, there was no double sale of the same land in that case.
registrant must have no knowledge of the defect or lack of title of his
vendor must not have been aware of facts which should have put him
upon such inquiry and investigation as might be necessary to acquaint
him with the defects in the title of his vendor.
20. Admittedly, SLDC registered the sale with the Registry of Deeds after it had
acquired knowledge of Babasanta’s claim. Babasanta, however, strongly
argues that the registration of the sale by SLDC was not sufficient to confer
upon the latter any title to the property since the registration was attended by
bad faith. Specifically, he points out that at the time SLDC registered the sale,
there was already a notice of lis pendens on the file with the Register of
Deeds.
21. It must be stressed that the Sps. Lu executed the Option to Buy in favor of
SLDC upon receiving P316,160 as option money from SLDC. After SLDC
had paid more than one half of the agreed purchase price of P1,264,640, the
Sps. Lu subsequently executed a Deed of Absolute Sale in favor of SLDC.
At the time both deeds were executed, SLDC had no knowledge of the prior
transaction of the Sps. Lu with Babasanta.
22. Simply, from the titme of execution of the first deed up to the moment of
transfer and delivery of possession of the lands to SLDC, it had acted in
good faith and the subsequent annotation of lis pendens has no effect at
all on the consummated sale between SLDC and the Sps. Lu.
23. Assuming ex gratia argumenti that SLDC’s registration of the sale had been
tainted by the prior notice of lis pendens and assuming further for the same
nonce that this is a case of double sale, still Babasanta’s claim could not
prevail over that of SLDC’s.
24. Be it noted that delivery of the property to SLDC was immediately effected
after the execution of the deed in its favor, at which time SLDC had no
knowledge at all of the prior transaction by the Sps. Lu in favor of Babasanta.
25. The law speaks not only of one criterion. The first criterion is priority of
entry in the registry of property there being no priority of such entry,
the second is priority of possession; and, in the absence of two priorities,
the third priority is of the date of title, with good faith as the common
critical element. Since SLDC acquired possession of the property in good
 29 ROMAN CATHOLIC CHURCH v PANTE (CHIQUI)
April 11, 2012 | Brion, J. | First to Possess in Good Faith as Second Priority
PETITIONER: The Roman Catholic Church, represented by Archbishop Caceres
RESPONDENTS: Regino Pante
SUMMARY: The Church sold a lot to Pante believing that the latter was an actual
occupant. After which, the Church sold to the spouses Rubi the adjacent lot and
included the lot of Pante. Pante filed an action to annul the subsequent sale. The
Church argued that its consent was vitiated when Pante misrepresented that he was
an actual occupant. W/N Pante is the rightful owner of the subject lot? YES. There
was no misrepresentation. The size of the lot can only be a passageway since it
was small; it cannot be a place of residence. Thus, it cannot be “actually
occupied”. The Church can also verify it if it did an ocular inspection and this was
supported by a sketch plan. Moreover, since both Pante and the spouses Rubi did
not register their sale, the lot should be given to the first in possession of the
property in good faith. In this case, it was Pante because he was already using it
as a passageway until he was prevented from doing so. Also, he already placed
electric connections and water pipes on the lot and this was known to the spouses
Rubi.
DOCTRINE: After the sale of realty by means of a public instrument, the vendor,
who resells it to another, does not transmit anything to the second vendee, and if
the latter, by virtue of this second sale takes material possession of the thing, he
does it as mere detainer, and it would be unjust to protect this detention against
the rights of the thing lawfully acquired by the first vendee. (Doctrine in syllabus)
FACTS:
128. The Church, owned a 32-square meter lot that measure 2x16 meters located
in Brgy. Dinaga, Canaman, Camarines Sur. On Sept 25, 1992, the Church,
believing that Regino Pante was an actual occupant of the lot, sold it to the
latter. The purchase price was at 11, 200 pesos with the intial downpayment
of 1,120, and the remaining balance payable in 3 years.
129. On June 28, 1994, the Church sold the a 215-square meter lot to Nestor and
Fidela Rubi which included Pante’s lot. Spouses Rubi erected a concrete
fence over Pante’s lot which blocked the latter’s acces from their family home
to the municipal road.
130. Since no settlement could be reached, Pante filed in the RTC an action to
annul the sale between the Church and the spouses Rubi regarding the lot
previously sold to him.
131. Meanwhile the Church filed a counterclaim, seeking to annul their contract
with Pante. The Church stated that its consent was obtained by fraud when
Pante misrepresented his actual occupancy when in reality he was only using
the lot as a passageway and that since the spouses Rubi have long been
occupying the 215-square meter lot which included the 32 square meter lot,
then the spouses were the rightful buyers.
132. RTC: in favor of the Church
a. Church’s consent to the sale was secured through misrepresentation.
RTC annulled the contract between the Church and Pante.
b. Also, since the full payment was only made in Sept. 23, 1995, the
three-year delay in payment is fatal to Pante’s claim. (Pante
consigned the balance with the RTC because the Church does not
want to accept.) RTC upheld the sale between the spouses and the
Church.
133. CA: in favor of Pante
a. CA characterized the contract as a contract of sale since the Church
did not make a reservation of ownership until full payment of the
price is made. As a matter of fact, it even gave the right to repurchase
to Pante in case the latter fails to pay the installment. It ruled that
that right is unnecessary of ownership was not transferred to the
buyer.
b. Also, CA applied Art. 1544 (rule on double sales) and stated that
since neither of the two sales were registered, the it should be given
to Pante who first possessed the lot by using it as a passageway.
134. Hence, the Church appealed
ISSUE/s:
39. W/N Pante was the rightful owner - YES
RULING: WHEREFORE, we DENY the petition for review on certiorari, and
AFFIRM the decision of the Court of Appeals dated May 18, 2006, and its resolution
dated August 11, 2006, issued in CA-G.R.-CV No. 65069. Costs against the Roman
Catholic Church.
RATIO:
98. No misrepresentation existed vitiating the seller’s consent and invalidating
the contracts.
a. Not every mistake renders a contract voidable. Mistake as to the
identity or qualification of one of the parties will vitiate consent only
when such identity or qualifications have been the principal cause
of the contract.
b. Contrary to what the Church said, the actual occupancy or residency
of abuyer over the land does not appear to be a necessary
qualification that the Church requires before it could sell its land.
Had this been indeed its policy, then neither Pante nor the spouses
Rubi would qualify as buyers of the 32-square meter lot, as none of
them actually occupied or resided on the lot. SC notes in this regard
 that the lot was only a 2x16-meter strip of rural land used as a
passageway from Pante's house to the municipal road.
c. SC sides with Pante's argument that, given the size of the lot, it could
serve no other purpose than as a mere passageway; it is unthinkable
to consider that a 2x16-meter strip of land could be mistaken as
anyone's residence. In fact, the spouses Rubi were in possession of
the adjacent lot, but they never asserted possession over the 2x16-
meter lot when the 1994 sale was made in their favor.
d. It is also unlikely that Pante could successfully misrepresent himself
as the actual occupant of the lot; this was a fact that the Church
(which has a parish chapel in the same barangay where the lot was
located) could easily verify had it conducted an ocular inspection of
its own property. The surrounding circumstances actually indicate
that the Church was aware that Pante was using the lot merely as a
passageway this was supported by the sketch plan, attached to the
contract executed by the Church and Pante, which clearly labeled
the 2x16-meter lot as a "RIGHT OF WAY"; below these words was
written the name of "Mr. Regino Pante."
e. There could not have been a deliberate, willful, or fraudulent act
committed by Pante that misled the Church into giving its consent
to the sale of the subject lot in his favor. The Church was by no
means led to believe or do so by Pante's act; there had been no
vitiation of the Church's consent to the sale of the lot to Pante.
f. From the time the sale to Pante was made and up until it sold the
subject property to the spouses Rubi, the Church made no move to
reject the contract with Pante; it did not even return the down
payment he paid. The Church's bad faith in selling the lot to Rubi
without annulling its contract with Pante negates its claim for
damages.
g. In the absence of any vitiation of consent, the contract between the
Church and Pante stands valid and existing. Any delay by Pante in
paying the full price could not nullify the contract, since (as
correctly observed by the CA) it was a contract of sale.
99. The rule on double sales
a. Art. 1544 ... Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the
possession ; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith. (rule on double sales)
b. As neither Pante nor the spouses Rubi registered the sale in their
favor, the question now is who, between the two, was first in
possession of the property in good faith.
c. Jurisprudence interpreted possession in Article 1544 of the Civil
Code to mean both actual physical delivery and constructive
delivery.
i. Actual delivery of a thing sold occurs when it is placed
under the control and possession of the vendee.
1. Pante claimed that he had been using the lot as a
passageway, with the Church's permission, since
1963. After purchasing the lot in 1992, he
continued using it as a passageway until he was
prevented by the spouses Rubi's concrete fence
over the lot in 1994. Pante's use of the lot as a
passageway after the 1992 sale in his favor was a
clear assertion of his right of ownership that
preceded the spouses Rubi's claim of ownership.
Pante also stated that he had placed electric
connections and water pipes on the lot, even
before he purchased it in 1992, and the existence
of these connections and pipes was known to the
spouses Rubi. Thus, any assertion of possession
over the lot by the spouses Rubi (e.g., the
construction of a concrete fence) would be
considered as made in bad faith because works
had already existed on the lot indicating
possession by another.
ii. Article 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot
clearly be inferred.
1. Under this provision, the sale in favor of Pante
would have to be upheld since the contract
executed between the Church and Pante was duly
notarized, converting the deed into a public
instrument.
d. Under either mode of delivery, Pante acquired prior possession of
the lot.
 30 Dagupan Trading Company v. Rustico Macam (Valle) the right of redemption. Manila Trading then sold all his rights and title in
May 31, 1965| Dizon,J| Conflicting Sales the property to Dagupan Trading Company.
PETITIONER: Dagupan Trading Company 18. Rustico in his complaint alleged that Sammy maron’s share in the property,
RESPONDENT: Rustico Macam as well as Sammy’s co-heirs, had been acquired by purchase by Rustico
since June 19 and September 21, 1955 before the issuance of the original
SUMMARY: certificate of title. And that at the time that the levy was made on Sammy
What is disputed here is one-eight of a parcel of land that Sammy Maron and his co-heirs Maron’s share, Sammy had no longer any right or interest in the property.
inherited. This land was first unregistered. Pending the approval of the unregistered land, the Rustico also claims that since the sales made in his favor, he had enjoyed
land was sold to Rustico. Rustico then took possession of the land and introduced improvements uninterrupted possession of the property and introduced improvements.
on it. A month later, the Original Certificate of Title was issued in favor of the Marons.
Unfortunately, in another civil case, a decision was rendered against Sammy Maron and in favor ISSUE: Who has better right as between Dagupan and Rustico? - Rustico
of Manila Trading where the property in dispute was levied on and sold at public auction to
Manila Trading. Eventually, Manila Trading sold all his rights and title in the property to
Dagupan. Rustico is now claiming that he is the true owner of the property in question. The RULING: WHEREFORE the decision appealed from is affirmed with costs.
issue here is who has better right over the property. The SC said that Rustico has better right to
the property because at the time that the property was levied on in the separate civil case, the RATIO:
property was no longer Maron’s. It was already in the possession of Rustico who introduced 1. If the property was unregistered land, Rustico would undoubtedly have better right
improvements on the property. To arrive at this decision, the court used Section 35, Rule 39 of in view of the fact that his claim is based on a prior sale coupled with public, exclusive
the ROC. The court said that when first sale is over unregistered land and the second sale is and continuous possession.
when it is registered, the rules on double sale do not apply. 2. on the other hand, were the land involved in the conflict is a registered land,
Dagupan will have a better right because in case of conveyance of registered real
DOCTRINE:
estate, the registration of the deed of sale is the operative act that gives validity to the
When first sale is over unregistered land and the second sale is when it is registered, the rules
on double sale do not apply.
transfer. The deeds of sale executed in Rustico’s favor by the Marons not having been
registered while the levy and the final deed of sale in favor of Dagupan were registered.
FACTS:
3. The present case, however, doesn’t fall within either situation.
12. Dagupan Trading Company prays to be declared owner of a one-eighth
4. In this case, the sale in favor of Rustico was executed before the land subject matter
portion of a piece of land, that a partition of the whole property be made,
was registered, while the conflicting sale in favor of appellant was executed after the
and that Rustico be ordered to pay an amount of Php 500 a year as damages
same property had been registered. The Courts cannot therefore, decide the case in
from 1958 until the said portion be delivered, plus attorney’s fees.
light of whatever adjudicated cases there are covering the two situations.
13. In 1955, Sammy Maron and his seven siblings were pro-indiviso owners of
5. The Court determines the issue using the provisions of the last paragraph of Section
a parcel of unregistered land located in barrio Parayao, Municipality of
35, Rule 39 of the Rules of Court, to the effect that upon the execution and delivery of
Binmaley, Pangasinan.
the final certificate of sale in favor of the purchaser of land sold in an execution sale,
14. While their application for registration of land was pending, they executed,
such purchaser shall be substituted to and acquire all the right, title, interest, and claim
two deeds of sale conveying the property to Rustico. Rustico thereafter took
of the judgment debtor to the property as of the time of the levy.
possession of the land and proceeded to introduce substantial
6. Now the court asks what is the interest and claim of Sammy Maron on the one-eight
improvements.
portion of the property inherited by and his co-heirs at the time of the levy? He had
15. A month later, the original certificate of title covering the land was issued in
none. Because prior to the levy, his interest had already been conveyed to Rustico fully
favor of the Maron family, free of all liens and encumbrances.
and irretrievably. Consequently, subsequent levy made on the prpoperty for the
16. On August 4, 1956, by virtue of a final judgement rendered in Civil Case
purpose of satisfying judgment rendered against Sammy in favor of Manila Trading
No. 42215 against Sammy Maron and in favor of Manila Trading and
was void and of no effect.
Supply Company. Levy was made on whatever interest he had in the
7. Upon the execution of the deed of sale in favor of Rustico, Rustico already took
property. Said interest on the property was sold at public auction to Manila
possession of the land as owner and introduced considerable improvements. To
Trading.
deprive him now of the same by sheer force of technicality would be against both
17. The notice of levy, certificate of sale and the sheriff’s certificate of final
justice and equity.
sale were registered in favor of Manila Trading because nobody exercised
 31 CARUMBA vs CA (Nikki V)
1970 February 18 | J. Reyes J.B.L. | G.R. No. L-27587 |
When subject of sale is unregistered land
PETITIONER: Amado Carumba
RESPONDENTS: The Court of Appeals, Santiago Balbuena, and Angeles Boaquiña
as Deputy Provincial Sheriff
SUMMARY: In 1955, Sps. Canuto sold a parcel of land to Sps. Carumba as evidenced
by a Deed of Sale of Unregistered Land. Said deed was not registered in the RD of
CamSur. In 1957, Balbuena filed a complaint for a sum of money against Sps. Canuto.
Judgment was rendered in favor of Balbuena. By virtue of said judgment, sheriff
issued a Definite Deed of Sale of the property now in question. This instrument was
registered in the RD in 1958. The question is: Who has superior title to the land – Sps.
Carumba or Balbuena? SC declared Carumba as the owner of the land. When the levy
was made by the sheriff20, Sps. Canuto no longer had dominical interest nor any real
right over the land that could pass to Balbuena.
DOCTRINE: Article 1544 is inapplicable to unregistered land because “the purchaser
of unregistered land at a sheriff’s execution sale only steps into the shoes of the
judgment debtor, and merely acquires the latter’s interest in the property sold as of the
time the property was levied upon,” as expressly provided for in then Sec. 35, Rule 39
of the Revised Rules of Court on execution of sale [now Sec. 33, Rule 39, 1997 Rules
of Civil Procedure].
FACTS:
1. 1955: Sps. Canuto, by virtue of a “Deed of Sale of Unregistered Land with
Covenants of Warranty” sold a parcel of land (partly residential, partly coconut
land) to Sps. Carumba. The referred deed of sale was never registered in the Office
of the Register of Deeds and the Notary was not then an authorized notary public.
*Carumba (buyer) is the brother-in law of Canuto (seller)*
2. 1957: A complaint for a sum of money was filed by a certain Balbuena against Sps.
Canuto. In the said case, judgment was rendered in favor of Balbuena and against
the Sps. Canuto.
3. 1968: The sheriff issued a “Definite Deed of Sale” of the property now in question
in favor of Balbuena, which instrument of sale was registered before the Office of
the Register of Deeds in 1958. Said property was declared for taxation purposes in
the name of Balbuena in 1958.
4. The issue now arises as to who has superior title to the said land: Sps. Carumba or
Balbuena?
5. CFI: ruled in favor of Sps. Carumba and declared him to be the owner of the land
under a consummated sale. After execution of the document, Carumba had taken
possession of the land planting bananas, coffee, and other vegetables thereon.
Moreover, the CFI also held void the execution levy made by the sheriff and
nullified the sale in favor of Balbuena.
20
Time of levy: not stated in the case. SC only said – malamang mga 1957 onwards because it was only in 1957 when Balbuena filed a
complaint. During that time, Canuto could not have transferred any real right to Balbuena because he does not own the said land anymore. 1955
- Canuto already sold the land to Carumba.
6. CA: reversed the decision of the CFI. There having been a double sale of the land,
Balbuena’s title was superior to that of Carumba’s under Art. 1544 of the Civil
Code since the execution sale had been properly registered in good faith and the
sale to Carumba was not recorded.
ISSUE: Whether or not the CA erred in ruling that Balbuena has superior title to the
subject land – YES. CFI was correct in holding Carumba as the owner.
RULING: WHEREFORE, the decision of the Court of Appeals is reversed and that
of the Court of First Instance affirmed. Costs against Santiago Balbuena.
RATIO:
1. While under Art. 1544 registration in good faith prevails over possession in the
event of a double sale by the vendor of the same piece of land to different vendees,
said article does not apply in this case even if Balbuena, the later vendee, was
ignorant of the prior sale made by his judgment debtor in favor of Carumba.
2. The reason is that the purchaser of unregistered land at a sheriff’s execution sale
(Balbuena) only steps into the shoes of the judgment debtor (Canuto), and merely
acquires the latter’s interest in the property sold as of the time the property was
levied upon. This is specifically provided by Section 3521 of Rule 39 of the Revised
Rules of Court.
3. While the time of the levy does not clearly appear, it could not have been made
prior to 1957, when the decision against Sps. Canuto was rendered.
4. The Deed of Sale of Unregistered Land with Covenants of Warranty had been
executed two years before, in 1955, and while only embodied in a private
document, the same, coupled with the fact that the buyer (Sps. Carumba) had taken
possession of the unregistered land sold, sufficed to vest ownership on the said
buyer. When the levy was made by the Sheriff, therefore, the judgment debtor (Sps.
Canuto) no longer had dominical interest nor any real right over the land that could
pass to the purchaser at the execution sale. Hence, the Balbuena must yield the land
to Carumba.
5. Said rule is different in case of lands covered by Torrens titles, where the prior sale
is neither recorded nor known to the execution purchaser prior to the levy; but the
land here in question is admittedly not registered under Act No. 496.
21
Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee shall be substituted to and acquire all the
right, title, interest, and claim of the judgment debtor to the property as of the time of the levy, except as against the judgment debtor in
possession, in which case the substitution shall be effective as of the time of the deed.
 32 ABRIGO v. DE VERA (JP)
June 21, 2004 | Panganiban, J. | When Subject of Sale is Unregistered Land
PETITIONER: Spouses Noel and Julie Abrigo
RESPONDENTS: Romana de Vera
SUMMARY: Gloria sold a house and lot to Rosenda & Rosita. Rosenda & Rosita
then sold this land to Spouses Abrigo. Gloria however, likewise sold the same
property to De Vera. De Vera registered the property and a TCT was issued in her
name. Sps. Abrigo not knowing that the property as under the Torrens Title, they
only registered the land under Act 3344. He relied on the TCT presented by Gloria
that she was the owner of the property. Sps. Abrigo then filed a case for annulment
of documents and preliminary injunction against Gloria and De Vera. RTC and
CA ruled that De Vera was a purchaser in good faith and was the rightful owner
of the land.
The SC affirmed. The Torrens Title of De Vera should prevail over registration
under Act 3344 by Sps. Abrigo because the latter is not sufficient registration
required by the law. De Vera is also a buyer in good faith because she had no
knowledge of the controversy of the property. Her reliance on the TCT of De Vera
was already sufficient as a TCT proves an indefeasible title.
DOCTRINE: The law provides that a double sale of immovables transfers
ownership to (1) the first registrant in good faith; (2) then, the first possessor in
good faith; and (3) finally, the buyer who in good faith presents the oldest title.
This principle is in full accord with Section 51 of PD 1529 14 which provides
that no deed, mortgage, lease or other voluntary instrument — except a will —
purporting to convey or affect registered land shall take effect as a conveyance
or bind the land until its registration. Thus, if the sale is not registered, it is
binding only between the seller and the buyer but it does not affect innocent
third persons.
Constructive notice to the second buyer through registration under Act 3344 does
not apply if the property is registered under the Torrens system.
FACTS:
135. Gloria Villafania (Gloria) sold a house and lot located in Pangasinan to
Rosenda Tigno-Salazar and Rosita Cave-Go (Rosenda & Rosita).
136. The sale became a subject of a suit for annulment of documents.
137. The RTC approved a Compromise Agreement submitted by the parties.
a. Gloria was given one year from the date of the Compromise
Agreement to buy back the property.
b. Failure to do so with mean the previous sale in favor of Rosenda &
Rosita shall remain valid and Gloria should vacate the property
without the need of demand.
138. Gloria failed to buy back the house and lot, so Rosenda & Rosita declared the
lot in their name.
139. Unknown to Rosenda & Rosita, Gloria obtained a free patent over the parcel
of land. Such patent was however cancelled by TCT No. 212598.
140. Rosenda and Rosita sold the house & lot to herein petitioner Spouses Noel
and Abrigo (Spouses Abrigo).
141. Gloria on the other hand, likewise sold the same house and lot to Respondent
Romana de Vera (de Vera).
142. Personal Note: Memorize the parties from this point. Here an illustration:
a. Gloria -> (sold to) Rosenda and Rosita
b. Rosenda and Rosita -> Sps. Abrigo
c. Gloria -> de Vera
d. All involve the same property
143. De Vera registered the sale and TCT No. 22515 was issued in her name.
144. De Vera filed an action for Forcible Entry and Damages against Sps. Abrigo
before the MTC.
145. The parties submitted a Motion for Dismissal in view of their agreement in
the instant case that neither of them can physically take possession of the
property in question until the instant case is terminated. Hence the ejectment
case was dismissed.
146. Sps. Abrigo filed the instant case for annulment of documents, injunction,
preliminary injunction, restraining order and damages against De Vera and
Gloria.
147. RTC ruled that De Vera was the rightful owner and with better right to
possess the property, being an innocent purchaser. Gloria was ordered to pay
de Vera and Sps. Abrigo for damages.
148. CA ruled:
a. On its first decision: a void title could not give rise to a valid one
and hence ruled that since Gloria had already transferred ownership
to Rosenda and Rosita, the subsequent sale to De Vera was deemed
void.
b. On reconsideration: CA amended its decision and now found De
Vera to be a purchaser in good faith and for value.
149. Sps. Abrigo contend that Gloria could not have transferred the property to
Respondent De Vera because it no longer belonged to her. They further claim
that the sale could not be validated, since respondent De Vera was not a
purchaser in good faith and for value.
ISSUE/s:
40. WoN the deed of sale executed by Gloria in favor of De Vera is valid – YES
41. WoN De Vera is a purchaser for value in good faith – YES
42. WoN De Vera has a better title over Sps. Abrigo - YES

RULING: Judgment in question is affirmed.
RATIO:
100. The present case involves what in legal contemplation was a double sale.
On May 27, 1993, Gloria Villafania first sold the disputed property to
Rosenda Tigno-Salazar and Rosita Cave-Go, from whom petitioners, in turn,
derived their right. Subsequently, on October 23, 1997, a second sale was
executed by Villafania with Respondent Romana de Vera.
101. Article 1544 of the Civil Code states the law on double sale thus:
a. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable
property.
b. Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the
Registry of Property.
c. Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title, provided
there is good faith.
102. Otherwise stated, the law provides that a double sale of immovables
transfers ownership to (1) the first registrant in good faith; (2) then, the
first possessor in good faith; and (3) finally, the buyer who in good faith
presents the oldest title.
103. There is no ambiguity in the application of this law with respect to
lands registered under the Torrens system.
104. This principle is in full accord with Section 51 of PD 1529 14 which
provides that no deed, mortgage, lease or other voluntary instrument
— except a will — purporting to convey or affect registered land shall
take effect as a conveyance or bind the land until its registration.
105. Thus, if the sale is not registered, it is binding only between the seller
and the buyer but it does not affect innocent third persons.
106. The above provision does not apply if the property is not registered
under the Torrens system.
107. In the instant case, both Sps. Abrigo and respondent De Vera registered
the sale of the property. Since neither Sps. Abrigo nor their predecessors
(Tigno-Salazar and Cave-Go) knew that the property was covered by the
Torrens system, they registered their respective sales under Act 3344.
108. For her part, respondent De Vera registered the transaction under the Torrens
system because, during the sale, Gloria had presented the transfer certificate
of title (TCT) covering the property.
109. Respondent De Vera contends that her registration under the Torrens
system should prevail over that of petitioners who recorded theirs under Act
3344. De Vera relies on the following insight of Justice Edgardo L. Paras:
a. “. . . If the land is registered under the Land Registration Act (and
has therefore a Torrens Title), and it is sold but the subsequent sale
is registered not under the Land Registration Act but under Act
3344, as amended, such sale is not considered REGISTERED…”
110. The court agrees with respondent De Vera.
111. It is undisputed that Gloria had been issued a free patent registered as
Original Certificate of Title (OCT) No. P-30522. The OCT was later
cancelled by Transfer Certificate of Title (TCT) No. 212598, also in
Gloria’s name. As a consequence of the sale, TCT No. 212598 was
subsequently cancelled and TCT No. 22515 thereafter issued to respondent
De Vera.
112. Soriano v. Heirs of Magali: registration must be done in the proper
registry in order to bind the land. Since the property in dispute in the
present case was already registered under the Torrens system,
petitioners’ registration of the sale under Act 3344 was not effective for
purposes of Article 1544 of the Civil Code.
113. Inasmuch as the registration of the sale to Respondent De Vera under
the Torrens system was done in good faith, this sale must be upheld over
the sale registered under Act 3344 to Petitioner-Spouses Abrigo.
114. Radiowealth Finance Co. v. Palileo explained the difference in the rules of
registration under Act 3344 and those under the Torrens system in this wise:
a. Under Act No. 3344, registration of instruments affecting
unregistered lands is ‘without prejudice to a third party with a
better right.’
b. The aforequoted phrase has been held by this Court to mean that the
mere registration of a sale in one’s favor does not give him any right
over the land if the vendor was not anymore the owner of the land
having previously sold the same to somebody else even if the earlier
sale was unrecorded.
c. The purchaser of unregistered land at a sheriff’s execution sale only
steps into the shoes of the judgment debtor, and merely acquires the
latter’s interest in the property sold as of the time the property was
levied upon.
115. Sps. Abrigo cannot validly argue that they were fraudulently misled
into believing that the property was unregistered. A Torrens title, once
registered, serves as a notice to the whole world. All persons must take
notice, and no one can plead ignorance of the registration.
116. Under Uraca v. Court of Appeals:
a. The prior registration of the disputed property by the second buyer
does not by itself confer ownership or a better right over the
property. Article 1544 requires that such registration must be
coupled with good faith.
b. Jurisprudence teaches us that ‘(t)he governing principle is primus
 tempore, potior jure (first in time, stronger in right).
c. Knowledge gained by the first buyer of the second sale cannot
defeat the first buyer’s rights except where the second buyer
registers in good faith the second sale ahead of the first, as
provided by the Civil Code.
d. Before the second buyer can obtain priority over the first, he
must show that he acted in good faith throughout (i.e. in
ignorance of the first sale and of the first buyer’s rights) —
from the time of acquisition until the title is transferred to him
by registration, or failing registration, by delivery of
possession.’
117. Equally important, under Section 44 of PD 1529, every registered
owner receiving a certificate of title pursuant to a decree of
registration, and every subsequent purchaser of registered land taking
such certificate for value and in good faith shall hold the same free
from all encumbrances, except those noted and enumerated in the
certificate.
118. Thus, a person dealing with registered land is not required to go behind the
registry to determine the condition of the property, since such condition is
noted on the face of the register or certificate of title.
119. Following this principle, this Court has consistently held as regards
registered land that a purchaser in good faith acquires a good title as
against all the transferees thereof whose rights are not recorded in the
Registry of Deeds at the time of the sale.
120. Citing Santiago v. Court of Appeals, petitioners Sps. Abrigo contend that
their prior registration under Act 3344 is constructive notice to respondent
De Vera and negates her good faith at the time she registered the sale.
a. Santiago v. CA: On account of the undisputed fact of registration
under Act No. 3344 by [the first buyers], necessarily, there is
absent good faith in the registration of the sale by the [second
buyers] for which they had been issued certificates of title in their
names.
121. SC held that Santiago and Bayoca (the cases where Sps. Abrigo relied) are
not in point. In Santiago, the first buyers registered the sale under the
Torrens system, as can be inferred from the issuance of the TCT in their
names. There was no registration under Act 3344. In Bayoca, when the first
buyer registered the sale under Act 3344, the property was still unregistered
land. Such registration was therefore considered effectual.
122. Constructive notice to the second buyer through registration under Act
3344 does not apply if the property is registered under the Torrens
system, as in this case.
123. The SC quotes below the additional commentary of Justice Vitug, which
was omitted in Santiago. This omission was evidently the reason why
petitioner misunderstood the context of the citation therein:
a. On lands covered by the Torrens System, the purchaser
acquires such rights and interest as they appear in the
certificate of title, unaffected by any prior lien or encumbrance
not noted therein. The purchaser is not required to explore
farther than what the Torrens title, upon its face, indicates.
The only exception is where the purchaser has actual
knowledge of a flaw or defect in the title of the seller or of such
liens or encumbrances which, as to him, is equivalent to
registration.
124. The CA examined the facts to determine whether respondent was innocent
purchaser for value.
125. Gloria Villafania, [Respondent] De Vera’s vendor, appears to be the
registered owner. The subject land was, and still is, registered in the
name of Gloria Villafania. There is nothing in her certificate of title and
in the circumstances of the transaction or sale which warrant
[Respondent] De Vera in supposing that she needed to look beyond the
title. She had no notice of the earlier sale of the land to Sps. Abrigo.
126. She ascertained and verified that her vendor was the sole owner and in
possession of the subject property by examining her vendor’s title in
the Registry of Deeds and actually going to the premises.
127. There is no evidence in the record showing that when she bought the land
on October 23, 1997, she knew or had the slightest notice that the same was
under litigation. She was not even a party to the said case.
128. In sum, she testified clearly and positively, without any contrary
evidence presented by Sps. Abrigo, that she did not know anything
about the earlier sale until after she had bought the same, and only
then when she brought an ejectment case with MTC.
129. To the [Respondent] De Vera, the only legal truth upon which she had
to rely was that the land is registered in the name of Gloria Villafania,
her vendor, and that her title under the law, is absolute and
indefeasible.
130. Spouses Abrigo base their position only on the general averment that
respondent should have been more vigilant prior to consummating the sale.
They argue that had she inspected the property, she would have found
petitioners to be in possession.
131. This argument is contradicted, however, by the spouses’ own admission that
the parents and the sister of Villafania were still the actual occupants in
when Respondent De Vera purchased the property. The family members
may reasonably be assumed to be Villafania’s agents.
 33 ACABAL v. ACABAL (HENRY)
March 31, 2005 | Carpio-Morales, J. | Subject of sale: Unregistered land
PETITIONER: Leonardo Acabal and Ramon Nicolas
RESPONDENT: Villaner Acabal, Eduardo Acabal, Grace Acabal, et al.
SUMMARY: This case is basically about the dispute as to Villaner’s conveyance
of the property to petitioner Leonardo, who sold it to Nicolas. Villaner claims that
it was only a lease contract, while the adverse party claims it’s in fact a sale.
The case showed the roots of the ownership of the land. First it was owned by
Villaner’s parents, who transferred it to him, when he was married to Justiniana.
He became a widower, and sometime around April 19, 1990, he conveyed the
land to Leonardo (here’s where the problem all began). With claims that the
conveyance was only a lease, Villaner came to RTC and filed a case, to which it
ruled against his favor. Upon his appeal to the CA, it was reversed. Hence, an
appeal by petitioners in the SC.
SC after explaining lots of stuff regarding the issue as to whether it was a sale or
not finally ruled that it was indeed a sale. Hence, Nicolas bought the land from
Leonardo in good faith with assumption that it was indeed Leonardo who owned
the land. BUT Villaner was persistent, and argued that, such “sale” was contrary
to law and shall be void, as it was against the Comprehensive Agrarian Reform
Law. For this issue, SC held that there was no violation, as the land in question
was not within the ambit of the statute. Even assuming that there was a violation,
both are in pari delicto, and cannot seek recourse in the courts.
Ultimately, with the land being unregistered, it puts the buying of the land in good
faith as an irrelevant factor. Such issue is only relevant when the subject of the
sale is registered. One who purchases an unregisterd land does so at his peril.
Nicolas’ claim of having bought the land in good faith is thus irrelevant.
With this, SC held that such was in fact a sale, which essentially puts the sale to
Nicolas valid as well, but only for the 5/9 part.
DOCTRINE: Under Act 3344, registration of instruments affecting unregistered
lands is “without prejudice to a third party with a better right,” which means that
mere registration does not give buyer any right over the land if seller was not
anymore owner thereof, having previously sold it to somebody else even if the
earlier sale was unrecorded. The rules on double sale have no application to land
not registered under the Torrens System.
FACTS: (bear with me, sabog facts ng case, and minimal discussion of the
doctrine on unregistered property. I expounded some stuff para madami masabi
kay sir)
1. Villaner’s parents, Alejandro Acabal and Felicidad Balasbas, owned a parcel
of land situated in Negros Oriental (18.15 hectares). By a Deed of Absolute
Sale (DAS) on July 6, 1971, his parents transferred for Php 2,000.00
ownership of the said land to him, who was then married to Justiniana Lipajan
2. Sometime after the transfer, Villaner became a widower.
3. April 19, 1990, Villaner executed a deed conveying the same property in
favor of Leonardo Acabal.
4. Villaner later claims that while deed executed on April 1990 now appears to
be a DAS, witnessed by court clerk Carmelo Cadalin and wife Lacorte, what
he signed was actually a document captioned “Lease Contract” wherein he
leased for 3 years the property to Leonardo at Php 1,000/hectare and which
was witnessed by 2 women employees of one Judge Villegas (in other words,
yung document daw nung April 19, 1990, lease contract daw yun, not deed
of absolute sale, accdg to Villaner)
5. Villaner filed a complaint before the RTC against Leonardo and Ramon
Nicolas, to whom Leonardo in turn conveyed the property, for annulment of
deeds of sale
6. At the witness stand, Villaner basically claims that the agreement he signed
was that of a contract of lease and not a sale. When asked why he did not read
the document, he said he read the title that said that the document was a Lease
Contract.
7. On the other side of the boat, Leonardo asserts that such document was a
DAS, which was for a consideration of Php 10,000.00 which he already paid
and that, he is the absolute owner thereof, and transferred it to Ramon Nicolas
on May 19, 1990.
8. Carmelo Cadalin who admittedly prepared the DAS corroborated with
Leonardo’s claims.
9. Later, the complaint was amended to implead Villaner’s 8 children as party
plaintiffs, they being heirs of his diseased wife.
10. RTC ruled in favor of Leonardo and Nicolas, and dismissed the complaint.
(so RTC said, sale daw yun)
11. Villaner et al brought the case on appeal to the CA, which reversed the RTC
ruling, holding that the DAS was fictitious. (CA said naman, na it was a
lease, not a sale)
12. Hence, this petition.
ISSUES:
1. WoN Nicolas’ claim of having bought the land in good faith is relevant – NO.
panalo parin kahit hindi applicable yung good faith claims
RULING: SC granted the petition. Sale in favor of Leonardo Acabal and subsequent
sale in favor of Ramon Nicolas is valid, but only insofar as the 5/9 of the subject
property is concerned.
 conjugal, hence Art 160 of the CC will apply.
RATIO: 11. The property being conjugal, upon death of his spouse, such partnership was
1. On the burden of proof: It is a basic rule in evidence that the burden of proof terminated. With its dissolution, Villaner’s interest in the partnership became
lies on party who makes allegations. If he claims a right granted by law, he actual and vested with respect to an undivided one-half portion. The other
must prove it by competent evidence, relying on the strength of his own half is vested upon her death to her heirs, including Villaner. Hence, an
evidence and not upon weakness of his opponent existence of a regime of co-ownership
2. Allegations of defect in or lack of valid consent to a contract by reason of 12. While Villaner owns 5/9 of the property, he could not claim title to any
fraud or undue influence are NEVER presumed, it must be established by definite portion until its actual partition by agreement or judicial degree. Prior
clear and convincing evidence to partition, all that he has is an ideal abstract quota or proportionate share.
3. Whether the document was a DAS or that of for lease: In the present case, it He may sell his undivided share though, with reference to laws on Property
was incumbent on Villaner to prove that he was deceived into executing the 13. However in this case, Villaner sold the entire property without obtaining
DAS. Except for his bare allegation that the transaction was that of a lease, consent of co-owners (his heirs). Following the well-established principle
he failed to adduce evidence in support thereof. On his claim that two women that the binding vorce of a contract must be recognized as far as it is legally
employees signed as witnesses but that the signatures were not of those two, possible to do so, the disposition affects only Villaner’s share, and the
it must be discredited. transferee only gets what corresponds to his grantor’s share in the partition
4. On the purchase price: Villaner zeroes in the price of Php 10,000.00, which of property owned in common
to him was unusually low if the transaction were one of sale. He even 14. The Court cited Cruz v. Leis, where it held that as a rule, a co-owner could
presented Tax Declarations covering the property for years (1971, 1974, only dispose of her share in the property owned in common.
1977, 1980, 1983, 1985, 1985) to substantiate his claim. However, he failed 15. But, such doctrine is not applicable in the case at bar for the simple reason
to present evidence on the fair market value of the property as of April 19, that the property in dispute is unregistered.
1990. Without this proof, there can be no substance as to claims of 16. Issue of good faith or bad faith of a buyer is relevant only where the subject
inadequacy of price of the sale is a registered land but not where the property is an unregistered
5. Victor Ragay, a staff appointed by RTC to inspect the property, even reported land.
that one Anatolio Cabusog purchased the 6-hectare property adjoining that of 17. One who purchases an unregistered land does so at his peril. Accordingly,
the subject property for only Php 1,600.00 or Php 2.66/hectare. Given that, Nicolas’ claim of having bought the land in good faith is irrelevant.
the 18-hectare subject property been sold at about that same time, would have
fetched the amount of Php 4,800.00, which leads the SC to say that the 10k
purchase price of the property is more than in fact reasonable
6. Even assuming that the price of 10k was below fair market value, mere
inadequacy of price will not rule out the transaction as one of sale.
7. SC likewise held that as far as RA 6657 (Comprehensive Agrarian Reform
Law), subject property is not suitable for agricultural purposes (baka lang
itanong ni sir)
8. On the sale of Leonardo to Nicolas: There was also an argument as to the sale
of Leonardo to Nicolas being void for being violative of the retention limits
provided for by RA 6657 (Comprehensive Agrarian Reform Law), the SC
held that there was no such violation.
9. Even assuming that the sale from Villaner to Leonardo was contrary to law,
he has no remedy as he and Leonardo were in pari delicto, hence, not entitled
to affirmative relief.
10. On relevant topic: The subject property was acquired on July 6, 1971 during
Villaner’s marriage with Justiniana. It cannot be seriously contended that
simply because the tax declarations covering the property was solely in the
name of Villaner, that it is his personal and exclusive property. It is, by nature,
 01 MINDANAO v. YAP (Salve)
February 26, 1965 | Makalintal, J. | Co-owners
PETITIONER: Mindanao Academy Inc., Mauricio Bas, Erlinda Diaz, Rosenda
De Niqui, Sotero Dionisio Jr., Antolin Diaz
RESPONDENTS: Ildefonso Yap
SUMMARY: Rosena de Nuqui and her son Sotero Dionisio Jr. sold parcels of
land and buildings and other improvements on the said land to Ildefonso Yap.
However, there were other co-owners of the land not named in the deed of sale.
Ildefonso Yap obtained possession of the properties. Thus, the said co-owners
brought actions for annulment of sale and rescission. Yap contends that the lower
court erred "in declaring that the mutual agreement dated May 10, 1954 ... is
entirely void and legally non-existent in that the vendors therein ceded to
defendant-appellant not only their interests, rights, shares and participation in the
property sold but also those that belonged to persons who were not parties
thereto." He also contends that Erlinda Diaz is in no position to ask for annulment
because of her bad faith. WoN the contract of sale is void for failing to state all
the owners of the property? YES. WoN bad faith (if ever she was in bad faith) on
the part of Erlinda will militate her action for nullity? NO. The contract is void
because the contract was not made by all the owners of the property. Bad faith on
the part of Erlinda would not militate against the nullity of the sale, considering
that it included not only the lands owned in common by Rosenda Nuqui and her
six children but also the buildings and school facilities owned by the Mindanao
Academy, Inc., an entity which had nothing to do with the transaction and which
could be represented solely by its Board of Trustees.
DOCTRINE:
The contract is void because
(a) the contract purported to sell properties of which the sellers were
not the only owners, since of the four parcels of land mentioned in
the deed their shares consisted only of 7/12, (6/12 for Rosenda
Nuqui and 1/12 for Sotero, Jr.), while in the buildings, laboratory
equipment, books, furniture and fixtures they had no participation
at all, the owner being the Mindanao Academy, Inc.;
(b) the prestation involved in the sale was indivisible, and therefore
incapable of partial annulment, inasmuch as the buyer Yap, by his
own admission, would not have entered into the transaction except
to acquire all of the properties purchased by him.
FACTS:
13. Rosenda A. de Nuqui (widow of deceased Sotero Dionisio) and her son
Sotero Dionisio, Jr. sold three parcels of residential land in Oroquieta,
Misamis Occidental, and another parcel in Ozamis City in favor of Ildefonso
D. Yap.
14. Included in the sale were certain buildings situated on said lands as well as
laboratory equipment, books, furniture and fixtures used by two schools
established in the respective properties, the Mindanao Academy in Oroquieta
and the Misamis Academy in Ozamis City.
15. The price was P100,700.00, to be paid according to the terms and conditions
specified in the contract.
16. Adelaida Dionisio-Nuesa (a daughter of Rosenda) is also named therein as
co-vendor, but actually did not take part.
17. Rosenda and her two children are referred to in the deed as the owners pro-
indiviso of the properties sold. The truth, however, was that there were other
co-owners of the lands, namely, Erlinda D. Diaz, Ester Aida D. Bas,
Rosalinda D. Belleza, and Luz Minda D. Dajao, children also of Rosenda.
18. The school building, equipment, books, furniture and fixtures were owned by
the Mindanao Academy, Inc.
19. The buyer, Ildefonso D. Yap, obtained possession of the properties by virtue
of the sale, took over the operation of the two schools and even changed their
names to Harvardian Colleges.
20. Two actions were commenced in the Court of First Instance of Misamis
Occidental.
21. The first was for annulment of the sale and recovery of rents and damages
(Civil Case No. 1774, filed May 3, 1955) with the Mindanao Academy, Inc.,
the five children of Rosenda Nuqui who did not take part in the deed of sale,
and several other persons who were stockholders of the said corporation, as
plaintiffs, and the parties who signed the deed of sale as defendants.
22. The second action was for rescission (Civil Case No. 1907, filed July 17,
1956) with Rosenda Nuqui, Sotero Dionisio, Jr. and Erlinda D. Diaz (and the
latter's husband Antolin Diaz) as plaintiffs, and Ildefonso D. Yap as lone
defendant. The other four children of Rosenda did not join, having previously
ceded and quitclaimed their shares in the litigated properties in favor of their
sister Erlinda D. Diaz.
23. Ildefonso D. Yap appealed from the judgment of the CFI.
24. He contends that the lower court erred "in declaring that the mutual
agreement dated May 10, 1954 ... is entirely void and legally non-existent in
that the vendors therein ceded to defendant-appellant not only their interests,
rights, shares and participation in the property sold but also those that
belonged to persons who were not parties thereto."
25. Yap contends that Rosenda Nuqui who did not take part in the sale, besides
Erlinda Dionisio Diaz, quitclaimed in favor of the latter their interests in the
properties; and that the trial court held that Erlinda as well as her husband
acted in bad faith, because "having reasonable notice of defendants' having
unlawfully taken possession of the property, they failed to make reasonable
demands for (him) to vacate the premises to respect their rights thereto." It is
argued that being herself guilty of bad faith, Erlinda D. Diaz, as owner of
5/12 undivided interest in the properties (including the 4/12 ceded to her by
 her four sisters), is in no position to ask for annulment of the sale.
ISSUES:
2. WoN the contract of sale is void for failing to state all the owners of the
property? YES
3. WoN bad faith (if ever she was in bad faith) on the part of Erlinda will militate
her action for nullity? NO
RULING: WHEREFORE, the judgment appealed from is modified by eliminating
therefrom the award of attorney's fees of P1,000.00 in favor of Erlinda D. Diaz and
her husband, plaintiffs in Civil Case No. 1907, and the award of nominal and
exemplary damages in Civil Case No. 1774; and making the award of attorney's fees
in the sum of P2,000.00 payable to counsel for the account of the Mindanao Academy,
Inc. instead of the plaintiff stockholders. In all other respects the judgment appealed
from is affirmed. No pronouncement as to costs.
the said rents in proportion to her own interests in the lands and the interest
in the four co-owners which she had acquired. Rosenda Nuqui and her son
Sotero, it is true, acted in bad faith when they sold the properties as theirs
alone, but so did the defendant Yap when he purchased them with knowledge
of the fact that there were other co-owners.
18. Although the bad faith of one party neutralizes that of the other and hence as
between themselves their rights would be as if both of them had acted in good
faith at the time of the transaction, this legal fiction of Yap's good faith ceased
when the complaint against him was filed, and consequently the court's
declaration of liability for the rents thereafter is correct and proper. A
possessor in good faith is entitled to the fruits only so long as his possession
is not legally interrupted, and such interruption takes place upon service of
judicial summons.

RATIO:
13. The contract is void because
(c) the contract purported to sell properties of which the sellers were not the
only owners, since of the four parcels of land mentioned in the deed their
shares consisted only of 7/12, (6/12 for Rosenda Nuqui and 1/12 for
Sotero, Jr.), while in the buildings, laboratory equipment, books,
furniture and fixtures they had no participation at all, the owner being
the Mindanao Academy, Inc.;
(d) the prestation involved in the sale was indivisible, and therefore
incapable of partial annulment, inasmuch as the buyer Yap, by his own
admission, would not have entered into the transaction except to acquire
all of the properties purchased by him.
14. Quitclaim of Erlinda, in the form of an extrajudicial partition, was made on
May 6, 1956, after the action for annulment was filed, wherein the plaintiffs
were not only Erlinda but also the other co-owners who took no part in the
sale and to whom there has been no imputation of bad faith.
15. The trial court's finding of bad faith is an erroneous conclusion induced by a
manifest oversight of an undisputed fact, namely, that on July 10, 1954, just
a month after the deed of sale in question, Erlinda D. Diaz did file an action
against Ildefonso D. Yap and Rosenda Nuqui, among others, asserting her
rights as co-owner of the properties.
16. Finally, bad faith on the part of Erlinda would not militate against the nullity
of the sale, considering that it included not only the lands owned in common
by Rosenda Nuqui and her six children but also the buildings and school
facilities owned by the Mindanao Academy, Inc., an entity which had nothing
to do with the transaction and which could be represented solely by its Board
of Trustees.
17. There can be no doubt that Erlinda D. Diaz is entitled to recover a share of
 02 BUCTON v. GABAR (Lorena)
January 31, 1974 | Antonio, J. | Estoppel on the True Owner (Art. 1434)
PETITIONER: Felix Bucton and Nicanora Gabar Bucton
RESPONDENTS: Zosimo Gabar, Josefina Llamaso Gabar and the Honorable Court
of Appeals
SUMMARY: This action for specific performance filed by Spouses Bucton prays
that Spouses Gabar be ordered to execute in favor of Spouses Bucton a deed of sale
of the western half of a parcel of land having an area of 728 sq.m. in Misamis
Oriental. Spouses Bucton contends that sometime in 1946 Josefina bought the land
from the spouses Villarin on installment basis, to wit, P500 down, the balance
payable in installments. Josefina entered into a verbal agreement with her sister-in-
law, Nicanora, that the latter would pay one-half of the price (P3,000) and would
then own one-half of the land. Subsequently, the spouses Villarin executed the deed
of sale of the land in favor Josefina, to whom was issued a TCT. Spouses Bucton
then sought to obtain a separate title for their portion of the land in question. Spouses
Gabar repeatedly declined to accommodate Spouses Bucton. The issue in this case is
W/N there was a sale between Josefina and Nicanora. The Court ruled in the
affirmative. There is no question that Nicanora paid P1,500.00 to Josefina as
purchase price of one-half of the lot, for the CA found as a fact "that Spouses Bucton
really paid for a portion of the lot in question pursuant to their agreement with the
Spouses Gabar that they would own one-half (1/2) of the land." That sale, although
not consigned in a public instrument or formal writing, is nevertheless valid and
binding between the parties, for the time-honored rule is that even a verbal contract
of sale or real estate produces legal effects between the parties. Although at the time
Nicanora paid P1,000.00 as part payment of the purchase price Souses Gabar
were not yet the owners of the lot, they became such when a deed of sale was
executed in their favor by the Villarin spouses. In the premises, Article 1434 of
the Civil Code is applicable. Thus, the payment by Nicanora of P1,000.00, her
second payment of P400.00, and the compensation, up to the amount of P100.00 (out
of the P1,000.00-loan obtained by Spouses Gabar from Spouses Bucton), resulted in
the full payment of the purchase price and the consequential acquisition by Spouses
Bucton of ownership over one-half of the lot. Spouses Bucton therefore became
owners of the one-half portion of the lot in question by virtue of a sale which, though
not evidenced by a formal deed, was nevertheless proved by both documentary and
parole evidence.
DOCTRINE: Article 1434 of the Civil Code, which provides that "when a person
who is not the owner of a thing sells or alienates and delivers it, and later the seller
or grantor acquires title thereto, such title passes by operation of law to the buyer or
grantee”
FACTS:
51. This action for specific performance filed by Spouses Bucton prays, inter-
alia, that Spouses Gabar be ordered to execute in favor of Spouses Bucton a
deed of sale of the western half of a parcel of land in Misamis Oriental
52. Nicanora Gabar Bucton (Nicanora), wife of Felix Bucton, (Felix) is the sister
of Zosimo Gabar (Zosimo), husband of Josefina Llamoso Gabar (Josefina).
53. In 1946 Josefina bought a parcel of land having an area of 728 sq. m. from
the spouses Villarin on installment basis (P500 down, the balance payable in
installments)
54. Josefina entered into a verbal agreement with her sister-in-law, Nicanora, that
the latter would pay one-half of the price (P3,000) and would then own one-
half of the land. Thus, Nicanora gave Josefina the initial amount of P1,000,
for which the latter signed a receipt and subsequently gave Josefina P400 to
which she later signed another receipt marked.
55. Spouses Bucton gave Spouses Gabar P1,000 in concept of loan, for which
Zosimo signed a receipt marked
56. Meanwhile, after Josefina had received in January, 1946 the initial amount of
P1,000 as above stated, Spouses Bucton took possession of the portion of the
land indicated to them by Spouses Gabar and built a modest nipa house
therein.
57. About two years later, Spouses Bucton built behind the nipa house another
house for rent. And, subsequently, they demolished the nipa house and in its
place constructed a house of strong materials, with three apartments in the
lower portion for rental purposes. Spouses Bucton occupied the upper portion
of this house as their residence, until July, 1969 when they moved to another
house, converting and leasing the upper portion as a dormitory.
58. Spouses Bucton then sought to obtain a separate title for their portion of the
land in question. Spouses Gabar repeatedly declined to accommodate them.
Their excuse: the entire land was still mortgaged with the Philippine National
Bank as guarantee for Spouses Gabar's loan of P3,500
59. Spouses Bucton continued enjoying their portion of the land, planting fruit
trees and receiving the rentals of their buildings. In 1953, with the consent of
Spouses Gabar (who were living on their portion), Spouses Bucton had the
entire land surveyed and subdivided preparatory to obtaining their separate
title to their portion.
60. After the survey and the planting of the concrete monuments Spouses Gabar
erected a fence from point 2 to point 4 of the plan, which is the dividing line
between the portion of the Spouses Gabar
61. In the meantime, Spouses Bucton continued to insist on obtaining their
separate title. Spouses Gabar remained unmoved, giving the same excuse.
62. Frustrated,Spouses Bucton were compelled to employ Atty. Bonifacio
Regalado to intercede; counsel tried but failed. Spouses Bucton persevered,
this time employing Atty. Aquilino Pimentel, Jr. to persuade Spouses Gabar
to comply with their obligation; this, too, failed. Hence, this case, which has
cost plaintiffs P1,500 in attorney's fees.
 63. Spouses Gabar's evidence — based only on the testimony of Josefina —
denies agreement to sell to the spouses Bucton one-half of the land in
litigation. She declared that the amounts she had received from Nicanora —
first, P1,000, then P400 — were loans, not payment of one-half of the price
of the land (which was P3,000).
64. The trial court, rendered judgment in favor of the Spouses Bucton
65. The Court of Appeals reversed the judgment of the trial court and ordered the
complaint dismissed
66. Spouses Bucton’s' appeal is predicated on the proposition that owners of the
property by purchase from Spouses Gabar, and being in actual, continuous
and physical possession thereof since the date of its purchase, their action to
compel the vendors to execute a formal deed of conveyance so that the fact
of their ownership may be inscribed in the corresponding certificate of title,
had not yet prescribed when they filed the present action.
ISSUE/s:
5. WoN the action of Nicanora has prescribed – No
6. WoN there was a sale between Josefina and Nicanora - Yes
RULING: WHEREFORE, the decision and resolution of respondent Court of Appeals
appealed from are hereby reversed, and the judgment of the Court of First Instance of
Misamis Oriental, Branch IV, in its Civil Case No. 3004, is revived. Costs against
private respondents.
3. Thus, the payment by Nicanora of P1,000.00, her second payment
of P400.00, and the compensation, up to the amount of P100.00 (out
of the P1,000.00-loan obtained by Spouses Gabar from Spouses
Bucton), resulted in the full payment of the purchase price and the
consequential acquisition by Spouses Bucton of ownership over
one-half of the lot.
4. Spouses Bucton therefore became owners of the one-half portion of
the lot in question by virtue of a sale which, though not evidenced
by a formal deed, was nevertheless proved by both documentary and
parole evidence.
20. The action of Nicanora has not yet prescribed
1. The real and ultimate basis of petitioners' action is their ownership
of one-half of the lot coupled with their possession thereof, which
entitles them to a conveyance of the property.
2. No enforcement of the contract is needed, since the delivery of
possession of the land sold had consummated the sale and
transferred title to the purchaser, and that, actually, the action for
conveyance is one to quiet title, i.e., to remove the cloud upon the
appellee's ownership by the refusal of the appellants to recognize the
sale made by their predecessors. It is an established rule of American
jurisprudence (made applicable in this jurisdiction by Art. 480 of the
New Civil Code) that actions to quiet title to property in the
possession of the plaintiff are imprescriptible.

RATIO:
19. There was a sale between Josefina and Nicanora
1. There is no question that Nicanora paid P1,500.00 to Josefina as
purchase price of one-half of the lot, for the CA found as a fact "that
Spouses Bucton really paid for a portion of the lot in question
pursuant to their agreement with the Spouses Gabar that they would
own one-half (1/2) of the land." That sale, although not consigned
in a public instrument or formal writing, is nevertheless valid and
binding between the parties, for the time-honored rule is that even a
verbal contract of sale or real estate produces legal effects between
the parties.
2. Although at the time Nicanora paid P1,000.00 as part payment
of the purchase price, Spouses Gabar were not yet the owners of
the lot, they became such owners when a deed of sale was
executed in their favor by the Villarin spouses.
1. Article 1434 of the Civil Code, which provides that
"[w]hen a person who is not the owner of a thing sells
or alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee," is applicable.
 03 City of Manila v. Bugsuk (Celaje)
G.R. No. L-8255 | July 11, 1957 | Felix, J. | Dealer v. Producer
PETITIONER: CITY OF MANILA
RESPONDENTS: BUGSUK LUMBER CO.
SUMMARY: The City of Manila sued Bugsuk Lumber Company, alleging that
Bugsuk Lumber Company sold at wholesale to different lumber dealers in Manila
in 1951 and 1952 for which it should have paid a quarterly license tax of P40.000
or a total of P280.00 and the mayor's permit of P20.00. Bugsuk claims that it not
liable to pay wholesale dealer taxes because it is not a dealer as contemplated by
the law, but a producer. Lower courts ruled in favor of City of Manila. Supreme
Court ruled in favor of Bugsuk. SC held that appellant certainly is not a “dealer”
because what appellant sold was the produce of its concession in Palawan.
Further, as to Manila’s contention that Bugsuk is a dealer because it “sold” lumber
at its office in Manila, SC held that the placing of an order for goods and the
making of payment thereto at a principal office does not transform said office into
a store, for it is a necessary element that there must also be goods or wares stored
therein or on display, and provided also that the firm or person maintaining that
office is actually engaged in the business of buying and selling. Indeed, the
principal office of Bugsuk alluded to as a store only serves to facilitate the
transactions relative to the sale of its produce, but does not act as a dealer or
intermediary between its field office and its customers.
DOCTRINE: A dealer, in the legal meaning of the word, is not one who buys to
keep or makes to sell, but one who buys to sell again; the middleman between the
producer and the consumer. For an office to be “treated” as a store, it is necessary
that there must also be goods or wares stored therein or on display, and provided
also that the firm or person maintaining that office is actually engaged in the
business of buying and selling.
FACTS:
11. In Bugsuk Lumber Company, Inc., a domestic corporation with field office
at Balabak, Palawan, and principal office at 703 San Fernando, Binondo,
Manila, was organized to:
a. (a) (To buy and sell lumber and to engage in general, in any kind of
business concerning lumber); (b) (To apply from the Government or
to acquire in any manner permitted by law, lumber concessions if
the business would so require);
b. (c) (To saw lumber and to buy logs, in case the business of the
corporation would so demand; and (d) (To make all kinds of
business that may be directly or indirectly in line with the purposes
for which this corporation has been created).
12. In 1951 and during the 1st, 2nd and 3rd quarters of 1952, the Bugsuk Lumber
Company made sales of lumber to several firms including Pio Barreto &
Sons, Inc., Gotamco & Sons, Co., Basilan Lumber Co., etc.
13. On October 10, 1952, the Office of the Treasurer of the City of Manila sent
a demand to the Company for the payment of the amount of P544.50 for
license fees corresponding to the years 1951 and 1952, and P40.00 for the
necessary mayor's permit, on the ground that said business firm was found
to be engaged in the sales of timber products without first securing the
required licenses and permits pursuant to numerous City Ordinances.
14. The Company must have refused or failed to pay said imposts because on
June 11, 1953, the City Fiscal of Manila filed a complaint against the Bugsuk
Lumber Co., Inc., with the Municipal Court of Manila and prayed that
judgment be rendered ordering the defendant Company to pay the City of
Manila the amount of P584.50 representing license fees and mayor's
permit fees, with legal interests thereon.
15. Defendant Bugsuk Lumber Co., Inc., filed an answer on October 12, 1953,
contesting plaintiff's allegation that it sold lumber at wholesale transactions
because what it actually sold were unprocessed logs; neither did it sell at retail
because the timbers were delivered directly from the vessel to the lumber
dealers, and set up the affirmative defenses that the Bugsuk Lumber
Company was essentially a producer, having no lumber yard of any kind
in Manila or elsewhere, nor kept a store where lumber or logs could be sold,
and that its products (logs) were sold directly from the lumber concession to
the dealers in Manila; that as such producer, it had paid the taxes required by
law; and prayed for the dismissal of the complaint.
16. Municipal Court ruled in favor of City of Manila and ordered Bugsuk Lumber
to pay City of Manila. On appeal, CIF affirmed. The CIF held that that the
Company sold logs to various firms in wholesale and retail transactions and
although defendant had no store or lumber yard in the City, this fact alone
cannot destroy the findings of the inspector of the City Treasurer's Office that
it sold logs to different buyers in Manila; that the imposition of the taxes in
question did not constitute double taxation and, consequently, ordered the
defendant Company to pay the sum of P584.50 plus legal interests and costs.
Hence this appeal.
ISSUES:
3. W/N appellant, maintaining a principal office in Manila, receiving orders for
its products and accepting in said office payments thereto, can be considered
a dealer in this City and is, therefore, subject to the payment of the license
tax and permit fees in question. No.
RULING: Wherefore, the decision appealed from is hereby reversed and appellant
declared exempt from the liabilities sought to be charged against it under the
provisions of the aforementioned ordinances, without pronouncement as to costs. It is
so ordered.
RATIO:
24. Appellant does not dispute the power of the Municipal Board of the City of
Manila to enact Ordinance No. 3000 requiring wholesale and retail dealers to
secure and pay the mayor's permit annually, neither does it contest the
validity of Ordinance No. 3364 which contains the following provision:
a. Group 2. Retail dealers in new (not yet used) merchandise, which
dealers are not yet subject to the payment of any municipal tax, such
as; (1) Retail dealers in General Merchandise and (2) retail dealers
exclusively engaged in the sale of electrical supplies; rice; cooking
utensils and construction materials…
25. nor of Ordinance No. 3420 which provides:
a. SEC. 1. Municipal Tax on wholesalers in General Merchandise. —
There shall be paid by every person, firm or corporation engaging
in business as wholesale dealer in general merchandise, a municipal
tax based on wholesales….
26. A dealer has been defined as:
a. A dealer, in the common acceptation and, therefore, in the legal
meaning of the word, is not one who buys to keep or makes to sell,
but one who buys to sell again; the middleman between the producer
and the consumer of the commodity.
b. It has been said that a dealer stands immediately between the
producer and the consumer, and depends for his profit, not upon the
labor he bestows on his commodities, but upon the skill and
foresight with which he watches the markets.
27. In the light of the above definitions, appellant certainly does not fall
within the common and ordinary acceptation of the word "dealer" for
there is no controversy as to the fact that what appellant sold was the
produce of its concession in Palawan. Even conceding, therefore, that the
lumber which appellant disposed of comes within the connotation of
'construction materials' (Group 2, Ordinance No. 3364) and of the term
"general merchandise" (used in Ordinances Nos. 3364 and 3420)….
28. We see no reason why a producer or manufacturer selling its own
produce or manufactured goods would be considered a dealer just to
make it liable for the corresponding dealer's tax, as is the case in the
instant appeal.
29. Appellee, however, in asserting that appellant Company is a dealer relied on
the case of Atlantic Refining Co. vs. Van Valkenburg, 265 Pa. 456; 109 A.
208, wherein it was held that the term dealer includes "one who carries on the
business of selling goods, wares and merchandise manufactured by him at
a store or warehouse apart from his own manufactory", and it was the
contention of the City Fiscal that the office at 703 San Fernando, Binondo,
Manila, where appellant received orders and receipted payment for such
orders is actually a store.
30. Appellant admittedly maintained said principal office but averred that it was
used merely to facilitate the payment of the tax obligations of said Company,
to receive orders of its timber produce and accept payments therefor, and not
for any purpose connected with the business of buying and selling. Did the
fact that appellant received orders of its goods and accepted payments thereto
in said office make such office a store?
31. Lexicographers defined a store as:
a. Any place where goods are kept for sale, whether by wholesale or
retail; a shop (Webster's New International Dictionary).
b. Any place where goods are deposited and sold by one engaged in
buying and selling them (Black's Law Dictionary, 4th ed., p. 1589).
32. It could be seen that the placing of an order for goods and the making of
payment thereto at a principal office does not transform said office into
a store, for it is a necessary element that there must also be goods or
wares stored therein or on display, and provided also that the firm or
person maintaining that office is actually engaged in the business of
buying and selling. These elements are wanting in the case at bar for it needs
no further clarification that the principal office alluded to as a store only
serves to facilitate the transactions relative to the sale of its produce, but does
not act as a dealer or intermediary between its field office and its customers.
33. We may further add that this matter was already passed upon by this Court
when, through Mr. Justice Alejo Labrador, it held that:
a. It may be admitted that the manufacturer becomes a dealer if he
carries on the business of selling goods or the products
manufactured by him at a store or warehouse apart from his own
shop or manufactory. But plaintiff-appellee did not carry on the
business of selling sugar at stores or at its warehouses. It entered into
the contracts of sale at its central office in Manila and made
deliveries of the sugar sold from its warehouses. It does not appear
that the plaintiff keeps stores at its warehouses and engages in
selling sugar in said stores. Neither does it appear that any one who
desires to purchase sugar from it may go to the warehouses and there
purchase sugar. All that it does was to sell the sugar it manufactured;
it does not open stores for the sale of such sugar. Plaintiff-appellee
did not, therefore, engage in the business of selling sugar. (Central
Azucarera de Don Pedro vs. City of Manila et al).
 04 TAGATAC vs JIMENEZ (Abs)
February 22, 1957 | Ocampo, J. | Sale by Seller having voidable title
PETITIONER: Trinidad C. Tagatac
RESPONDENT: Liberato C. Jimenez
SUMMARY: Tagatac sold his car to a certain Feist who paid him via check.
However, when he was going to encash it, the bank refused and informed him
that Feist has no account in said bank. Meanwhile, Feist notarized the deed of sale
between him and Tagatac, and registered the car in his name. He then sold it to
Sanchez who, in turn, sold it to Jimenez. Jimenez then displayed it in California
Car Exchange for sale. Tagatac saw the car and demanded that the car’s
possession be returned to him. The lower court decided against him and
confirmed Jimenez’ ownership of the car. The issue is whether or not Tagatac can
still recover his car. The Supreme Court held that Jimenez has a better title
because Tagatac was not unlawfully deprived of his car in the legal sense
provided in Article 559 of NCC. He voluntarily departed with his car, thus
perfecting a contract of sale. The fact that Feist paid him with a bouncing check
went into the performance of the sale, not its perfection. Therefore, the sale being
legally perfected albeit voidable, Jimenez is considered an innocent purchaser.
DOCTRINE: Whenever there is an underlying sale which grants to the culprit-
buyer a voidable title, even when this is accompanied by the criminal act of estafa
or swindling, Article 1506 would grant to the buyer in good faith a better title as
against the original owner even though the latter may be classified to have been
“unlawfully deprived” of the subject matter under Article 559.
FACTS:
8. On October 1951, Trinidad C. Tagatac bought a car for $4,500 from
Danielson and Kavarno Motors of Sta. Barbara, California, USA. On May
27, 1952 she brought the car to the Philippines.
9. Sometime in June 1952, Tagatac went to a friend’s house and met one Warner
L. Feist aka Warner L. Levy who was posing as a wealthy man. While talking,
Feist was able to make Tagatac believe that he was “rich” and offered to buy
her car for 15,000php. Tagatac agreed to sell the car to Feist.
10. On June 18, 1952, the deed of sale was made. Tagatac signed said private
document. Feist paid the price to Tagatac by means of a postdated check
which he delivered on the same day. Tagatac then delivered the car to Feist.
11. The next day, Tagatac tried to cash the check with PNB, however, the bank
refused the check and informed her that Feist has no account and no funds
with PNB. Tagatac then notified all enforcement agencies of the estafa
committed by Feist. The authorities failed to apprehend him and the car was
already gone.
12. Meanwhile, Feist managed to have the private deed of sale notarized and
registered the car in his name. On August 18, 1952, Feist sold the car to Felix
Sanchez. The latter then registered the car in his name.
13. Sanchez then offered to sell the car to Liberato C. Jimenez. After some
investigation and finding out that everything is in order, Jimenez bought the
car for 10,000php.
14. On August 21, 1952, Jimenez brought the car to California Car Exchange to
be displayed for sale. This is where Tagatac discovered her car. She
demanded from the manager of said exchange for the delivery of the car to
her but the latter refused.
15. On October 20, 1952, Trinidad C. Tagatac filed a suit for the recovery of the
possession of the car. After trial, the lower court decided against Tagatac and
confirmed the ownership and possession of Jimenez. Tagatac appealed.
ISSUES: WoN Jimenez is a purchaser in good faith and thus entitled to the possession
of the car in question? –YES.
RULING: Wherefore, the Petition is GRANTED.
RATIO:
1. Tagatac claims that Jimenez was a purchaser in bad faith since the estafa was
committed by Feist who then transferred the car to Jimenez basing such
presumption from Rule 123 of the Rules of Court. Said provision states that
there is a disputable presumption that a person found in possession of a thing
taken in the doing of a recent wrongful act is the taker and the doer of the
whole act. This presumption usually arises in cases of stolen goods.
2. We cannot make the same presumption in this case because (1) the car was
not stolen from Tagatac and (2) Jimenez came into possession of the car two
months after Feist swindled Tagatac so even assuming that it was stolen,
Jimenez could not have been presumed to have been the wrongdoer for the
wrongful act that was done two months before the car came into his
possession.
3. Tagatac also claimed that when the car was transferred to Ruben Masalonga
of the California Car Exchange and re-transferred to him, Jimenez was
already informed of the criminal case filed against Feist, making him a buyer
in bad faith. However, it is a fact beyond dispute that when Jimenez first
acquired the car, he had no knowledge of any flaw in the title of the person
from whom he acquired it. He merely transferred the car to Masalonga
to facilitate the sale of the car.
4. Tagatac also alleges that the lower court blatantly disregard that Feist was
criminally convicted of Estafa. He also avers that it is part of Feist’s civil
liability to get the subject matter from a third person. This is based from
Article 559 of the New Civil Code which states that although a third person
 who acquired a property in good faith, the one who has lost it or has been
unlawfully deprived thereof, may nevertheless recover it from the possession
of the same.
5. However, Tagatac was not unlawfully deprived of his property
considering he voluntarily departed with it. The giving of Feist of a
bouncing check is illegal but that does not render fraudulent or illegal the sale
which bears all the earmarks of legality.
6. As regards the contract of sale between Tagatac and Feist, due to the fraud
and deceit practiced by Feist, it is considered voidable. And because it was
not annulled, it is deemed ratified and cleansed of all its defects.
7. When Feist sold the car to Sanchez, the former’s title had been avoided and
therefore conferred a good title on the latter. There being no proof that
Sanchez acted in bad faith, it is safe to assume that he acted in good faith, for
value and without notice of any defect in Sanchez’ title, then he acquired a
good title to the car. Good title means an indefeasible title to the car even
as against the original owner of the car.
8. Even under the rules of equity, Jimenez has a better right. Despite both the
parties being innocent, it was the gullibility of Tagatac that made
possible the swindle committed by Feist. Thus, it is Tagatac that should
bear the consequences of the swindle.
 05 EDCA PUBLISHING v. SANTOS (Ram)
April 26, 1990 | Cruz, J. | Article 559 ; Good faith is equivalent to a title
PETITIONER: EDCA Publishing & Distributing Corporation
RESPONDENTS: The Spouses Leonor and Gerardo Santos, doing business
under the name and style of “Santos Bookstore” and the CA
SUMMARY: An impostor identifying himself as a professor, Cruz ordered
books from EDCA for which he issued a check. EDCA delivered the books to
Cruz with a sales invoice that the books had been paid for on delivery – vesting
ownership to Cruz. Cruz then sold some of the books to Santos. The check issued
by Cruz bounced and it was found that he was an impostor. EDCA is now
claiming recovery of the books from Santos. EDCA argues that Cruz never
acquired title to the books because the failure of the consideration nullified the
sale. Therefore, the Spouses Santos could not establish ownership over the books.
MTC, RTC and CA all sided with Santos. The issue in this case is WON EDCA
has been unlawfully deprived of the books because the check issued by Cruz was
dishonored. The SC held that there was already a perfected contract of sale.
Moreover, interpreting Article 559 provides that "the possession of movable
property acquired in good faith is equivalent to a title," thus dispensing with
further proof.
DOCTRINE: Note that the doctrine in the sales outline refers to the Tagatac and
EDCA. Please see additional discussion under C.Tiu’s reviewer.
Non-payment only creates a right to demand payment or to rescind the contract,
or to criminal prosecution in the case of bouncing checks. But absent the
stipulation above noted, delivery of the thing sold will effectively transfer
ownership to the buyer who can in turn transfer it to another.
Article 559 provides that "the possession of movable property acquired in good
faith is equivalent to a title," thus dispensing with further proof.
CLV’s Comments on the cases: The implication of the Tagatac and EDCA
Publishing rulings is that Article 1506 represents an operative act which would
constitute a further exception to the provisions of Article 559, which means that
if the owner has been unlawfully deprived by means of deceit pertaining to the
non-payment of the purchase price, but the one who takes the movable is able to
sell and deliver the movable to another person who takes it in good faith and for
value before the owner is able to rescind the earlier sale, the buyer obtains good
title and the original owner has no cause of action to recover.
FACTS:
1. A person identifying himself as Professor Jose Cruz (Cruz) placed an order
by telephone with EDCA for 406 books, payable on delivery. EDCA
prepared and delivered the same together with an invoice.
2. In turn Cruz issued a personal check covering the purchase price of
P8,995.65. Cruz then sold 120 of the books to Leonor Santos (Santos) who,
after verifying the seller's ownership from the invoice he showed her,
paid him P1,700.00.
3. EDCA then became suspicious when Cruz placed a second order, since his
first check was not yet cleared. EDCA made an inquiry with the De la Salle
College where Cruz had claimed to be a dean. EDCA was informed that there
was no such person in its employ.
4. Moreover, it was found out that Cruz had no more account or deposit with
the Philippine Amanah Bank, against which he had drawn the payment check.
5. With the aid of policemen Cruz was trapped and arrested. His real name is
Tomas de la Peña. It was found out that 120 of the books he had ordered from
EDCA were sold to Spouses Santos.
6. EDCA and the police then went to Santos’ store and seized the subject books
and threatened Santos for buying stolen property. They seized the books
without a warrant.
7. The Spouses Santos sued for recovery of the books after demand for their
return was rejected by EDCA.
8. It was only after a writ of preliminary attachment was issued that EDCA
finally surrendered the books to Spouses Santos.
9. The MTC ruled in favor of Spouses Santos, which was sustained by the RTC.
The CA affirmed the same. Hence, this petition.
10. EDCA argues that
a. The impostor “Cruz” acquired no title to the books that he could not
have validly transferred the books to the Spouses.
b. As the payment check bounced for lack of funds, there was a failure
of consideration that nullified the contract of sale between it and
Cruz.
c. Spouses Santos could not establish ownership because they could
not even produce a receipt to prove that they bought the books.
ISSUES:
3. WON EDCA has been unlawfully deprived of the books because the check
issued by Cruz was dishonored. - NO.
RULING: Wherefore, the challenged decision is AFFIRMED and the petition is
DENIED, with costs against the petitioner.
RATIO:
Perfection of a Contract of Sale
1. The contract of sale is consensual and is perfected once agreement is reached
between the parties on the subject matter and the consideration.
2. It is clear that ownership in the thing sold shall not pass to the buyer until full
 payment of the purchase price only if there is a stipulation to that effect. thereof, may recover it from the person in possession of the same.
Otherwise, the rule is that such ownership shall pass from the vendor to the
vendee upon the actual or constructive delivery of the thing sold even if the If the possessor of a movable lost or of which the owner has been unlawfully deprived
purchase price has not yet been paid. has acquired it in good faith at a public sale, the owner cannot obtain its return without
3. Non-payment only creates a right to demand payment or to rescind the reimbursing the price paid therefor.
contract, or to criminal prosecution in the case of bouncing checks. But absent
the stipulation above noted, delivery of the thing sold will effectively transfer Article 1506. Where the seller of goods has a voidable title thereto, but his title has
ownership to the buyer who can in turn transfer it to another. not been avoided at the time of the sale, the buyer acquires a good title to the goods,
4. Actual delivery of the books having been made, Cruz acquired ownership provided he buys them in good faith, for value, and without notice of the seller's defect
over the books, which he could then validly transfer to the private of title. (Note: This was not mentioned in the EDCA case)
respondents.
5. The fact that he had not yet paid for them to EDCA was a matter between DISCUSSION IN CLARENCE TIU REVIEWER:
him and EDCA and did not impair the title acquired by the Spouses Santos CLV’s Comments on the cases: The implication of the Tagatac and EDCA Publishing
to the books. rulings is that Article 1506 represents an operative act which would constitute a further
exception to the provisions of Article 559, which means that if the owner has been
Article 559 - Good faith is equivalent to a title unlawfully deprived by means of deceit pertaining to the non-payment of the purchase
1. Article 559 provides that "the possession of movable property acquired in price, but the one who takes the movable is able to sell and deliver the movable to
good faith is equivalent to a title," thus dispensing with further proof. another person who takes it in good faith and for value before the owner is able to
2. Leonor Santos took care to ascertain first that the books belonged to Cruz rescind the earlier sale, the buyer obtains good title and the original owner has no
before she agreed to purchase them. She did not have to go beyond that cause of action to recover
invoice to satisfy herself that the books being offered for sale by Cruz
belonged to him; yet she did. The EDCA invoice Cruz showed her assured
her that the books had been paid for on delivery.
3. To Santos, Cruz must have been only one of the many sellers she was dealing
with. Cruz was selling the books for a discount because he was in financial
need. It is not bad faith to buy the books at a discount and resell them for a
profit.
4. EDCA was the one who was less cautious in dealing with the impostor as it
readily delivered the books although it had never transacted with him before.
It did not wait to clear the check and it indicated in the sales invoice that the
books had been paid for on delivery – vesting ownership to Cruz.
5. Although the title of Cruz was presumed under Article 559 by his mere
possession of the books, these being movable property, Leonor Santos
nevertheless demanded more proof before deciding to buy them.
6. It would certainly be unfair now to make the Spouses Santos bear the
prejudice sustained by EDCA as a result of its own negligence. We cannot
see the justice in transfer ring EDCA’s loss to the Santoses who had acted in
good faith, and with proper care, when they bought the books from Cruz.
7. EDCA should go after “Cruz” and not the Spouses Santos.

RELEVANT PROVISION:
ART. 559. The possession of movable property acquired in good faith is equivalent to
a title. Nevertheless, one who has lost any movable or has been unlawfully deprived
 06 AZNAR V YAPDIANGCO (Nicolin)
March 31, 1965 | Regala, J | Sale by seller having voidable title (Article 1506, as an
exception to Art 559)
PLAINTIFF-APPELLANT: Jose B. Aznar
DEFENDANT-APPELLEE: Rafael Yapdiangco
INTERVENOR-APPELLEE: Teodoro Santos
SUMMARY: Teodoro Santos advertised the sale of his FORD FAIRLANE 500 in
a newspaper. On L. De Dios went to the house of Teodoro and talked to his son
Ireneo Santos and said that his uncle Vicente Marella is interested in buying the said
car. The next day, Ireneo went to the house of Marella and they agreed to the price
of P14,700 on the understanding that it will be paid after the car has been registered
in the latter’s name. A deed of sale was executed and the registration was changed to
the name of Marella. Ireneo went to Marella to get the payment and deliver the car
who informed him that he is P2,000 short of the money and that they need to go to
his sister to get it. Ireneo, together with De Dios and an unidentified man went to a
house. Once inside, De Dios asked Ireneo to wait in the sale. After waiting in vain,
he went down and discovered that the car was gone. Marella was able to sell the car
to plaintiff-appellant Jose Aznar and while attending to registration, the car was
seized by Phil. Constabulary due to the report of the incident. Aznar filed a complaint
for replevin against Captail Rafael Yapdiangco, the head of the PC which seized the
car. Lower court ruled awarding the car to Teodoro as Teodoro was unlawfully
deprived of his personal property by Vicente (from whom Aznar traced his right). So
Aznar appealed said decision. The issue before the court is who has a better right to
the possession of the disputed automobile. The SC held that Teodoro has better right
to the vehicle. Marella did not have any title to the property under litigation because
the same was never delivered to him. He may have the contract but he never acquired
valid title. Although the keys to the car may have been given to the unidentified
companion, it may be done only because that companion took them to the place
where the sister of Marella was supposed to live. The car was evidently stolen and
that the buyer did not acquire any valid title thereto.
DOCTRINE: When owner did not voluntarily deliver possession of the car, and in
effect it was stolen from him, then one who buys the car even in good faith from the
thief will lose the car to the owner who is deemed to have been unlawfully
deprived.Ownership is not transferred by contact merely but by tradition or delivery.
Contracts only constitute titles or rights to the transfer or acquisition of ownership
while delivery or tradition is the mode of accomplishing the same.
FACTS:
1. May 1959, Teodoro Santos advertised in two metropolitan papers the sale
of his FORD FAIRLANE 500.
a. In the afternoon of May 28, 1959, a certain L. De Dios, claiming to
be a nephew of Vicente Marella, went to Santos’ residence to
answer the ad.
b. However, Teodoro Santos was out and so his son, Irineo Santos,
received and talked with De Dios. Teodoro instructed his son to
see Vicente the following day at 1642 Crisostomo Street,
Sampaloc, Manila. And so, during the meeting, Vicente agreed to
buy the car for Php 14,700 on the understanding that the price
would be paid only after the car had been registered in his
name.
c. Teodor, Irineo and DeDios executed the sale for the car at the
office of Atty. Jose Padolina. The parties proceeded to the Motor
Vehicle’s Office in QC to register the car in the name of Vicente.
(Purchase price still not paid at this stage)
d. Teodoro gave the registration papers and a copy of the deed of sale
to Irineo and instructed him not to give them to Vicente until he
has given the full payment for the car.
e. Then, only Irineo and De Dios proceeded to 1642 Crisostomo
where Irineo demanded the payment from Vicente. The cash he
had on hand was short of Php2,000.
f. They went to Vicente’s sister’s house for him to borrow the money
but before they went to the house, Vicente requested for the
registration papers and the deed of sale from Irineo under the
pretext that he was going to show the papers to his lawyers. (Irineo
gave the documents, sigh)
g. De Dios went with Irineo inside the house and made Irineo wait in
the sala. After a considerable length of time waiting, Irineo
discovered that neither the car nor their unidentified companion
were there. There was also no such person as the sister. The 1642
Crisostomo house was likewise closed and Vicente was gone.
h. Teodoro reported to police the said incident.
2. May 9, 1959, Vicente sold the car to Jose B. Aznar for Php 15,000. SC
found that Aznar is a buyer in good faith, for a valuable consideration and
without notice of the defect of vendor’s title.
a. While Aznar was registering the car in his name, agents of the
Philippine Constabulary (PC) seized and confiscated the car in
consequence of the report to them by Teodoro.
3. Action: Aznar filed a complaint for replevin against Captail Rafael
Yapdiangco, the head of the PC which seized the car. He prayed for its
deliver of the car.
a. Teodoro moved and was allowed to intervene by lower court.
b. Lower court ruled awarding the car to Teodoro as Teodoro was
unlawfully deprived of his personal property by Vicente (from
whom Aznar traced his right)
 c.
Further, Azanr is entitled to recovery (as GF buyer) pursuant to
Article 559 of NCC22
4. From this decision, Aznar appeals
ISSUE/s:
1. Between Teodoro Santos and the plaintiffappellant, Jose B. Aznar, who has
a better right to the possession of the disputed automobile? Teodoro Santos
RULING: UPON ALL THE FOREGOING, the instant appeal is hereby dismissed
and the decision of the lower court affirmed in full. Costs against the appellant.
RATIO:
ARTICLE 559 APPLIES TO THE CASE AT BAR
1. SC found the contention of Aznar unmeritorious.
a. Aznar contends that the applicable provision of CC is Article 150623
not Article 559
b. Under the 1506, it is essential that the seller should have a voidable
title at least. It is very clearly inapplicable where the seller had no
title at all.
c. Vicente did not have any title to the property under litigation
because the same was never delivered to him. He sought ownership
or acquisition of it by virtue of the contract, Vicente could have
acquired ownership or title only by delivery or tradition of the
car to him.
2. SC held that the lower court was correct in applying Article 559 of the Civil
Code to the case at bar.
a. For under it, the rule is to the effect that if the owner has lost the
thing, or if he has been unlawfully deprived of it, he has a right to
recover it, not only from the finder, thief or robber, but also
from the third person who may have acquired it in good faith
from such finder, thief or robber
b. Exceptions to the general rule of irrevindicability:
i. Owner lost the thing
ii. Unlawfully deprived thereof
c. In these cases, possessor cannot retain the thing as against the
owner, who may recover it without paying any indemnity, except
when the possessor acquired it in a public sale.
TRANSFER OF OWNERSHIP NOT CONSUMMATED
22
"Art. 559. The possession of movable property acquired in good faith is equivalent to title. Nevertheless,
one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in
possession of the same. "If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing
the price paid therefor.
3.
Under Article 712 of CC, “"ownership and other real rights over property are
acquired and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts, by tradition.”
a. SC interpretation: ownership is not transferred by contact merely but
by tradition or delivery. Contracts only constitute titles or rights to
the transfer or acquisition of ownership while delivery or tradition
is the mode of accomplishing the same.
b. Article 712 contemplates that the act be coupled with intent of
delivering the thing.
c. No evidence Irineo voluntarily delivered the key to the car and so
did not vest the title to the vehicle to De Dios (as agent of Vicente).
4. In the case on hand, the car in question was never delivered to the vendee
(Vicente) by the vendor (Teodoro) as to complete or consummate the
transfer of ownership by virtue of the contract. It should be recalled that
while there was indeed a contract of sale between Vicente Marella and
Teodoro Santos, Vicente took possession of the subject matter thereof by
stealing the same while it was in the custody of the latter's son.
MISPLACED CONFIDENCE NOT APPLICABLE
1. Aznar contends that the right of owner to recover personal property acquired
in good faith by another is based on his being dispossessed without his
consent.
2. SC held that the common law principle that where one of two innocent
persons must suffer by a fraud perpetrated by another, the law imposes the
loss upon the party who, by his misplaced confidence has enabled the fraud,
cannot be applied in a case covered by the NCC, specifically 559. Between a
common law principle and a statutory provision, the statutory provision must
prevail in this jurisdiction.
23
"Art. 1506. Where the seller of goods has a voidable title thereto, but his title has not been voided at the
time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value,
and without notice of the seller's defect of title."
 07 CRUZ v. PAHATI (JOSEF)
April, 13, 1956 | Bautista Angelo, J. | Sale by seller having voidable title
PETITIONER: Jose R. Cruz (plaintiff-appellant)
RESPONDENTS: Reynaldo Pahati, Felixberto Bulahan and Jesusito Belizo.
(defendants-appellees)
SUMMARY: This case involves an action of replevin instituted by plaintiff Cruz for
the recovery of the possession of his car. Pahati, one of the defendants, testified that
he acquired the car from Bulahan but their transaction was later on cancelled when
the Manila Police Department impounded the automobile so the property reverted
back to Bulahan. Thereafter, Bulahan, another defendant, testified that he acquired
the property from Belizo, another co-defendant, and that he acquired it in good faith
without any knowledge of any defect in the title of Belizo. The lower court rendered
judgment in favor of Bulahan. Now the issue is who has the better right between
Bulahan and Cruz. The SC held that Cruz has the better right. The court held than
when a person has been deprived of his property in consequence of a crime such as
estafa in this case, the latter has the right to recover the property even when the
property is in the possession of an honest purchaser. The only exception to this is
that when the third party has acquired the property in good faith at a public sale,
which is not present in this case because Bulahan acquired the car through a private
transaction with Belizo.
DOCTRINE: Whoever may have been deprived of his property in consequence of
a crime is entitled to the recovery thereof, even if such property is in the possession
of a third party who acquired it by legal means. The only exception to this is when
the third party has acquired the property in good faith at a public sale.
FACTS:
1. This is an action of replevin instituted by Jose Cruz (plaintiff) in the Court
of First Instance of Manila to recover the possession of an automobile and
certain amount as damages and attorney's fees resulting from his illegal
deprivation thereof.
2. Pahati (defendant) on his part claims the following:
o Admitted having bought the automobile from Bulahan (co-
defendant), for the sum of P4,900 which he paid in check.
o When the Manila Police Department impounded the automobile, he
cancelled the sale and stopped the payment of the check and as a
result he returned the automobile to Bulahan who in turn
surrendered the check for cancellation (basically I think this was a
rescission so there was mutual restitution).
3. Bulahan on his part claims the following:
o That he acquired the automobile from Jesusito Belizo (co-
defendant) for value and without having any knowledge of any
defect in the title of the latter (from Belizo à Bulahan à Pahati)
o That Cruz had previously acquired title to said automobile by
purchase from Belizo as evidenced by a deed of sale executed to
that effect. (Connect this with ratio #1 kasi totoong previously
naacquire ni Cruz yung car kay Belizo, but later under ratio #5
nagkaron na ng falsification)
o That later Cruz delivered the possession of the automobile to
Belizo for resale and to facilitate it he gave the Belizo a letter of
authority to secure a new certificate of registration in his name
(Cruz’s name) and that by having clothed Belizo with an apparent
ownership or authority to sell the automobile, Cruz is now estopped
to deny such ownership or authority. (Connect this with ratio #3)
o Bulahan claims that between two innocent parties, he who gave
occasion, through his conduct, to the falsification committed by
Belizo, should be the one to suffer the loss and this one is Cruz.
4. Lower court rendered judgment declaring defendant Bulahan entitled to the
automobile in question and consequently ordered the plaintiff to return it to
said defendant and, upon his failure to do so, to pay him the sum of P4,900,
with legal interest from the date of the decision.
5. Hence, this appeal.
ISSUE/s:
7. WoN Cruz has better right with regard to the property against Bulahan - Yes,
Cruz has better right because he was deprived of his property in consequence
of a crime which is estafa
RULING: Wherefore, the decision appealed from is reversed. The Court declares
plaintiff (Cruz) to be entitled to recover the car in question, and orders defendant
Jesusito Belizo to pay him the sum of P5,000 as moral damages, plus P2,000 as
attorney's fees. The Court absolves defendants Bulahan and Pahati from the complaint
as regards the claim for damages, reserving to Bulahan whatever action he may deem
proper to take against Jesusito Belizo. No costs.
RATIO:
SC’s perusal of RTC’s decision
1. The lower court found that the automobile in question was originally owned
by the Northern Motors, Inc. which later sold it to Chinaman Lu Dag. This
Chinaman sold it afterwards to Jesusito Belizo and the latter in turn sold it to
 Cruz. Belizo was then a dealer in second hand cars. One year thereafter,
Belizo offered Cruz to sell the latter’s automobile for him, Belizo claiming
to have a buyer for it. (Northern Motors, Inc. à sold to Chinaman Lu Dag
à sold to Belizo à sold to Cruz à after 1 year, delivered the car to
Belizo for resale)
2. Cruz agreed. At that time, Cruz’s certificate of registration was missing
and, upon the suggestion of Belizo, Cruz wrote a letter addressed to the
Motor Section of the Bureau of Public Works for the issuance of a new
registration certificate alleging as reason the loss of the one previously
issued to him and stating that he was intending to sell his car.
3. This letter was delivered to Belizo on March 3, 1952. He also turned over
to Belizo the automobile on the latter's pretext that he was going to show
it to a prospective buyer.
4. On March 7, 1952, the letter was falsified and converted into an
authorized deed of sale in favor of Belizo by erasing a portion thereof and
adding in its place the words "sold the above car to Mr. Jesusito Belizo of 25
Valencia, San Francisco del Monte, for Five Thousand Pesos (P5,000)."
5. Armed with this deed of sale, Belizo succeeded in obtaining a certificate of
registration in his name on the same date, March 7, 1952, and also on the
same date, Belizo sold the car to Felixberto Bulahan who in turn sold it to
Reynaldo Pahati, a second hand car dealer. These facts show that the letter
was falsified by Belizo to enable him to sell the car to Bulahan for a
valuable consideration.
With the foregoing, the SC determined that this is a case which involves a confict
of rights of two persons who claim to be the owners of the same property, plaintiff
Cruz and defendant Bulahan. Who has, therefore, a better right of the two over
the car?
6. Both were found by the lower court to be innocent and to have acted in
good faith (NOTE based on syllabus: Although the SC did not expressly
declare, nonetheless, in relation to ratio #12, the lack of exercise of reasonable
diligence on the part of Bulahan also barred him from claiming good faith).
They were found to be the victims of Belizo who falsified the letter given him
by Cruz to enable him to sell the car of Bulahan for profit.
7. The law applicable to the case is Article 559 of the new Civil Code which
provides:
"ART. 559. The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one who has lost
any movable or has been unlawfully deprived thereof, may
recover it from the person in possession of the same.
"If the possessor of a movable lost or of which the owner has
been unlawfully deprived, has acquired it in good faith at a public
sale, the owner cannot obtain its return without reimbursing the
price paid therefor."
8. It appears that "one who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in possession of the
same" and the only defense the person in possession may have is if
he "has acquired it in good faith at a public sale" in which case
"the owner cannot obtain its return without reimbursing the price paid
therefor." (However, in this case, Bulahan did not acquire the car at a
public sale but rather by purchase from Belizo which is a private
transaction)
9. And supplementing this provision, Article 1505 of the same Code
provides that "where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with the
consent of the owner, the buyer acquires no better title to the goods
than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell."
10. Applying the above legal provisions to the facts of this case, one is
inevitably led to the conclusion that plaintiff Cruz has a better
right to the car in question than defendant Bulahan for it cannot
be disputed that plaintiff had been illegally deprived thereof
because of the ingenious scheme utilized by Belizo to enable him
to dispose of it as if he were the owner thereof.
11. Cruz therefore can still recover the possession of the car even if
defendant Bulahan had acted in good faith in purchasing it from
Belizo.
12. Nor can it be pretended that the conduct of Cruz in giving Belizo
a letter to secure the issuance of a new certificate of registration
constitutes a sufficient defense that would preclude recovery
because of the undisputed fact that letter was falsified and this fact
can be clearly seen by a cursory examination of the document. If
Bulahan had been more diligent he could have seen that the
pertinent portion of the letter had been erased which would have
placed him on guard to make an inquiry as regards the authority
of Belizo to sell the car. This he failed to do.
13. The right of the plaintiff to the car in question can also be justified
under the doctrine laid down in U. S. vs. Sotelo, 28 Phil., 147. This is
a case of estafa wherein one Sotelo misappropriated a ring belonging
to Alejandra Dormir.
14. In the course of the decision, the Court said that "Whoever may have
been deprived of his property in consequence of a crime (estafa in
this case) is entitled to the recovery thereof, even if such property
is in the possession of a third party who acquired it by legal means
 other than those expressly stated in Article 464 of the Civil Code
(now art 559)."
15. The Court further said: It is a fundamental principle of our law of
personal property that no man can be divested of it without his
own consent; consequently, even an honest purchaser, under a
defective title, cannot resist the claim of the true owner. The
maxim that 'No man can transfer to another a better title than he has
himself "obtain in the civil as well as in the common law."

Common Law vs. Civil Law (not VERY important)

16. Counsel for appellee places much reliance on the common law
principle that "Where one of two innocent parties must suffer by a
fraud perpetrated by another, the law imposes the loss upon the party
who, by his misplaced confidence, has enabled the fraud to be
committed", and contends that, as between plaintiff and Bulahan, the
former should hear the loss because of the confidence he reposed in
Belizo which enabled the latter to commit the falsification.
17. But this principle cannot be applied to this case, which is covered
by an express provision of our new Civil Code (Art. 559 in this
case). Between a common law principle and a statutory provision, the
latter must undoubtedly prevail in this jurisdiction. Moreover, we
entertain serious doubt if, under the circumstances obtaining, Bulahan
may be considered more innocent than the plaintiff in dealing with the
car in question. We prefer not to elaborate on this matter it being
unnecessary considering the conclusion we have reached.
 08 DIZON V. SUNTAY (MAYUMI)
September 29, 1972 | Fernando, J. | Sale by Seller Having Voidable Title
PETITIONER: Dominador Dizon, doing business under the firm name
“Pawnshop of Dominador Dizon”
RESPONDENTS: Lourdes Suntay
SUMMARY: Lourdes entered into a transaction where she delivered her ring to
Clarita who would sell it for commission. Clarita, without the knowledge of
Lourdes, pledged the ring to Dominador who owns a pawnshop. When Lourdes
was asking for the ring back, Clarita could not comply, but eventually gave the
pawnshop ticket. When Lourdes found out that her ring was pledged, she filed a
case of Estafa against Clarita, and wrote Dominador asking that the ring pledged
be delivered back to her. Dominador refused, and so Lourdes filed a writ of
replevin. The lower courts ruled in favor of Lourdes, thus this petition. The SC
affirmed the lower courts’ decision stating that under Art. 559, one who has lost
any movable or has been unlawfully deprived thereof may recover it from the
person in possession of the same. The only exception the law allows is when there
is acquisition in good faith of the possessor at a public sale, in which case the
owner cannot obtain its return without reimbursing the price. Thus, in this case
Lourdes clearly has the right to have her ring returned to her possession.
DOCTRINE: Owner of diamond ring may recover it from pawnshop where
owner’s agent had pledged it without authority to do so; Art. 559 applies and the
defense that the pawnshop acquired possession without notice of any defect of the
pledgor-agent is unavailing.
Caveat: This is really what the case said. The doctrine placed was taken from the
syllabus as well. It really didn’t involve any sale transaction.
FACTS:
16. Clarita Sison and Lourdes Suntay are close friends. In fact, in 1961 Clarita
sold jewelry for Suntay.
17. On June 13, 1962, Lourdes and Clarita entered into a transaction wherein
Lourdes’s diamond ring was turned over to Clarita for sale on commission
along with other pieces of jewelry (AKA Clarita is the agent of Lourdes). The
diamond ring was valued at P5,500. Upon receiving the ring, Clarita executed
and delivered to Lourdes a receipt.
18. After the lapse of a considerable time, Lourdes demanded that Clarita return
her ring, but the latter could not comply because three days after the ring was
received by Clarita, the ring was pledged by Melia (the niece of the husband
of Clarita Sison).
19. It was pledged for P2,600 to Dominador who owns and operates a pawnshop.
This was a violation of the terms of the agency.
20. Lourdes insistently demanded from Clarita the return of her ring. Thereafter,
Clarita delivered to the former the pawnshop ticket.
21. When Lourdes found out that Clarita pledged her ring, she took steps to file
a case of estafa against Clarita. Subsequently, Lourdes wrote, through her
lawyer, a letter, asking for the delivery of her ring which was pledged in
Dominador’s pawnshop.
22. Lourdes tried to recover possession thereof from Dominador who refused.
Thus, Lourdes filed an action for its recovery.
23. The trial court and CA ruled in her favor based on Article 559 of the Civil
Code. (The lower court issued a writ of replevin)
24. Dominador then elevated this case to the SC.
25. The SC notes how ordinarily they would not give due course to such a petition
for review. However, the vigorous plea grounded on estoppel by
Dominador’s counsel, Atty. Velarde, persuaded the court to act otherwise.
ISSUES:
3. WoN Lourdes has the right to get possession of the ring –YES
RULING: WHEREFORE, the decision of the Court of Appeals of May 19, 1969 is
affirmed,
RATIO:
1. The controlling provision is Art. 559 of the CC. The possession of movable
property acquired in good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived thereof may
recover it from the person in possession of the same. If the possessor of a
movable lost of which the owner has been unlawfully deprived, has acquired
it in good faith at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor. xxx (De Gracia v. CA)
2. The right of the owner cannot be defeated even by proof that there was good
faith in the acquisition by the possessor. (Cruz v. Pahati)
3. Suffice it to say in this regard that the right of the owner to recover personal
property acquired in good faith by another, is based on his being
dispossessed without his consent. The common law principle that where
one of two innocent persons must suffer by a fraud perpetrated by another,
the law imposes the loss upon the party who, by his misplaced confidence,
has enabled the fraud to be committed, cannot be applied in a case which is
covered by an express provision of the new Civil Code, specifically Article
559. (Aznar v. Yapdiangco)
4. It must have been a recognition of the compulsion exerted by the above
authoritative precedents that must have caused petitioner to invoke the
principle of estoppel. There is clearly a misapprehension.
 5. For estoppel to exist though, it is indispensable that there be a declaration, act unlawfully deprived thereof, may recover it from the person in possession of the same.
or omission by the party who is sought to be bound. It is equally a requisite If the possessor of a movable lost or of which the owner has been unlawfully deprived,
that he, who would claim the benefits of such a principle, must have altered has acquired it in good faith at a public sale, the owner cannot obtain its return without
his position, having been so intentionally and deliberately led to comport reimbursing the price paid therefor."
himself thus, by what was declared or what was done or failed to be done. A
court is to see to it then that there is no turning back on one's word or a
repudiation of one's act.
6. a person claimed to be estopped must have knowledge of the fact that his
voluntary acts would deprive him of some rights because said voluntary acts
are inconsistent with said rights
7. A party should not be permitted "to go against his own acts to the prejudice
of [another]” (Rodriguez v. Martinez)
8. How then can petitioner in all seriousness assert that his appeal finds support
in the doctrine of estoppel? Neither the promptings of equity nor the mandates
of moral right and natural justice come to his rescue.
9. He is engaged in a business where presumably ordinary prudence would
manifest itself to ascertain whether or not an individual who is offering a
jewelry by way of a pledge is entitled to do so. If no such care be taken,
perhaps because of the difficulty of resisting opportunity for profit, he should
be the last to complain if thereafter the right of the true owner of such jewelry
should be recognized.
10. Moreover, while the activity he is engaged in is no doubt legal, it is not to be
lost sight of that it thrives on taking advantage of the necessities precisely of
that element of our population whose lives are blighted Moreover, while the
activity he is engaged in is no doubt legal, it is not to be lost sight of that it
thrives on taking advantage of the necessities precisely of that element of our
population whose lives are blighted

Teehankee: Concurring
1. Confirms the long settled and uniform jurisprudence based on Art. 559 of the
CC that the owner "who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in possession of the same,"
the only exception expressly provided in the codal article being that "if the
possessor of a movable lost of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid therefor"1
2. Senator Tolentino's submittal in his commentaries on the Civil Code "that the
better view is to consider 'unlawfully deprived' as limited to unlawful
taking, such as theft or robbery, and should not include disposition through
abuse of confidence.

NOTES:
Article 559 of the NCC: "The possession of movable property acquired in good faith
is equivalent to a title. Nevertheless, one who has lost any movable or has been
 01 ROMAN v. GRIMALT (Regine)
April 11, 1906 | Torres, J. | Effect of Loss or Deterioration of Thing Sold Before
Perfection
PETITIONER: Pedro Roman
RESPONDENTS: Andres Grimalt
SUMMARY: Roman was the alleged owner of a schooner Santa Marina, a sailing
vessel. He entered into negotiations with Grimalt, who was interested in purchasing
it. They agreed upon the sale of the schooner for the sum of P1,500, payable in three
installments, provided the title papers to the vessel were in proper form. This
condition was agreed upon because the title to the schooner was not in the name of
Roman but one Paulina Giron. Roman promised to perfect his title over the schooner.
Before Roman could fulfill his promise and make subsequent delivery, the schooner
sunk in the bay during a severe storm. Roman filed a complaint against Grimalt to
demand the purchase price. In his answer, Grimalt contends that he agreed to
purchase the vessel only when the papers were found to be satisfactory. The schooner
was not in the name of Roman. Grimalt insisted that Roman perfect his title – but he
did not do so. He should not be compelled to pay the price since there was no
perfected contract of sale. Thus, the risk of loss should be borne by Roman. CFI ruled
in favor of Grimalt. Issue: WoN Grimalt is liable for the loss. SC said no. A sale shall
be considered perfected and binding as between vendor and vendee when they have
agreed as to the thing which is the object of the contract and as to the price, even
though neither has been actually delivered. (Art. 1450 of the Civil Code.) Ownership
is not considered transmitted until the property is actually delivered and the purchaser
has taken possession of the value and paid the price agreed upon, in which case the
sale is considered perfected. Roman, the owner, and Grimalt, the purchaser, had been
negotiating for the purchase of the schooner Santa Marina. They agreed upon the sale
of the vessel for the sum of 1,500 pesos, payable in three installments, provided the
title papers to the vessel were in proper form. The sale of the schooner was not
perfected and the purchaser did not consent to the execution of the deed of transfer
for the reason that the title of the vessel was in the name of one Paulina Giron and
not in the name of Roman, the alleged owner. Roman promised, however, to perfect
his title to the vessel, but he failed to do so. The papers presented by him did not
show that he was the owner of the vessel. If no contract of sale was actually executed
by the parties, the loss of the vessel must be borne by its owner and not by a party
who only intended to purchase it and who was unable to do so on account of failure
on the part of the owner to show proper title to the vessel and thus enable them to
draw up the contract of sale
DOCTRINE: If no contract of sale was actually executed by the parties, the loss of
the vessel must be borne by its owner and not by a party who only intended to
purchase it
FACTS:
1. Counsel for Pedro Roman filed a complaint in the CFI against Andres
Grimalt, praying that judgment be entered in his favor and against the
defendant (1) for the purchase price of the schooner Santa Marina, to wit,
1,500 pesos or its equivalent in Philippine currency, payable by installments
in the manner stipulated; (2) for legal interest on the installments due on the
dates set forth in the complaint; (3) for costs of proceedings; and (4) for such
other and further remedy as might be considered just and equitable.
2. The court made an order sustaining the demurer filed by Grimalt to the
complaint and allowing Roman ten days within which to amend his
complaint. To this order the Roman duly excepted.
3. Counsel for Roman amended his complaint and alleged:
a. That between the June 13 and June 23, 1904 both parties, through
one Fernando Agustin Pastor, verbally agreed upon the sale of the
said schooner;
b. That the Grimalt in a letter dated June 23 had agreed to purchase the
said schooner and offered to pay it in three installment of 500 pesos
each, on July 15, September 15, and November 15, adding in his
letter that if the Roman accepted the plan of payment suggested by
him the sale would become effective on the following day;
c. That Roman on June 24 notified Grimalt through Agustin Pastor that
he accepted the plan of payment suggested by him and that from that
date the vessel was at his disposal, and offered to deliver the same
at once to Grimalt if he so desired;
d. That the contract having been closed and the vessel being ready for
delivery to the purchaser, it sunk about 3 o'clock p. m., June 25, in
the harbor of Manila and is a total loss, as a result of a severe storm;
e. And that on the June 30, demand was made upon the Grimalt for the
payment of the purchase price of the vessel in the manner stipulated
and defendant failed to pay.
4. Grimalt in his answer asked that the complaint be dismissed. He alleged that:
a. That both parties met in a public establishment of this city and the
Roman personally proposed to the Grimalt the sale of the said
vessel, Roman stating that the vessel belonged to him and that it was
then in a sea worthy condition;
b. That Grimalt accepted the offer of sale on condition that the title
papers were found to be satisfactory, also that the vessel was in a
seaworthy condition; that both parties then called on Calixto Reyes,
a notary public, who, after examining the documents, informed them
that they were insufficient to show the ownership of the vessel and
to transfer title thereto;
c. That Roman then promised to perfect his title and on June 23
``called on Grimalt to close the sale, and Grimalt believing that
 Roman had perfected his title, wrote to him on June 23 and set the 7. The vessel was sunk in the bay on the afternoon of June 25, 1904, during a
following day for the execution of the contract, but, upon being severe storm and before the owner had complied with the condition exacted
informed that Roman had done nothing to perfect his title, he by the proposed purchaser, to wit, the production of the proper papers
insisted that he would buy the vessel only when the title papers were showing that the plaintiff was in fact the owner of the vessel in question.
perfected and the vessel duly inspected 8. Grimalt was under no obligation to pay the price of the vessel, the purchase
5. Grimalt also denied the other allegations of the complaint inconsistent with of which had not been concluded. The conversations had between the parties
his own allegations. and the letter written by defendant to plaintiff did not establish a contract
6. CFI ruled in favor of Grimalt and dismissed the complaint of Roman. sufficient in itself to create reciprocal rights between the parties.
7. Hence, this petition 9. It follows, therefore, that article 1452 of the Civil Code relative to the injury
or benefit of the thing sold after a contract has been perfected and articles
1096 and 1182 of the same code relative to the obligation to deliver a
ISSUE/s: WoN Grimalt is liable for the loss. NO. specified thing and the extinction of such obligation when the thing is either
lost or destroyed, are not applicable to the case at bar.
RULING: The judgment of the court below is affirmed and the complaint is dismissed 10. The first paragraph of article 1460 of the Civil Code and section 335 of
with costs against the Roman. the Code of Civil Procedure are not applicable. These provisions
contemplate the existence of a perfected contract which can not, however, be
RATIO: enforced on account of the entire loss of the thing or made the basis of an
action in court through failure to conform to the requisites provided by law.
1. A sale shall be considered perfected and binding as between vendor and
vendee when they have agreed as to the thing which is the object of the
NOTE:
contract and as to the price, even though neither has been actually delivered.
(Art. 1450 of the Civil Code.)
2. Ownership is not considered transmitted until the property is actually 1. This case was decided under the Spanish Civil Code (April 11, 1906). It
delivered and the purchaser has taken possession of the value and paid the exemplifies the Civil Law concept of risk of loss (Roman law is embodied in
price agreed upon, in which case the sale is considered perfected. the Spanish Civil Code). If the would-be subject matter is lost before
3. When the sale is made by means of a public instrument the execution thereof perfection, the owner bears the loss.
shall be equivalent to the delivery of the thing which is the object of the
contract. (Art. 1462 of the Civil Code.)
4. Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for
several days negotiating for the purchase of the schooner Santa Marina —
from June 13 to June 23, 1904 They agreed upon the sale of the vessel for the
sum of 1,500 pesos, payable in three installments, provided the title papers to
the vessel were in proper form. It is so stated in the letter written by the
purchaser to the owner on June 23, 1904.
5. The sale of the schooner was not perfected and the purchaser did not
consent to the execution of the deed of transfer for the reason that the title
of the vessel was in the name of one Paulina Giron and not in the name of
Pedro Roman, the alleged owner. Roman promised, however, to perfect his
title to the vessel, but he failed to do so. The papers presented by him did not
show that he was the owner of the vessel.
6. If no contract of sale was actually executed by the parties the loss of the
vessel must be borne by its owner and not by a party who only intended
to purchase it and who was unable to do so on account of failure on the part
of the owner to show proper title to the vessel and thus enable them to draw
up the contract of sale.
 02 LAWYERS COOP VS TABORA(Mark)
April 30, 1965 |Bautista Angleo J. | loss after delivery
PETITIONER: LAWYERS COOPERATIVE PUBLISHING COMPANY
RESPONDENTS: PERFECTO A. TABORA
SUMMARY: Tabora bought books from LCPC and it was delivered to him, and
payment was in installments. A fire burned the books. Tabora did not pay the
installments and LCPC filed a case against him. Tabora used force majure as a
defense that he is exempt from liability. In the contract it indicated that ownership
of the books remain with seller until full payment and loss after delivery would be
borne by the buyer. The issue is WoN Tabora is liable to pay for the books, the SC
held that he is liable and that even though generally loss of the thing is borne by the
owner, the contract between the parties are binding and Art 1504 applies. Also force
majure applies only to determinate things, and since the books were not
determinate, he is not exempt to pay.
DOCTRINE: Article 1504 of our Civil Code provides:
Where delivery of the goods has been made to the buyer or to a bailee for the buyer,
in pursuance of the contract and the ownership in the goods has been retained by
the seller merely to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such delivery.
FACTS:
1. On May 3, 1955, Perfecto A. Tabora bought from the Lawyers Cooperative
Publishing Company (LCPC) one complete set of American Jurisprudence
consisting of 48 volumes with 1954 pocket parts, plus one set of American
Jurisprudence, General Index, consisting of 4 volumes, for a total price of
P1,675.50 which, in addition to the cost of freight of P6.90, makes a total of
P1,682.40.
2. Tabora made a partial payment of P300.00, leaving a balance of P1,382.40.
The books were duly delivered and receipted for by Tabora in his law office
in Naga City
3. On the same day a big fire broke out which destroyed and burned all the
buildings standing on one whole block including at the law office and library
of Tabora.
4. The books bought from the LCPC as above stated, together with Tabora's
important documents and papers, were burned during the conflagration.
5. This unfortunate event was immediately reported by Tabora to the LCPC in
a letter he sent on May 20, 1955. On May 23, the LCPC replied and as a token
of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of the
Philippine Reports.
6. Tabora failed to pay the monthly installments, the LCPC demanded payment
of the installments due. Tabora did not pay.
7. LCPC filed an action before the Court of First Instance of Manila for the
recovery of the balance of the obligation. LCPC also prayed that Tabora be
ordered to pay 25% of the amount due as liquidated damages, and the cost of
action.
8. Tabora, in his answer, pleaded force majeure as a defense. He alleged that
the books bought from the LCPC were burned during the fire and since the
loss was due to force majeure he cannot be held responsible for the loss. He
prayed that the complaint be dismissed and that he be awarded moral
damages in the amount of P15,000.00.
9. The CFI ruled in favor of LCPC. It ordered the Tabora to pay the sum of
P1,382.40, with legal interest thereon from the filing of the complaint, plus a
sum equivalent to 25% of the total amount due as liquidated damages, and
the cost of action.
10. Tabora took the case to the CA, but the same is now before us by virtue of a
certification issued by that Court that the case involves only questions of law.
11. Tabora bought from Lawyers Coop one set of American Jurisprudence,
including one set of general index, payable on installment plan. It was
provided in the contract that "title to and ownership of the books shall remain
with the seller until the purchase price shall have been fully paid. Loss or
damage to the books after delivery to the buyer shall be borne by the buyer."
The total price of the books, including the cost of freight, amounts to
P1,682.40. Tabora only made a down payment of P300.00 thereby leaving a
balance of P1,382.40.
12. Tabora now contends that since it was agreed that the title to and the
ownership of the books shall remain with the seller until the purchase price
shall have been fully paid, and the books were burned or destroyed
immediately after the transaction, LCPC should be the one to bear the loss
for, as a result, the loss is always borne by the owner.
13. Even assuming that the ownership of the books were transferred to Tabora
after the perfection of the contract he should not answer for the loss since the
same occurred through force majeure. There is no evidence that Tabora has
contributed in any way to the occurrence of the conflagration.
ISSUE: WoN Tabora is liable to pay for the books. -YES
RULING: WHEREFORE, the decision appealed from is modified by eliminating that
portion which refers to liquidated damages. No costs.
RATIO:
1. While as a rule the loss of the object of the contract of sale is borne by the
owner or in case of force majeure the one under obligation to deliver the
 object is exempt from liability, it cannot be applied here because the law on
the contract entered into.
2. The contract entered into between the parties LCPC agreed that the
ownership of the books shall remain with it until the purchase price shall have
been fully paid, but such stipulation cannot make the it liable in case of loss
not only because such was agreed merely to secure the performance by the
buyer of his obligation but in the very contract it was expressly agreed that
the "loss or damage to the books after delivery to the buyer shall be borne by
the buyer."
3. Any such stipulation is sanctioned by Article 1504 of our Civil Code, which
in part provides:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership
in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery.
4. Tabora’s defense of force majure would not apply in this case. The rule only
applies when the obligation consists in the delivery of a determinate thing
and there is no stipulation holding him liable even in case of fortuitous event.
Here these qualifications are not present. The obligation does not refer to a
determinate thing, but is pecuniary in nature, and the obligor bound himself
to assume the loss after the delivery of the goods to him. In other words,
Tabora agreed to assume any risk concerning the goods from the time of their
delivery, which is an exception to the rule provided for in Article 1262 of our
Civil Code.
5. Tabora likewise contends that the CFI erred in sentencing him to pay
attorney's fees. This is merely the result of a misapprehension for what the
court a quo ordered Tabora to pay is not 25% of the amount due as attorney's
fees, but as liquidated damages, which is in line with an express stipulation
of the contract.
6. We believe, however, that the Tabora should not be made to pay any damages
because his denial to pay the balance of the account is not due to bad faith.
 01 Delta Motor Sales Corp v. Niu Kim Duan (Izzy)
September 2, 1992 | Nocon, J. | Unpaid seller’s remedies not cumulative
PLAINTIFF-APPELLEE: Delta Motor Sales Corporation
DEFENDANTS-APPELLANTS: Niu Kim Duan and Chan Fue Eng
SUMMARY: Niu Kim Duan purchased from Delta Motors 3 air conditioning
units. Niu paid the downpayment, the balance payable in 24 installments. Title to
the property remained with Delta until the payment of the full purchase price.
Under the agreement, failure to pay 2 monthly installments makes the obligation
entirely due and demandable. The units were delivered, Niu failed to pay. Thus,
Delta filed a complaint for Replevin and applied the installments paid by Niu as
rentals; Niu contends that the contractual stipulations are unconscionable. Issue
is WoN the remedy Delta availed of was unconscionable. The Court said NO. A
stipulation in the contract treating installments as rentals in case of failure to pay
is VALID—so long as they are not unconscionable. The provision in this case is
reasonable.
DOCTRINE: An unpaid seller has 3 alternative (not cumulative) remedies: (1)
exact fulfillment of the obligation, (2) cancel the sale for default in 2 installments,
and (3) foreclose the chattel mortgage (if any) but the seller cannot anymore claim
the unpaid balance of the price. Delta chose the 2nd remedy. Having done so, it is
now barred from claiming the balance of the purchase price.
FACTS:
1. On July 5, 1975, Niu Kim Duan (NKD), and Chan Fue Eng, the defendants,
purchased from the plaintiff three (3) units of ‘DAIKIN’ air-conditioner all
valued at P19,350.00 as evidenced by the Deed of Conditional Sale.
Aforesaid deed of sale had the following terms and conditions:
a. NKD would pay a downpayment of 774 and the balance of 18k+
shall be paid in 24 monthly installments;
b. Title to properties would remain with Delta until the price is fully
paid;
c. If any 2 installments are not paid by NKD on their due dates, the the
whole of the principal sum remaining unpaid would become due;
d. In case of a suit, the defendants shall pay an amount equivalent to
25% of the remaining unpaid obligation as damages, penalty and
attorney’s fees;
2. To secure the payment of the balance (P18,576), NKD jointly and severally
executed in favor of Delta a promissory note.
3. The airconditioners were delivered and received as shown by a delivery
receipt.
4. After paying almost P6,966, NKD failed to pay at least two monthly
installments. The remaining unpaid obligation of NKD amounted to P12,920.
5. The statements of accounts were sent to defendants NKD, and the Delta's
collectors personally went to the former to effect collections but they failed
to do so.
6. Delta tried to recover extrajudicially, but it failed to do so.
7. Delta prayed for the issuance of a wire of replevin, which the Court granted
in its Order dated February 28, 1977.
8. In view of the failure of the defendants to pay their obligations, the amount
of P6,966.00 which had been paid by way of installments were treated as
rentals for the units in question for two (2) years pursuant to the provisions
of paragraph 5 of the Deed of Conditional Sale.
9. The trial court ruled in favour of Delta.
10. NKD assails the Deed of Conditional Sale under which they purchased the
three (3) Daikin air-conditioners from plaintiff- appellee as being contrary to
law, morals, good custom, public order or public policy. In particular, they
point to the contract’s paragraphs 5 and 7 as iniquitous and unconscionable.
11. Defendants-appellants claim that for the use of the plaintiff-appellee’s three
air-conditioners, from July 5, 1975 to April 11, 1977, or for a period of about
22 months, they, in effect, paid rentals in the amount of P6,429.92, or roughly
one-third (1/3) of the entire price of said air- conditioners which was
P19,350.00.
ISSUE/S:
1. WoN the remedy that Delta availed of is unconscionable – NO
RULING: WHEREFORE, the judgment of the trial court in Civil Case No. 25578 is
hereby SET ASIDE and the complaint filed by plaintiff- appellee Delta Motor Sales
Corporation is hereby DISMISSED. No costs.
RATIO:
1. A stipulation in a contract that the installments paid shall not be
returned to the vendee is valid insofar as the same may not be
unconscionable under the circumstances is sanctioned by Article 1486 of
the New Civil Code.
2. The monthly installment payable by defendants-appellants was P774.00. The
P5,655.92 installment payments correspond only to seven (7) monthly
installments.
3. Since they admit having used the air- conditioners for twenty-two (22)
months, this means that they did not pay fifteen (15) monthly installments on
the said air-conditioners and were thus using the same FREE for said
period—to the prejudice of plaintiff-appellee. Under the circumstances, the
treatment of the installment payments as rentals cannot be said to be
unconscionable.
 4. The vendor in a sale of personal property payable in installments may attorney’s fees;
exercise one of three remedies, namely, (1) exact the fulfillment of the
obligation, should the vendee fail to pay; (2) cancel the sale upon the vendee’s
failure to pay two or more installments; (3) foreclose the chattel mortgage, if
one has been constituted on the property sold, upon the vendee’s failure to
pay two or more installments.
5. The third option or remedy, however, is subject to the limitation that the
vendor cannot recover any unpaid balance of the price and any agreement to
the contrary is void (Art. 1484).
6. The three (3) remedies are alternative and NOT cumulative. If the creditor
chooses one remedy, he cannot avail himself of the other two.
7. It is not disputed that the plaintiff-appellee, Delta, had taken possession
of the three air-conditioners, through a writ of replevin when
defendants- appellants, NKD, refused to extra-judicially surrender the
same.
8. This was done pursuant to paragraphs 5 and 7 of its Deed of Conditional Sale
when defendants-appellants failed to pay at least two (2) monthly
installments, so much so that as of January 6, 1977, the total amount they
owed plaintiff-appellee, inclusive of interest, was P12,920.08.
9. The case Delta filed was to seek a judicial declaration that it had validly
rescinded the Deed of Conditional Sale. Clearly, Delta chose the second
remedy of Article 1484 in seeking enforcement of its contract with
defendants-appellants. This is shown from the fact that its Exhibit “F” which
showed the computation of the outstanding account of defendants-appellants
as of October 3, 1977 took into account “the value of the units repossessed.”
10. Having done so, it is barred from exacting payment from defendants-
appellants of the balance of the price of the three air-conditioning units
which it had already repossessed. It cannot have its cake and eat it too.

Just in case sir asks: Paragraphs 5 & 7 of their contract

Paragraph 5: Should BUYER fail to pay any of the monthly installments when due, or
otherwise fail to comply with any of the terms and conditions herein stipulated, this
contract shall automatically become null and void; and all sums so paid by BUYER
by reason thereof shall be considered as rental and the SELLER shall then and there
be free to take possession thereof without

Paragraph 7: Should SELLER rescind this contract for any of the reasons stipulated in
the preceding paragraph, the BUYER, by these presents obligates himself to
peacefully deliver the PROPERTY to the SELLER in case of rescission, and should a
suit be brought in court by the SELLER to seek judicial declaration of rescission and
take possession of the PROPERTY, the BUYER hereby obligates himself to pay all
the expenses to be incurred by reason of such suit and in addition to pay the sum
equivalent to 25% of the remaining unpaid obligation as damages, penalty and
 02 TAJANLANGIT V. SOUTHERN MOTORS, INC. (CASTRO)
28 May 1957| Bengzon, J. | Remedies of Vendor on Installment
PETITIONER: Amador Tajanlangit, Et. al
RESPONDENTS: Southern Motors, Inc. et. al
SUMMARY: April 1953, Amador Tajanlangit and his wife Angeles, residents of
Iloilo bought from Southern MOTORS inc. two tractors and a thresher. In payment
for the same, they executed the promissory note whereby they undertook to satisfy
the total purchase price of P24,755.75 in several installments with interest
payable. The note stipulated that if default be made in the payment of interest or
of any installment, then the total principal sum still unpaid with interest shall at
once become demandable. The spouses Tajanlangit failed to meet any installment.
They were sued for the amount of the promissory note. Still, the spouses defaulted
and the court entered a judgment ordering the spouses to pay the amount stipulated
in the PN together with 12% interest. The sheriff levied on the same machineries
and implements bought by the spouses and it was sold at public acution. The
highest bidder was Southern Motors. However, the auction sale was only able to
raise 10,000php so a judgment was called for much more, Southern Motors
subsequently asked and obtained writ of execution for other real properties of
Tajanlangits. To prevent the sale the spouses filed before CFI of Iloilo an
annulment of the writ of execution. Southern motors denied alleged settlement and
understanding. CFI ruled against the spouses for the reason that CFI Branch IV
cannot invalidate the writ of execution ordered by CFI Branch I. The matter was
brought to the CA but for expediency it was brought to the SC.
The SC ruled that indeed Southern Motors as a vendor on installment can still
claim beyond from the proceeds of the auction sale. Furthermore, the spouses
Tajanlangit was sued on the basis of the PN and other properties not the ones
mortgaged hence, Southern motors cannot be deprived of its right to collect from
the other properties.
DOCTRINE: Southern motors had a right to select among the three remedies
provided in Article 1484 in choosing to sue on the note, it was not thereby limited
to the proceeds of the sale, on execution, of the mortgaged good
FACTS:
1. In April 1953, Amador Tajanlangit and his wife Angeles, residents of Iloilo
bought from Southern MOTORS inc. of Iloilo two tractors and a thresher.
2. In payment for the same, they executed the promissory note whereby they
undertook to satisfy the total purchase price of P24,755.75 in several
installments with interest payable on stated dated (May 18, 1953 to December
10, 1955)
3. The note stipulated that if default be made in the payment of interest or of
any installment, then the total principal sum still unpaid with interest shall at
once become demandable
4. The spouses Tajanlangit failed to meet any installment. They were sued for
the amount of the promissory note
5. The spouses defaulted, and the court after listening to the Southern Motors’
evidence entered judgment in the amount stipulated in the promissory note
together with interest at 12% per annum of the total amount due as attorney’s
fees and costs of collection
6. Carrying out the order of execution, the sheriff levied on the same
machineries and farm implements which had been bought by the spouses and
later sold them at public auction to the highest bidder – which turned out to
be Southern Motors itself for the total sum of P10,000
7. As its judgment called for much more, the Southern Motors subsequently
asked and obtained, an alias writ of execution and pursuant thereto, the
provincial sheriff levied attachment on the Tajanlangits’ rights and interests
in certain real properties – with a view to another sale on execution
8. To prevent such sale, the Tajanlangits instituted this action in the Iloilo court
of first instance for the purpose among others, of annulling the alias writ of
execution and all proceedings subsequent thereto. Their two main theories:
(1) They had returned the machineries and farm implements to the Southern
Motors Inc., the latter accepted them, and had thereby settled their accounts;
for that reason, said spouses did not contest the action in Civil Case, (2) as
the Southern Motors Inc. had repossessed the machines purchased on
installment (and mortgaged) the buyers were thereby relieved from further
responsibility, in view of the Recto Law, now article 1484 of the New Civil
Code.
9. The company denied the alleged “settlement and understanding” during the
pendency of the civil case. It also denied having repossessed the machineries,
the truth being that they were attached by the sheriff and then deposited by
the latter in its shop for safekeeping before the the sale at public auction
10. The CFI mentioned that it cannot grant the action sought by Tajanlangit for
the CFI Branch IV of Iloilo cannot invalidate the judgment or orders of
another CFI which is CFI Branch I who ordered the sale at public auction
11. The matter was brought to the CA, but the latter forwarded the expediente,
being of the opinion that th appeal involved questions of jurisdiction and/or
law
12. Hence this petition
ISSUE/s:
• WoN Southern Motors as a vendor on installment is limited to the proceeds
of the sale? - No
RULING: The decision dismissing the complaint, is affirmed, with costs against
appellants. So ordered. to foreclose the mortgage on the truck. . . .

As the plaintiff has chosen to exact the fulfillment of the defendant's

RATIO: obligation, the former may enforce execution of the judgement rendered in
its favor on the personal and real properties of the latter not exempt from
1. The Tajanlangits would invoke the last paragraph of Art. 148424, but there
execution sufficient to satisfy the judgment. That part of the judgement
has been no foreclosure of the chattel mortgage nor a foreclosure sale
depriving the plaintiff of its right to enforce judgment against the
(NOTE: Southern motors sued Tajanlangit on the basis of the notes,
properties of the defendant except the mortgaged truck and discharging
furthermore what was sold in the auction are the threshers bought not the
the writ of attachment on his other properties is erroneous
properties mortgaged) Therefore the prohibition against further collection
does not apply

2. At any rate it is the actual sale of the mortgaged chattel in accordance with
Act no 1508 that would bar the creditor (who chooses to foreclose) from
recovering any unpaid balance

3. It is true that there was a chattel mortgage on the goods sold, but the
Southern motors elected to sue on the note exclusively i.e to exact
fulfillment of the obligation to pay.

4. Southern motors had a right to select among the three remedies provided
in Article 1484 in choosing to sue on the note, it was not thereby limited
to the proceeds of the sale, on execution, of the mortgaged good.

5. In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation
arose in connection with the purchase on installment of a Chevrolet truck by
Magbanua. Upon the latter's default, suit on the note was filed, and the truck
levied on together with other properties of the debtor. Contending that the
seller was limited to the truck, the debtor obtained a discharge of the other
properties. This court said:

By praying that the defendant be ordered to pay the sum of P4,690 together
with the stipulated interest at 12% per annum from 17 March 1954 until fully
paid, plus 10 per cent of the total amount due as attorney's fees and cost of
collection, the plaintiff acted to exact the fulfillment of the obligation and not

24
ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise 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
 03 NONATO v. IAC (KC)
November 22, 1985 | Escolin, J. | Recission
PETITIONER: SPOUSES RESTITUTO NONATO and ESTER NONATO
RESPONDENTS: THE HONORABLE INTERMEDIATE APPELLATE
COURT and INVESTOR'S FINANCE CORPORATION
SUMMARY: Spouses Nonato bought a vehicle from People’s Car, Inc on
installment basis. They executed a promissory note and chattel mortage in favor
of People’s Car, Inc. to ensure payment of the price. Subsequently, Peopler’s Car,
Inc. assigned its rights and interests over the P/N and mortgage to IFC. The
Spouses weren’t able to pay the installments despite demands so IFC repossessed
the car. IFC later on instituted a case against the Spouses to demand payment of
the balance of the purchase price because the value of the car was not sufficient to
cover the entire amount. Both the RTC and IAC ruled in favor of IFC. The
Supreme Court on the other hand reversed the decision said that the remedies in
Art. 1484 are alternative and NOT cumulative; such that the exercise of one
excludes the exercise of the others. In the case at bar, when IFC repossessed the
car without returning the vehicle upon appraisal of the current amount, the SC held
that this was tantamount to a cancellation of the sale. This was also evidence of
the receipt issued by IFC to the Spouses wherein it said that the Spouses may
redeem the said vehicle within 15 days. Furthermore, the witness for IFC also
confirmed that the car wouldn’t be returned if the Spouses failed to pay the
balance.
DOCTRINE: Jurisprudence provides that Art. 1484 means: Should the vendee or
purchase of a personal property default in the payment of two or more of the
agreed installments, the vendor or seller has the option to avail of any of these
three remedies:
a. Exact fulfillment by the purchaser of the obligation
b. Cancel the sale
c. Foreclose the mortgage on the purchased personal property
These remedies have been recognized as alternative, NOT cumulative. Thus, the
exercise of one would bar the exercise of the others.
FACTS:
150. Spouses Restituto Nonato and Ester Nonato purchased one unit of
Volkswagen Sakbayan from People’s Car, Inc. on installment basis. To
secure the payment thereof, they executed a promissory note and a chattel
mortgage in favor of said company.
151. People’s Car, Inc. assigned its rights and interests over the note and the
mortgage in favor of Investor’s Finance Corporation (IFC). For failure of the
Spouses Nonato to pay two or more instalmments, despite demands, the car
was repossessed by IFC.
152. IFC subsequently demanded from Spouses Nonato to pay the balance of the
price of the car saying that the value of the car was not sufficient to cover the
balance of the purchase price. IFC then filed a case before the CFI of Negros
Occidental.
153. Spouses Nonato in their defense alleges that when the company repossessed
the vehicle, it had effectively cancelled the sale of the vehicle and therefore
is barred from exacting recover of the unpaid balance.
154. The trial court rendered a decision in favor of IFC. The IAC likewise affirmed
this decision. Hence, this appeal.
ISSUE/s: Whether a vendor who had cancelled the sale of a motor vehicle for failure
of the buyer to pay two or more of the stipulated installments, may also demand
payment of the balance of the purchase price. - NO
RULING: WHEREFORE, the judgment of the appellate court in CAG.R. No. 69276-
R is hereby set aside and the complaint filed by respondent Investors Finance
Corporation against petitioner in Civil Case No. 13852 should be, as it is hereby,
dismissed. No costs.
SO ORDERED.
RATIO:
1. The applicable law in the case at bar is Article 1484 as it involves a sale of
personal property on installment:
“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.”
132. Jurisprudence provides that Art. 1484 means: Should the vendee or purchase
of a personal property default in the payment of two or more of the agreed
installments, the vendor or seller has the option to avail of any of these three
remedies
a. Exact fulfillment by the purchaser of the obligation
b. Cancel the sale
c. Foreclose the mortgage on the purchased personal property
 These remedies have been recognized as alternative, NOT cumulative. Thus,
the exercise of one would bar the exercise of the others.
133. It is not disputed that IFC had taken possession of the car. Spouses Nonato
contend that IFC exercised its option to cancel the contract of sale, IFC on
the other hand denies such and alleges that the repossession was only for the
purpose of appraising its value and for storage and safekeeping pending full
payment of the purchasing price.
134. However, the receipt issued by IFC to Spouses Nonato proves otherwise
because it said that the vehicle could be redeemed within 15 days. This could
only mean that should the Spouses Nonato fail to redeem, IFC would retain
permanent possession of the vehicle, as it did in fact. Also, this had been
confirmed by Mr. Ernesto Carmona (IFC’s witness) who testified:
“ATTY. PAMPLONA:

So that Mr. Witness, it is clear now that, per your receipt and your answer,
the company will not return the unit without paying a sum of money, more
particularly the balance of the account?

WITNESS: Yes, sir.”

135. The contention of IFC that the repossession was for mere purpose of
appraising the current value is also untenable for even after it notified
Spouses Nonato the value of the car, it did not make any attempts to return
the vehicle.
136. Since the acts performed by IFC are wholly consistent with the conclusion
that it had opted to cancel the contract of sale, it is thus bared from exacting
payment from Spouses Nonato of the balance of the price.
 04 Zayas, Jr. v. Luneta Motor Company (Paolo)
October 23, 1982 | Justice Gutierrez Jr. | Remedy of Foreclosure
PETITIONER: Eutropio Zayas Jr.
RESPONDENTS: Luneta Motor Company and Hon. Juan Reyes, CFI of Manila
SUMMARY: Zayas bought a Ford Thames from Escano Enterprises, the dealer of
Luneta Motor Company. Zayas paid the downpayment and was supposed to pay the
balance in 26 installments. Zayas mortgaged the same car in favor of LMC. Zayas
eventually stopped paying the installments and LMC foreclosed the chattel mortgage
and bought the car in a public auction. LMC wanted to collect the rest of what was
due from Zayas. The SC ruled that Art. 1484 was clear and supported by
jurisprudence, when a vendee used the remedy of foreclosure over the property
mortgaged, he is barred from collecting the deficiency from the foreclosure sale.
DOCTRINE: Remedy of Foreclosure – When the seller assigns his credit to
another person, assignee is likewise bound by the same law.
FACTS:
11. Eutropio Zayas (Zayas) purchased a motor vehicle, which was a Ford Thames
Freighter with a PUJ Body, on installment basis, from Mr. Roque Escaño of
the Escaño Enterprises in Cagayan de Oro City, dealer of respondent Luneta
Motor Company (LMC).
12. The terms and conditions stated that the total selling price was P8,926.82,
with a payment on delivery (downpayment) of P1,006.82. The rest of the
selling price amounting to P7,920.00 would be payable in 24 months at 12%
interest per annum.
13. The motor vehicle was delivered to Zayas and so he paid the initial paymentt
of P1,006.82, executed a Promissory Note for the P7,920.00, which was the
balance of the purchase price, which stated the amounts and dates of payment
for twenty-six (26) installments for the balance of the price. He also executed
a chattel mortgage on the motor vehicle in favor of the Luneta Motor
Company.
14. Zayas was only able pay the amount of P3,148.00 when he stopped paying
the monthly installments. This prompted the Luneta Motor Company to
extra-judicially foreclose the mortgage and the company was the highest
bidder in the public auction for P5,000.
15. Since the foreclosure could not cover the total amount of the promissory note,
• 25Art. 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;
Luneta Motor Company filed a civil case for the recovery of the balance of
P1,551.74 plus interest,
16. Zayas countered that he had no more outstanding liabilities because
according to Art. 148425 of the New Civil Code, his obligation found in the
promissory note was extinguished by the sale at public auction of the motor
vehicle.
17. Luneta Motor Company denied the applicability of Art.1484 of the Civil
Code ... for the simple reason that the contract involved between the parties
is not one for a sale on installment.
18. It maintains that the contract between the company and Zayas was only an
ordinary loan removed from the coverage of Art. 1484. (So Luneta Motor
Company insists that Zayas bought the car from Escano Enterprises and that
LMC only financed Zayas through a loan)
19. The City Court ruled in favor of Zayas, but the CFI remanded the case, so
Zayas appealed to the SC because of this order to remand the case.
ISSUES:
12. Whether or not a deficiency amount after the motor vehicle, subject of
the chattel mortgage, has been sold at public auction could still be
recovered – No, the auction sale extinguishes the obligation.
RULING: WHEREFORE, the instant petition is hereby granted. The orders
remanding the case are annulled and the appeal of LMC is dismissed.
RATIO:
• The Escaño Enterprises of Cagayan de Oro City was an agent of Luneta
Motor Company. The proof of this relationship is the certification from the
cashier of Escano Enterprises on the monthly installments paid by Zayas. In
the certification, the promissory note in favor of Luneta Motor Company was
specifically mentioned.
• Escano Enterprises, a dealer of Luneta Motor Company, was merely a
collecting-agent as far as the purchase of the subject motor vehicle was
concerned. The principal and agent relationship is clear.
• But even assuming that the "distinct and independent entity" theory of LMC
is valid, the nature of the transaction as a sale of personal property on
installment basis remains. (Escano assigned its “vendor rights” to Luneta
Motor Company, so still a sale on installment)
(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.
• The established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not satisfied by the sale. And the reason
for this doctrine was aptly stated in the case of Bachrach Motor Co. vs.
Millan:
◦ This prevents mortgagees from seizing the mortgaged property, buying
it at foreclosure sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment, avoiding a situation where the
mortgager would lose the property because of foreclosure and still owing
the amounts not satisfied by the auction sale.
 05 RIDAD v. FILIPINAS INVESTMENT (Elach)
January 27, 1983 | De Castro, J. | Foreclosure; chattel mortgage
PLAINTIFFS-APPELLESS: Luis Ridad and Lourdes Ridad
FACTS:
DEFENDANTS-APPELLANTS: Filipinas Investment and Finance
Corporation, Jose D. Sebastian and Jose San Agustin, in his capacity as Sheriff
SUMMARY: The spouses Ridad purchased from the Supreme Sales
Development Corporation 2 brand new Ford Consul Sedans complete with
accessories. To secure payment thereof, plaintiffs executed on the same date a
promissory note covering the purchase price and a deed of chattel mortgage not
only on the two vehicles purchased but also on another car (Chevrolet) and their
franchise or certificate of public convenience granted by the defunct Public
Service Commission for the operation of a taxi fleet with Filipinas Investment.
Due to the failure of the plaintiffs to pay their monthly installments as per
promissory note, Filipinas Investment foreclosed on the chattel mortgage on the
Ford Consul Sedans. The foreclosure sale had a deficiency. Consequently, the
corporation foreclosed the mortgage constituted on the Chevrolet and their
franchise or certificate of public convenience. Issue in this case is Whether
foreclosing the second mortgage to recover the deficiency on the first mortgage is
valid. According to the SC, No. Article 1484 of the Civil Code is applicable. Under
this article, the vendor of personal property the purchase price of which is payable
in installments, has the right, should the vendee default inthe payment of two or
more of the agreed installments, to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personalproperty, if one was constituted. The vendor can only choose one option.
If the vendor avails himself of the right to foreclose the mortgage, the law prohibits
him from further bringing an action against the vendee for the purpose of
recovering whatever balance of the debt secured is not satisfied by the foreclosure
sale. Purpose of the law is to prevent mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price and the bringing suit against
the mortgagor for a deficiency judgment. Without the law, the mortgagor-buyer
would find himself without the property and still owing practically the full amount
of his original debt.
DOCTRINE: If the vendor avails himself of the right to foreclose his mortgage,
the law prohibits him from further bringing an action against the vendee for the
purpose of recovering whatever balance of the debt secured not satisfied by the
ISSUE/s
foreclosure sale; and
W/N the chattel mortgage in so far as the franchise and the subsequent sale of the
Barring effect would cover a third-party mortgage, when it was the chattel
mortgage that was first foreclosed
13. Ridad purchased from the Supreme Sales Development Corporation two (2)
brand new Ford Consul Sedans complete with accessories, for P26,887
payable in 24 monthly installments.
14. To secure payment thereof, plaintiffs executed on the same date a promissory
note covering the purchase price and a deed of chattel mortgage not only on
the two vehicles purchased but also on another car (Chevrolet) and
Ridad’s franchise or certificate of public convenience granted by the
defunct Public Service Commission for the operation of a taxi fleet.
15. Then, with the conformity of the plaintiffs, the vendor (Supreme Sales)
assigned its rights, title and interest to the above-mentioned promissory note
and chattel mortgage to defendant Filipinas Investment and Finance
Corporation.
16. Due to the failure of Ridad to pay their monthly installments as per
promissory note, Filipinas Investment foreclosed the chattel mortgage extra-
judicially, and at the public auction sale of the two Ford Consul cars, of which
the plaintiffs were not notified, in which the Filipinas Investment was the
highest bidder and purchaser.
17. Another auction sale was held, involving the remaining properties subject
of the deed of chattel mortgage since Ridad’s obligation was not fully
satisfied by the sale of the aforesaid vehicles, and at the public auction sale,
the franchise of plaintiffs to operate five units of taxicab service was sold
for P8,000 to the highest bidder, herein defendant corporation, which
subsequently sold and conveyed the same to herein defendant Jose D.
Sebastian, who then filed with the Public Service Commission an application
for approval of said sale in his favor.
18. Thus, Ridad filed an action for annulment of contract before the CFI against
Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff
Jose San Agustin, as party-defendants.
19. By agreement of the parties, the case was submitted for decision in the lower
court on the basis of the documentary evidence adduced by the parties during
the pre-trial conference. Thereafter, the lower court rendered judgment
declaring to be null and void in so far as the taxicab franchise and the
used Chevrolet car of plaintiffs are concerned, and the sale at public
auction conducted by the City Sheriff of Manila concerning said taxicab
franchise.
20. Defendants went to the CA which certified the said appeal to the SC
Chevrolet are valid? – NO Hermanos, Inc. vs. Pacific Commercial Co., the facts of which are similar to
those in the case at bar.
RULING: WHEREFORE, the petition is DISMISSED for lack of merit with costs a. There, we have the same situation wherein the vendees offered as
against petitioner. security for the payment of the purchase price not only the motor
vehicles which were bought on installment, but also a residential lot
RATIO: and a house of strong materials.
10. Art. 1484. In a contract of sale of personal property the price of which is b. This Court sustained the pronouncement made by the lower court on
payable in installments, the vendor may exercise of the following remedies: the nullity of the mortgage in so far as it included the house and lot
a. Exact fulfillment of the obligation, should the vendee fail to pay; of the vendees, holding that under the law, should the vendor choose
b. Cancel the sale, should the vendee's failure to pay cover two or more to foreclose the mortgage, he has to content himself with the
installments; proceeds of the sale at the public auction of the chattels which were
c. Foreclose the chattel mortgage on the thing sold, if one has been sold on installment and mortgaged to him and having chosen the
constituted, should the vendee's failure to pay cover two or more remedy of foreclosure, he cannot nor should he be allowed to insist
installments. In this case, he shall have no further action against the on the sale of the house and lot of the vendees, for to do so would
purchaser to recover any unpaid balance of the price. Any agreement be equivalent to obtaining a writ of execution against them
to the contrary shall be void. concerning other properties which are separate and distinct from
11. Under the above-quoted article of the Civil Code, the vendor of personal those which were sold on installment.
property the purchase price of which is payable in installments, has the right, c. This would indeed be contrary to public policy and the very spirit
should the vendee default in the payment of two or more of the agreed and purpose of the law, limiting the vendor's right to foreclose the
installments, to exact fulfillment by the purchaser of the obligation, or to chattel mortgage only on the thing sold.
cancel the sale, or to foreclose the mortgage on the purchased personal
property, if one was constituted.
12. Whichever right the vendor elects, he cannot avail of the other, these
remedies being alternative, not cumulative.
13. Furthermore, if the vendor avails himself of the right to foreclose his
mortgage, the law prohibits him from further bringing an action against
the vendee for the purpose of recovering whatever balance of the debt
secured not satisfied by the foreclosure sale.
14. The precise purpose of the law is to prevent mortgagees from seizing the
mortgaged property, buying it at foreclosure sale for a low price and then
bringing suit against the mortgagor for a deficiency judgment, otherwise, the
mortgagor-buyer would find himself without the property and still owing
practically the full amount of his original indebtedness.
15. In the instant case, Filipinas Investment elected to foreclose its mortgage
upon default by the plaintiffs in the payment of the agreed installments.
16. Having chosen to foreclose the chattel mortgage, and bought the purchased
vehicles at the public auction as the highest bidder, it submitted itself to the
consequences of the law as specifically mentioned, by which it is deemed to
have renounced any and all rights which it might otherwise have under the
promissory note and the chattel mortgage as well as the payment of the unpaid
balance.
17. The lower court rightly declared the nullity of the chattel mortgage in
question in so far as the taxicab franchise and the used Chevrolet car of
plaintiffs are concerned, under the authority of the ruling in the case of Levy
 06 EQUITABLE SAVINGS BANK v. PALCES (Karen)
March 9, 2016 | Perlas-Bernabe, J. | Remedy of Foreclosure under Art. 1484
PETITIONER: Equitable Savings Bank (now known as BDO Unibank Inc.)
RESPONDENTS: Rosalinda C. Palces
SUMMARY: Palces purchased a vehicle through a loan granted by BDO of
P1,196,100. With this, Palces executed a Promissory Note with Chattel
Mortgage in favor of BDO wherein it was stated that (a) she will pay monthly
installments; (b) if she defaulted in paying the installments, the remaining balance
become due and payable; and (c) BDO has the right to declare the entire obligation
due and payable and has an option to foreclose the mortgage or file an ordinary
civil action allowed under the law. For CY 2005 to 2006, Palces paid on time the
monthly installments. However, in the first 2 months of CY 2007, she failed to
pay thereby triggering the acceleration clause contained in the Promissory Note
with Chattel Mortgage and prompting BDO to send a demand letter to pay the
remaining balance. As the demand was remained unheeded, BDO filed a
complaint against Palces and a writ of replevin was issued and served. Palces
admitted that she defaulted but she had asked permission for such delay and
thereafter, she gave P103,000. The RTC ruled in BDO's favor which was affirmed
by the CA with modification wherein it ordered BDO to return the P103,000. The
CA opined that by choosing to recover the subject vehicle via a writ of replevin,
BDO already waived its right to recover any unpaid installments, pursuant to
Article 1484 of the Civil Code. As such, the CA concluded that Palces is entitled
to the recovery of the aforesaid amount. Hence, the current petition.
The issue in this case is whether or not the CA correctly ordered BDO to return to
Palces P103,000 representing the latter’s late installment payments.
The SC held that the CA is not correct. It held that Art. 1484 of the Civil Code
governs the sale of personal properties in installments. In this case, there was no
vendor-vendee relationship between Palces and BDO. A judicious perusal of the
records would reveal that Palces never bought the subject vehicle from BDO but
from a third party, and merely sought financing from BDO for its full purchase
price. In order to document the loan transaction between BDO and Palces, a
Promissory Note with Chattel Mortgage was executed wherein, inter alia, Palces
acknowledged her indebtedness to BDO of P1,196,100 and placed the subject
vehicle as a security for the loan. Indubitably, a loan contract with the accessory
26
Article 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;
chattel mortgage contract - and not a contract of sale of personal property in
installments - was entered into by the parties with Palces standing as the debtor-
mortgagor and BDO as the creditor-mortgagee. Therefore, the conclusion of the
CA that Article 1484 finds application in this case is misplaced, and thus, must be
set aside. Further, there is nothing in the Promissory Note with Chattel Mortgage
that bars BDO from receiving any late partial payments from Palces. If at all,
BDO's acceptance of Palces’ late partial payments in the aggregate amount of
P103,000 will only operate to reduce her outstanding obligation to BDO from
P664,500 to P561,500. Such a reduction in Palces’ outstanding obligation should
be accounted for when BDO conducts the impending foreclosure sale of the
subject vehicle. Once such foreclosure sale has been made, the proceeds thereof
should be applied to the reduced amount of Palces' outstanding obligation, and the
excess of said proceeds, if any, should be returned to her.
DOCTRINE: Art. 148426 of the Civil Code governs the sale of personal
properties in installments and it would not apply if there is no vendor-vendee
relationship. In this case, a judicious perusal of the records would reveal that
mortgagor-buyer never bought the subject vehicle from financing company but
from a third party, and merely sought financing from mortgagee for its full
purchase price.
FACTS:
43. On August 15, 2005, Rosalinda C. Palces (Palces) purchased a Hyundai
Starex GRX Jumbo (subject vehicle) through a loan granted by BDO
Unibank Inc. (BDO) of P1,196,100. With this, Palces executed a Promissory
Note with Chattel Mortgage in favor of BDO, stating, that:
a. Palces shall pay BDO the amount in 36-monthly installments of P33,225
per month, beginning September 18, 2005 and every 18th of the month
thereafter until full payment of the loan;
b. Palces' default in paying any installment renders the remaining balance
due and payable; and
c. Palces' failure to pay any installments shall give BDO the right to declare
the entire obligation due and payable and may likewise, at its option, x
x x foreclose this mortgage; or file an ordinary civil action for collection
and/or such other action or proceedings as may be allowed under the law
44. From September 18, 2005 to December 21, 2006, Palces paid the monthly
installment. However, she failed to pay the monthly installments in January
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. (Emphases and underscoring supplied)
 and February 2007, thereby triggering the acceleration clause contained in
the Promissory Note with Chattel Mortgage and prompting BDO to send a
demand letter dated February 22, 2007 to compel her to pay the remaining
balance of the loan of P664,500.
45. As the demand went unheeded, BDO filed the instant Complaint for
Recovery of Possession with Replevin with Alternative Prayer for Sum of
Money and Damages against Palces before the RTC, praying that the court a
quo: (a) issue a writ of replevin ordering the seizure of the subject vehicle
and its delivery to BDO; or (b) in the alternative as when the recovery of the
subject vehicle cannot be effected, to render judgment ordering Palces to pay
the remaining balance of the loan, including penalties, charges, and other
costs appurtenant thereto.
46. A writ of replevin was issued and served to Palces personally. In her
defense, while admitting that she indeed defaulted on her installments for
January and February 2007, she insisted that she called BDO regarding such
delay in payment and spoke to a bank officer, Rodrigo Dumagpi, who gave
his consent thereto.
47. Palces then maintained that in order to update her installment payments, she
paid BDO a total of P103,000 on March 8 and 20, 2007. Despite the aforesaid
payments, Palces was surprised when BDO filed the instant complaint,
resulting in the sheriff taking possession of the subject vehicle.
48. The RTC ruled in BDO's favor and, accordingly, confirmed BDO's right and
possession over the subject vehicle and ordered Palces to pay the former
P15,000 as attorney's fees as well as the costs of suit.
49. The CA affirmed the RTC ruling with modification: (a) ordering BDO to
return the amount of P103,000.00 to Palces; and (b) deleting the award of
attorney's fees in favor of BDO for lack of sufficient basis. It held that while
Palces was indeed liable to BDO under the Promissory Note with Chattel
Mortgage, BDO should not have accepted Palces' late partial payments of
P103,000. In this regard, the CA opined that by choosing to recover the
subject vehicle via a writ of replevin, BDO already waived its right to recover
any unpaid installments, pursuant to Article 1484 of the Civil Code. As such,
the CA concluded that Palces is entitled to the recovery of the aforesaid
amount.
27
Article 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;
50. Hence, the current petition.
ISSUE: Whether or not the CA correctly ordered BDO to return to Palces P103,000
representing the latter’s late installment payments. -NO
RULING: The petition is PARTLY GRANTED. The Decision and the Resolution of
the Court of Appeals are hereby SET ASIDE. In case foreclosure proceedings on the
subject chattel mortgage has not yet been conducted/concluded, BDO
is ORDERED to commence foreclosure proceedings on the subject vehicle in
accordance with the Chattel Mortgage Law, i.e., within thirty (30) days from the
finality of this Decision. The proceeds therefrom should be applied to the reduced
outstanding balance of Palces of P561,500, and the excess, if any, should be returned
to her.
RATIO:
137. The SC held that the CA was wrong in citing Art. 1484 of of the Civil Code,
specifically par. 3 thereof. The CA ruled that BDO had already waived its
right to recover any unpaid installments when it sought - and was granted - a
writ of replevin in order to regain possession of the subject vehicle. As such,
BDO is no longer entitled to receive Palces' late partial payments in the
aggregate amount of P103,000.
138. Art. 148427 of the Civil Code governs the sale of personal properties in
installments.
139. In this case, there was no vendor-vendee relationship between Palces and
BDO. A judicious perusal of the records would reveal that Palces never
bought the subject vehicle from BDO but from a third party, and merely
sought financing from BDO for its full purchase price. In order to
document the loan transaction between BDO and Palces, a Promissory Note
with Chattel Mortgage was executed wherein, inter alia, Palces
acknowledged her indebtedness to BDO of P1,196,100 and placed the subject
vehicle as a security for the loan. Indubitably, a loan contract with the
accessory chattel mortgage contract - and not a contract of sale of
personal property in installments - was entered into by the parties with
Palces standing as the debtor-mortgagor and BDO as the creditor-
mortgagee. Therefore, the conclusion of the CA that Article 1484 finds
application in this case is misplaced, and thus, must be set aside.
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. (Emphases and underscoring supplied)
140. In light of the stipulations in the Promissory Note with Chattel Mortgage (see
Fact No. 1), BDO is justified in filing his Complaint before the RTC seeking
for either the recovery of possession of the subject vehicle so that it can
exercise its rights as a mortgagee, i.e., to conduct foreclosure proceedings
over said vehicle; or in the event that the subject vehicle cannot be recovered,
to compel Palces to pay the outstanding balance of her loan. Since it is
undisputed that BDO had regained possession of the subject vehicle, it is only
appropriate that foreclosure proceedings, if none yet has been
conducted/concluded, be commenced in accordance with the provisions of
Act No. 1508 (The Chattel Mortgage Law), as intended. Otherwise, Palces
will be placed in an unjust position where she is deprived of possession of the
subject vehicle while her outstanding debt remains unpaid, either in full or in
part, all to the undue advantage of BDO - a situation which law and equity
will never permit.

141. Further, there is nothing in the Promissory Note with Chattel Mortgage that
bars BDO from receiving any late partial payments from Palces. If at all,
BDO's acceptance of Palces’ late partial payments in the aggregate amount
of P103,000 will only operate to reduce her outstanding obligation to BDO
from P664,500 to P561,500. Such a reduction in Palces’ outstanding
obligation should be accounted for when BDO conducts the impending
foreclosure sale of the subject vehicle. Once such foreclosure sale has been
made, the proceeds thereof should be applied to the reduced amount of Palces'
outstanding obligation, and the excess of said proceeds, if any, should be
returned to her.

142. In sum, the CA erred in ordering BDO to return the P103,000 to Palces. In
view of BDO's prayer for and subsequent possession of the subject vehicle in
preparation for its foreclosure, it is only proper that BDO be ordered to
commence foreclosure proceedings, if none yet has been
conducted/concluded, over the vehicle in accordance with the provisions of
the Chattel Mortgage Law, i.e., within thirty (30) days from the finality of
this Decision.
 07 MACONDRAY & CO. v. EUSTAQUIO (DANNAH)
16 July 1937 | Imperial, J. | “Barring” Effects of Foreclosure
PLAINTIFF-APPELLANT: Macondray & Co., Inc.,
DEFENDANT-APPELLEE: Urbando Eustaquio
SUMMARY: Macondray sold to Eustaquio a De Soto Car, Sedan for P595. This
was to be paid in twelve monthly installments, with an interest rate of 12% p.a. A
stipulation in the contract states that upon failure to pay an installment, the whole
amount becomes due and demandable. Moreover, Eustaquio mortgaged the same
car to Macondray to guarantee his obligation.
Eustaquio was able to pay but one installment, hence Macondray called upon the
sheriff to take possession of the car. Eustaquio refused to give up possession of
said car, which prompted Macondray to file a replevin suit. After taking
possession of the car, it was sold at a public option and Macondray was the highest
bidder at P250. According to the liquidation, Eustaquio was still indebted in the
amount of P342.20 with interest and fees.
Macondray wanted to enforce payment for the remaining balance, and the lower
court denied his complaint, hence he appealed said judgment to the SC. He
assigned three errors, which the SC ruled as untenable. It ruled as follows:
First, Eustaquio not appearing at the trial did not amount to a waiver of his rights
under Act 4122.
Second, Act 4122 is valid. In the Philippines, the Chattel Mortgage Law did not
expressly provide for a deficiency judgment upon the foreclosure of a mortgage.
The controlling purpose of Act No. 4122 is revealed to be to close the door to
abuses committed in connection with the foreclosure of chattel mortgages when
sales were payable in installments. The public policy, obvious from the statute,
was defined and established by legislative authority. It is for the courts to
perpetuate it.
Third, if the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by the
same, and any agreement to the contrary shall be null and void
DOCTRINE: The proviso to the right to foreclose is, that if the vendor has chosen
such remedy, he shall have no further action against the purchaser for the recovery
of any unpaid balance owing by the same. In other words, as we see it, the Act
does no more than qualify the remedy.
(From the Syllabus) “Barring” Effects of Foreclosure: All amounts due from the
sale, including damages and attorneys fees, are barred from recovery.
FACTS:
155. This is an appeal from the judgment of the CFI of Manila dismissing the
complaint of plaintiff Macondray & Co. (Macondray).
156. Macondray sold to Eustaquio a De Soto car, Sedan, for P595.
157. For this, Eustaquio executed a note dated May 22, 1934.
a. He undertook to pay the car in twelve monthly installments
b. Interest of 12% p.a.
c. Should he fail to pay any installment with interest, the remaining installment
would be due and demandable, and he must pay 20% as fees and etc.
158. To guarantee performance of his obligation, Eustaquio on the same date
mortgaged the purchased car in favor of Macondray, and bound himself under
the same conditions stipulated in the note (5a-c)
159. The mortgage deed was registered on June 11, 1934. On the 22nd of the same
month, Eustaquio paid P43.75 as the first installment, and failed to pay the
remaining ones.
160. In accordance with the terms of the mortgage, Macondray called upon the
sheriff to take possession of the car, but Eustaquio refused to yield
possession.
161. Macondray filed a suit for replevin and thereby succeeded in taking
possession of the car. The car was sold at a public auction to Macondray for
P250.
162. According to the liquidation, Eustaquio was still indebted in the amount of
P342.20 with interest and fees.
163. Macondray brought an action against defendant Urbando Eustaquio
(Eustaquio) to obtain the possession of an automobile Eustaquio mortgaged,
and to recover the balance, interest, attorney’s fees, expenses and etc.
164. Eustaquio was summoned but he failed to appear and file an answer, hence
he was declared in default and the appealed judgment was rendered
accordingly.
ISSUE/s:
51. WoN there was a misapplication of Act No. 4122 – NO
52. WoN Act No. 4122 is invalid – NO
53. WoN granting said act is valid, the court should have ordered the defendant
to at least pay the stipulated interest, attorney’s fees and costs – NO
RULING: In view of the foregoing, the appealed judgment is affirmed, with the costs
of this instance to the plaintiff and appellant. So ordered.
RATIO:
On the first issue
143. Judgment by default against a defendant who has neither appeared nor filed
his answer does not imply a waiver of right except that of being heard and of
presenting evidence in his favor.
a. Macondray was contending that since Eustaquio did not appear in
trial, he already waived his rights under Act 4122 and was already
declared in default
On the second issue
1. The amendment of the Act prevents mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price and then bringing suit
against the mortgagor for a deficiency judgment. The almost invariable result
of this procedure was that the mortgagor found himself minus the property
and still owing practically the full amount of his original indebtedness.
2. Under this amdendment, the vendor of personal property, the purchase price
of which is payable in installments, has the right to cancel the sale or foreclose
the mortgage if one has been given on the property.
3. Whichever right the vendor elects he need not return to the purchaser the
amount of the full installment already paid, “if there be an agreement to that
effect.” Furthermore, if the vendor avails himself of the right from foreclose
the mortgage this amendment prohibits him from bringing an action against
the purchaser for the unpaid balance.”
4. In other words, under this amendment, in all proceedings for the foreclosure
of chattel mortgages, executed on chattels which have been sold on the
installment plan, the mortgagee is limited to the property included in the
mortgage.
5. An Act was passed in Washington which provided “that in all proceedings
for the foreclosure of mortgages hereafter executed or on judgments rendered
upon the debt thereby secured the mortgagee or assignee shall be limited to
the property included in the mortgage.”
6. In Oregon, an Act abolishing deficiency judgment upon the foreclosure of
On the third issue
mortgages to secure the unpaid balance of the purchase price of real property
was unanimously sustained by the Supreme Court of that State.
7. Bronzon v. Kinzie
a. Had under consideration a law passed in Illinois, which provide that the
equitable estate of the mortgagor should not be extinguished for twelve
months after sale on decree, and which prevented any sale of the mortgaged
property unless two-thirds of the amount at which the property had been
valued by appraisers should be bid therefor.
8. In the Philippines, the Chattel Mortgage Law did not expressly provide for a
deficiency judgment upon the foreclosure of a mortgage. Indeed, it required
decisions of this court to authorize such a procedure.
9. But the practice became universal enactment regarding procedure. To a
certain extent the Legislature has now disauthorized this practice, but has left
a sufficient remedy remaining.
10. Three remedies are available to the vendor who has sold personal property
on the installment plan:
a. He may elect to exact the fulfillment of the obligation
b. If the vendee shall have failed to pay two or more installments, the vendor
may cancel the sale
c. If the vendee shall have failed to pay two or more installments, the vendor
may foreclose the mortgage, if one has been given on the property
11. The basis of the first option is the Civil Code. The basis of the last two option
is Act No. 4122, amendatory of the Civil Code.
12. The proviso to the right to foreclose is, that if the vendor has chosen such
remedy, he shall have no further action against the purchaser for the recovery
of any unpaid balance owing by the same. In other words, as we see it, the
Act does no more than qualify the remedy.
13. The proper approach in cases of this character should be to resolve all
presumptions in favor of the validity of an act in the absence of a clear conflict
between it and the constitution. All doubts should be resolved in its favor.
14. The controlling purpose of Act No. 4122 is revealed to be to close the door
to abuses committed in connection with the foreclosure of chattel mortgages
when sales were payable in installments. The public policy, obvious from the
statute, was defined and established by legislative authority. It is for the
courts to perpetuate it.
15. The law seeks to remedy an evil which the Legislature wished to suppress;
this legislative body has power to promulgate the law; the law does not
completely deprive vendors on the installment basis of a remedy, but requires
them to elect among three alternative remedies; the law, on the other hand,
does not completely exonerate the purchasers, but only limits their liabilities
and, finally, there is no vested right when a procedural law is involved,
wherefore the Legislature could enact Act No. 4122 without violating the
aforesaid organic law.
1. This question involves the interpretation of the pertinent portion of the law,
reading: "However, if the vendor has chosen to foreclose the mortgage he
shall have no further action against the purchaser for the recovery of any
unpaid balance owing by the same, and any agreement to the contrary shall
be null and void."
2. This paragraph refers to the mortgage contract executed by the parties,
whereby the purchaser mortgages the chattel sold to him on the installment
basis in order to guarantee the payment of its price, and the words "any unpaid
balance" should be interpreted as having reference to the deficiency judgment
to which the mortgagee may be entitled where, after the mortgaged chattel is
sold at public auction, the proceeds obtained therefrom are insufficient to
cover the full amount of the secured obligations which, in the case at bar as
 shown by the note and by the mortgage deed, include interest on the principal,
attorney's fees, expenses of collection, and the costs.
3. The fundamental rule which should govern the interpretation of laws is to
ascertain the intention and meaning of the Legislature and to give effect
thereto.
 08 Northern Motors v. Sapinoso (Cyria)
May 29, 1970 | Villamor, J. | Foreclosure
PETITIONER: Northern Motors, Inc.
RESPONDENTS: Casiano Sapinoso and John Doe
SUMMARY: Sapinoso purchased from Northern Motors an Opel Kadett car,
payable on installments. Sapinoso executed a promissory note and chattel
mortgage on the car, providing therein that upon default, Nothern Motors may
elect any of the following remedies: (1) sale of the car, (2) cancellation of the
contract of sale, (3) extrajudicial foreclosure, (4) judicial foreclosure, or (5)
ordinary civil action to exact fulfillment of the mortgage contract. It was further
provided that whichever remedy is elected, Northern Motors expressly waives his
right to reimbursement. Sapinoso defaulted so Northern Motors filed the
complaint. Before filing his answer, Sapinoso made two payments on the
promissory note. The trial court ruled that Northern Motors had acquired the right
to foreclose the chattel mortgage but in doing so, Northern Motors had waived
any claim it may have on the promissory note. Northern Motors was then ordered
to return the amount it received after filing the case. Northern Motors appealed to
the SC, arguing that the trial court erred in ordering it to reimburse the amount
because it is the exercise, no the mere election, of the remedy of foreclosure that
bars the creditor from recovering the unpaid balance of debt.
The SC ruled that the trial court erred in ordering Northern Motors to reimburse
the amount paid by Sapinoso. *see doctrine*
DOCTRINE: Action of replevin in order to foreclose on the chattel mortgage
does not produce the barring effect under the Recto Law; for it is the fact of
foreclosure and actual sale of the mortgaged chattel that bar further recovery by
the seller of any balance on the buyer’s outstanding obligation not satisfied by
the sale. The voluntary payment of the installment by the buyer-mortgagor is
valid and not recoverable in spite the restrictive provisions of Art. 1484(3).
FACTS:
1. Casiano Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car
for the price of P12,171.00, making a down payment and executing a
promissory note for the balance of P10,540.00 payable in installments with
interest at 12% per annum.
2. To secure the payment of the promissory note, Sapinoso executed in favor of
Northern Motors, Inc. a chattel mortgage on the car. The mortgage contract
provided, among others, that upon default by the mortgagor in the payment
of any part of the principal or interest due, the mortgagee may elect any of
the following remedies: (a) sale of the car by the mortgagee; (b) cancellation
of the contract of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure;
(e) ordinary civil action to exact fulfillment of the mortgage contract. It was
further stipulated that "[w]hichever remedy is elected by the mortgagee, the
mortgagor expressly waives his right to reimbursement by the mortgagee of
any and all amounts on the principal and interest already paid by him."
3. Sapinoso failed to pay the first installment of P361.00 due on July 5, 1965,
and the second, third, fourth and fifth installments of P351.00 each due on
the 5th day of August, September, October and November, 1965,
respectively.
4. Several payments were, however, made by Sapinoso, to wit: P530.52 on
November 21, 1965, P480.00 on December 21, 1965, and P400.00 on April
30, 1966. The first and third payments aforesaid were applied to accrued
interest up to April 17, 1966, while the second payment was applied partly
(P158.10) to interest, and partly (P321.90) to the principal, thereby reducing
the balance unpaid to P10,218.10.
5. Sapinoso having failed to make further payments, Northern Motors, Inc. filed
the present complaint against Sapinoso and a certain "John Doe." Northern
Motors, Inc. stated that it was availing itself of the option given it under the
mortgage contract of extrajudicially foreclosing the mortgage, and prayed
that a writ of replevin be issued upon its filing of a bond for the seizure of the
car and for its delivery to it.
6. Subsequent to the commencement of the action, but before the filing of his
answer, defendant Sapinoso made two payments on the promissory note, the
first on August 22, 1966, for P500.00, and the second on September 27, 1966,
for P750.00.
7. Sapinoso alleged, however, that he had paid the total sum of P4,230.52,
leaving a balance of only P5,987.58; that upon demand he immediately
surrendered the possession of the car to the plaintiff's representative; and that
the value of the car was only about P5,000.00, and not P10,000.00 as alleged
in the complaint. He failed to pay the installments due because the car was
defective, and Northern Motors failed to have it fixed although he had
repeatedly called the Northern Motors’ attention thereto, hence, Sapinoso had
to procrastinate in his payments in order to move Northern Motors to repair
the car; and that although the car could not be used, he paid P700.00 to
Northern Motors upon the latter's assurance that the car would be fixed.
8. The court a quo held that Sapinoso having failed to pay more than two (2)
installments, Northern Motors acquired the right to foreclose the chattel
mortgage, which it could avail of by filing an action of replevin to secure
possession of the mortgaged car as a preliminary step to the foreclosure sale
contemplated in the Chattel Mortgage Law; and that the foreclosure of the
chattel mortgage and the recovery of the unpaid balance of the price are
alternative remedies which may not be pursued conjunctively, so that in
availing itself of its right to foreclose the chattel mortgage, Northern Motors
thereby renounced whatever claim it may have had on the promissory note,
and, therefore, Northern Motors has no more right to the collection of the
 attorney's fees stipulated in the promissory note, and should return to
Sapinoso the sum of P1,250.00 which Northern Motors had received from
Sapinoso after having filed the present case, and elected to foreclose the
chattel mortgage.
9. In this appeal, Northern Motors claims that the court a quo erred in ordering
it to reimburse to Sapinoso the sum of P1,250.00 which the latter had paid. It
contends that under Article 1484 of the Civil Code it is the exercise, not the
mere election, of the remedy of foreclosure that bars the creditor from
recovering the unpaid balance of the debt; that what the said Article 1484
prohibits is "further action" to collect payment of the deficiency after the
creditor has foreclosed the mortgage; and that in paying Northern Motors the
sum of P1,250.00 Sapinoso filed his answer, and in not filing a counterclaim
for the recovery thereof, the Sapinoso in effect renounced whatever right he
might have had to recover the said amount.
6. If the mortgage creditor, before the actual foreclosure sale, is not precluded
from recovering the unpaid balance of the price although he has filed an
action of replevin for the purpose of extrajudicial foreclosure, or if a mortgage
creditor who has elected to foreclose but who subsequently desists from
proceeding with the auction sale, without gaining any advantage or benefit,
and without causing any disadvantage or harm to the vendee-mortgagor, is
not barred from suing on the unpaid account, there is no reason why a
mortgage creditor should be barred from accepting, before a foreclosure sale,
payments voluntarily tendered by the debtor-mortgagor who admits a
subsisting indebtedness.

ISSUE: WoN Northern Motors should pay Sapinoso P1,250 - NO

RULING: PREMISES CONSIDERED, the judgment appealed from is modified by

setting aside the portion thereof which orders Northern Motors to pay Sapinoso the
sum of P1,250.00, with costs in this instance against the Sapinoso.

RATIO:
1. In issuing a writ of replevin, and, after trial, in upholding Northern Motors’
right to the possession of the car, and ratifying and confirming its delivery to
Northern Motors, the court below correctly considered the action as one of
replevin to secure possession of the mortgaged vehicle as a preliminary step
to this foreclosure sale contemplated in Section 14 of Act No. 1508
2. The said court however erred in concluding that the legal effect of the filing
of the action was to bar plaintiff-appellant from accepting further payments
on the promissory note.
3. That the ultimate object of the action is the foreclosure of the chattel
mortgage, is of no moment, for it is the fact of foreclosure and actual sale of
the mortgaged chattel that bar further recovery by the vendor of any balance
on the purchaser's outstanding obligation not satisfied by the sale.
4. In any event, what Article 1484(3) prohibits is "further action against the
purchaser to recover any unpaid balance of the price;" and although this Court
has construed the word "action" in said Article 1484 to mean "any judicial or
extrajudicial proceeding by virtue of which the vendor may lawfully be
enabled to exact recovery of the supposed unsatisfied balance of the purchase
price from the purchaser or his privy", there is no occasion at this stage to
apply the restrictive provision of the said article, because there has not yet
been a foreclosure sale resulting in a deficiency.
5. The payment of the sum of P1,250.00 by Sapinoso was a voluntary act on his
part and did not result from a "further action" instituted by Northern Motors.
 09 CRUZ vs. FILIPINAS INVESTMENT & FINANCE CORPORATION
(Gueco)
May 27, 1968 | Reyes, J.B.L. J. | Alternative character of Art. 1484
PETITIONER: Ruperto G. Cruz, et al., plaintiff-appellees
RESPONDENTS: Filipinas Investment & Finance Corporation, defendant-
appellant.
SUMMARY:
Cruz purchased an Isuzu Diesel Bus on installment from Far East Motor. To
secure payment of the vehicle, Cruz executed two mortgages: (1) a chattel
mortgage on the subject vehicle, and (2) a real estate mortgage executed by Mrs.
Reyes over her land and the improvements therein. The second mortgage was
required of Cruz because he did not make any down payment.
Subsequently, Far East Motor assigned his right to collect from Cruz to Filipinas
Investment. When Cruz defaulted in the payment of his installments, Filipinas
Investment foreclosed the chattel mortgage and sold it at public auction where it
won as the highest bidder. The proceeds from the sale of the chattel mortgage
were, however, insufficient to cover the debt of Cruz. Hence, Filipinas Investment
moved for the foreclosure of the real estate mortgage. Cruz opposed this and filed
an action in Court. ISSUE: WoN Filipinas Investment may also extrajudicially
foreclose the real estate mortgage despite having already foreclosed the chattel
mortgage—NO, FILIPINAS INVESTMENT IS BARRED FROM
FORECLOSING THE REAL ESTATE MORTGAGE. RULING: The remedies
under Art. 1484 are alternative and not cumulative. Hence, the election of one
bars the election of another. In this case, when Filipinas Investment sought to
foreclose the chattel mortgage on the subject vehicle, it thus waived its right to
elect the other remedies. The purpose behind the alternative character of Art. 1484
is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price, and then bringing suit against the mortgagor for
the deficiency.
DOCTRINE:
The remedies under Art. 1484 are alternative and not cumulative, such that the
exercise of one would bar the exercise of the others. Otherwise stated, the
foreclosure and actual sale of a chattel mortgage bars further recovery by the
seller of any balance on the purchaser's outstanding obligation not so satisfied by
the sale.
FACTS:
8. Ruperto G. Cruz (“Cruz”) purchased an Isuzu Diesel Bus on installment from
Far East Motor Corporation (“Far East Motor”). The vehicle is valued at P44,
616.24 and payable at P1,487.20 per month for thirty months, with 12%
interest per annum, until fully paid.
9. As evidence of the above indebtedness, Cruz executed a chattel mortgage
over the subject vehicle in favor of Far East Motor.
10. Since Cruz did not give a down payment, he was required by Far East Motor
to give an additional security. For this, Felicidad Vda. de Reyes (“Mrs.
Reyes”) executed a second mortgage in favor of Far East Motor over her land
plus the buildings and improvements thereon. The said land, at that time, was
mortgaged to Development Bank of the Philippines (“DBP”) because Mrs.
Reyes obtained a loan from DBP.
11. Far East Motor then indorsed the promissory note and assigned all its rights
and interest in chattel mortgage to Filipinas Investment.
12. Cruz defaulted in the payment of the promissory note (he only paid 500 pesos
which amount was applied to the payment of interest) and despite repeated
demands, he made no payment on any of the installments.
13. As such, Filipinas Investment foreclosed the chattel mortgage. The proceeds
of the sale of the bus, however, was not sufficient to cover the expenses of
the principal obligation, interest, and attorney’s fees. As such, Filipinas
Investment moved to close the real estate mortgage on Mrs. Reyes’ land.
14. In preparation of the foreclosure of the real estate mortgage, Filipinas
Investment paid DBP the unpaid balance of Mrs. Reyes’ loan.
15. Thereafter, Filipinas Investment proceeded with the foreclosure by
requesting the provincial sheriff to sell the land at public auction.
16. Cruz requested Filipinas Investment to cancel the sale but the latter refused
stating that the former’s request had no legal basis.
17. Cruz thus filed an action in court and the provincial sheriff held in abeyance
the sale of the mortgaged land pending the result of the case.
18.
ISSUES:
3. WoN Filipinas Investment may also extrajudicially foreclose the real estate
mortgage despite having already foreclosed the chattel mortgage—NO,
FILIPINAS INVESTMENT IS BARRED FROM FORECLOSING THE
REAL ESTATE MORTGAGE.
RULING: WHEREFORE, the decision appealed from is modified, by ordering
plaintiff-appellee Felicidad Vda. de Reyes to reimburse to defendant- appellant
Filipinas Investment & Finance Corporation the sum of P2,148.07, with legal interest
thereon from the finality of this decision until it is fully paid. In all other respects, the
judgment of the court below is affirmed, with costs against the defendant- appellant.
RATIO:
1. 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; such proceeding.
2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement
to the contrary shall be void.
2. The said provision is clear and simple: should the vendee or purchaser of a
personal property default in the payment of two or more of the agreed
installments, the vendor or seller has the option to avail of any one of these
three remedies — either to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These remedies have been
recognized as alternative, not cumulative such that the exercise of one
would bar the exercise of the others. Otherwise stated, the foreclosure
and actual sale of a chattel mortgage bars further recovery by the seller
of any balance on the purchaser's outstanding obligation not so satisfied
by the sale.
3. The objective of Art. 1484 is to prevent the abuses committed in connection
with the foreclosure of chattel mortgages. It prevents mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a low price
and then bringing suit against the mortgagor for the deficiency.
4. In this case, Filipinas Investment sought to collect the supposed deficiency
of Cruz’s obligation by going against the second real estate mortgage. He
argued that Art. 1484 only prohibits the seller from recovering "against the
purchaser" and not a recourse to the additional security put up, not by the
purchaser himself, but by a third person.
5. The Court did not sustain its (Filipinas Investment) contention, for doing so
would overlook the fact that if the guarantor should be compelled to pay the
balance of the purchase price, the guarantor will in turn be entitled to recover
what she has paid from the debtor vendee. Ultimately, it will be the vendee
who will be made to bear the payment of the balance of the price, despite the
earlier foreclosure of the chattel mortgage given by him. Thus, the protection
given by Article 1484 would be indirectly subverted, and public policy
overturned. Basically, the Court is saying that there is still an indirect
subversion of Art. 1484 because in the end, it’s still the buyer, Cruz, who will
pay for the purchase price. This is because the guarantor, which in this case
is Mrs. Reyes, will still be entitled to reimbursement from Cruz.
6. Also, the word "action" in Art. 1484(3) may be construed as referring to any
judicial or extrajudicial proceeding by virtue of which the vendor may
lawfully be enabled to exact recovery of the supposed unsatisfied balance of
the purchase price from the purchaser or his privy.
7. In this case, the extrajudicial foreclosure of a real estate mortgage is one of
 10 Borbon II v. Servicewide Specialists (REINE)
11 July 1996| Vitug, J | Barring Effects of Foreclosure
Petitioner/s: Daniel Borbon II & Francisco Borbon
Respondent/s: ServiceWide Specialists, Inc & CA
Summary: Daniel & Francisco Borbon (D & F Borbon) signed a
promissory note in favor of Pangasinan Auto Mart. To secure the
promissory note, they executed a Chattel Mortgage on a 1 Brand New
1984 Isuzu Crew Cab. The rights of the Auto Mart (Assignor) were
assigned to Filinvest then Filinvest assigned all its rights, interest & title
over the PN & chattel mortgage to Servicewide (Assignee). Servicewide
attempted to collect by sending a demand letter to D & F Borbon.
However, D & F Borbon contend that Auto Mart was first guilty of not
fulfilling its obligation when it did not deliver the car that D & F had
ordered. Thus, since the assignee steps into the shoes of its assignor,
neither party would not incur in delay because the other did not comply
with its obligation. The RTC ruled that ruled that D & F Borbon cannot
avoid liability under the promissory note and the chattel mortgage that
secured it since Servicewide took the note for value & in good faith. The
CA affirmed such decision and it also upheld the award of liquidated
damages & attorney’s fees in favor of Servicewide.
The SC held that there should be no award of liquidated damages but
only attorney’s fees since this was reasonable. The Court further held
that in this case, the parties concede that the action for replevin has been
instituted for the foreclosure of the vehicle in question (now in the
possession of Servicewide). Thus, D & F Borbon hold that under Article
1484, the vendor-mortgagee or its assignees loses any right "to recover
any unpaid balance of the price" and any "agreement to the contrary
would be void.
Doctrine: Foreclosure on chattel mortgage prevents further action on the
supporting real estate mortgage whether the chattel mortgage is first
foreclosed and vice versa when the real estate mortgage is first
foreclosed.
Facts:
1.) Daniel Borbon (D. Borbon) & Francisco Borbon (F. Borbon) signed a promissory
note which states the following: “For value received (installment price of the chattel/s
purchased), I/We jointly and severally promised to pay Pangasinan Auto Mart, Inc.
or order,..the sum of P122,856.00, Philippine Currency, to be payable without need
of notice or demand, in installments of the amounts following and at the dates
hereinafter set forth, to wit: P10,238.00 monthly for 12 months due and payable on
the 7 day of each month starting January, 1985, provided that a late payment charge
of 3% per month shall be added on each unpaid installment from due date thereof
until fully paid. It is further agreed that if upon such default, attorney's services are
availed of, an additional sum equal to twenty 25% of the total sum due thereon,
which shall not be less than five hundred pesos, shall be paid to the holder hereof for
attorney's fees plus an additional sum equivalent to25% of the total sum due which
likewise shall not be less than five hundred pesos for liquidated damages, aside from
expenses of collection and the legal costs provided for in the Rules of Court. It is
expressly agreed that all legal actions arising out of this note or in connection with
the chattel(s) subject hereof shall only be brought in or submitted to the jurisdiction
of the proper court.'Acceptance by the holder hereof of payment of any installment
or any part thereof after due dated shall not be considered as extending the time for
the payment or any of the installments aforesaid or as a modification of any of the
conditions hereof. Nor shall the failure of the holder hereof to exercise any of its right
under this note constitute or be deemed as a waiver of such rights.”
2.) To secure the Promissory Note, D. Borbon & F. Borbon executed a Chattel
Mortgage (1 Brand New 1984 Isuzu KCD 20 Crew Cab). The rights of Pangasinan
Auto Mart, Inc (Auto Mart/Assignor) was assigned to Filinvest Credit Corporation
(Filinvest) with notice to D. & F. Borbon. Filinvest then assigned all its rights, interest
& title over the Promissory Note & chattel mortgage to Servicewide Specialists
(Servicewide/Assignee)
3.) After the accounts were assigned to Servicewide, they attempted to collect by
sending a demand letter to D. & F. Borbon for them to pay their entire obligation which
as March 1985 totaled P185257.80.
4.) For the defense of D. Borbon & F. Borbon, they claim that what they intended to
buy from Auto Mart was a jeepney Isuzu K.C. Cab. The vehicle that they bought was
not delivered. Instead, through misrepresentation & machination, Auto Mart delivered
an Isuzu crew cab, as this is the unit available at their warehouse. Later the
representative of the Auto Mart, Inc. told D & F Borbon that their available stock is
an Isuzu Cab but minus the rear body, which D & F Borbon agreed to deliver with the
understanding that the Auto Mart, Inc. will refund the D & F Borbon the amount of
P10,000.00 to have the rear body completed.
5.)Despite Communications with the Auto Mart, the latter was not able to replace the
vehicle until the vehicle delivered was seized by order of this court. D & F Borbon
argue that an assignee stands in the place of an assignor which, to the mind of the
court, is correct. The assignee exercise all the rights of the assignor. D & F
Borbon further claim that they are not in default of their obligation because the Auto
Mart was first guilty of not fulfilling its obligation in the contract. D & F Borbon claim
that neither party incurs delay if the other does not comply with his obligation.
6.) The RTC ruled that D & F Borbon cannot avoid liability under the promissory note
and the chattel mortgage that secured it since Servicewide took the note for value &
in good faith. The CA affirmed such decision and it also upheld the award of liquidated
damages & attorney’s fees in favor of Servicewide.
7.) Hence, D & F Borbon are seeking a modification of the decision of the appellate
court in the award of liquidated damages & attorney’s fees.
Issue: WoN Servicewide is entitled to liquidated damages and attorney’s fees?-
Attorney’s Fees only
Ruling: WHEREFORE, the appealed decision is modified by deleting therefrom the
award for liquidated damages, in all other respects such as the grant of attorney’s fees,
the judgment of the appellate court is AFFIRMED.
Ratio:
1.) D & F Borbon invoke 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:(a) Exact fulfillment of the obligation, should the vendee fail
to pay; (b) Cancel the sale, should the vendee's failure to pay cover two or more
installments; (c) Foreclose the chattel mortgage or the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more installments. In
this case, he shall have no further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void. The remedies under
Article 1484 of the Civil Code are not cumulative but alternative and exclusive.
2.) Thus, when the seller assigns his credit to another person, the latter is likewise
bound by the same law. Accordingly, when the assignee forecloses on the mortgage,
there can be no further recovery of the deficiency, and the seller-mortgagee is
deemed to have renounced any right thereto. A contrario, in the event the seller-
mortgagee first seeks, instead, the enforcement of the additional mortgages,
guarantees or other security arrangements, he must then be held to have lost by
waiver or non-choice his lien on the chattel mortgage of the personal property
sold by any mortgaged back to him, although, similar to an action for specific
performance, he may still levy on it.
there has been a foreclosure of the chattel mortgage that the vendee-mortgagor would
be permitted to escape from a deficiency liability. Thus, if the case is one for specific
performance, even when this action is selected after the vendee has refused to
surrender the mortgaged property to permit an extrajudicial foreclosure, that property
may still be levied on execution and an alias writ may be issued if the proceeds thereof
are insufficient to satisfy the judgment credit.
5.) In this case, the parties concede that the action for replevin has been instituted
for the foreclosure of the vehicle in question (now in the possession of
Servicewide). Thus, D & F Borbon hold that under Article 1484, the vendor-
mortgagee or its assignees loses any right "to recover any unpaid balance of the
price" and any "agreement to the contrary would be void.
6.) In the case of Macondray & Co v Eustaquio, the Court held that any unpaid balance
can only mean the deficiency judgment to which the mortgagee may be entitled to
when the proceeds from the auction sale are insufficient to cover the "all amount of
the secured obligation which x x x include interest on the principal, attorney's fees,
expenses of collection, and costs. The legislative intent is not only to limit the
proscription of any further action to the "unpaid balance of the principal" to all other
claims that may likewise be called for in the accompanying promissory note against
the buyer-mortgagor or his guarantor, including costs and attorney's fees.
7.)The Court struck down the award for liquidated damages but upheld the grant of
attorney’s fees which the Court found reasonable. The promissory note may appear to
have been a negotiable instrument, however D & F Borbon, clearly cannot claim
unawareness of its accompanying documents so as to thereby gain a right greater than
that of the assignor.

3.) In ordinary alternative obligations, a mere choice categorically and unequivocally

made and then communicated by the person entitled to exercise the option concludes
the parties. The creditor may not thereafter exercise any other option, unless the
chosen alternative proves to be ineffectual or unavailing due to no fault on his part.

4.) Hence, there is a difference between alternative obligations on one hand &
alternative remedies in the other. Alternative remedies is one wherein the choice
generally becomes conclusive only upon the exercise of the remedy.For instance,
in one of the remedies expressed in Article 1484 of the Civil Code, it is only when
 11 Filipinas Investment v. Ridad (Steph)
November 28, 1969 | Castro, J. | Exclusivity of remedies
PETITIONER: Filipinas Investment and Finance Corporation
RESPONDENTS: Lourdes Ridad and Luis Ridad
SUMMARY: Ridad Spouses bought a Ford Consul sedan from Supreme Sales
& Development Coroporation (succeeded by Filipinas Investment, the party to
this case). Ridad Spouses defaulted in paying their monthly installments, so
Filipinas Investment filed for replevin (for return of car or payment of unpaid
balance), and Ridad Spouses refused to comply wth their obligation. Thus,
pending this case Filipinas Investment foreclosed the mortgage and sold the car
at public auction. The Ridad Spouses were declared in default since they did not
appear, and were ordered to pay attorney’s fees and expenses related to seizure
of the car, and costs of auction. Ridad Spouses bring this matter to court, saying
that they should not be compelled to pay because Art. 1484 (3) says foreclosure
and payment of unpaid balance are mutually exclusive and you can only choose
one remedy as seller. Filipinas Investment on the other hand contends that what
is prohibited there is not applicable here, since what is contemplated in the present
case is payment of attorney’s fees and costs, not unpaid balance. The Supreme
Court ruled in favor of Filipinas Investment, and that mortgagees should be
protected against perverse mortgagors who plainly refuse to deliver the thing
upon demand. The matter reached the court only because of the refusal of the
mortgagor to comply with his obligation to return the thing mortgaged on default
and foreclosure of mortgage, thus the mortgagor should pay for the expenses
incurred by the mortgagee.
DOCTRINE: What is prohibited under 1484 (3) is choosing both to foreclose the
mortgage AND recover unpaid balance of price, because the seller can only
choose one remedy. This is to avoid unjust enrichment. However, seller may
recover expenses, costs, and attorney’s fees incurred in enforcing his rights in the
manner delineated by law (in short bringing the matter before the court), since
this is different from the unpaid balance.
FACTS:
26. Ridad Spouses bought a Ford Consul sedan for P 13 371.40 from Supreme
Sales & Development Corporation (Filipinas Investment’s assignor-in-
interest).
27. P 1160 was paid on delivery and the balance of P 12 211.50 was to be paid
in 24 equal monthly installments, with interest of 12% per annum, secured
by a promisory note and a chattel mortgage on the car.
28. Spouses failed to pay 5 consecutive installments on the remaining balance of
P 5 274.53.
29. So, Filipinas Investment filed a replevin suit for the seizure of the car or
recovery of unpaid balance. While the case was pending, Filipinas Investment
instituted extrajudicial foreclosure proceedings. The car was sold at a public
auction and Filipinas Investment was he highest bidder.
30. Ridad Spouses allegedly did not receive any summons and did not appear at
the hearing, so they were declared in default.
31. Ridad Spouses filed motion to set aside order of default, which the court
denied. So they appealed to the CFI.
32. CFI ruled that Filipinas Investment was entitled to recover the amount of
P163.65 which represents the expenses incurred by the plaintiff in the seizure
of the car involved in this case, plus attorney’s fees of P 300 (original amount
was 500, but CFI reduced it).
33. Ridad Spouses appeal to the Supreme Court.
ISSUES: WON CFI was correct in condemning Ridad Spouses to pay attorney’s fees
and expenses incurred in seizure of the car? YES.
RULING: ACCORDINGLY, the judgment a quo is affirmed. No costs.
RATIO:
15. Contention of Ridad Spouses: the action against them is for payment
of unpaid balance of purchase price with a prayer for replevin. So
when Filipinas Investment seized the car and extrajudicially
foreclosed the mortgage, it renounced any and all rights which it might
have had under the promissory note and the unpaid balance, and
attorney’s fees.
16. Contention of Filipinas Investment: they are entitled to attorney’s fees and
actual expenses and cost of suit because of unjustifiable failure and refusal of
Ridad Spouses to comply with their obligations (one of which is to surrender
the car upon Filipinas Investment’s demand).
a. They claim that what is prohibited under Art. 1484 (3) of the Civil
Code is recovery of unpaid balance of the purchase price by
means of an action other than a suit for replevin.
b. They also claim that Luneta Motor Co. v. Salvador is inapplicable
to the present case because the remedy sought in that case was
conjunctive and not alternative.
c. On the contrary in the present case, the court awarded
attorney’s fees, cost of suit and expenses incurred in relation to
the seizure of the motor vehicle by virtue of the writ of replevin
in the same action, because Filipinas Investment was compelled
to do that on account of Ridad Spouses’ unjustifiable failure and
refusal to fulfill their obligation to return the car.
d. IN ANY CASE, award of attorney’s fees and costs of suit with
expenses incurred were all stipulated in both the promissory note
and chattel mortgage contract. Even in the absence of stipulation
 regarding attorney’s fees, awarding of this is discretionary on the
part of the court anyway.
17. Art. 148428 governs this case at hand.
a. Ultimate and salutary purpose is to prevent the vendor from
circumventing the Recto Law. Congress sought to protect the buyers
on installment who more often than not have been victimized by
sellers who, before the enactment of this law, succeeded in unjustly
enriching themselves at the expense of the buyers. Before Recto
Law and New Civil Code, aside from recovering the goods sold,
upon default of the buyer in the payment of two installments sellers
still retained for themselves all amounts already paid, and in
addition, were adjudged entitled to damages, such as attorney's fees,
expenses of litigation and costs.
18. The Court agrees with this legislative intent, however does not agree that the
mortgagee is not entitled to protection against perverse mortgagors who
plainly refuse to deliver the thing mortgaged upon foreclosure.
19. Since the mortgagee would enforce his rights through the means and within
the limits delineated by law (so in short he’d file a case in court), then it
logically follows that the necessary expenses incurred in the prosecution by
the mortgagee of the action for replevin so that he can regain possession of
the chattel, should be borne by the mortgagor.
20. The matter reached the court only because of the refusal of the
mortgagor to comply with his obligation to return the thing mortgaged
on default and foreclosure of mortgage, thus the mortgagor should pay
for the expenses incurred by the mortgagee.
21. Recoverable expenses would, in our view, include expenses properly
incurred in effecting seizure of the chattel and reasonable attorney's fees in
prosecuting the action for replevin.

28
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.
 12 PCI Leasing v. Giraffe-X Creative (ARIELLE)
July 12, 2007 | Garcia, J. | Purported lease with option to buy
PETITIONER: PCI Leasing and Finance, Inc.
RESPONDENTS: Giraffe-X Creative Imaging, Inc.
FACTS:
SUMMARY: PCI Leasing and Giraffe entered into a Lease Agreement where
PCI leased to Giraffe a set of office equipment, payable in installments for 36
months. A year into the agreement, Giraffe defaulted in its monthly rental.
Because of this, PCI a pay-or-surrender demand letter to Giraffe. The demand
went unheeded. PCI then instituted a case against Giraffe and prayed for the
issuance of a writ of replevin for the recovery of the leased equipment. The trial
court then issued the writ and allowed PCI to secure the seizure and delivery of
the equipment. Giraffe then filed a Motion to Dismiss, claiming that the seizure
of the two leased equipment stripped PCI of a cause of action because according
to Art. 1484, PCI is barred from further pursuing any claim arising from the lease
agreement. Giraffe also claimed that the agreement between them is in reality a
lease of movables with option to buy, under Arts. 1484 and 1485. PCI on the other
hand maintains that the contract is a straight lease without an option to buy,
claiming that the relationship between the parties is one between an ordinary
lessor and lessee. Trial court granted Giraffe’s motion to dismiss (see Fact #14
for grounds). Hence, this petition. The issue in this case is WoN the lease
agreement is a straight lease or a lease with option to buy.
The SC held that the contract is a lease with option to buy. The demand letter sent
to Giraffe stated PCI’s claim for the full payment of the P8.2 unpaid balance OR
the surrender of the financed asset under pain of legal action. Evidently, the letter
did not make a demand for the payment AND return of the equipment; only either
of the two was required. The demand could only be that the respondent need not
return the equipment if it paid P8.2 outstanding balance, suggesting that Giraffe
can keep possession of the equipment if it exercises its option to acquire the same
by paying the unpaid balance. the transaction in this case is a lease in name only.
The so-called monthly rentals are in truth monthly amortizations of the price of
the leased office equipment. On the whole, the Court rules that the PCI LEASING
– GIRAFFE lease agreement is in reality a lease with an option to purchase the
equipment. This has been made manifest by the actions of PCI itself, foremost of
which is the declarations made in its demand letter to Giraffe. There could be no
other explanation than that if Giraffe paid the balance, then it could keep the
equipment; if not, then it should return them. This is clearly an option to purchase
given to Giraffe. Being so, Art. 1485 should apply.
DOCTRINE: Where a lease agreement over equipment is without an express
option to purchase, but nevertheless when a final demand is given prior to suit,
the demand letter indicates clearly it was within the option of the lessee to fully
pay the balance of the unpaid rentals and would be able to keep the equipment,
then the real contract between the parties was a sale of movable on installment
disguised as a lease agreement.
1. Petitioner PCI Leasing and respondent Giraffe entered into a Lease
Agreement, whereby PCI leased out to Giraffe one set of Silicon High Impact
Graphics and accessories worth P3.9 million and one ujit of Oxberry
Cinescan worth P6.5 million.
2. In connection with the agreement, the parties signed two separate documents,
denominated as Lease Schedule. Parts of the lease agreement were two
separate documents denominated Disclosure Statements of Loan/Credit
Transaction (Single Payment or Installment Plan) that Giraffe executed for
each of the leased equipment.
3. The disclosure statements described Giraffe, vis-à-vis the two
aforementioned equipment, as the borrower who acknowledged the net
proceeds of the loan, the net amount to be financed, the financial charges,
the total installment payments that it must pay monthly for 36 months,
exclusive of 36% per annum late payment charges.
4. Thus, for the Silicon High Impact Graphics, Giraffe agreed to pay P116,878
monthly, and for Oxberry Cinescan, P181,362 monthly.
5. According to the Lease Agreement, Giraffe undertook to remit the
P3,120,000 by way of guaranty deposit, a sort of performance and
compliance bond for the two equipment.
6. The same agreement also embodied a standard acceleration clause, operative
in the event Giraffe fails to pay any rental or other accounts due.
7. A year into the agreement, Giraffe defaulted in its monthly rental. Following
a three-month default, PCI addressed a formal pay-or-surrender-equipment
type of demand letter to Giraffe. The demand went unheeded.
8. PCI then instituted the instant case against Giraffe and prayed for the issuance
of a writ of replevin for the recovery of the leased property.
9. Upon PCI Leasing’s posting of a replevin bond, the trial court issued a writ
of replevin, allowing PCI to secure the seizure and delivery of the equipment
covered by the basic lease agreement.
10. Instead of an answer, Giraffe filed a Motion to Dismiss, arguing that the
seizure of the two leased equipment stripped PCI of a cause of action. Giraffe
argues that according to Art. 1484 of the Civil Code on installment sales of
personal properties, PCI is barred from further pursuing any claim arising
from the lease agreement and the companion contract documents, adding that
the agreement between the parties is in reality a lease of movables with option
to buy.
11. According to Giraffe, the given situation squarely brings into applicable play
 Arts. 14841 and 14852 of the Civil Code, commonly referred to as the Recto made to appear as a financial leasing3, a term defined in Sec. 3(d) of RA
Law. 8556.
12. It is Giraffe’s position that Art. 1484 applies to its contractual relation with 45. The Court takes into account the following mix:
PCI because the lease agreement in question is really a lease with option to a. The imperatives of equity
buy under Art. 1485. Consequently, so Giraffe argues, upon the seizure of the b. Contractual stipulations in question
leased equipment pursuant to the writ of replevin, which is equivalent to c. Actuations of the parties vis-à-vis their contract
foreclosure, PCI has no further recourse against it. 46. In BA Finance Corporation vs. CA which involved a motor vehicle, the Court
13. In its Opposition to the motion to dismiss, PCI maintains that its contract with has treated the purported financial lease as actually a sale of movable property
PCI is a straight lease without an option to buy. PCI then rejects the on installments and prevented recovery beyond the buyers’ arrearages.
applicability of Art. 1484 in relation to Art. 1485, claiming that the 47. In BA Finance, the Court said that the transaction is one of a “financial lease”
relationship between the parties is one between an ordinary lessor and an or “financial leasing,” where a financing company would, in effect, initially
ordinary lessee. purchase a mobile equipment and turn around to lease it to a client who gets,
14. The trial court granted Giraffe’s motion to dismiss, on the ground that: in addition, an option to purchase the property at the expiry of the lease
a. The lease agreement package, as memorialized in the contract documents, is akin period.
to the contract contemplated in Art. 1485 48. In the instant case, PCI acquired the office equipment in question for
b. Giraffe’s loss of possession of the leased equipment consequent to the their subsequent lease to Giraffe, with the latter undertaking to pay a
enforcement of the writ of replevin is akin to foreclosure, the condition precedent monthly fixed rental for 36 months.
for application of Arts. 1484 and 1485. 49. As a measure of good faith, Giraffe made an up-front guarantee deposit for
15. PCI contends that the financial leasing arrangement it concluded with Giraffe P3,120,000 or a total of P10,531,116 for the whole 36 months.
represents a straight lease covered by RA 5980 or the Financing Company 50. The basic agreement provides that in the event Giraffe fails to pay, PCI
Act, and is outside the application and coverage of the Recto Law. To PCI, shall have cumulative remedies, but not limited to the following:
Ra 5980 defines and authorizes its existence and business. a. Obtain possession of the equipment
b. Retain all amounts paid to it
ISSUE/s: c. Recover all accrued and unpaid rentals
3. WoN the lease agreement between PCI and Giraffe is a straight lease or a d. Recover all rentals for the remaining term of the lease had it not been
lease with option to buy – It is a lease with option to buy. cancelled, as additional penalty
e. Recovery of any and all amounts advanced by PCI for Giraffe’s account
f. Recover all expenses incurred in repossessing, removing, repairing, and
RULING: The instant petition is DENIED and the trial court’s decision is storing the property
AFFIRMED. g. Recover all damages suffered by PCI by reason of the default.
51. In addition, Sec. 61 of the Lease Agreement states that the guaranty deposit
RATIO: shall be forfeited in the event that Giraffe returns the equipment before the
43. PCI’s recourse is without merit. To PCI, the absence of an option-to-buy expiration of the lease.
stipulation in a financial leasing agreement prevents the application of 52. The demand letter sent to Giraffe stated PCI’s claim for the full payment
Arts. 1484 and 1485. This is not correct. of the P8.2 unpaid balance OR the surrender of the financed asset under
44. The Court can allow that the underlying lease agreement has the earmarks or
3
1 A mode of extending credit through a non-cancelable lease contract under which the lessor purchases or
In a contract of sale of personal property the price of which is payable in installments, the vendor may
acquires, at the instance of the lessee, machinery, equipment, office machines, and other movable or
exercise any of the following remedies:
immovable property in consideration of the periodic payment by the lessee of a fixed amount of money
1) Exact fulfillment of the obligation, should the vendee fail to pay;
sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any
2) Cancel the sale, should the vendee’s failure to pay cover two or more installments;
incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during
3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
which the lessee has the right to hold and use the leased property but with no obligation or option on his
vendee’s failure to pay cover two or more installments. In this case, he shall have no further
part to purchase the leased property from the owner-lessor at the end of the lease contract.
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
2
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.
 pain of legal action. Evidently, the letter did not make a demand for the
payment AND return of the equipment; only either of the two was
required.
53. The demand could only be that the respondent need not return the equipment
if it paid P8.2 outstanding balance, suggesting that Giraffe can keep
possession of the equipment if it exercises its option to acquire the same
by paying the unpaid balance.
54. If Giraffe was not minded to exercise its option of acquiring the equipment
by returning them, then it need not pay the outstanding balance. This is the
logical import of the letter: that the transaction in this case is a lease in
name only. The so-called monthly rentals are in truth monthly
amortizations of the price of the leased office equipment.
55. On the whole, the Court rules that the PCI LEASING – GIRAFFE lease
agreement is in reality a lease with an option to purchase the equipment.
This has been made manifest by the actions of PCI itself, foremost of
which is the declarations made in its demand letter to Giraffe.
56. There could be no other explanation than that if Giraffe paid the balance, then
it could keep the equipment; if not, then it should return them. This is clearly
an option to purchase given to Giraffe. Being so, Art. 1485 should apply.
57. The present case reflects a situation where the financing company can
withhold and conceal its intention to sell the property subject of the finance
lease, in order that the provisions of the Recto Law may be circumvented.
58. It may be, as PCI pointed out, that the basic lease agreement does not
contain a purchase option contract.
59. The absence, however, does not necessarily argue against the idea that
what the parties are into is not a straight lease, but a lease with option to
purchase.
60. The Court has, to be sure, been long aware of the practice of vendors of
personal property of denominating a contract of sale on installment as one of
lease to prevent the ownership of the object of the sale from passing to the
vendee until and unless the price is fully paid.
61. In choosing, through replevin, to deprive Giraffe of possession of the
equipment, PCI waived its right to bring an action to recover unpaid
rentals on the leased items. Par 3 of Art. 1484 in relation to Art. 1485
cannot be any clearer.
62. The remedies provided for in Art. 1484 are alternative, not cumulative.
The exercise of one bars the exercise of the others. This limitation applies to
contracts purporting to be leases of personal property with option to buy by
virtue of the same Art. 1485.
63. The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in
this case by the filing by PCI of the complaint for a sum of money with prayer
for replevin to recover possession of the equipment.
64. By virtue of the writ of seizure, PCI has deprived Giraffe of their use, and in
turn, precludes PCI from maintaining an action for recovery of accrued
rentals or the recovery of the balance of the purchase price plus interest.
Additional Notes:
1. Giraffe had paid the equivalent of about a year’s lease rentals, or a total of
P3.5 million, more or less. Throw in the guaranty deposit and Giraffe had
made a total cash outlay of P6.6 million in favor of PCI.
2. The replevin-seized leased equipment had an estimated residual value of P6.9
million at the time the civil case was instituted. Adding all cash advances, the
total value which PCI had obtained by virtue of its lease agreement with
Giraffe amounts to P13.5 million.
3. The acquisition cost for both the Silicon High Impact Graphics and the
Oxberry Cinescan was P8,1 million. Subtracting the acquisition cost of P8.1
million from the total amount P13.5 million creditable to Giraffe, it would
appear that PCI realized a gross income of P5.4 million from its lease
transaction with Giraffe. The P5.4 million is not yet a final figure as it does
not include rentals in arrears, penalties, and interest earned by the guaranty
deposit.
4. A financing arrangement has a purpose which is at once practical and
salutary. RA 8556 was precisely enacted to regulate financing companies
operations with the end in view of strengthening their critical role in
providing credit and services to small and medium enterprises and to curtail
acts and practices prejudicial to the public interest.
5. As a regulated activity, financing arrangements are not meant to quench only
the thirst for profit.
6. RA 5980 partakes of a supervisory or regulatory legislation, merely providing
a regulatory framework for the organization, registration, and regulation of
the operations of financing companies.
7. It does not specifically define the rights and obligations of parties to a
financial leasing arrangement.
8. PCI foists the argument that the Recto Law (the Civil Code provisions on
installment sales of movable property) does not apply to a financial leasing
agreement because such agreement, by definition, does not confer on the
lessee the option to buy the property subject of the financial lease.
 13 Hermanosa and Legarda v. Saldaña (Leonardo)
Jan. 28, 1974 | J. Teehankee | Remedy for anticipatory breach for immovables
PETITIONER: Legarda Hermanos, Jose Legarda
RESPONDENTS: Felipe Saldaña, CA 5th Division
SUMMARY: Saldaña contracted with Hermanos and later on with Legarda for
the purchase of 2 lots in Hermanos’ subdivision. Saldaña paid for 95 (out of the
120) installments in the span of 8 (out of the 10) years. However afterwards, he
failed to pay the rest of the balance till the due date. Saldaña subsequently informs
the Hermanos and Legarda that he has plans to build a house and contrinue to pray
for the remaining balance. The two contend that his failure caused for the contract
to be cancelled according the stipulation of the contract. The trial court sided with
Hermanos and Legarda but the CA reversed this to say that Saldaña should be
given 1 of the 2 lots at his choosing since the amount he has paid for is already
more than the amount of one lot. The SC upheld the CA’s decision and argued in
the basis of justice and equity for such decision.
DOCTRINE: Under Art. 1234 of the Civil Code, “If the obligation has been
substantially performed in good faith, the obligor may recover as though there had
been a strict and complete fulfillment, less damages suffered by the oblige.”
FACTS:
165. Saldaña entered into 2 written contracts with Legarda Hermanos, a
subdivision owner. Hermanos agreed to sell Lots Nos. 7 and 8 of Block 5N
of the subdivision with an area of 150 sqm. each. The sum of P1,500,000 per
lot was to be paid over the span of 10 years divided into 120 equal monthly
installments of P19.83 with 10% interest per annum to commence on May
26, 1948 (date of execution of contracts). Subsequently, Hermanos
partitioned the subdivision among the brothers and sisters, and 2 lots were
among the allotted to Jose Legarda.
166. Saldaña faithfully paid for 8 continuous years about 95 (out of the 120)
monthly installments totaling P3,582.06 up to the month of Feb. 1956. This
was evidenced by his own statement of account, without distinguishing
which of the 2 lots the payment was for, but saying that he had paid more
than the stipulated purchase price of P1,500 for 1 lot.. He failed to make
any further payments since then till the filing of the suit in the CFI of Manila.
167. Saldaña wrote a letter to Hermanos and Legarda, stating his intent to build a
house on the lots but was prevented from doing so since there was no road to
these lots yet and that he was going to continue to pay his due balance on the
29
Art. 1191: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
lots.
168. Hermanos and Legarda replied that since he failed to complete the total 120
installments by May 1958 as stipulated in the contract to sell, “pursuant to
the provisions, all the amounts paid in accordance to the agreement together
with the improvements have been considered rents paid and payment for
damages for such failure to pay for the lots. Cancellation is in order.”
169. Trial court sustained the cancellation of the contracts, but the CA reversed it
and ordered Hermanos and Legarda to deliver to Saldaña the possession of 1
of the 2 lots at his choice and to execute the corresponding deed of
conveyance. Hermanos and legarda now bring this petition for review before
the SC.
ISSUE/s:
54. WoN Hermanos and Legarda may cancel the sale due to Saldaña’s failure to
pay the whole amount in the stipulated period even though he has paid for
more than 1 lot. – NO, this is contrary to the broad principles of equity and
justice.
RULING: SC affirms the CA decision in that 1 out of the 2 lots should be given to
Saldaña (land of his choice).
RATIO:
144. The money paid by Saldaña was more than the value of 1 lot of P1,500 and
hence 1 of the 2 as chosen by Saldaña should be considered as fully paid. It
is only fair and just to do in accordance with law an equity. And as stated, the
monthly payments for 8 years made were applied to Saldaña’s account
without specifying between the 2 lots which this account applies to.
145. Hermanos and Legarda have not been denied substantial justice for under Art.
1234 of the Civil Code, “If the obligation has been substantially performed
in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the oblige” and “ that in the
interest of justice and equity, the decision appealed from may be upheld upon
the authority of Art. 1234.”
146. [Not expressly stated in the case but just trying to connect it to the syllabus
under Art. 1591, read with caution LOL] Art. 1591 provides:
“Should the vendor have reasonable grounds to fear the
loss of immovable property sold and its price, he may
immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article
119129 shall be observed.”
In this case, there was no demand from Hermanos and Legarda for the
remaining balance of the amount due and no prior cancellation of the contract
before Saldaña’s letter was given to them regarding his intentions. Seems
more of the exception for the rule under the provision than an interpretation
of Art. 1591 in its applicability, and using the broad principles of justice and
equity.
 14 JESTRA DEV. AND MANAGEMENT CORP. V. PACIFICO
(Megan)
June 30, 2007 | Carpio-Morales, J. | How to determine years of installment
PETITIONER: Jestra Development and Management Corporation
RESPONDENT: Daniel Ponce Pacifico, represented by his attorney-in-fact Jordan
M. Pizarras
SUMMARY: Pacifico signed a Reservation Application for the purchase of a house
and lot in Parañaque. He paid 20,000 for the reservation fee. The total purchase price
is 2.5M. The payment scheme provides that 30% would be paid for the down
payment and such would be paid in 6 monthly installments interest free. Upon full
payment of the down payment, a Contract to Sell would be signed between Pacifico
and Jestra, the owner and developer. The 70% balance would be payable in 10 years
but it did not state when the payment of the balance would commence. Pacifico was
unable to comply with the schedule so he requested Jestra that he pay the down
payments in an amount that he can afford. Jestra acceded provided that penalties and
surcharges would be paid. Despite not having paid the full payment of the down
payment, a Contract to Sell was executed. In such contract it provided that Pacifico
should have had completely paid the down payment and that the 70% balance
payment should have commenced. A few months after, Pacifico requested for a
restructuring of the agreement. Jestra then through counsel, sent Pacifico a final
demand for the payment of the 11 installments due on the 70% balance. Further,
Jestra demanded payment of the as penalty for the belated settlement of the down
payment. Jestra reminded Pacifico that he had the by virtue of Sec. 5 of the contract
it has the right to automatically cancel or rescind the same if the fails to comply with
the terms. Another restructuring was made as per request of Pacifico. However,
Pacifico informed Jestra that due to sudden financial difficulties, he was suspending
the payment of his obligation and that he requested that the postdated checks he
issued be returned to him. Jestra denied Pacifico’s request to suspend payment and
for the return of the postdated checks but allowed him to sell the property but only
until April 15, 1998. If he fails to sell the property within the given date, Jestra would
re-open it for sale. However, Pacifico filed a complaint before the HLURB claiming
that despite his full payment of the down payment, Jestra failed to deliver to him the
property and Jestra instead sold the property to another. The Housing and Land Use
Arbiter ruled in favor of Pacifico since Jestra failed to comply with Sec. 3 of RA
6552 requiring that the seller should give the buyer what he paid for. The Arbiter
ordered Jestra to pay and reimburse to the complainant the total payments.The Board
of Commissioners affirmed the decision, as well as the Office of the President and
the CA. However, the SC reversed the decision that since Pacifico was not able to
pay at least 2 years worth of installments, he is not protected under such law. As
respondent failed to pay at least two years of installments, he is not entitled to a
refund of the cash surrender value of his payments.
(guys I suggest you read the long version ng digest cause ang hirap nung case may
compute compute pa huhu)
DOCTRINE: R.A. No. 6552 was enacted to protect buyers of real estate on
installment against onerous and oppressive conditions. While the seller has under the
Act the option to cancel the contract due to non-payment of installments, he must
afford the buyer a grace period to pay them and, if at least two years installments
have already been paid, to refund the cash surrender value of the payments.
FACTS:
67. Daniel Ponce Pacifico signed a Reservation Application with Fil-Estate
Marketing Association for the purchase of a house and lot in Brgy. La Huerta,
Municipality of Parañaque.
68. He paid the reservation fee of Php 20,000.
69. Total purchase price would be Php 2.5M and the downpayment is 30% or
Php 750K interest free to be paid in 6 monthly installments every 5th of the
month starting July 1996 until Dec 1996. (note that yung downpayment lang
yung 6 installments)
70. The 20,000 reservation fee formed part of the down payment therefore the
payment was set to be Php 121,666.66 every month for the down payment.
71. Under the Reservation Application, upon the full payment of the down
payment, a Contract to Sell was to be signed with the owner and developer,
Joprest Development and Management Corp. (now Jestra instead of Joprest)
72. The 70% balance was to be payable in 10 years with an interest of 21% per
annum. However, the Reservation Application was silent on when the
payment of the balance would commence.
73. Since Pacifico was unable to comply with the scheduled payments, Pacifico
requested Jestra to allow him to pay the down payments in an amount that he
could afford.
74. Jestra acceded provided that penalties and surcharges would be paid.
75. Despite not having paid the full payment of the down payment, (may
balance ba ng Php 260K) Pacifico and Jestra executed a Contract to Sell on
March 6, 1997.
76. The contract was silent on the unsettled balance of the down payment.
77. However under the Contract to Sell, it provides that Pacifico should have has
fully paid the down payment on November 5, 1996, and that the installments
for the 70% balance should have commenced on Dec. 7, 1996.
78. A few months after, Pacifico requested Jestra that the balance be restructured
in ligh of the “present business condition” (case did not state what this is
about or what happened)
79. Pacifico had fully paid the 30% down payment on Nov. 27, 1997.
80. By Dec. 4, 1997, he paid a total of Php 846,600.
81. Jestra then through counsel, sent Pacifico a final demand for the payment of
the 11 installments due on the 70% balance of the purchase price, or a total
of Php 444,738.88 inclusive of 21% interest per annum.
82. Further, Jestra demanded payment of the Php 73,750 as penalty for the
belated settlement of the down payment.
83. Jestra reminded Pacifico that he had the by virtue of Sec. 5 of the contract it
has the right to automatically cancel or rescind the same if the fails to comply
with the terms.
84. Pacifico later requested Jetra to restructure his unsettled obligation. His
request was granted on condition that the interest due on Dec. 1996 to Nov.
1997, would be added to the 70% balance on the purchase price.
85. Pacifico issued 12 postdated Security bank checks to cover his monthly
amortizations.
86. However, Pacifico informed Jestra that due to sudden financial difficulties,
he was suspending the payment of his obligation and that he requested that
the postdated checks he issued be returned to him.
87. To help him with his financial condition, he wanted to dispose of the property
(etong property na di niya mabayaran) to recover his investment.
88. Jestra denied Pacifico’s request to suspend payment and for the return of the
postdated checks but allowed him to sell the property but only until April 15,
1998. If he fails to sell the property within the given date, Jestra would re-
open it for sale.
89. Jestra then subsequently sent Pacifico a notarial Notice of Cancellation
notifying him of exercising its right to cancel the Contract to Sell.
90. In a separate move, Jestra sent a letter demanding payment of the monthly
amortizations inclusive of the penalties. It gave him until June 1, 1998 and
that if he fails, the Contract to Sell would be automatically cancelled and re-
opened for sale.
91. However, Pacifico filed a complaint before the HLURB claiming that despite
his full payment of the down payment, Jestra failed to deliver to him the
property and Jestra instead sold the property to another. He prayed that the
2nd sale be declared a nullity and that Jestra be ordered to deliver the property
to him.
92. The Housing and Land Use Arbiter held Jestra liable for failure to comply
with Sec. 3 of RA 6552 requiring payment by the seller of the cash surrender
value of the buyer’s payments (basically the seller should pay/give the buyer
what the buyer paid for) and ordered it to pay and reimburse to the
complainant the total payments.
93. The Board of Commissioners affirmed the decision modifying only by
deleting the award for damages.
94. The Office of the President also affirms the decision and by petition for
review, the CA affirmed the orders of the OP.
95. Hence, this Petition.
96. The appellate court concluded that Pacifico had already paid at least two
years of installments, wherein it adopted the formula used by the HLURB
by dividing the amount of P846,600 by the monthly amortization of P34,983
to thus result to a quotient of 24.2 months.
97. However, Jestra contests the computation and claims that the amount of
76,600 represents as penalty and is separate from the 30% down payment.
Therefore, it should be excluded in determining the total number of
installments. It claims that the proper divisor is not P34,983 but P39,468
since the parties agreed to restructure the amortizations owing to respondent's
inability to comply with the schedule of payments
98. The two year-installment threshold is important because the law provides that
if at least two years installments have already been paid, the seller has
the obligation to refund the cash surrender value of the payments.
ISSUE/s:
8. WoN Pacifico was able to pay at least two years of installments – NO.
RULING: WHEREFORE, the petition is GRANTED. The assailed Decision and
Resolution dated January 31, 2005 and March 16, 2005 of the Court of Appeals are
hereby REVERSED and SET ASIDE. The complaint of respondent, Daniel Ponce
Pacifico, is DISMISSED.
RATIO:
21. This Court finds that neither of the parties' computations is in order.
22. While, under Section 3 of R.A. No. 6552, the down payment is included in
computing the total number of installment payments made, the proper divisor
is neither P34,983 nor P39,468, but P121,666.66, the monthly installment
on the down payment.
23. The P750,000 down payment was to be paid in six monthly installments. If
the down payment of P750,000 is to be deducted from the total payment of
P846,600, the remainder is only P96,600. Since Pacifico was able to pay the
down payment in full eleven (11) months after the last monthly installment
was due, and the sum of P76,600 representing penalty for delay of payment
is deducted from the remaining P96,600, only a balance of P20,000 remains.
TOTAL AMOUNT PAID: Php 846,600.
1. DOWN PAYMENT: 750,000
96,000
2. PENALTY: 76,000
= 20,000
Bale Pacifico only paid 20K for the 70% balance purchase price.
24. R.A. No. 6552 was enacted to protect buyers of real estate on installment
against onerous and oppressive conditions. While the seller has under the Act
the option to cancel the contract due to non-payment of installments, he must
afford the buyer a grace period to pay them and, if at least two years
 installments have already been paid, to refund the cash surrender value
of the payments.
25. As respondent failed to pay at least two years of installments, he is not
entitled to a refund of the cash surrender value of his payments. What
applies to the case instead is Section 4 of the same law:
SECTION 4. In case where less than two years of installments were paid,
the seller shall give the buyer a grace period of not less than sixty days
from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act.

26. While Pacifico issued checks to cover the same, the first two were dishonored
due to insufficiency of funds.
27. When he was notified of the dishonor of the checks, he took no action
thereon, hence, the 60 days grace period lapsed. Pacifico made no further
payments thereafter. Instead, he requested for suspension of payment and for
time to dispose of the property to recover his investment.
28. Pacifico admits that Jestra was justified in canceling the contract to sell via
the notarial Notice of Cancellation which he received on May 13, 1998. The
contract was deemed cancelled 22 30 days from May 13, 1998 or on June 12,
1998.
 15 MCLAUGHLIN V. CA (MAYUMI)
October 10, 1986 | Feria, Actg. C.J. | How Cancellation of Contract Can Be Effected
PETITIONER: Luisa McLaughlin
RESPONDENTS: The Court of Appeals and Ramon Flores
SUMMARY:
Luisa (seller) and Ramon (buyer) entered into a contract of conditional sale for a
property at the price of) P140,000. In their deed of conditional sale, Ramon was
to pay P26,550 upon the execution of the deed, and to pay the balance not later
than May 31, 1977. Luisa filed a complaint to rescind the contract citing that
Ramon failed to pay the balance due. However, the parties entered into a
compromise agreement wherein Ramon would settle his obligation. He would do
this by paying P50,000 upon signing the agreement, and pay the balance in two
equal installments. Further, Ramon was to pay P1,000 per month as rentals for the
use of the property from December 1979 until full payment. Furthermore, the
compromise agreement stated that if Ramon fails to pay, Luisa will be entitled to
a writ of execution rescinding the contract of conditional sale, and all money paid
by Ramon will be considered liquidated damages. One day, Luisa demanded
Ramon to pay the balance of both installments. 15 days later, Ramon sent a letter
back signifying his willingness and intention to pay. However, Luisa filed a
motion for writ of execution stating that Ramon still did not pay. The trial court
granted the writ. Ramon filed for a motion for reconsideration and also tendered a
Pacific Banking Corporation certified manager’s check payable to the order of
Luisa which would cover the entire obligation. The trial court denied the
reconsideration. Ramon elevated this to the CA who ruled in his favor. Thus, Luisa
elevated this case to the SC.
The SC ruled that according to the Maceda Law, Luisa could cancel the contract
after thirty days from receipt by Ramon of the notice of cancellation. Considering
Luisa’s motion for execution as a notice of cancellation, she could cancel the
contract of conditional sale after thirty days from receipt by Ramon of said motion.
However, Ramon’s tender of payment together with his motion for
reconsideration was well within the 30-day period granted by law. Moreover, that
a certified bank manager’s check payable was a valid tender of payment. However,
because Ramon did not tender the payment when Luisa refused to accept such, he
should have consigned it to the court. Because he did not, consign it, the payment
for rentals still continued. Thus, upon full payment of the amount his debt, and the
rentals in arrears, Ramon shall be entitled to a deed of absolute sale in his favor of
the real property in question.
DOCTRINE: At end of grace period, seller shall furnish buyer with a notarial
notice of cancellation or demand for rescission, effective 30 days from buyer’s
receipt thereof. A mere notice or letter, would not suffice. (Syllabus doctrine, but
not found verbatim in the case)
In case where less than two years of installments were paid, the seller shall give
the buyer a grace period of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due at the expiration of the
grace period, the seller may cancel the contract after thirty days from receipt
by the buyer of the notice of the cancellation or the demand for rescission of
the contract by a notarial act. (from the case)
FACTS:
[This case involves a lot of dates. Please check the end of the digest to see the
timeline of dates for clarification]
26. On Feb 28, 1977, Luisa McLaughlin (Luisa) and Ramon Flores (Ramon)
entered into a contract of conditional sale of real property for P140,000.
Luisa as the seller and Ramon as the buyer. According to the deed of
conditional sale, the payment shall be made:
a. P26,550 upon the execution of deed, and
b. P113,450 (balance) not later than may 31, 1977
27. The parties also agreed that the balance shall bear interest at 1% per month
starting from December 1, 1976 until full price is paid.
28. On June 19, 1979, Luisa filed a complaint with the CFI of Rizal for the
rescission of the deed of conditional sale because of Ramon’s failure to pay
the balance.
29. On December 27, 1979, the parties submitted a compromise agreement which
the court used as basis to render their decision in January 22, 1980. In the
compromise agreement:
a. Ramon acknowledged his indebtedness to Luisa under the deed of
conditional sale in the amount of P119,050.71
b. The said debt shall be payable as follows
i. P50,000 upon signing the agreement, and
ii. P69,059.71 (balance) in two equal installments on June 30,
1980 and December 31, 1980
c. Ramon will pay P1,000 monthly rental beginning December 5, 1979
until the debt is paid so that he may use the property (subject matter
of sale). [Paragraph 3]
d. That in the event Ramon fails to comply with his obligations herein
provided, the Luisa will be entitled to the issuance of a writ of
execution rescinding the Deed of Conditional Sale of Real Property.
In such eventuality, Ramon hereby waives his right to appeal to
(from) the Order of Rescission and the Writ of Execution which the
Court shall render in accordance with the stipulations herein
provided for. [Paragraph 6]
 e. That in the event of execution, all payments made by Ramon will be
forfeited in favor of Luisa as liquidated damages. [Paragraph 7]
30. Ramon paid Luisa P50,000 upon signing the agreement. He also paid an
“escalation cost” of P25,000.
31. On October 15, 1980, Luisa wrote to Ramon demanding him to pay the
balance on or before October 31, 1980. This demand included the amount of
both installments (fact #4(b)i)
32. 15 days later, Ramon sent a letter to Luisa signifying his willingness and
intention to the pay the full balance price, and at the same time demanded to
see the certificate of title of the property and the tax receipts.
33. Luisa filed a Motion for Writ of Execution on November 10, 1980 alleging
that Ramon failed to pay the installments due as well as the monthly rentals.
Thus, Luisa prayed that:
a. The deed of conditional sale to be rescinded with forfeiture of all
payments as liquidated damages,
b. The court order Ramon to pay the P1,000 back rentals since June
1980, and
c. Eviction of Ramon
34. The trial court granted the motion for writ of execution on November 14,
1980
35. Ramon filed a motion for reconsideration on November 17, 1980 tendering
at the same time a Pacific Banking Corporation certified manager’s check in
the amount of P76,059.71, payable to the order of Luisa and covering the
entire obligation including the installment due on December 31, 1980
36. The trial court denied the motion for reconsideration, and issued the writ of
execution on November 25, 1980.
37. Ramon filed a petition for certiorari and prohibition with the CA who set
aside the orders of the lower court. According to the CA
“It is significant to note that on November 17, 1980, or just seventeen
(17) days after October 31, 1980, the deadline set by McLaughlin, Flores
tendered the certified manager’s check. We hold that the Song Fo ruling
is applicable herein considering that in the latter case, there was a 20-day
delay in the payment of the obligation as compared to a 17-day delay in
the instant case.”
xxx
“as held in the recent case of New Pacific Timber & Supply Co., Inc. vs.
Hon. Alberto Seneris, L-41764, December 19, 1980, it is the accepted
practice in business to consider a cashier’s or manager’s check as cash
and that upon certification of a check, it is equivalent to its acceptance
and the funds are thereby transferred to the credit of the creditor”
xxx
“Considering that Flores had already paid P101,550.00 under the
contract to sell, excluding the monthly rentals paid, certainly it would be
the height of inequity to have this amount forfeited in favor McLaughlin.
Under the questioned orders, McLaughlin would get back the property
and still keep P101,550.00.”
38. Hence, Luisa filed elevated this case to the SC contending that the CA erred
in not observing the provisions of Article 1306 of the Civil Code, and in
abusing its judicial discretion by disregarding the penal clause stipulated in
the compromise agreement which was the basis of the decision of the lower
court.
ISSUES:
4. WoN the deed of conditional sale was cancelled –NO
RULING: WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
the following modifications:
(a)Petitioner is ordered to accept from private respondent the Metrobank
Cashier’s Check No. CC 004233 in her favor in the amount of P76,059.71
or another certified check of a reputable bank drawn in her favor in the same
amount;
(b)Private respondent is ordered to pay petitioner, within sixty (60) days
from the finality of this decision, the rentals in arrears of P1,000.00 a month
from January 1, 1981 until full payment thereof; and
(c)Petitioner is ordered to execute a deed of absolute sale in favor of private
respondent over the real property in question upon full payment of the
amounts as provided in paragraphs (a) and (b) above. No costs.
RATIO:
1. The SC agrees with the CA that it would be inequitable to cancel the contract
of conditional sale and to have the amount of P101,550.00 already paid by
him under said contract, excluding the monthly rentals paid, forfeited in favor
of petitioner, particularly after private respondent had tendered the amount of
P76,059.71 in full payment of his obligation.
a. NOTE: according to Ramon the amount of the manager’s check was
actually P148,126.97
2. In the analogous case of De Guzman vs. Court of Appeals, this Court
sustained the order of the respondent judge denying the petitioners’ motion
for execution on the ground that the private respondent had substantially
complied with the terms and conditions of the compromise agreement, and
directing the petitioners to immediately execute the necessary documents
transferring to the private respondent the title to the properties.
3. In the case at bar, there was also substantial compliance with the compromise
agreement.
4. Luisa is invoking the SC’s ruling in Luzon Brokerage Co v. Maritame
Building Co wherein the court talked about the Maceda law and how it
“recognizes and reaffirms the vendor’s right to cancel the contract to sell
upon breach and nonpayment of the stipulated installments but requires a
grace period after at least two years of regular installment payments x x x.”
5. On the other hand, Ramon also invokes the Maceda law (Ra. 6552)
specifically Section 4 which states:
In case where less than two years of installments were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of the cancellation or the demand
for rescission of the contract by a notarial act.
And section 7, which states “Any stipulation in any contract hereafter entered
into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and
void”
6. The record does not contain the complete text of the compromise agreement,
and the decision approving it. However, assuming that under the terms of said
agreement the 2nd installment was due and payable when Luisa demanded
payment of the balance on or before October 31, 1980, Luisa could cancel
the contract after thirty days from receipt by Ramon of the notice of
cancellation.
7. Considering Luisa’s motion for execution as a notice of cancellation, she
could cancel the contract of conditional sale after thirty days from
receipt by Ramon of said motion.
8. Ramon’s tender of payment together with his motion for reconsideration was
well within the 30-day period granted by law. (The motion for execution was
filed November 7, and the motion for reconsideration was in November 17).
9. The tender made by Ramon via a certified bank manager’s check payable was
a valid tender of payment. The certified check covered not only the balance
of the purchase price, but also the arrears in the rental payments from June to
December, 1980.
10. Section 49, Rule 130 of the Revised Rules of court, “an offer in writing to
pay a particular sum of money or to deliver a written instrument or specific
property is, if rejected, equivalent to the actual production and tender of the
money, instrument, or property”
11. However, although Ramon had made a valid tender of payment which
preserved his rights as a vendee in the contract of conditional sale of real
property, he did not follow it with a consignation or deposit of the sum due
with the court.
12. Pursuant to a resolution on September 1, 1986, both parties submitted their
respective manifestations which confirm that the Manager’s Check in
question was subsequently withdrawn and replaced by cash, but the cash was
not deposited with the court.
13. According to Article 1256 of the Civil Code of the Philippines, if the creditor
to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due, and that consignation alone shall produce the same
effect in the five cases enumerated therein
14. Article 1257 provides that in order that the consignation of the thing (or sum)
due may release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation; and Article 1258 provides that
consignation shall be made by depositing the thing (or sum) due at the
disposal of the judicial authority and that the interested parties shall also be
notified thereof.
15. Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of payment
may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation.
16. In the case at bar, although Ramon had preserved his rights as a vendee in the
contract of conditional sale of real property by a timely valid tender of
payment of the balance of his obligation which was not accepted by Luisa,
he remains liable for the payment of his obligation because of his failure to
deposit the amount due with the court.
17. Inasmuch as Luisa did not accept the payment, it was incumbent on Ramon
to deposit the same with the court in order to be released from responsibility.
Since he did not deposit said amount with the court, his obligation was not
paid and he is liable in addition for the payment of the monthly rental of
P1,000.00 from January 1, 1981 until said obligation is duly paid, in
accordance with paragraph 3 of the Compromise Agreement.
18. Upon full payment of the amount of P76,059.71 and the rentals in arrears,
Ramon shall be entitled to a deed of absolute sale in his favor of the real
property in question.
TIMELINE:
Feb 28, 1977: the parties entered into a contract of conditional sale
June 19, 1979: Luisa filed a complaint to rescind the contract for non-payment
December 27, 1979: Compromise agreement
October 15, 1980: Luisa demanded payment of the two installments on or before
 October 30, 1981
October 30, 1981: Ramon sent a letter to Luisa signifying his willingness and intention
to the pay the full balance price
November 7, 1980: Luisa filed a writ of execution to rescind the conditional contract
of sale
November 14, 1980: Trial court granted the writ of execution
November 17, 1980: Ramos filed a MR + tendered a certified manager’s check
November 25, 1980: Lower court issued the writ of execution (MR was dnied)
 16 GARCIA V CA (Armand)
July 24, 2012 | Perlas-Bernabe, J. | Cancellation of Contract; Maceda law
PETITIONER: SPOUSES FAUSTINO AND JOSEFINA GARCIA, SPOUSES
MELITON GALVEZ AND HELEN GALVEZ, and CONSTANCIA ARCAIRA
represented by their Attorney-in-Fact JULIANA O. MOTAS
RESPONDENTS: COURT OF APPEALS, EMERLITA DE LA CRUZ, and
DIOGENES G. BARTOLOME
SUMMARY: Spouses Garcia and Spouses Dela Cruz entered into a contract to
sell wherein the latter agreed to sell to the former, for P3,170,220, 5 parcels of
land in Cavite. At the time of the execution of the said contract, 3 of the lots were
registered in the name of Angel Abedila. Spouses Garcia agreed upon terms of
payment namely a downpayment of P500k, then subsequently another P500k, and
finally a final installment of P1.6M on Dec 31, 1993. Spouses Garcia failed to
make good on the last payment but offered to pay a year and a half later, but de
la Cruz refused to accept because she had sold the same parcels to Bartolome for
P7M. Spouses Garcia filed a complaint for specific performance in the RTC
alleging that they delayed payment due to alleged infirm and spurious contract
between the former owner and dela Cruz and that the signature of the former
owner was falsified. Dela Cruz denied such allegation in her reply and argued
that the provisio in the contract allowing for automatic rescission of the contract
upon failure to pay the purchase price in full plus forfeiture of half the amount of
amount paid was valid. RTC ruled in favor of Spouses Garcia. RTC also applied
the Maceda law and stated that dela Cruz was not allowed to unilaterally cancel
the contract to sell and found that the Spouses Garcia were justified in
withholding payment due to the alleged spurious sale. CA reversed RTC decision
and held that the obligation under the contract to sell did not arise due to the
failure of Spouses Garcia to pay in full the agreed purchase price on the stipulated
date. Moreover, judicial action for the rescission of a contract is not necessary
where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions. Issue is WoN Maceda Law is
applicable- NO, and WoN CA erred in failing to consider that dela Cruz acted in
bad faith in selling such parcels of land and rescinding their contract thereby
justifying Spouses Garcia’s suspension of payment – NO. See doctrine for why
Maceda Law is inapplicable. For second issue, the court held that contracts are
law between the parties, and they are bound by its stipulations. It is clear from the
above-quoted provisions that the parties intended their agreement to be a Contract
to Sell: Dela Cruz retains ownership of the subject lands and does not have the
obligation to execute a Deed of Absolute Sale until petitioners' payment of the
full purchase price. The validity of the stipulation in the contract providing for
automatic rescission upon non-payment cannot be doubted. It is in the
nature of an agreement granting a party the right to rescind a contract unilaterally
in case of breach without need of going to court.
DOCTRINE . Where buyers under a contract to sell offers to pay the last
installment a year and a half after the stipulated date, that was beyond the sixty-
day grace period under Section 4 of the Maceda Law. The buyers cannot use the
second sentence of Section 4 of the Maceda Law against the sellers’ alleged
failure to give an effective notice of cancellation or demand for rescission because
the sellers merely sent the notice to the address supplied by the buyers in the
Contract to Sell.
FACTS:
16. Spouses Garcia and Spouses Galvez and Emerlita dela Cruz entered into a
contract to sell wherein the latter agreed to sell to the former, for P3,170,220,
5 parcels of land in Cavite.
17. At the time of the execution of the said contract, 3 of the lots were registered
in the name of Angel Abelida from whom defendant acquires said properties
by virtue of a Deed of Absolute Sale dated March 31, 1989.
18. As agreed upon, Spouses Garcia shall make a down payment of P500,000
upon signing of the contract. The balance of P2,670,220 shall be paid in
installments.
a. P500,000 on Aug 30 1993
b. P1,670,220 on Dec 31 1993
19. On its due date on Dec 31, Spouses Garcia failed to pay the last installment.
Sometime in July 1995, Spouses offered to pay the unpaid amount which
had already been delayed by one and a half years which defendant refused to
accept.
20. On Sept 23, 1995, defendant sold the same parcels of land to intervenor
Diogenes G. Bartolome for P7,793,000.
21. In order to compel the defendant to accept payment in full satisfaction of the
purchase price, and thereafter execute the necessary document of transfer,
Spouses Garcia filed a complaint for specific performance in the RTC.
22. They alleged in their complaint that they discovered infirmity in the Deed of
Absolute Sale covering 3 lots, between their former owner Angel Abedila
and the defendant, the same being spurious because the signature of Angel
Abedila and his wife were falsified; and that at the time of the execution of
said deed, the spouses were in the U.S.; that due to their apprehension
regarding the authenticity of the document, they withheld payment of the last
installment which was due on Dec 31, 1993; that they tendered payment of
the unpaid balance sometime in July 1995 after Angel Abedila ratified the
sale made in favor of the defendant but the defendant refused to accept
payment for no justifiable reason.
23. In her answer, defendant denied the allegation the the deed was spurious and
argued that the spouses Garcia failed to pay in full on its due date despite
repeated demands; that the contract to sell contains a proviso that failure
plaintiffs to pay the purchase price in full shall cause the rescission of the
contract and forfeiture of ½ of the total amount paid to defendant; that a
notarized letter stating the intended rescission of the contract to sell and
 forfeiture was sent to the spouses at their last known address but it was
returned with a notation “insufficient address”.
24. Intervenor Diogenes Bartolome filed a complaint in intervention alleging that
the Contract to Sell between the Spouses and the defendants was rescinded
and became ineffective due to unwarranted failure of the Spouses to pay the
unpaid balance on the stipulated date; that he became interested in the subject
parcels due to their clean titles and that he purchased the same from defendant
by virtue of an Absolute deed of sale executed on Sept 23, 1995 for
P7,793,000.
25. RTC ruled that Dela Cruz’s rescission was not valid. Trial court applied RA
6552 (Maceda Law) and stated that dela Cruz was not allowed to unilaterally
cancel the contract to sell. It found that the spouses Garcia are justified in
withholding the payment of the balance due to the alleged spurious sale
between Angel Abedila and defendant Emerlita dela Cruz. Moreover,
intervenor Bartolome is not a purchaser in good faith because he was aware
of the spouses Garcia’s interest in the subject parcels of land. RTC ordered
Emerlita dela Cruz to accept the balance of the purchase price within 10 days
after judgement, plus P400,000 in moral damages and P100,000 as exemplary
damages, and P100,000 as atty’s fees.
26. CA reversed trial court’s decision. Dela Cruz’s obligation under the contract
to sell did not arise due to Spouses Garcia’s undue failure to pay in full the
agreed purchase price on the stipulated date. Moreover, judicial action for the
rescission of a contract is not necessary where the contract provides that it
may be revoked and cancelled for violation of any of its terms and
conditions. Hence, this petition.
ISSUES:
4. WoN CA failed to consider the RA 6552 (Maceda Law) - NO
5. WoN CA failed to consider that Dela Cruz could not pass title over the 3
parcels at the time she entered into a contract to sell as her purported
ownership was tainted with fraud, thereby justifying Spouses Garcia’s
suspension of payment - NO
6. WoN CA erred when it failed consider Dela Cruz’s rescission was done in
bad faith and malice on account of a second sale with Bartolome for a much
bigger amount- NO
7. WoN the CA erred when it failed to declare Bartolome as NOT an innocent
purchaser for value despite the presence of evidence of bad faith- NO
RULING: Petition DENIED. CA Decision affirmed in toto.
RATIO:
17. Petition has no merit. Both parties admit the following: (1) the contract
between petitioners and Dela Cruz was a contract to sell; (2) petitioners failed
to pay in full the agreed purchase price of the subject property on the
stipulated date; and (3) Dela Cruz did not want to accept petitioners'
offer of payment and did not want to execute a document of transfer in
petitioners' favor
18. Contracts are law between the parties, and they are bound by its stipulations.
It is clear from the above-quoted provisions that the parties intended their
agreement to be a Contract to Sell: Dela Cruz retains ownership of the subject
lands and does not have the obligation to execute a Deed of Absolute Sale
until petitioners' payment of the full purchase price.
19. 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. Strictly speaking, there can be no rescission or
resolution of an obligation that is still non-existent due to the non-
happening of the suspensive condition.
20. Dela Cruz is thus not obliged to execute a Deed of Absolute Sale in
petitioners' favor because of petitioners' failure to make full payment on the
stipulated date.|||
21. In Pangilinan v CA, the Court ruled that: Article 1592 of the New Civil Code,
requiring demand by suit or by notarial act in case the vendor of realty wants
to rescind does not apply to a contract to sell but only to contract of sale. In
contracts to sell, where ownership is retained by the seller and is not to pass
until the full payment, such payment, as we said, is a positive suspensive
condition, the failure of which is not a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey title from
acquiring binding force. To argue that there was only a casual breach is to
proceed from the assumption that the contract is one of absolute sale, where
non-payment is a resolutory condition, which is not the case. The applicable
provision of law in instant case is Article 1191 of the New Civil Code which
makes it available to the injured party alternative remedies such as rescission
or fulfillment of the contract with damages in either case if the obligor does
not comply with what is incumbent upon him.
22. The rationale for the foregoing is that in contracts providing for automatic
revocation, judicial intervention is necessary not for purposes of obtaining a
judicial declaration rescinding a contract already deemed rescinded by
virtue of an agreement providing for rescission even without judicial
intervention, but in order to determine whether or not the rescission was
proper.
23. The validity of the stipulation in the contract providing for automatic
rescission upon non-payment cannot be doubted. It is in the nature of an
agreement granting a party the right to rescind a contract unilaterally in
case of breach without need of going to court.
24. Petitioners justify the delay in payment by stating that they had notice that
Dela Cruz is not the owner of the subject land, and that they took pains to
rectify the alleged defect in Dela Cruz's title. Be that as it may, Angel
Abelida's (Abelida) affidavit confirming the sale to Dela Cruz only serves to
 strengthen Dela Cruz's claim that she is the absolute owner of the subject
lands at the time the Contract to Sell between herself and petitioners was
executed. Dela Cruz did not conceal from petitioners that the titles to said
parcels still remained under Abelida's name, and the Contract to Sell
even provided that spouses Garcia should shoulder the attendant
expenses for the transfer of ownership from Abelida to Dela Cruz.
25. RTC erred in applying the Maceda Law as it applies to contracts of sale of
real estate on installment payments, including condomium apartments but
excluding industrial lots, commercial buildings, and sales to tenants. The
subject lands do not comprise of residential real estate within the
contemplation of the Maceda Law. Also, where buyers under a contract to
sell offers to pay the last installment a year and a half after the stipulated date,
that was beyond the sixty-day grace period under Section 4 of the Maceda
Law. The buyers cannot use the second sentence of Section 4 of the Maceda
Law against the sellers’ alleged failure to give an effective notice of
cancellation or demand for rescission
26. It is undeniable that petitioners failed to pay the balance of the purchase price
on the stipulated date of the Contract to Sell. Thus, Dela Cruz is within her
rights to sell the subject lands to Bartolome. Neither Dela Cruz nor Bartolome
can be said to be in bad faith.|||

PERTINENT PORTIONS OF THE CONTRACT (for reference):

“It is hereby agreed and covenanted that possession shall be retained by the VENDOR
until a Deed of Absolute Sale shall be executed by her in favor of the Vendees.
Violation of this provision shall authorize/empower the VENDOR [to] demolish any
construction/improvement without need of judicial action or court order.
That upon and after the full payment of the balance, a Deed of Absolute Sale shall be
executed by the Vendor in favor of the Vendees.
That the duplicate original of the owner's copy of the Transfer
Certificate of Title of the above subject parcels of land shall remain in the
possession of the Vendor until the execution of the Deed of Absolute Sale”
 01 ADELFA v. CA (IYA)
January 25, 1995 | Regalado, J. | Contract of Sale v Contract to Sell
PETITIONER: Adelfa Properties, Inc.
RESPONDENTS: Court of Appeals, Rosario Jimenez-Castañeda and Salud
Jimenez
SUMMARY: Adelfa was to purchase a portion of a parcel of land from Rosario
and Salud Jimenez. They executed an Exclusive Option to Purchase. Because of
a civil case, seeking the annulment of the sale of property instituted by nephews
and heirs of the Jimenezes, Adelfa suspended the payment of the purchase price.
Upon dismissal of the civil case, Adelfa did not may any tender of payment or
consignation, it merely sent notice to Rosario and Salud that it wishes to exercise
their option to purchase.
Rosario and Salud already sold the parcel to a third party and wish to recover
from Adelfa the certificate title it previously gave them. The SC in deciding the
case had to identify the nature of the contract between the parties. It ruled that
Adelfa actually made an option to buy in favor of Rosario and Salud. Upon
acceptance of Rosario and Salud of such option, what was perfected was a
contract to sell and not a contract of sale. Because it is a contract to sell and no
full payment was made by Adelfa, ownership of the property was still with
Rosario and Salud. They could therefore validly sell the property to a third party.
DOCTRINE: In a contract of sale, title to the property passes to buyer upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the seller and is not to pass to buyer until full payment of purchase
price. Otherwise stated, in a contract of sale, seller 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 seller 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.
FACTS:
1. Jose and Dominador Jimenez were the registered co-owners of a parcel of
land consisting of 17,710 square meters.
2. On July 28, 1988, Jose and Dominador sold their share consisting of half of
the said parcel (eastern poriton) to Adelfa Properties pursuant to a “Kasulatan
sa Bilihan ng Lupa.
3. A Confirmatory Extrajudicial Partition Agreement was executed by the
Jimenezes where the eastern portion of the lot was adjudicated to Jose and
Dominador, while the western portion was allocated to Rosario and Salud.
4. Adelfa expressed interest in buying the western portion of the property from
Rosario and Salud. Accordingly an “Exclusive Option to Purchase” was
executed. The following are the terms:
a. Purchase price would be 2,856,150.00
b. Sum of 50,000 received is option money and shall be credited as
partial payment of the purchase price.
c. Default on the part of Adelfa will result to the cancellation of the
option and 50% of the option money will be forfeited. The
remaining 50% will be returned.
d. All expenses will be born by the vendors.
5. Considering that the owner’s copy of the certificate title issued to Salud had
been lost, a petition for the re-issuance of a new owner’s copy was filed. Atty.
Bernardo acted as counsel of Salud who received and kept in possession the
new certificate issued which it later gave to Adelfa.
6. Before payment was made, Adelfa received a copy of a complaint filed by
the nephews and nieces of Rosario and Salud against Jose and Dominador
and Adelfa for the annulment of the deed of sale of the eastern portion.
7. As a consequence, Adelfa informed Salud and Rosario that it would hold
payment of the full purchase price and suggested that the case first be settled.
8. Salud refused to heed the suggestion of Adelfa and attributed the suspension
of payment of the purchase price to “lack of word of honor”
9. Adelfa caused to be annotated on the title of the lot its option contract with
Rosario and Salud and its contract of sale with Jose and Dominador.
10. Rosario and Salud asked Atty. Bernardo to inform Adelfa that they were
cancelling the transaction.
11. RTC of Makati dismissed the complaint of the nephews on February 23,
1990.
12. Rosario and Salud executed a Deed of Conditional Sale in favor of a certain
Emylene Chua for the western potion for P3M+, P1.5M was paid to them on
the execution with the balance to be pain on the transfer of title.
13. Atty. Bernardo informed Rosario and Salud that in view of the dismissal of
the case, Adelfa was willing to pay the purchase price and he requested that
the corresponding deed of absolute sale be executed. This was ignored.
14. Rosaro and Salud wrote a letter to Adelfa with the check of P25,000
representing the 50% refund. They also requested the return of the duplicate
copy of the certificate of title.
15. Adelfa faield to surrender the certificate which led to the filing in the RTC
for the annulment of contract with damages, praying that het exclusive option
to purchase be declared null and void.
ISSUE/s:
1. WON the contract is rescinded – YES
2. WON the “Exclusive Option to Purchase” executed by Adelfa and Rosario
 and Salud is an option contract – NO. The Court’s treated it as a contract to
sell.
RULING: WHEREFORE, on the foregoing modificatory premises, and considering
that the same result has been reached by respondent Court of Appeals with respect to
the relief awarded to private respondents by the court a quo which we nd to be correct,
its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.
RATIO:
1. The Supreme Court treated the alleged option contract as a contract to sell.
CONTRACT OF SALE CONTRACT TO SELL
Title passes to the vendee upon the By agreement, the ownership is
delivery of the thing sold reserved in the vendor and is not
to pass until the full payment of
the price
Vendor has lost and cannot recover Title is retained by the vendor
ownership until and unless the until the full payment of the
contract is resolved or rescinded price, such payment being a
positive suspensive condition and
failure of which is not a breach
bun an event that prevents the
obligation of the vendor to convey
title from being effective
2. There are two features which convince the Court that the parties never
intended to transfer ownership to Adelfa except upon full payment of the
purchase price:
a. Exclusive option to purchase, although it provided for automatic
rescission of the contract and partial forfeiture of the amount already
paid in case of default, DOES NOT mention that Adelfa is obliged
to return possession or ownership of the property as a consequence
of the property as a consequence of non-payment.
i. With the absence of such stipulation, although there is a
provision on the remedies available to the parties in case of
breach, it may be legally be inferred that the parties never
intended to transfer ownership to the petitioner prior
to completion of payment of the purchase price.
ii. In effect, there was an implied agreement that ownership
shall not pass to the purchaser until he had fully paid the
price.
iii. Article 1478 of the Civil Code does not require that such a
stipulation be expressly made. Consequently, an implied
stipulation to that effect is considered valid and, therefore,
binding and enforceable between the parties.
iv. It should be noted that under the law and jurisprudence, a
contract which contains this kind of stipulation is
considered a contract to sell.
b. It has NOT been shown that there was delivery of the property,
actual or constructive, made to Adelfa. Neither did Adelfa take
actual, physical possession of the property at any given time.
3. The controverted document should legally be considered as a perfected
contact to sell.
4. The important task in contract interpretation is always the ascertainment of
the intention of the contracting parties and that task is discharged by looking
to the words they used to project that intention I their contract.
5. Moreover, judging from the subsequent acts of the parties, it is undeniable
that the intention of the parties was to enter into a contract to sell.
6. The title of the contract does not necessarily determine its true nature.
Additional discussion by the SC:
7. An option, as used in the law on sales, is a continuing offer or contract by
which the owner stipulates with another that the latter shall have the right to
buy the property at a fixed price within a certain time or under certain terms
and conditions.
a. An option is not of itself a purchase, but merely secures the privilege
to buy.
b. It is not a sale of property but a sale of the right to purchase.
OPTION CONTRACT CONTRACT OF SALE
Unaccepted offer Fixes definitely the relative rights and
obligations of both parties at the time
of its execution
States the terms and conditions on Offer and the acceptance are
which the owner is willing to sell his concurrent since the minds of the
land, if the holder elects to accept parties meet in the terms of the
them within the time limited agreement
If he does so elect, he must give notice
to the other party and the accepted
offer becomes a valid and biding
contract
If an acceptance is not made within
the time fixed, the owner is no longer
bound by his offer
8. The test in determining whether a contract is a "contract of sale or
purchase" or a mere "option" is whether or not the agreement could be
specifically enforced.
9. There is no doubt that the obligation of petitioner to pay the purchase price
is specific, definite and certain, and consequently binding and enforceable.
10. In interpreting the contract of this case, it can be shown that there is indeed
 a concurrence of Adelfa’s offer to buy the property and the acceptance of
such by Rosario and Salud.
11. It must be stressed that there already existed a perfected contract between
the parties at the time the alleged counter-offer was made.
12. Thus, any new offer by a party becomes binding only when it is accepted by
the other.
13. In the case of Rosario and Salud, they actually refused to concur in said
offer of Adelfa, by reason of which the original terms of the contract
continued to be enforceable.
a. At any rate, the same cannot be considered a counter-offer for the
simple reason that petitioner's sole purpose was to settle the civil
case in order that it could already comply with its obligation.
14. Rosario and Salud may no longer be compelled to sell and deliver the subject
property for two reasons
a. Petitioners failure to duly effect the consignation of the purchase
price after the disturbance had ceased
b. fact that the contract to sell had been validly rescinded.
15. The alleged option money of P50,000.00 was actually earnest money which
was intended to form part of the purchase price. The amount of P50,000.00
was not distinct from the cause or consideration for the sale of the property,
but was itself a part thereof.
a. It is a statutory rule that 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.
b. It constitutes an advance payment and must, therefore, be deducted
from the total price. Also, earnest money is given by the buyer to
the seller to bind the bargain.
16. Issue not related to topic: Whether there is a valid suspension of payment?
17. Adelfa already knew of the dismissal of the civil case by the nephews in
February. However, it was only in April did they write to Rosario and Salud
expressing their willingness to pay the balance of the purchase price.
18. It was merely a notice to pay. There was no proper tender of payment nor
consignation in this case as required by law.
19. The intention to pay without accompanying payment is not considered a valid
tender of payment.
20. A mere tender of payment is not sufficient to compel Rosario and Salud to
deliver the property and execute the deed of absolute sale.
21. It is consignation which is essential in order to extinguish petitioner’s
obligation to pay the balance of the purchase price.
22. Obligation to pay the balance arose and resumed after Adelfa received notice
of the dismissal of the case. It however failed to seasonably make the payment
and failed to do so up to present time, or even to deposit the money with the
trial court.
 02 Coronel v CA (Lij)
October 7, 1996 | Melo, J. | Contract to sell
PETITIONER: Romulo Coronel, etal
RESPONDENTS: Court of Appeals, Concepcion Alcaraz, and Ramona Alcaraz
SUMMARY:
The coronels executed a document entitled “Recipt of Down Payment” of 50,000
in favor of Ramona, binding themselves to transfer the ownership of the land in
their name from their deceased father, after which Alcaraz would pay the balance
of 1,190,000. Feb 6, property was transferred to the Coronels name. Feb 18,
Coronels sold to a third party and hence Ramona and her mother filed an action
for specific performance.
The heart of the controversy is the determination of what kind of contract was
constituted between the parties. The issue was whether it was a contract TO sell
or a contract of sale. Ramona and her mom argue that there was a perfected
contract of sale while the Coronels argue that it was simply a contract to sell. The
court explained the differences between a contract to sale and that of a contract
TO sell. A contract TO sell is a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery
therof to the prospective buyer, binds himself to sell the said property exclusively
to the prospective buyer upon fulfillment of the condition agreed upon. It is
different from a sale whereby the parties have already consented to the transfer of
the property in exchange of a price. In a contract TO sell, they only agree that
upon fulfillment of the condition that the seller will sell. A contract TO sell is also
not the same as a conditional contract of sale. The fulfillment of the condition in
a contract TO sell will not perfect the sale. If the property was previously
delivered, the ownership thereof will not automatically transfer. While the
fulfillment of the condition of a contract of sale will complete the sale and if the
property was previously delivered, the ownership would automatically transfer.
The importance in distinguishing is especially significant in cases involving a sale
to a third party. The fulfillment of the condition in a contract TO sell will not make
a buyer one in bad faith since there was still no sale. In a contract of sale, the
fulfillment would mean that there was completed salehence theparty who actually
or constructively knows such and still buys the party is a buyer in bad faith. In this
case, the court took the plain language of the receipt of down payment into
consideration and concluded that the nature of the contract was a contract of sale.
It was clear that the sellers made no reservation as to the ownership of the property.
They intended to transfer it but they couldn’t do so since the property was still in
their dead father’s name. They already agreed to sell and undertook to transfer the
title to their names and then immediately execute a deed of absolute sale
DOCTRINE: A contract TO sell can be defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the propspective buyer, binds himself to sell
the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon
FACTS:
170. The Coronels executed a document entitled “Recipt of Down Payment” in
favor of Ramona. There was a down payment of 50,000 and a remaining
balance of 1,190,000 pesos for a house and lot inherited from their father.
171. The conditions: payment of 50,000 as downpayment; the Coronels will
transfer in their name of the title of the property registered in their dead
fathers name upon receipt of the 50k; Upon transfer in their names, Coronels
would execute a deed of absolute sale in favor of Ramona and the latter will
pay the remainder of the balance.
172. On the same day, Jan 15, 1985, the mom of Ramona (concepcion) paid the
downpayment.
173. On Feb 18, 1985, the coronels would sell the same property to Catalina for
1,580,000. Because of this Coronels canceled and rescinded the contract with
Ramona by depositing the downpayment paid in the bank in trust for
Ramona.
174. Concepcion et al filed a complaint for specific performance against the
Coronels and cause the annotation of a notice of lis pendens at the back of
the property title. Catalina also caused an annotation of a notice of adverse
claim. Later on the coronels would execute a Deed of absolute sale in favor
of Catalina and would transfer the property in her name.
175. RTC would render a decision in favor of Ramona and her mom (plaintiffs).
MR of said decision was denied. CA fully agreed with the trial court.
176. The heart of the controversy is the precise determination of the legal
significance of the document entitled “Recipet of Down Payment”
177. The respondents (Ramona) argue that the document embodies a perfected
contract of sale which they seek to enforce by means of an action for specific
performance. The opposing party argue that the document only signified a
mere executory contract to sell, subject to certain suspensive conditions
ISSUE:
55. Was the “receipt of downpayment” a contract to sell or a contract of sale?
Contract of sale
RULING: The petition is denied, judgement appealed from is affirmed.(in favor of
Ramona and Mom)
RATIO:
147. A contract of Sale is perfect by mere consent. The essential elements are
Consent as to transfer ownership in exchange for the price; determinate
subject matter and a price certain in money or its equivalent
148. A contract TO sell may not be considered as a Contract of sale because the deed of absolute sale.
first element is lacking. The prospective seller does not yet agree or consent 157. It was clear that they didn’t just promise to sell under certain conditions. They
to transfer ownership of the property until the happening of an event. It is were completely willing to transfer full ownership of the subject house and
subject to a suspensive condition, the non-fulfillment of which prevents the lot to the buyerif the documents were then in order. It just so happened that
obligation to sell from arising and thus, ownership still remains with eh the title was still in the name of their father.
prospective seller. 158. The plain language of the Receipt of Down payment shows that the parties
149. A contract TO sell can be defined as a bilateral contract whereby the agreed to a conditional contract of sale, consummation of which is subject
prospective seller, while expressly reserving the ownership of the subject only to the successful transfer of the certificate of title from the father to the
property despite delivery thereof to the prospective buyer, binds himself to heirs.
sell the said property exclusively to the prospective buyer upon fulfillment of 159. The condition was fulfilled on Feb 6, 1985, hence the contract of sale hence
the condition agreed upon. became obligatory. Additionally court said that it is significant to note that in
150. A contract TO sell is not a conditional contract of sale. In a conditional the petitioners petition they admitted that it was a sale subject to a suspensive
contract of sale, the fulfillment of the suspensive condition will prefect the condition
sale. If the property was previously delivered, ownership automatically
transfers. In a contract TO sell, the fulfillment of the suspensive condition
will not automatically transfer the ownership.
151. It is important to distinguish between a contract to sell and a conditional
contract of sale especially in cases where the subject is sold to a third party
such as in this case. In a contract TO sell, there is no previous sale so that a
person buying such property despite the fulfillment of the suspensive
condition cannot be deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property.
152. In a conditional contract of sale, upon fulfillment of the suspensive condition,
the sale becomes absolute and this will affect the owner’s title. If there was
previous delivery, the ownership automatically transfers to the buyer. A
second buyer who had actual or constructive knowledge of such defect, or
was charged with the obligation to discover such cannot be registrant in good
faith.
153. What is the real nature of the contract? It is canon that words in a contract are
given their natural and ordinary meaning unless a technical meaning was
intended.
154. Taking the Receipt of Down payment, in its entirety, it becomes apparent that
the petitioners intended to transfer title to the buyer, but it could not be made
because it was still in the name of the father. They could not effect the transfer
although the buyer was willing and able to pay the price.
155. The agreement could not have been a contract to sell because the sellers
herein made no express reservation of ownership or title to the property.
Furthermore, the circumstances which prevented them from entering into an
absolute contract of sale pertained to the sellers themselves and not the full
payment of the purchase price.
156. The sellers in this case also did not merely promise to sell the property to
private respondent upon the fulfillment of a suspensive condition. On the
contrary, they already agreed to sell the subject property, they undertook to
have the title changed to their names and to immediately execute a written
 03 PNB v. CA (Perral)
Sept, 26, 1996 | Hermosisima Jr, J. | Contract to sell v cont of sale
PETITIONER: Philippine National Bank
RESPONDENTS: Court of Appeals, Lapaz Kaw Ngo
SUMMARY: Lapaz made a formal offer to purchase a parcel of land owned by PNB.
Due to this formal offer, PNB and Lapaz executed a letter of agreement (1st) in which
PNB gave several conditions for the completion of their agreement. Unfortunately,
the sale between PNB and Lapaz under the 1st letter of agreement was never
materialized because of Lapaz’ failure to pay the amount stipulated in their
agreement. However, due to Lapaz’ request to revive their agreement, PNB and
Lapaz executed a second letter of agreement, again, with terms and conditions,
wherein Lapaz was not agreeable to term no. 6. This prompted PNB to canel their
agreement and forfeit Lapaz’ deposit money. Lapaz filed an action before the court
for specific performance. RTC and CA ruled in favor of Lapaz, ;PNB filed a petition
before the SC and latter reversed the lower courts’ ruling, holding that, there was
never a contract of sale between PNB and Lapaz but rather there was only a contract
to sell, thus there was no transfer of title yet especially that the conditions set forth
were not complied with. Also, SC held that the 1st and 2nd letter of agreements are
different and the effects of which should not be tacked with each other. Lastly, SC
said that the deposit money was not an earnest money that can be construed as a proof
of a perfection of a sale.
DOCTRINE: A distinction must be made between a contract of sale in which title
passes to the buyer upon delivery of the thing sold and a contract to sell,where by
agreement the ownership is reserved in the seller and is not to pass until the full
payment of the purchase price is made. In the first case, non-payment of the price is
a negative resolutory condition; in the second case, full payment is a positive
suspensive condition. Being contraries, their effect in law cannot be identical. In the
first case, the vendor has lost and cannot recover the ownership of the land sold until
and unless the contract of sale is itself resolved and set aside. In the second case,
however, the title remains in the vendor if the vendee does not comply with the
condition precedent of making payment at the time specified in the contract
In contract to sell ownership is retained by the seller and is not to pass to the buyer
until full payment of the price or the fulfillment of some other conditions either of
which is a future and uncertain event the non-happening of which is not a breach,
casual or serious, but simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force.
Distinction bet contract to sell and contract of sale is important for in a contract of
sale, the title passes to the vendee upon the delivery of the thing sold, whereas in a
contract to sell, by agreement, ownership is reserved in the vendor and is not to pass
until the full payment of the price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded, whereas in
a contract to sell, title is retained by the vendor until the full payment of the price,
such payment being a positive suspensive condition, failure of which is not a breach
but an event that prevented the obligation of the vendor to convey title from
becoming effective.
Note: guys sorry mahaba talaga yung case and ma detail.
FACTS:
1. July, 14 1983: Private respondent Lapaz made a formal offer to purchase the
parcel of land consisting of 1,250 sqm. Located at the corner of Carlos
Palanca and Helios St Manila, owned and registered in the name of PNB
2. PNB advised Lapaz of its approval of the latter’s offer to purchase the subject
property subject to the terms and conditions stated in its official
communication with Lapaz (see last page for the conditions)
3. Lapaz signified her comformity to the above letter-agreement by affixing her
signature thereon.
4. On of the conditions in the agreement was to clear the subject property of its
then occupants; thus. Lapaz undertook the ejectment of the squatters at her
own expense. Subsequently, Lapaz, citing the then prevailing credit squeeze,
requested for adjustment of payment proposals.
5. Feb 28, 1984: PNB wrote Lapaz reminding her of her failure to remit the
amount of P978,860 as embodied in its letter dated Dec 6, 1983..and of her
refusal to send her letter of conformity to the letter agreement.Lapaz was
liewise advised to remit her cash payment of the full price amounting to
P5,378,902;otherwise, the subject property shall be sold to other interested
party and her deposit forfeited.Lapaz request for adjustment of payments was
also denied.
6. March 1, 1984: In a letter, Lapaz, due to a significant reduction in the land
area being purchased, requested for the reduction of the selling price from
P5,394,300 to P5,135,599 on cash basis or a total of P6,066,706 on
installment.
7. PNB favorably acted on Lapaz’s request. However, when PNB received no
further payment, PNB notified the Lapaz by telegram that it was giving her a
last chance to pay the balance or the required doenpayment of P563,341and
failure to do so will result to the cancellation of the sale and forfeiture of her
100K deposit.
8. The sale between Lapaz and PNB never materialized because of Lapaz’
failure to pay the agreed amount; sale was cancelled and deposit money
forfeited and later on PNB leased the property to a certain Morse Rivera.
9. Lapaz requested for a refund of her deposit in the total of P550K with the
further requested that since the Bank was willing to refund to her her deposit
provided that the P100,000.00 is forfeited in favor of the Bank, the amount
 of P100,000.00 be reduced to P30,000.00 because her deposit of P550,000.00
had, after, all, already accumulated to a sizable amount of interest and,
besides there was a delay in the approval of the contract or proposal.
10. Lapaz further intimated that her request for refund shall be subject to the
release of the fund within 1 week from receipt thereof; otherwise, she would
insist on purchasing the property subject to mutually agreed grace period.
11. Subsequently PNB released in favor of Lapaz P550K as refund of deposit
made on the offer to purchase the subject property.
12. Lapaz then wrote a letter to then Pres. Marcos, requesting for the lifting of
the directive suspending the sale of the subject property. This letter was
transmitted to the Pres. Of PNB. PNB then advised Lapaz of the approval of
her request for revival of the previously approved offer to purchase the
subject property subject to terms and conditions (see last page 2nd terms and
conditions)
13. In a letter, Lapaz informed PNB management that the terms and conditions
were acceptable to her ecept for condition no. 6. She requested for the
deletion of the said condition because she had already defrayed the expenses
for the ejectmenet of the previous occupants of the premises in compliance
with the condition in the original approved offer to purchase and that the
present occupants are not the squatters but rather the lessees of PNB.
14. This request for modification was not acceptable to PNB, thus, she was given
up to July 10, 1986 to submit, duly signed, the letter-conforme dated May 14,
1986 and to remit the initial amount of P827,119.83 to comply with the
approved terms and conditions; otherwise, the approved sale will be
cancelled and her deposit of P200,000.00 forfeited
15. Lapaz thru counsel informed PNB that she is willing to pay the amount stated
above as the balance of the 20% downpayment of the purchased price as soon
as the property was cleared of its present tenants. Unfortunately, the bank did
not grant her any extension to pay the said amount, cancelled on Jan 30,1987
the approved sale for being stale and unimplemented and forfeited her deposit
of 200K.
16. Lapaz tried to ask PNB for reconsideration but to no avail. This cancellation
prompted Lapaz to file an action for Specific Performance.RTC ruled in favor
of Lapaz and this was affirmed by CA, thus PNB filed a petition for review
before SC. (reasoning of RTC and CA are reflected in the RATIO)
ISSUE/s:
9. WoN there was a perfected contract between PNB and Lapaz Despite their
disagreement on the term and condition no. 6.
a. Won PNB’s acceptance of Lapaz’ offer to revive her purchase of
subject lot was subject to certain substantive condition
b. Won PNB’s acceptance of Lapaz’ was in fact a couner-offer whivh
she rejected by her insistence that PNB delete condition no. 6
c.Won PNB’s condition no.6 is material and should be agreed upon at
inception of contract.
d. Won the area of agreement in PNB’s counter offer/acceptance
extends to condtion no.6 together with all other conditions PNB
specified.
10. WoN Lapaz’ refusal to pay P827,199 downpayment is not a valid basis for
PNB’s cancellation of the approved sale.
RULING: SC GRANTED the petition for REVIEW. Decision of the CA and decision
of RTC is hereby reversed and set aside. Lapaz’ complaint for specific performance
and damages is DISMISSED
RATIO: In general, petition is meritorious.
29. THERE ARE 2 SEPARATE TRANSACTIONS IN THE INSTANT CASE,
THE FIRST HAVING BEEN UNCONDITIONALLY CANCELLED,
EFFECTS THEREOF CANNOT BE DEEMED APPLICABLE TO THE 2ND
TRANSACTION:
- Even private respondent admits in her pleadings that she failed to remit
the required downpayment under the 1st letter agreement, thus it was just
proper for PNB to cancel the agreement to protect its interest.
- Appellate court erred in holding that the conformity to the 2nd letter of
agreement would be superfluous being merely a revival of the first
agreement which was approved by the bank and the terms and conditions
thereof accepted by Lapaz. SC said that this holding is in complete
disregard of the status of the first letter agreement as being non- existent
and totally inefficaious as a result of its cancellation.
- It was wrong for the appellate court to perceived the 2 letter agreements
to be a single transaction such that it justified Lapaz’ non-compliance
with condition no. 6 in the 2nd letter agreement by invoking her earlier
compliance with the same comdition in the 1st letter agreement.
o When the first letter agreement was cancelled by petitioner, and
private respondent agreed to that cancellation upon receiving
P550K as refund of her aggregate deposit, all the effects of that
agreement were terminated. Upon mutual assent to that
cancellation, the agreement so cancelled thereafter no longer
exist.
o Thus, the compliance by private respondent with the terms and
conditions of that first agreement serve the purposes of that
agreement and cannot be made to serve the purposes of the 2nd
letter agreement. Appellate court erred in tacking the 2
agreements and commingled their effects; it incorrectly
considered petitioner’s successful ejectmenet of the subject
propert in 1983 occupants under the 1st letter agreement to be
sufficient compliance under the 2nd letter agreement.
 - PNB’s acceptance of Lapaz’ offer was a qualified acceptance which is a
counter offer. Refusing to bind herself to bear the expenses for a 2nd
ejectment suit involving the subject property, Lapaz’ in effect rejected
petitioner’s counter offer of at the least accepted the same subject to the
deletion of condition no. 6
17. BOTH LETTER- AGREEMENT ARE IN THE NATURE OF
CONTRACTS TO SELL; NON COMPLIANCE WOTH THE
SUSPENSIVE CONDITIONS SET FORTH THEREIN PREVENTS THE
OBLIGATION OF THE VENDORTO CONVEY TITLE FROM HAVING
OBLIGATORY FORCE:
- The fundamental flaw in the reasoning of both the trial court and
appellate court is their admitted premise that both letter agreements are
contracts of sale the perfection of which are proven by the earnest moey
tendered to and accepted by PNB in the form of 100K and 200K under
the first and sec letter agreements, respectively.
o SC said that the letter agreements shows that they are
contracts to sell and not contract of sale.
§ Contact to sell is akin to a conditional sale where the
efficacy or obligatory force of the vendor’s obligation
to trqnsfer 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 had never existed. The
suspensive condition is commonly full payment of the
purchase price
§ If it were not full payment of the purchase price upon
which depends the passing of title from the vendor to
the vendee, it may be some other condition or
conditions that have been stipulated and must be
fulfilled before the contract is converted from a
contract to sell or at the most an executory sale into an
executed one.
- Difference bet. Contract to sell and contract of sale:
o “A distinction must be made between a contract of sale in which
title passes to the buyer upon delivery of the thing sold and a
contract to sell,where by agreement the ownership is reserved
in the seller and is not to pass until the full payment of the
purchase price is made. In the first case, non-payment of the
price is a negative resolutory condition; in the second case, full
payment is a positive suspensive condition. Being contraries,
their effect in law cannot be identical. In the first case, the
vendor has lost and cannot recover the ownership of the land
sold until and unless the contract of sale is itself resolved and
set aside. In the second case, however, the title remains in the
vendor if the vendee does not comply with the condition
precedent of making payment at the time specified in the
contract.”
o In contract to sell ownership is retained by the seller and is
not to pass to the buyer until full payment of the price or the
fulfillment of some other conditions either of which is a
future and uncertain event the non-happening of which is
not a breach, casual or serious, but simply an event that
prevents the obligation of the vendor to convey title from
acquiring binding force.
- In the case at bench, Lapaz does not dispute the fact that under identical
proviso in the 2 letter of agreemens, her obligation was to deposit an
initial amount (100K 1st agreement; 200k 2nd agreement) and then
subsequently to deposit an additional amount of 20% of the purchase
price (P978,860 1st agreement; P827,119 2nd agreement). Under both
letter-agreements, the consequences of private respondent's failure to
remit the additional deposit, are unequivocal and plainly
comprehensible: deposit shall be forfeited and for this purpose, the Bank
can sell the property to other interested parties due to your failure to
consummate the previously-approved sale.
- The right reserved by PNB to cancel the agreement to sell upon
failure of petitioner to remit the additional deposit and to
consequently open the subject property anew to purchase offers, is
in the nature of a stipulation reserving title in the vendor until
fullpayment of the purchase price or giving the vendor the right to
unilaterally rescind the contract the moment the vendee fails to pay
within fixed period.
- SC found that the intention of the private parties to make the sale
dependent on petitioner's compliance with certain other conditions, is
undeniable and plainly evident in the letter-agreements. Identical
provisions therein relating to petitioner's waiver of her right to warranty
against eviction and her accountability for the expenses for the ejectment
proceedings, are not so called "standard" provisions that are more of a
rhetorical device than conditions genuinely meant by the parties to be
suspensive conditions in the legal sense.
- Also, letter agreements of PNB and Lapaz are not deed of sal, thus,
no title having been passed from PNB to Lapaz.
o Distinction bet contract to sell and contract of sale is
important for in a contract of sale, the title passes to the
vendee upon the delivery of the thing sold, whereas in a
contract to sell, by agreement, ownership is reserved in the
vendor and is not to pass until the full payment of the price.
In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or
 rescinded, whereas in a contract to sell, title is retained by (2nd TERMS AND CONDITIONS)
1. That the selling price shall be P5,135,599.17 (P200,000.00) already deposited . . .
the vendor until the full payment of the price, such payment
2. A.That upon your failure to pay the additional deposit of P827,119.83 upon receipt of advice of
being a positive suspensive condition, failure of which is not approval, your P200,000.00 deposit shall be forfeited and for this purpose, the Bank can sell the
a breach but an event that prevented the obligation of the property to other interested parties;
vendor to convey title from becoming effective. xxx xxx xxx
3. That your previous deposit of P100,000.00 which was forfeited by the Bank due to your failure
o In this case it is clear that there was no transfer of title. not even to consummate the previously- approved sale, shall not be considered as part of the purchase
mention of such a transfer in the future, considering that all the price;
parties were aware of the occupancy of the subject property by 4. That the bank sells only whatever rights interests and participation it may have in the property
third persons. This circumstance all the more reinforces our and you are charged with full knowledge of the nature and extent of said rights, interest and
participation and waives your right to warranty against eviction;
finding that the transaction contemplated under the letter-
Xxx xxx xxx
agreements was a contract to sell or a conditional sale which 6. That the property shall be cleared of its present tenants but all expenses to be incurred in
absolutely depends, for its efficacy, upon the happening of the connection woth the ejectment proceedings shall be for your account;
conditions specified in the said letter-agreements. 7. That the sale shall be subject to all terms and conditions covering sale of similar acquired real
estate properties;
- Deposit given was not an earnest money; not a proof of the 8. That the sale shall also be subject to all terms and conditions that the legal dept may impose to
perfection of the sale. And even if it is, it is just a disputable protect the interest of the Bank.
presumption that can be rebutted, which in this case, was rebutted
by sufficient evidence.
o The letter of agreementsthemselves are the evidence of an
intention on the part of herein private parties to enter into
negotiations leading to a contract of sale that is mutually
acceptable as to absolutely bind them to the performance of
their obligations thereunder.
o Letter of agreements are replete with substantial condition
precedents, acceptance of which on the part of private
respondent must first be made in order for petitioners to proceed
to the next step in the negotiations. The initial deposits under
the two letter-agreements, therefore, should rather be construed,
not strictly as earnest money, but as part of the consideration
for petitioner's promise to reserve the subject property for
private respondent.

(1st TERMS AND CONDITIONS) . . . your offer to purchase the Bank-acquired property . . . was approved
by the Bank, subject to the following terms and conditions:
1. That the selling price shall be P5,394,300.00 (P100,000.00 already deposited) . . .
2. (a) That upon your failure to pay the additional deposit of P978,860.00 upon receipt of advice
accepting your offer, your P100,000.00 initial deposit shall be forfeited and for this purpose the
Bank shall be authorized to sell the property to other interested parties.
xxx xxx xxx
3. That the Bank sells only whatever rights, interests and participation it may have in the property
and you are charged with full knowledge of the nature and extent of said rights, interests and
participation and waives [sic] your right to warranty against eviction.
xxx xxx xxx
4. That the property shall be cleared of its present tenants/occupants but all expenses to be incurred
in connection with the ejectment proceedings shall be for your account.
5. That the sale shall be subject to such other terms and conditions that the Legal Department may
impose to protect the interest of the Bank.
 04 BABASA v. CA (PAT)
May 21, 1998 | Bellosillo, J. | Effect of condition imposed on the performance
Petitioner: Spouses Vivencio Babasa and Elena Babasa
Respondent: Court of Appeals, Tabangao Realty, Inc., and Shell Gas Philippines, Inc.
SUMMARY: Babasas and Tabangao entered into a Conditional Sale of Registered Lands.
They were already able to agree with the price and the subject matter but there was a
condition imposed that Tabangao would give the rest of the payment when the Babasas
are able to deliver the clean TCTs within 20 months from signing and in addition, Tabangao
was also granted the absolute and unconditional right to take immediate possession of
the lots and make improvements. They were able to substantially comply with their parts
but 2 days before the 20-month period, the Babasas asked Tabangao if they could have an
indefinite extension of the period since the case to clean the titles was still pending, but
Tabangao refused. So the Babasas executed a notarized unilateral rescission and also
demanded that Shell vacate the lots (Tabangao leased the property to Shell). Tabangao
filed for specific performance and damages in the RTC and Shell intervened. The Babasas
moved for a dismissal saying that since the 20-month period has already expired, the
contract is null and void. While the case was pending, the Babasas put several structures
so that Shell and Tabangao could not move certain things on the property. The RTC ruled
in favor of Tabangao and Shell saying that when the 20-month period expired, it did not
mean that the obligations would be extinguished. They also said that the rescission was
void. On appeal to the CA, the CA affirmed the decision of the RTC. They also said that the
contention of the Babasas that the contract is a lease and not a sale does not hold water.
Hence, this petition. The issues in this case are: (1) whether or not the contract is one of
sale or lease and whether or not the non-happening of the condition extinguished the
efficacy of the sale. As to the first issue, the SC said that basing from the contract itself,
the words used and basing from the intent, the contract is indeed one of sale and not of a
lease. As to the second issue, the SC said that the contract is an absolute sale even if it was
denominated as conditional. A deed of sale is absolute although denominated as
conditional if no stipulations on rescission and no proviso regarding reserving title are
present. And the expiration of the 20-month period was a condition imposed not on the
perfection but upon the performance of the obligation. And a condition imposed on the
performance merely grants to the buyer the right to rescind or waive the condition and
enforce performance on the seller.
DOCTRINE: When buyer’s obligation to pay the purchase price was made subject to the
condition that seller first delivers clean TCTs over the parcel bought, such condition is
imposed merely on the performance of the obligation, as distinguished from a condition
imposed on the perfection. The non-happening of the condition merely granted the buyer
FACTS:
the right to rescind or waive the condition and enforce performance on the seller.
16. A Conditional Sale of Registered Lands was executed between Vivencio
and Elena Babasa (Babasas) as vendors and Tabangao Realty, Inc.
(Tabangao) as vendee over 3 parcels of land in Batangas City.
17. The certificates of title over these lots were in the names of 3rd persons who
had executed deeds of reconveyance in favor of the Babasas, so Babasas and
Tabangao agreed on a total purchase price of Php 2,121,920 and stipulated
on the following:
a. Php 300k upon signing of the contract.
b. Php 1,821,920 upon presentation of the Babasas of TCTs in their
name, free from all liens and encumbrances, and delivery of
registrable documents of sale in favor of Tabangao within 20 months
from the signing of the contract.
c. Retained balance of the purchase price would earn interest at 17%
per annum or Php 20,648.43/mo payable to the Babasas until
December 1982.
d. Tabangao would have the absolute and unconditional right to take
immediate possession of the lots as well as introduce any
improvements.
18. Tabangao leased the lots to Shell and Shell constructed a Liquefied Petroleum
Gas Terminal Project; Tabangao was the real estate arm of Shell.
19. Babasas and Tabangao substantially complied with the terms of the contract:
a. Tabangao paid Php 300k first installment to Babasas.
b. Babasas delivered actual possession of the lots to them.
c. Tabangao also paid Php 379,625 to the tenants of the lots as disturbance
compensation and also Php 334,700 to the owners of the house in the
area.
d. Tabangao also paid the monthly interest for the 20-month period.
e. Babasas filed a civil case to transfer the TCTs of the lots in their name.
20. But 2 days before the 20-month period expires, Babasas asked Tabangao
for an indefinite extension so that they could deliver clean title and also
asked Tabangao to continue paying the monthly interest since the civil case
that the Babasas filed to get the titles back have not been resolved with
finality, but Tabangao refused.
21. In retailiation, Babasas executed a notarized unilateral rescission, and
Tabangao replied that the Babasas were the ones who did not comply with
their contractual obligation to deliver the clean titles within the 20-month
period, hence they have no right to rescind the contract.
22. Babasas insisted on the rescission and demanded that Shell vacate the lots.
23. Tabango filed an action for specific performance with damages in the RTC
to compel the Babasas to fulfill their obligation to deliver clean titles over the
properties. Tabangao alleged that Babasas were in the position to give them
the clean titles considering that the civil case has ended and the court ruled in
their favor.
24. Babasas moved for a dismissal, saying that the contract with Tabangao
became null and void with the expiration of the 20-month period; Shell
intervened.
25. While the case was pending, the Babasas put several structures over the lots
in the case, they also claimed 12 heads of cattle which belonged to Shell, and
threatened to collect levy from all buyers.
 26. RTC ruled in favor of Tabangao and Shell saying that the 20-month period
was never meant to be its term in that when it expires, the obligations would
be extinguished. What the expiration of the period means is that it merely
gave rise to the right of Tabangao to rescind or demand that Babasas comply
with the obligation; the rescission by Babasas was void; in addition, Babasas
were also ordered to deliver the clean TCTs.
27. Babasas appealed to the CA but the CA affirmed the decision of the RTC.
They also rejected the claim that the contract was of lease and not sale. CA
said that it is an absolute sale though denominated conditional.
28. Hence, this petition.
ISSUE/S:
3. WON the contract was a contract of lease and not sale. – NO. It is a SALE.
4. On whether the non-happening of the condition extinguished the efficacy of
the sale. – NO.
HELD: WHEREFORE, the petition is DENIED. The appealed decision of the CA
affirming that of the RTC is AFFIRMED.
RATIO:
On whether the contract is a lease or a sale
1. Babasas: The contract was a lease.
2. SC: CA is correct in saying that the contract was a sale and not a lease.
a. The contract in itself shows that it is actuall a sale.
i. The whereas clause says that the parties: desire and mutually agreed
on the sale and purchase of the 3 parcels of land.
ii. They agreed that Babasas were vendors and Tabangao was the
vendee.
iii. There was a purchase price for the lots stated.
iv. Tabangao was granted absolute and unconditional right to take
immediate possession of the premises while Babasas warranted that
possession forever.
v. Tabangao would shoulder the capital gains tax.
vi. Babasas would executed a Final Deed of Absolute Sale in favor of
Tabangao for the issuance of TCTs.
b. Just because the word ownership was not mentioned doesn’t mean that
it is already a lease.
c. In addition, Babasas did not object to the terms in the contract,
considering that they were assisted by Atty. E.M. Carreon.
3. Babasas: We never intended to sell our ancestral lots; we were forced because
Tabangao gave a threat of expropriation.
4. SC: Contracts are valid even though one of the parties entered into it against
his own wish and desire or even against his better judgment.
a. A threat of eminent domain proceedings cannot be considered as the kind
of injury that could vitiate consent.
On whether the non-happening of the condition extinguished the efficacy of the sale
1. Babasas: Ownership over the 3 lots was never transferred to Tabangao since
the contract was rendered lifeless when the 20-month period expired without
them being able to deliver clean TCTs.
2. SC: Although the contract says Conditional Sale of Registered Lands, the
contract is an absolute sale.
a. Aside from the terms, there is no proviso reserving title in the Babasas
until full payment of the purchase.
b. There was also no stipulation giving them the right to unilaterally rescind
the contract in case of non-payment.
c. A deed of sale is absolute although denominated as conditional
absent such stipulations.
d. Ownership of the thing sold passes to the vendee upon constructive or
actual delivery and in this case, the ownership has been passed to
Tabangao both constructive and actual delivery.
i. Constructive since the contract was without any reservation of title.
ii. Actual since Tabangao took unconditional possession and leased it
to Shell.
3. Babasas: The contract lost efficacy when the 20-month period expired, so
Tabangao cannot seek specific performance.
4. SC: In Romero v. CA and Lim v. CA they distinguished between a condition
imposed on the perfection of the contract and a condition imposed
merely on the performance.
a. Condition imposed on the perfection – Failure to comply with the
condition results in the failure of the contract.
b. Condition imposed merely on performance – Failure to comply
merely gives the other party to option to either refuse the sale or to
waive the condition.
c. In this case, there is already a perfected contract of absolute sale since
they agreed on the determinate subject matter (3 lots), the price certain
and without any condition or reservation of title.
d. The obligation of Tabangao to pay the full amount of the purchase price
was made subject to the condition that Babasas would deliver the clean
TCTs. If Babasas had done so, they would get the balance.
e. Since the condition was imposed merely on the performance, the failure
of the Babasas to deliver the clean titles merely gives Tabangao the
option to refuse to proceed with the sale or to waive the condition
imposed. Hence, the act of Babasas in unilaterally rescinding is
unwarranted.
f. When buyer’s obligation to pay the purchase price was made subject to
the condition that seller first delivers clean TCTs over the parcel bought,
such condition is imposed merely on the performance of the obligation,
as distinguished from a condition imposed on the perfection. The non-
happening of the condition merely granted the buyer the right to rescind
or waive the condition and enforce performance on the seller.
 05 VALDEZ v. CA (Mica)
Sept. 24, 2004 | Callejo, Sr., J. | Essential Stipulations to constitute a contract to sell
PETITIONER: Josefina L. Valdez and Carlos L. Valdez, Jr.
RESPONDENTS: Court of Appeals and Jose Lagon
SUMMARY: Carlos Sr. and Josefina de leon valdez owned a parcel of land in
Sultan Kudarat. When Carlos Sr. died, he was survived by Josefina and their
children, including Carlos Jr., who is a practicing lawyer. Josefina divided the lot
into 8. Through an SPA authorizing Carlos Jr., she sold a portion (4,094sqm) to
Lagon. Part of the consideration of the transaction was that Lagon would cause
the transfer of the Rural Bank there and would build a commercial building. These
were not part of the deed of absolute sale that was executed. In the deed it was
said that the land was to be sold for P80,000 cash and it was paid already, but in
reality, it was purchased for P163,760 including the account of Carlos Jr to Lagon.
Lagon has not remitted the whole 163k. Lagon issued checks. One check worth
8k was encashed but the other check worth 81k was returned cause Lagon’s wife
paid 20k so there’s still a balance. Lagon acknowledged the earlier consideration
in an affidavit. If he fails to comply, the sale would be declared null and void.
Lagon failed to comply and to pay the balance so the petitioners refused to give
the title. First demand letter said if they still won’t comply within 10 days, then it
would be rescinded. But then Carlos wrote again proposing for the reduction of
the property instead. Lagon did not reply. In the meantime, a geodetic engr.
subdivided Lot 3-C into 3 (lot 3-C-1, lot 3-C-2, lot 3-C-3). Lagon paid for his
services. Lot 3-C-2 was sold to PCIB and lot 3-D was sold to Engr. Delfin. Carlos
Jr. reminded Lagon about the considerations. He requested for a conference
through his counsel but it Carlos Jr was not available on the said date. Josefina
mortgaged Lot 3-C-3 to DBIP as security for her P150,000 loan. Lot 3-C-1 was
sold to Carlos Jr. Lagon filed a complaint for specific performance and damages.
Josefina and Carlos said that Lagon does not have a cause of action because he
failed to comply with the conditions of the sale and his undertaking. TC and CA
ruled in favor of Lagon saying that it was a deed of absolute sale and not a contract
to sell. WoN it was a contract to sell. No. Court held that it was a contract of sale
because Josefina did not reserve the title over the property until full payment and
she did not have the right to unilaterally rescind the contract in case of non-
payment (doctrine in this case). The contract was however, unenforceable but
Josefina ratified it by receiving the partial payments.
DOCTRINE: A contract is one of sale, absent any stipulation therein (a) reserving
title over the property to the vendee until full payment of the purchase price, and
(b) giving the vendor the right to unilaterally rescind the contract in case of non-
payment
FACTS: (Bold yung lots kasi nakakalito)
1. Carlos Valdez, Sr. (Carlos Sr.) and Josefina de Leon Valdez were the owners
of a parcel of land with an area of 24,725sqm located in the commercial
district of Isulan, Sultan Kudarat
2. When Carlos Sr. died intestate on Mar. 26, 1966, he was survived by Josefina
and their children, including Carlos Jr. (a practicing lawyer)
3. Dec. 28, 1978- Josefina caused the subdivision survey of the property into 8
lots, all fronting the national road.
4. To enhance the value of the property, she decided to sell a portion to Jose
Lagon, a successful businessman in Sultan Kudarat who owned a
construction firm as well as real estate and business enterprises (the Lagon
Enterprises and the Rural Bank of Isulan). He’s also of the clients of her son
5. May 1, 1979- Josefina executed a SPA authorizing Carlos Jr. to sell a protion
of Lot No. 3-C and Lot No. 3-D to Lagon (the subject lots: 4,094 sqm, with
a frontage of 64.3sqm)
6. Part of the consideration of the transaction was the condition that Lagon cause
the transfer of the Rural Bank of Isulan to the subject property and construct
a commercial building beside the bank
7. May 9 – they executed a Deed of Absolute Sale. However, the condition
imposed by Josefina was not incorporated in the deed. What was appended
was the SPA. It was indicated in the deed that the property was to be sold for
P80,000 cash and the Lagon had already paid to Carlos Jr
8. In reality, however, Lagon purchased the 4,094 sqm property at P40.00/sqm
or for the amount of P163,760, inclusive of Carlos Jr.’s personal account to
Lagon in the amount of P73,760. Lagon has not remitted the whole amount
9. April 21, 1981 – Lagon gave to Carlos Jr. PCIB Check in the amount of
P8,1996 dated April 21, 1981, and PCIB Check postdated June 15, 1981 in
the amount of P81,880 (total: P90,076 in full payment of the property, after
deducting the accoung of Carlos Jr)
10. Josefina acknowledged the checks and signed through Carlos Jr.
11. Carlos Jr. was able to encash the P8,196 but returned the other check to
Lagon’s wife, Nenita, after the latter paid him P20,000 thereby leaving a
balance of P61,880
12. Carlos, Jr. prepared an Affidavit dated April 27, 1981 signed by Lagon, where
the latter undertook to transfer the Rural Bank of Isulan to the property and
construct a commercial building thereon, to be in full operation within a
period of five (5) years from the date of the deed of absolute sale, or until
May 9, 1984
13. If Lagon failed to do so, the deed of absolute sale shall be declared null and
void without need of demand therefor.
14. Lagon also made it clear in the said affidavit that the consideration of the said
Deed of Absolute Sale was not only the P80,000.00 purchase price, but also
that the subject property be commercialized.
15. However, Lagon failed to start the construction of a commercial building and
 to transfer the rural bank thereon; he, likewise, failed to pay the balance of
the purchase price amounting to P61,880.00.
16. Consequently, Josefina and Carlos, Jr. refused to deliver to Lagon a torrens
title over the purchased property.
17. On September 4, 1981, Carlos, Jr. demanded the payment of P61,800.00
within ten days from notice thereof, otherwise, the sale would be considered
rescinded. Still, Lagon failed to pay or even respond to the letter.
18. Carlos, Jr. again wrote Lagon on September 25, 1981, and this time proposed
the reduction of the area of the property subject of the sale to correspond to
the payment so far made by Lagon in the total amount of P90,676.00. There
was no response from Lagon.
19. In the meantime, the TCT was cancelled on Oct. 9, 1981 by 8 titles under
Josefina Valdez (cause pinadivide nga ni Josefina diba so naging: 3-A to 3-
H na talaga)
20. Alhambra, a geodetic engr., conducted a subdivision survey of lot no. 3-C,
covered by TCT no. 16438 into 3 subdivision lots with the ff. areas: lot no.
3-C-1 (4499sqm); lot no. 3-C-2 (350sqm); and lot no. 3-C-3 (17,355sqm).
He also submitted this to the Bureau of Lands on Dec. 12, 1983. Lagon paid
for the professional services
21. Porfirio L. Cubar, the Bank Manager of the Philippine Commercial Industrial
Bank (PCIB) in Isulan talked offered to buy, in behalf of the PCIB, Lot No.
3-C-2 for P100.00 per square meter. Carlos, Jr. agreed. Josefina executed a
deed of absolute sale on May 8, 1984, over Lot No. 3-C-2 for P35,000.00 in
favor of PCIB.
22. Carlos, Jr. later learned that Lagon had been saying that he was responsible
for the sale of Lot No. 3-C-2 to the PCIB, but PCIB informed Carlos, Jr. in a
Letter dated that Lagon had nothing to do with the sale.
23. the deed of extrajudicial settlement earlier executed by the heirs of Carlos
Valdez, Sr. was filed and registered in the Office of the Register of Deeds.
(transferring their rights to Josefina)
24. Josefina sold Lot 3-D in favor of Engr. Rolendo Delfin
25. August 1987- a question ensued in connection with Lagon’s failure to pay the
balance of the purchase price of the property, to cause the construction of a
commercial building and the transfer of the Rural Bank of Isulan to Lot No.
3, as undertaken by him in his Affidavit
26. As a reminder, Carlos Jr. gave Lagon with a machine copy of the affidavit
27. Lagon’s counsel, Atty. Ernesto Catedral, wrote Carlos, Jr., pointing out that
he had earlier sought Lagon’s consent for the construction of the PCIB
Branch in Lot No. 3. Catedral posited that by consenting to the sale of the
property to PCIB and the construction of its branch office, Lagon thereby
substantially complied with his undertaking under the deed of absolute sale.
28. The lawyer asked Carlos, Jr. to set a conference to thresh out possibilities of
an amicable settlement of the matter.
29. Carlos, Jr. furnished Atty. Catedral with copies of documents, including a
SPA, executed by Josefina in favor of Carlos, Jr., the deed of absolute sale
over Lot No. 3 in favor of Lagon and the deed of absolute sale executed by
Josefina in favor of PCIB, among others. Lagon, through his counsel, Atty.
Rex Rico, reiterated his request for a conference on May 23, 1988. However,
Carlos, Jr. was not available on the said date. cSEaTH
30. Josefina executed a real estate mortgage over Lot No. 3-C-3 covered by TCT
No. 18818 in favor of the Development Bank of the Philippines (DBP) as
security for a loan of P150,000.00.
31. Josefina executed a deed of absolute sale over Lot No. 3-C-1 in favor of her
son, Carlos, Jr.. In the meantime, in 1984, Carlos, Jr. had an edifice
constructed on the property where he put up his law office, a nipa hut behind
the PCIB branch, the Ivy Pharmacy, the "K House" and the headquarters of
the Nationalista Party
32. Sept. 24, 1990 – Lagon filed a complaint against Josefina and Carlos Jr., in
his capacity as attorney-in-fact, for specific performance and damages with a
prayer for a temporary restraining order and writ of preliminary injunction
a. Wants the injunction to be permanent
b. Deliver the TCT over the remaining area of that parcel of land sold
to him
c. Pay opportunity loss, attorney’s fees, litigation expenses and
damages
33. Lagon contends that Josefina failed to deliver the title to the property
purchased from her, as well as the possession thereof. Hence, he was not
certain of the boundaries of the property and could not secure a building
permit for the construction of the Rural Bank and the commercial building
34. Besides, Carlos, Jr. secured his permission for the construction of the PCIB
commercial building on Lot No. 3-C-2 which was sold to him by Josefina,
and even agreed to the deduction of the purchase price thereof; hence, the
balance was only P26,880.
35. Lagon demanded that the title to the property be turned over to him and the
occupants thereof be evicted therefrom so that he could comply with the
conditions of the sale for the construction of the commercial building and the
transfer of the Isulan Rural Bank.
36. However, Carlos, Jr. dilly-dallied, saying that the heirs of Carlos, Sr. needed
time to execute the extrajudicial settlement of his estate, and thus failed to
deliver said title to him. Lagon averred that his consent to the construction by
the PCIB of its branch on a portion of the property he had purchased from
Josefina constituted substantial compliance of his undertaking under the deed
of absolute sale and the affidavit he executed in favor of Josefina. He also
alleged that he signed the affidavit prepared by Carlos, Jr. without reading
and understanding the same. He pointed out that although Lot No. 3 had
already been sold to him by Josefina, she still sold Lot No. 3-C-3 to her son,
Carlos, Jr.; Lot No. 3-D to Engr. Rolendo Delfin; and mortgaged Lot No. 3-
D to DBP which acquired title over the property.
 37. Josefina and Carlos Jr. said that Lagon has no cause of action cause he failed
to comply with the terms of the deed of absolute sale, his undertaking under
the affidavit, and the purchase price of the property in full. Carlos also denied
securing Lagon’s consent for the PCIB Branch and agreeing to deduct P35k
from Lagon’s balance
38. Lagon withdrew his petition for a writ of preliminary injunction, which was
granted by the trial court
39. TC: in favor of Lagon so Josefina and Carlos Jr. appealed. CA reversed the
decision based on the deed of absolute sale, the SPA, the affidavit. CA ruled
that the parties had executed a contract to sell. CA reversed again (affiriming
RTC) in the MR. It declared that it was a deed of absolute sale, that SPA was
not part of that deed, and that the affidavit was not part of the deed too
because it was a mere afterthought. Also, CA agreed with the inability of
Lagon to know the boundaries because Josefina refused to deliver the title to
the property. CA said that based on Art. 1186 of the NCC, the conditions of
the sale are deemed fulfilled. And the procedure for rescission was not
followed
40. Petitioners assert that it was a contract to sell and that the three documents
formed integral parts containing the terms and conditions of one and the same
transaction. They emphasized theat Lagon knew this because he did not
acquire a torrens title over the property nor took possession thereof after the
deed and Lagon even failed to register the deed. Art. 1592 only applies to
contract of sale
ISSUE/s:
1. WoN the subject property is the exclusive property of Josefina de leon Valdez
– Yes
2. WoN it was a contract to sell – no (it was a contract of sale)
RULING: The Amended Decision of the CA is reversed and set aside. Lagon’s
complaint is dismissed. Petitioners are directed to refund the amount of P101,880
RATIO:
The Subject Property is the Exclusive Property of Josefina
1. In the deed of absolute sale, Josefina declared that she was the absolute owner
of the property. However, in the deed of extrajudicial settlement of the estate
of Carlos Sr. the property was declared as part of the estate of the deceased
2. RTC and CA held that it was only after the execution of the deed of
extrajudicial settlement that Josefina became the absolute owner of the
property. SC said both erred.
3. SC note that TCT No. T-19529 (T-1902) covering the property was issued on
August 18, 1967, during the marriage of the Spouses Carlos Valdez, Sr. and
Josefina, under the name "Josefina L. Valdez married to Carlos Valdez, Sr."
The issuance of the title in the name solely of one spouse is not determinative
of the conjugal nature of the property, since there is no showing that it was
acquired during the marriage of the Spouses Carlos Valdez, Sr. and Josefina
L. Valdez.
4. The presumption under Article 160 of the New Civil Code, that property
acquired during marriage is conjugal, does not apply where there is no
showing as to when the property alleged to be conjugal was acquired.
5. The presumption cannot prevail when the title is in the name of only one
spouse and the rights of innocent third parties are involved.
6. Moreover, when the property is registered in the name of only one spouse
and there is no showing as to when the property was acquired by same spouse,
this is an indication that the property belongs exclusively to the said spouse.
7. In this case, there is no evidence to indicate when the property was acquired
by petitioner Josefina. Thus, we agree with petitioner Josefina’s declaration
in the deed of absolute sale she executed in favor of the respondent that she
was the absolute and sole owner of the property.
8. We are convinced that the declaration in the deed of extrajudicial settlement
of the estate of the late Carlos Valdez, Sr., that the property formed part of
his estate and that his children waived their rights and claims over the
property in favor of their mother, was done merely to facilitate the issuance
of a torrens title over the property in petitioner Josefina’s name with her
marital status as widow.
Josefina Valdez and Lagon entered into a contract of sale over the subject property
1. It is not disputed by the parties that Josefina executed a SPA in favor of
Carlos, Jr., as her attorney-in-fact, authorizing him to sell the subject
property, and that executed a deed of absolute sale over it
2. She also acknowledged receipt of partial payments of the purchase price, the
balance of the purchase price thus stood at P61,880.00 There is, likewise, no
dispute that Lagon signed the affidavit on April 27, 1981.
3. The parties, however, differ on the real nature of their transaction and on
whether the said affidavit formed an integral part of the deed of absolute sale
executed by petitioner Josefina in favor of the respondent.
4. The real nature of a contract may be determined from the express terms
of the written agreement and from the contemporaneous and subsequent
acts of the parties thereto.
5. In the construction or interpretation of an instrument, the intention of the
parties is primordial and is to be pursued. If the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control. If the contract appears to be contrary
to the evident intentions of the parties, the latter shall prevail over the former.
The denomination given by the parties in their contract is not conclusive of
the nature of the contents.
6. The agreement of the parties may be embodied in only one contract or in two
or more separate writings. In such event, the writings of the parties should be
 read and interpreted together in such a way as to render their intention
effective.
7. A sale is at once perfected when the seller obligates himself, for a price
certain, to deliver and to transfer ownership of a specified thing or right to
the buyer. From the time the contract is perfected, the parties are bound
not only to the fulfillment of what has been expressly stipulated but also
to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
8. In a contract of sale, the title to the property passes to the vendee upon the
constructive or actual delivery thereof, as provided for in Article 1477 of the
New Civil Code.
9. The vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded by a notarial deed or by judicial
action as provided for in Article 1540 of the New Civil Code.
10. A contract is one of sale, absent any stipulation therein reserving title over
the property to the vendee until full payment of the purchase price nor giving
the vendor the right to unilaterally rescind the contract in case of non-
payment.
11. In a contract of sale, the non-payment of the price is a resolutory
condition which extinguishes the transaction that, for a time, existed and
discharges the obligations created thereunder.
12. 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.
Such payment 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.
13. The deed specifically states that the property is sold and delivered to the
respondent as vendee. Josefina did not reserve the ownership over the
property, as well as any right to unilaterally rescind the contract.
14. There has been, by the execution of the deed, a constructive delivery of the
property to Lagon; hence, the latter acquired ownership over the same.
15. Upon payment of the purchase price, petitioner Josefina was obliged to
deliver the torrens title over the property to and under the name of the
respondent as the new owner and place him, as vendee, in actual possession
thereof; otherwise, the failure or inability to do so constitutes a breach of the
contract sufficient to justify its rescission.
16. However, the deed is unenforceable as of the date of its execution because
under the SPA, Carlos Jr. was authorized to sell on cash basis only and
Josefina required some conditions to be incorporated on the deed. So, Carlos
Jr. acted beyond the scope of his authority. He also falsely declared the
purchase price was P80k and that he already received the amount, when in
fact, it was sold for P163,760 and that Lagon has not yet paid
17. Thus, the effectivity would depend upon the ratification by Josefina. Court
said that she did when she received partial payments of the pruhase price of
the property. This retroacted to the date executed the deed of sale
18. Court also said that the affidavit was not a mere afterthought. Lagon admitted
in his complaint that he undertook to construct the sid building and transfer
the Rural Bank. In his testimony, he also said that he was supposed to comply
from May 9, 1979 to 1984 (May 9 yung date ng absolute sale). Counsel of
Lagon also admitted the binding effect of the affidavit (it is an unequivocal
undertaking)
19. The refusal of Lagon to pay the balance has no basis. As such, Josefina's
refusal to deliver the torrens title over the subject property under the
respondent’s name was justified, precisely because of his refusal to comply
with his obligation to pay the balance of the purchase price.
20. Had he paid the purchase price of the property, such failure on the part of
Josefina to deliver the torrens title to and under the name of the respondent
would have warranted the suspension of the five-year period agreed upon for
the construction of a fully operational commercial building, as well as the
transfer of the aforesaid bank to the property. This is so because absent such
torrens title under the name of the respondent, no building permit for the
construction of the buildings could be secured.
21. Thus, failure to comply with his undertaking is through his own fault
22. There was no need for petitioner Josefina to make a notarized demand to the
respondent or file an action to rescind the deed of absolute sale to enable her
to recover the ownership of the property.
23. This is so because they had agreed that upon Lagon’s failure to construct a
new and fully operational commercial building and to cause the transfer of
the Rural Bank of Isulan to the property on or before May 9, 1984, the deed
of absolute sale would be deemed null and void without need of any demand
from the petitioners. Such agreement is evidenced by the affidavit executed
by the respondent himself on April 27, 1981.
24. Court does not agree with the contention that Carlos, Jr., had agreed to the
sale of a portion of the property, the construction of the PCIB branch office
thereon, and the crediting of the amount paid by the PCIB to the respondent’s
account, and deducted from the balance of the purchase price. There’s no
evidence that Josefina knows of this and that she authorized Carlos Jr. to enter
this agreement
25. In sum, then, the respondent had no cause for specific performance against
the petitioners. However, the petitioners are obliged to refund to the
respondent the latter’s partial payments for the subject property.
26. The petitioners failed to adduce sufficient evidence to prove their
counterclaims, and, as such, the counterclaims must forthwith be dismissed.
 06 De Leon v. Ong (Cristelle)
February 2, 2010 | Corona, J. | Chapter 11 REMEDY OF RESCISSION IN SALES
OF IMMOVABLES: CONTRACT OF SALE VERSUS CONTRACT TO SELL
PETITIONER: RAYMUNDO S. DE LEON
RESPONDENTS: VELASCO NACHURA & PERALTA, JJ. BENITA T. ONG.
SUMMARY: On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels
of land to Benita T. Ong(respondent). The said properties were mortgaged to a
financial institution; Real Savings & Loan Association Inc. (RSLAI). The parties
then executed a notarized deed of absolute sale with assumption of mortgage. As
indicated in the deed of mortgage, the parties stipulated that the petitioner (de Leon)
shall execute a deed of assumption of mortgage in favor of Ong (respondent)after
full payment of the P415,000. They also agreed that the respondent (Ong) shall
assume the mortgage. The respondent then subsequently gave petitioner P415,000
as partial payment. On the other hand, de Leon handed the keys to Ong and de Leon
wrote a letter to inform RSLAI that the mortgage will be assumed by Ong.
Thereafter, the respondent took repairs and made improvements in the properties.
Subsequently, respondent learned that the same properties were sold to a certain
Viloria after March 10, 1993 and changed the locks, rendering the keys given to her
useless. Respondent proceeded to RSLAI but she was informed that the mortgage
has been fully paid and that the titles have been given to the said person. Respondent
then filed a complaint for specific performance and declaration of nullity of the
second sale and damages. The petitioner contended that respondent does not have a
cause of action against him because the sale was subject to a condition which
requires the approval of RSLAI of the mortgage. Petitioner reiterated that they only
entered into a contract to sell. The RTC dismissed the case. On appeal, the CA
upheld the sale to respondent and nullified the sale to Viloria. Petitioner moved for
reconsideration to the SC. Issue: Whether the parties entered into a contract of
sale or a contract to sell? In a contract of sale, the seller conveys ownership of the
property to the buyer upon the perfection of the contract. The non-payment of the
price is a negative resolutory condition. Contract to sell is subject to a positive
suspensive condition. The buyer does not acquire ownership of the property until
he fully pays the purchase price. In the present case, the deed executed by the parties
did not show that the owner intends to reserve ownership of the properties. The
terms and conditions affected only the manner of payment and not the immediate
transfer of ownership. It was clear that the owner intended a sale because he
unqualifiedly delivered and transferred ownership of the properties to the
respondent
DOCTRINE: Essential Stipulations to Constitute a Contract to Sell – A contract is
one of sale, absent any stipulation therein (a) reserving title over the property to the
vendee until full payment of the purchase price, and (b) giving the vendor the right
to unilaterally rescind the contract in case of non-payment
FACTS:
1. Petitioner Raymundo S. de Leon sold three parcels of land with
improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As
these properties were mortgaged to Real Savings and Loan Association,
Incorporated (RSLAI), petitioner and respondent executed a notarized deed
of absolute sale with assumption of mortgage. (March 10, 1993)
2. That for and in consideration of the sum of ONE MILLION ONE
HUNDRED THOUSAND PESOS (P1.1 million), Philippine currency, the
receipt whereof is hereby acknowledged from [RESPONDENT] to the entire
satisfaction of [PETITIONER], said [PETITIONER] does hereby sell,
transfer and convey in a manner absolute and irrevocable, unto said
[RESPONDENT], his heirs and assigns that certain real estate together with
the buildings and other improvements existing thereon, situated in [Barrio]
Mayamot, Antipolo, Rizal under the following terms and conditions:
a. That upon full payment of [respondent] of the amount of FOUR
HUNDRED FIFTEEN THOUSAND FIVE HUNDRED
(P415,000), [petitioner] shall execute and sign a deed of assumption
of mortgage in favor of [respondent] without any further cost
whatsoever;
b. That [respondent] shall assume payment of the outstanding loan of
SIX HUNDRED EIGHTY-FOUR THOUSAND FIVE HUNDRED
PESOS (P684,500) with REAL SAVINGS AND LOAN,4 Cainta,
Rizal… (emphasis supplied)”
3. Pursuant to this deed, respondent gave petitioner P415,500 as partial
payment. Petitioner, on the other hand, handed the keys to the properties and
wrote a letter informing RSLAI of the sale and authorizing it to accept
payment from respondent and release the certificates of title. Thereafter,
respondent undertook repairs and made improvements on the properties.
4. Subsequently, respondent learned that petitioner again sold the same
properties to one Leona Viloria and changed the locks, rendering the keys he
gave her useless. Respondent thus proceeded to RSLAI to inquire about the
credit investigation. However, she was informed that petitioner had already
paid the amount due and had taken back the certificates of title.
5. Petitioner: since the transaction was subject to a condition (i.e., that RSLAI
approve the assumption of mortgage), they only entered into a contract to sell.
Inasmuch as respondent did apply for a loan from RSLAI, the condition did
not arise.
6. Consequently, the sale was not perfected and he could freely dispose of the
properties.
7. RTC: Because respondent was a licensed real estate broker she knew that the
validity of the sale was subject to a condition. The perfection of a contract of
sale depended on RSLAI’S approval of the assumption of mortgage. Since
RSLAI did not allow respondent to assume petitioner’s obligation, the RTC
held that the sale was never perfected.
 8. CA upheld the sale to respondent and nullified the sale to Viloria.
ISSUES:
1. Is the 1st sale a Contract of Absolute Sale or Contract to Sell? CONTRACT
OF SALE
2. Is the 2nd sale: Void Sale Or Double Sale? DOUBLE SALE
RULING: WHEREFORE, the July 22, 2005 decision and November 11, 2005
resolution of the Court of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED
with MODIFICATION insofar as respondent Benita T. Ong is ordered to pay
petitioner Raymundo de Leon P684,500 representing the balance of the purchase price
as provided in their March 10, 1993 agreement.
RATIO:
1. Contract of sale: seller conveys ownership of the property to the buyer upon
the perfection of the contract. Should the buyer default in the payment of the
purchase price, the seller may either sue for the collection thereof or have the
contract judicially resolved and set aside. The non-payment of the price is
therefore a negative resolutory condition.
2. Contract to sell: subject to a positive suspensive condition. The buyer does
not acquire ownership of the property until he fully pays the purchase price.
For this reason, if the buyer defaults in the payment thereof, the seller can
only sue for damages.
3. There was absolute and irrevocable transfer: The deed executed by the
parties stated that petitioner sold the properties to respondent "in a manner
absolute and irrevocable " for a sum of P1.1 million. Nothing in said
instrument implied that petitioner reserved ownership of the properties until
the full payment of the purchase price. On the contrary, the terms and
conditions of the deed only affected the manner of payment, not the
immediate transfer of ownership (upon the execution of the notarized
contract) from petitioner as seller to respondent as buyer. Otherwise stated,
the said terms and conditions pertained to the performance of the contract,
not the perfection thereof nor the transfer of ownership.
4. There was delivery:
a. Settled is the rule that the seller is obliged to transfer title over the
properties and deliver the same to the buyer. In this regard, Article
1498 of the Civil Code provides that, as a rule, the execution of a
notarized deed of sale is equivalent to the delivery of a thing sold.
b. In this instance, petitioner executed a notarized deed of absolute sale
in favor of respondent. Moreover, not only did petitioner turn over
the keys to the properties to respondent, he also authorized RSLAI
to receive payment from respondent and release his certificates of
title to her.
c. The totality of petitioner’s acts clearly indicates that he had
unqualifiedly delivered and transferred ownership of the properties
to respondent. Clearly, it was a contract of sale the parties entered
into.
5. Furthermore, even assuming arguendo that the agreement of the parties was
subject to the condition that RSLAI had to approve the assumption of
mortgage, the said condition was considered fulfilled as petitioner prevented
its fulfillment by paying his outstanding obligation and taking back the
certificates of title without even notifying respondent. In this connection,
Article 1186 of the Civil Code provides: Article 1186. The condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment.
6. Void Sale Or Double Sale? This case involves a double sale as the disputed
properties were sold validly on two separate occasions by the same seller to
the two different buyers in good faith. Respondent is a purchaser in good
faith.
7. Respondent purchased the properties, knowing they were encumbered only
by the mortgage to RSLAI. According to her agreement with petitioner,
respondent had the obligation to assume the balance of petitioner’s
outstanding obligation to RSLAI. Consequently, respondent informed
RSLAI of the sale and of her assumption of petitioner’s obligation. However,
because petitioner surreptitiously paid his outstanding obligation and took
back her certificates of title, petitioner himself rendered respondent’s
obligation to assume petitioner’s indebtedness to RSLAI impossible to
perform.
8. Since respondent’s obligation to assume petitioner’s outstanding balance
with RSLAI became impossible without her fault, she was released from the
said obligation. Moreover, because petitioner himself willfully prevented the
condition vis-à-vis the payment of the remainder of the purchase price, the
said condition is considered fulfilled pursuant to Article 1186 of the Civil
Code. For purposes, therefore, of determining whether respondent was a
purchaser in good faith, she is deemed to have fully complied with the
condition of the payment of the remainder of the purchase price.
9. Respondent was not aware of any interest in or a claim on the properties other
than the mortgage to RSLAI which she undertook to assume. Moreover,
Viloria bought the properties from petitioner after the latter sold them to
respondent. Respondent was therefore a purchaser in good faith. Hence, the
rules on double sale are applicable.
10. When neither buyer registered the sale of the properties with the registrar of
deeds, the one who took prior possession of the properties shall be the lawful
owner thereof. In this instance, petitioner delivered the properties to
respondent when he executed the notarized deed and handed over to
respondent the keys to the properties. For this reason, respondent took actual
possession and exercised control thereof by making repairs and
improvements thereon. Clearly, the sale was perfected and consummated on
 March 10, 1993. Thus, respondent became the lawful owner of the properties.
Nonetheless, while the condition as to the payment of the balance of the
purchase price was deemed fulfilled, respondent’s obligation to pay it
subsisted. Otherwise, she would be unjustly enriched at the expense of
petitioner.
11. Therefore, respondent must pay petitioner P684,500, the amount stated in the
deed.
 07 DIGNOS v CA (CLARK)
February 29, 1988 | Bidin, J. | Deed of Absolute Sale
PETITIONER: Silvestre Dignos and Isabel Lumungsod
RESPONDENTS: Hon. Court of Appeals and Atilano G. Jabil
SUMMARY: On June 7, 1965, Spouses Dignos sold their parcel of land in Opon,
Lapu–Lapu to Antonio Jabil for the sum of P28,000 payable for two installments,
with an assumption of indebtedness with the First Insular Bank of Cebu in the sum
of P12,000 and the next installment of P4,000 to be paid in September 1965. On
November 1965, the spouses Dignos sold the same parcel of land for P35,000 to
spouses Cabigas who were then US citizens, and executed in their favor an
Absolute Deed of Sale duly registered in the Office of the Register of Deeds. Upon
discovery of the 2nd sale of the subject land, Jabil filed the case at bar in the CFI
of Cebu declared the 2nd sale to the spouses Cabigas null and void ab initio and
the 1st sale to Jabil not rescinded. The CFI of Cebu also ordered Jabil to pay the
remaining P16,000 to the spouses Dignos and to reimburse the spouses Cabigas a
reasonable amount corresponding the expenses in the construction of hollow block
fences in the said parcel of land. The spouses Dignos were also ordered to return
the P35,000 to the spouses Cabigas. CA affirmed. The spouses Dignos contested
that the contract between them and Jabil was merely a contract to sell and not a
deed of sale. The SC held that the contract between the parties is a contract of sale.
All the elements of a valid contract of sale are present in the document and that
Spouses Dignos never notified Jabil by notarial act that they were rescinding the
contract, and neither did they file a suit in court to rescind the sale. There is no
showing that Jabil properly authorized a certain Cipriano Amistad to tell
petitioners that he was already waiving his rights to the land in question.
DOCTRINE: A deed of sale is absolute in nature although dominated as a “Deed
of Conditional Sale” where nowhere in the contract in question is a proviso or
stipulation to the effect that title to the property sold is reserved in the vendor until
full payment of the purchase price, nor is there a stipulation giving the vendor the
right to unilaterally rescind the contract the moment the vendee fails to pay within
a fixed period.
FACTS:
1. Dignos spouses were owners of a parcel of land (Lot No. 3453) of the
cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, Dignos spouses
sold that land to Atilano Jabil for the sum of P28,000 payable in two
instalments with an assumption of indebtedness with the First Insular Bank
of Cebu for P12,000 which was paid and acknowledged by the vendors in the
deed of sale executed in favor of Jabil. The next instalment in the sum of
P4,000 will be paid on or before September 15, 196.
2. On November 25, 1965, the Dignos spouses sold the same land in favor of
Luciano Cabigas and Jovita L. De Cabigas (Cabigas spouses) who were then
US citizens for P35,000. A deed of absolute sale was executed by the Dignos
spouses in favour of the Cabigas spouses and was registered in the Office of
the Register of Deeds pursuant to provisions of Act No. 3344.
3. As the Dignos spouses refused to accept from Jabil the balance of the
purchase price of the land, and as Jabil discovered the second sale made by
Dignos spouses to Cabigas spouses, Jabil brought the present suit.
4. CFI of Cebu declared:
a. That the deed of sale executed by Isablea L. de Dignos (wife) in
favor of Luciano Cabigas, a US citizen, is null and void ab initio
b. The deed of sale executed by Dignos spouses (in favor of Jabil) not
rescinded. Thus, Atilano G. Jabil is ordered to pay P16,000 to
Dignos spouses upon the execution of Deed of Absolute Sale of Lot
No. 3453, Opon Cadastre
c. Jabil to reimbeurse Cabigas spouses a reasonable amount
corresponding to expenses or costs of the hollow block fence
constructed
d. Dignos spouses to return to Cabigas spouses the sum of P35,000
5. CA affirmed the decision. MR was also filed but was denied for lack of merit.
ISSUES:
1. WoN the subject contract is a deed of absolute sale or a contract to sell –
Deed of Absolute Sale
2. WoN there was a valid rescission – NO
RULING: WHEREFORE, the petition filed is hereby Dismissed for lack of merit and
the assailed decision of the Court of Appeals is Affirmed in toto.
RATIO:
1. The contract in question (Exhibit C) is a Deed of Sale, with the following
conditions:
a. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos
P12,000.00) Phil. Philippine Currency as advance payment;
b. That Atilano G. Jabil is to assume the balance of Twelve Thousand
Pesos (P12,000.00) Loan from the First Insular Bank of Cebu;
c. That Atilano G. Jabil is to pay the said spouses the balance of Four.
Thousand Pesos (P4,000.00) on or before September 15,1965;
d. That the said spouses agrees to defend the said Atilano G. Jabil from
other claims on the said property;
e. That the spouses agrees to sign a final deed of absolute sale in favor
of Atilano G. Jabil over the above-mentioned property upon the
payment of the balance of Four Thousand Pesos.
2. Petitioner’s Contentions: Dignos spouses reiterated their contention that the
 Deed of Sale is a mere contract to sell and not an absolute sale;
a. That the same is subject to two positive suspensive conditions,
namely (1) the payment of the balance of P4,000.00 on or before
September 15,1965 and (2) the immediate assumption of the
mortgage of P12,000.00 with the First Insular Bank of Cebu.
b. That in said contract, title or ownership over the property was
expressly reserved in the vendor, the Dignos spouses until the
suspensive condition of full and punctual payment of the balance of
the purchase price shall have been met. So that there is no actual sale
until full payment is made.
c. That there is absolutely nothing that indicates that the vendors
thereby sell, convey or transfer their ownership to the alleged
vendee
d. Dignos spouses insist that it is a private instrument and the absence
of a formal deed of conveyance is a very strong indication that the
parties did not intend “transfer of ownership and title but only a
transfer after full payment.”
e. Dignos spouses anchored their contention on the very terms and
conditions of the contract, more particularly paragraph four and
condition number five
3. FIRST ISSUE: It has been held that a deed of sale is absolute in nature
although denominated as a “Deed of Conditional Sale” where nowhere
in the contract in question is a proviso or stipulation to the effect that
title to the property sold is reserved in the vendor until full payment of
the purchase price, nor is there a stipulation giving the vendor the right
to unilaterally rescind the contract the moment the vendee fails to pay
within a fixed period.
4. In this case, there is no such stipulation in the contract reserving the title
of the property on the vendors nor does it give them the right to
unilaterally rescind the contract upon non-payment of the balance
thereof within a fixed period.
5. On the contrary, all the elements of a valid contract of sale under Article 1458
of the Civil Code, are present, such as: (1) consent or meeting of the minds;
(2) determinate subject matter; and (3) price certain in money or its
equivalent. In addition, Article 1477 of the same Code provides that “The
ownership of the thing sold shall be transferred to the vendee upon actual or
constructive delivery thereof.” In the absence of stipulation to the contrary,
the ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof.
6. While it may be conceded that there was no constructive delivery of the land
sold in the case at bar, as subject Deed of Sale is a private instrument, it is
beyond question that there was actual delivery thereof. The Dignos spouses
delivered the possession of the land in question to Jabil as early as March
27,1965 so that the latter constructed thereon Sally's Beach Resort also
known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort
on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965.
7. SECOND ISSUE: Dignos spouses also claim that when they sold the land
to the Cabigas spouses, the contract of sale was already rescinded.
8. The contract of sale being absolute in nature is governed by Article 1592 of
the Civil Code. It is undisputed that Dignos spouses never notified Jabil by
notarial act that they were rescinding the contract, and neither did they file a
suit in court to rescind the sale. The most that they were able to show is a
letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed
the Dignos spouses not to go to the house of Jabil because the latter had no
money and further advised Dignos spouses to sell the land in litigation to
another party.
9. There is no showing that Amistad was properly authorized by Jabil to make
such extra-judicial rescission for the latter who, on the contrary, vigorously
denied having sent Amistad to tell Dignos spouses that he was already
waiving his rights to the land in question. Under Article 1358 of the Civil
Code, it is required that acts and contracts which have for their object the
extinguishment of real rights over immovable property must appear in a
public document.
10. Dignos spouses laid considerable emphasis on the fact that p Jabil had no
money on the stipulated date of payment on September 15,1965 and was able
to raise the necessary amount only by mid-October 1965. It has been ruled,
however, that “where time is not of the essence of the agreement, a slight
delay on the part of one party in the performance of his obligation is not a
sufficient ground for the rescission of the agreement.”
11. Considering that Jabil has only a balance of P4,000.00 and was delayed in
payment only for one month, equity and justice mandate as in the aforecited
case that Jabil be given an additional period within which to complete
payment of the purchase price.
08 UNIVERSITY OF THE PHILIPPINES vs. DE LOS ANGELES (Elach) law.
September 9, 1970 | Reyes JBL, J. | Remedies for breach/Rescission

PETITIONERS: University of the Philippines

RESPONDENTS: Walfrido De Los Angeles, In His Capacity as Judge of The
Court Of First Instance In Quezon City, et al.

SUMMARY: On November 2, 1960, UP and ALUMCO entered into a logging

agreement whereby the latter was granted exclusive authority to cut, collect and
remove timber from the Land Grant for a period starting from the date of
agreement to December 31, 1965, extendible for a period of 5 years by mutual
agreement. On December 8, 1964, ALUMCO incurred an unpaid account of
P219,362.94. Despite repeated demands, ALUMCO still failed to pay, so UP sent
a notice to rescind the logging agreement. On the other hand, ALUMCO executed
an instrument entitled “Acknowledgment of Debt and Proposed Manner of
Payments. It was approved by the president of UP, which stipulated the following:
3. In the event that the payments called for are not sufficient to liquidate the
foregoing indebtedness, the balance outstanding after the said payments have
been applied shall be paid by the debtor in full no later than June 30, 1965. 5. In
the event that the debtor fails to comply with any of its promises, the Debtor agrees
without reservation that Creditor shall have the right to consider the Logging
Agreement rescinded, without the necessity of any judicial suit… ALUMCO
continued its logging operations, but again incurred an unpaid account. On July
19,1965, UP informed ALUMCO that it had, as of that date, considered rescinded
and of no further legal effect the logging agreement, and that UP had already taken
steps to have another concessionaire take over the logging operation. ALUMCO
filed a petition to enjoin UP from conducting the bidding. The lower court ruled
in favor of ALUMCO, hence, this appeal. Issue in this case is W/N UP can treat
its contract with ALUMCO rescinded, and may disregard the same before any
judicial pronouncement to that effect? According to the SC, Yes. In the first place,
UP and ALUMCO had expressly stipulated that upon default by the debtor, UP
has the right and the power to consider the Logging Agreement of December 2, FACTS:
1960 as rescinded without the necessity of any judicial suit. As to such special 21. 3 orders of the CFI, are sought to be annulled in this petition for certiorari and
stipulation and in connection with Article 1191 of the Civil Code, the Supreme prohibition, filed by herein petitioner University of the Philippines against
Court, stated in Froilan vs. Pan Oriental Shipping Co: “There is nothing in the law the above-named respondent judge and the Associated Lumber
that prohibits the parties from entering into agreement that violation of the terms Manufacturing Company, Inc. (or ALUMCO).
of the contract would cause cancellation thereof, even without court intervention. 22. The first order, enjoined UP from awarding logging rights over its timber
In other words, it is not always necessary for the injured party to resort to court concession (or Land Grant), situated at the Lubayat areas in the provinces of
for rescission of the contract.” Laguna and Quezon; the second order adjudged UP in contempt of court, and
directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging
DOCTRINE: Party who deems the contract violated may consider it resolved or rights or conducting logging operations on the concession; and the third order
rescinded, and act accordingly, without previous court action, but it proceeds at denied reconsideration of the order of contempt.
its own risk. For it is only the final judgment of the corresponding court that will 23. On November 2, 1960, UP and ALUMCO entered into a logging agreement
conclusively and finally settle whether the action taken was or was not correct in
 whereby the latter was granted exclusive authority to cut, collect and remove
timber from the Land Grant for a period starting from the date of agreement
to December 31, 1965, extendible for a period of 5 years by mutual
agreement.
24. On December 8, 1964, ALUMCO incurred an unpaid account of
P219,362.94. Despite repeated demands, ALUMCO still failed to pay, so UP
sent a notice to rescind the logging agreement. On the other hand, ALUMCO
executed an instrument entitled “Acknowledgment of Debt and Proposed
Manner of Payments.
25. It was approved by the president of UP, which stipulated the following:
a. In the event that the payments called for in Nos. 1 and 2 of this
paragraph are not sufficient to liquidate the foregoing indebtedness
of the DEBTOR in favor of the CREDITOR, the balance
outstanding after the said payments have been applied shall be paid
by the DEBTOR in full no later than June 30, 1965;
b. In the event that the DEBTOR fails to comply with any of its
promises or undertakings in this document, the DEBTOR agrees
without reservation that the CREDITOR shall have the right and the
power to consider the Logging Agreement dated December 2, 1960
as rescinded without the necessity of any judicial suit, and the
CREDITOR shall be entitled as a matter of right to Fifty Thousand
Pesos (P50,000.00) by way of and for liquidated damages;
26. ALUMCO continued its logging operations, but again incurred an unpaid
account, for the period from 9 December 1964 to 15 July 1965, in the amount
of P61,133.74, in addition to the indebtedness that it had previously
acknowledged.
27. That on 19 July 1965, petitioner UP informed respondent ALUMCO that it
had, as of that date, considered as rescinded and of no further legal effect the
logging agreement that they had entered in 1960; and on 7 September 1965,
UP filed a complaint against ALUMCO for the collection or payment of the
herein before stated sums of money and alleging the facts hereinbefore
specified, together with other allegations; it prayed for and obtained an order,
dated 30 September 1965, for preliminary attachment and preliminary
injunction restraining ALUMCO from continuing its logging operations in
the Land Grant.
28. That before the issuance of the aforesaid preliminary injunction UP had taken
steps to have another concessionaire take over the logging operation, by
advertising an invitation to bid; that bidding was conducted, and the
concession was awarded to Sta. Clara Lumber Company, Inc.; the logging
contract was signed on 16 February 1966.
29. That, meantime, ALUMCO had filed several motions to discharge the writs
of attachment and preliminary injunction but were denied by the court;
30. That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner
University from conducting the bidding; on 27 November 1965, it filed a
second petition for preliminary injunction; and, on 25 February 1966,
respondent judge issued the first of the questioned orders, enjoining UP from
awarding logging rights over the concession to any other party.
31. That UP received the order of 25 February 1966 after it had concluded its
contract with Sta. Clara Lumber Company, Inc., and said company had
started logging operations.
32. That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the
court, in an order dated 14 January 1967, declared petitioner UP in contempt
of court and, in the same order, directed Sta. Clara Lumber Company, Inc., to
refrain from exercising logging rights or conducting logging operations in the
concession.
33. The UP moved for reconsideration of the aforesaid order, but the motion was
denied on 12 December 1967.
34. Except that it denied knowledge of the purpose of the Land Grant, which
purpose, anyway, is embodied in Act 3608 and, therefore, conclusively
known, respondent ALUMCO did not deny the foregoing allegations in the
petition. In its answer, respondent corrected itself by stating that the period
of the logging agreement is five (5) years - not seven (7) years, as it had
alleged in its second amended answer to the complaint in Civil Case No.
9435.
35. It reiterated, however, its defenses in the court below, which maybe boiled
down to: blaming its former general manager, Cesar Guy, in not turning over
management of ALUMCO, thereby rendering it unable to pay the sum of
P219,382.94; that it failed to pursue the manner of payments, as stipulated in
the "Acknowledgment of Debt and Proposed Manner of Payments" because
the logs that it had cut turned out to be rotten and could not be sold to Sta.
Clara Lumber Company, Inc., under its contract "to buy and sell" with said
firm, and which contract was referred and annexed to the "Acknowledgment
of Debt and Proposed Manner of Payments"; that UP's unilateral rescission
of the logging contract, without a court order, was invalid; that petitioner's
supervisor refused to allow respondent to cut new logs unless the logs
previously cut during the management of Cesar Guy be first sold; that
respondent was permitted to cut logs in the middle of June 1965 but
petitioner's supervisor stopped all logging operations on 15 July 1965; that it
had made several offers to petitioner for respondent to resume logging
operations but respondent received no reply.
36. The basic issue in this case is whether petitioner U.P. can treat its contract
with ALUMCO rescinded, and may disregard the same before any judicial
pronouncement to that effect.
37. Respondent ALUMCO contended, and the lower court, in issuing the
injunction order of 25 February 1966, apparently sustained it (although the
order expresses no specific findings in this regard), that it is only after a final
court decree declaring the contract rescinded for violation of its terms that
U.P. could disregard ALUMCO's rights under the contract and treat the
 agreement as breached and of no force or effect.
ISSUE/s
W/N UP can treat its contract with ALUMCO rescinded, and may disregard the same
before any judicial pronouncement to that effect? – YES
RULING: WHEREFORE, the writ of certiorari applied for is granted, and the order
of the respondent court of 25 February 1966, granting the Associated Lumber
Company's petition for injunction, is hereby set aside. Let the records be remanded for
further proceedings conformably to this opinion.
compensation in damages, it becomes plain that the acts of the court a quo in
enjoining petitioner's measures to protect its interest without first receiving
evidence on the issues tendered by the parties, and in subsequently refusing
to dissolve the injunction, were in grave abuse of discretion, correctible by
certiorari, since appeal was not available or adequate. Such injunction,
therefore, must be set aside.

RATIO:
18. In the first place, UP and ALUMCO had expressly stipulated that upon
default by the debtor, UP has the right and the power to consider the Logging
Agreement of December 2, 1960 as rescinded without the necessity of any
judicial suit.
19. As to such special stipulation and in connection with Article 1191 of the Civil
Code, the Supreme Court, stated in Froilan vs. Pan Oriental Shipping Co:
“There is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation
thereof, even without court intervention.
20. In other words, it is not always necessary for the injured party to resort to
court for rescission of the contract.”
21. The law definitely does not require that the contracting party who believes
itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by the
other's breach will have to passively sit and watch its damages accumulate
during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to
minimize its own damages.
22. In the light of the foregoing principles, and considering that the complaint of
petitioner University made out a prima facie case of breach of contract and
defaults in payment by respondent ALUMCO, to the extent that the court
below issued a writ of preliminary injunction stopping ALUMCO's logging
operations, and repeatedly denied its motions to lift the injunction
23. That it is not denied that the respondent company had profited from its
operations previous to the agreement of 5 December 1964
("Acknowledgment of Debt and Proposed Manner of Payment"); that the
excuses offered in the second amended answer, such as the misconduct of its
former manager Cesar Guy, and the rotten condition of the logs in private
respondent's pond, which said respondent was in a better position to know
when it executed the acknowledgment of indebtedness, do not constitute on
their face sufficient excuse for non-payment; and considering that whatever
prejudice may be suffered by respondent ALUMCO is susceptibility of
 09 PALAY INC. v. CLAVE (Ella)
Sept. 21, 1983 | Melencio-Herrera J. | Extrajudical Rescission
PETITIONER: Palay Inc. and Albert Onstott
RESPONDENTS: Jacobo C. Clave, Presidential Executive Assistant, National
Housing Authority and Nazario Dumpit,
SUMMARY: Petitioner Palay Inc. and private respondent Nazario Dumpit
entered into a contract to sell a parcel of land in favor of the latter. Par. 6 of the
contract provided for automatic extrajudicial rescission upon default in payment
of any monthly installment after the lapse of 90 days from the expiration of the
grace period of 1 month, without need of notice & with forfeiture of all
installments paid. Dumpit was able to pay some of the installments but it was later
in default. 6 years from his last payment, Dumpit wrote Palay Inc. offering to
update all his overdue accounts but the latter informed him that the contract to sell
had long been rescinded pursuant to said Par. 6. Dumpit then questioned the
validity of the rescission. Palay Inc. maintains that the rescission without prior
notice was justified considering that it was expressly provided for in their contract,
and the condition of default occurred. SC said that while extrajudicial rescission
is valid, Palay Inc. should have given prior notice to Dumpit informing the latter
of the rescission. Notice is indispensable in extrajudicial rescission. However,
when the party in default questions the validity of the extrajuducial rescission,
judicial determination of the rescission is also necessary. Also in a contract of
adhesion where only one party makes the stipulations and the other only adheres
to it such that there is no freedom to stipulate, a waiver of notice must be certain,
unequivocal, and intelligently made. Such waiver only follows where freedom of
choice has been fully accorded. Finally, as a consequence of rescission, subject lot
must be restored in favor of Dumpit, or an available lot. In case there are no
available lots and the subject lot has been transferred to a 3rd person, then
installments paid by Dumpit must be refunded plus legal interest.
DOCTRINE: Judicial action for the rescission of a contract is not necessary
where the contract provides that it may be revoked and cancelled for violation of
any of its terms and conditions. However, notice informing the party in default of
the rescission is necessary. Also, extrajudicial rescission has legal effect where the
other party does not oppose it. Where it is objected to, a judicial determination of
the issue is still necessary.
FACTS:
1. On March 28, 1965, petitioner Palay, Inc., through its President, Albert
Onstott, executed in favor of private respondent, Nazario Dumpit, a Contract
to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview Heights
Subdivision in Antipolo, Rizal, with an area of 1,165 square meters, covered
by TCT No. 90454, and owned by said corporation. The sale price was
P23,300.00 with 9% interest per annum, payable with a downpayment of
P4,660.00 and monthly installments of P246.42 until fully paid.
2. Paragraph 6 of the contract provided for automatic extrajudicial rescission
upon default in payment of any monthly installment after the lapse of 90 days
from the expiration of the grace period of one month, without need of notice
and with forfeiture of all installments paid.
3. Respondent Dumpit paid the downpayment and several installments
amounting to P13,722.50. The last payment was made on December 5, 1967
for installments up to September 1967.
4. On May 10, 1973, or almost six (6) years later, Dumpit wrote Palay Inc.
offering to update all his overdue accounts with interest, and seeking its
written consent to the assignment of his rights to a certain Lourdes Dizon. He
followed this up with another letter dated June 20, 1973 reiterating the same
request.
5. Replying, Palay Inc. informed Dumpit that his Contract to Sell had long been
rescinded pursuant to paragraph 6 of the contract, and that the lot had already
been resold.
6. Questioning the validity of the rescission of the contract, Dumpit filed a letter
complaint with the National Housing Authority (NHA) for reconveyance
with an alternative prayer for refund.
7. In a Resolution, dated July 10, 1979, the NHA, finding the rescission void in
the absence of either judicial or notarial demand, ordered Palay, Inc. and
Alberto Onstott, in his capacity as President of the corporation, jointly and
severally, to refund immediately to Nazario Dumpit the amount of
P13,722.50 with 12% interest from the filing of the complaint.
8. Palay Inc.'s Motion for Reconsideration of said Resolution was denied by the
NHA in its Order dated October 23, 1979.
9. On appeal to the Office of the President, upon the allegation that the NHA
Resolution was contrary to law, Presidential Executive Assistant, on May 2,
1980, affirmed the Resolution of the NHA. Reconsideration sought by Palay
Inc. was denied for lack of merit. Thus, the present petition was filed.
ISSUE/s:
1. (Main Issue) WON notice or demand is indispensible under the
circumstances in a stipulation in a contract to sell = YES, NOTICE IS
INDISPENSIBLE
2. WON the installments paid by private respondent Dumpit must be refunded
= YES
RULING: WHEREFORE, the questioned Resolution of respondent public official,
dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed to refund to
respondent Nazario M. Dumpit the amount of P13,722.50, with interest at twelve
(12%) percent per annum from November 8, 1974, the date of the filing of the
Complaint. The temporary Restraining Order heretofore issued is hereby lifted. No
costs. SO ORDERED.
RATIO:
Notice is indispensable.
1. Palay Inc. maintains that it was justified in cancelling the contract to sell
without prior notice or demand upon Dumpit in view of paragraph 6 of their
contract with Dumpit. SC said Palay Inc. is wrong.
2. Well settled is the rule, as held in previous jurisprudence, that judicial action
for the rescission of a contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of any of its terms and
conditions. However, even in previous jurisprudence, there was at least a
written notice sent to the defaulter informing him of the rescission. The act
of a party in treating a contract as cancelled should be made known to
the other.
3. Extrajudicial rescission has legal effect where the other party does not
oppose it. Where it is objected to, a judicial determination of the issue is
still necessary. In other words, resolution of reciprocal contracts may be
made extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination.
4. In this case, private respondent Nazario Dumpit has denied that rescission is
justified and has resorted to judicial action (since he questioned the validity
of the rescission). It is now for the Court to determine whether resolution of
the contract by Palay Inc. was warranted.
5. SC held that resolution by Palay Inc. of the contract was ineffective and
inoperative against Dumpit for lack of notice of resolution, as held in the
U.P. vs. Angeles case.
6. The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments." which
took effect on September 14, 1972.
30
ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
7. The contention that Dumpit had waived his right to be notified under
paragraph 6 of the contract is neither meritorious because it was a contract
of adhesion, a standard form of petitioner Palay Inc., and private respondent
Dumpit had no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only where
liberty of choice has been fully accorded. Moreover, it is a matter of
public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of notice is one such
onerous and oppressive condition to buyers of real estate on installment
payments.
Installments paid by Dumpit must be refunded
1. Art. 138530 of the Civil Code gives petitioner Palay Inc. the obligation to
refund the installments paid by private respondent Dumpit as a consequence
of the rescission.
2. Rights to the lot should be restored to Dumpit or the same should be replaced
by another acceptable lot. However, considering that the property had
already been sold to a third person (this fact was not mentioned in the facts,
only in the ratio) and there is no evidence on record that other lots are still
available, Dumpit is entitled to the refund of installments paid plus interest
at the legal rate of 12% computed from the date of the institution of the
action.
3. It would be most inequitable if Palay Inc. was to be allowed to retain
Dumpit’s payments and at the same time appropriate the proceeds of the
second sale to another.
Neither shall rescission 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 this case, indemnity for damages may be demanded from the person
causing the loss
 10 AFP Mutual Benefit Assn. v. CA (EMAR)
September 10, 2001| Pardo, J. | Cancellation of Contracts to Sell
G.R. No. 104769
PETITIONER: AFP MUTUAL BENEFIT ASSOCIATION, INC.
RESPONDENT: COURT OF APPEALS, SOLID HOMES, INC., INVESTCO,
INC., and REGISTER OF DEEDS OF MARIKINA
G.R. No. 135016
PETITIONER: AFP MUTUAL BENEFIT ASSOCIATION, INC.
RESPONDENT: INVESTCO, INC., substituted by ARMED FORCES OF THE
PHILIPPINES MUTUAL BENEFIT ASSOCIATION, INC.
SUMMARY: Investco and Solid Homes entered into a contract to sell for parcels of
land in QC and Marikina but Solid Homes wasn’t able to pay its obligation in full,
so Investco extra-judicially rescinded the contract between them and later on entered
into a contract of absolute sale with AFP, involving the same property. Solid Homes
was claiming that AFP is not a purchaser in good faith and for value because the
subject properties it has bought has a notice of lis pendence31 on its title. The court
ruled that AFP is a purchaser in good faith and for value through stating that the
Rules of Court allows the annotation of a notice of lis pendens in actions affecting
the title or right of possession of real property, or an interest in such real property
and that the basis of the annotation pending with the trial court was an action for
collection of a sum of money and did not involve the titles to, possession or
ownership of the subject property or an interest therein. Secondly, the court stated
that upon Solid Homes’ failure to comply with its obligation to pay the installments
for the purchase of the properties on the dates specified in the contract to sell, there
was no need to judicially rescind the contract to sell. Failure by one of the parties to
abide by the conditions in a contract to sell resulted in the rescission of the contract.
It would be unfair if Solid Homes which has failed to pay anything since 1981 and
defaulted since 1982, would now get the property by performance of the very
contract which it violated. With the passage of time, more than 14y, and appreciation
in the value of real estate which is now worth billions of Pesos, thus enriching Solid
Homes for its violation of the contract and default on its obligation.
DOCTRINE: In a contract to sell, upon failure of buyer to comply with its
obligation, there was no need to judicially rescind the contract to sell. Failure by
one of the parties to abide by the conditions in a contract to sell resulted in the
rescission of the contract.
31
A notice of lis pendens is an announcement to the whole world that a particular real property is in
litigation, serving as a warning that one who acquires interest over said property does so at his own risk, or
that he gambles on the result of the litigation over the said property.
32
A purchaser in good faith and for value is defined by the court as one who buys the property of another
without notice that some other person has a right to or interest in such property and pays a full and fair price
FACTS:
1. September 1976: Investco & Solid Homes entered into an agreement to
buy and to sell. Under the contract to sell, the vendors bound themselves to
cause the titles to the land to be transferred in the name of Investco after
which, should Solid Homes complete the installment payments, Investco
would execute a Deed of Absolute Sale in favor of Solid Homes and Solid
Homes would execute a first preferred mortgage in favor of Investco. The
deed of absolute sale would replace the contract to sell. Only then would
Solid Homes be entitled to take possession of the QC and Marikina parcels
of land and introduce improvements thereon.
2. March 21, 1979: titles to the Marikina property were issued in the name of
Investco. However, it did not execute a deed of absolute sale in favor of Solid
Homes because Solid Homes never paid in full its stipulated obligation
payable in installments. In fact, Solid Homes did not even bother to register
its contract to sell with the Register of Deeds pursuant to the Property
Registration Decree (PD1529).
3. With the same property as the subject matter, Investco & AFP entered into
a contract of absolute sale. Investco sold the property which AFP paid for in
full, causing the transfer of titles in the name of AFP.
4. This case is an MR by Solid Homes of the SC decision ordering the
Register of Deeds to cancel the notice of lis pendens on the titles issued to
AFP, declaring AFP as a buyer in good faith and for value32.
5. Solid Homes’ position is based on the preposition that a notice of lis
pendens was duly annotated on the vendor’s title that must be deemed carried
over to the titles issued to AFP, subjecting it to final result of the litigation as
transferee pendente lite.
ISSUES:
1. WON AFP was a purchaser in good faith and for value - YES
2. WON the Court erred in failing to appreciate Solid Homes’cause of action - NO
3. WON the Court erred in denying Solid Homes’ petition to set aside the trial courts
order denying its motion to execute its decision - NO
RULING: IN VIEW WHEREOF, we DENY Solid Homes, Inc.’s motion for
reconsideration, for lack of merit. The denial is final.
RATIO:
On WON AFP was a purchaser in good faith
for the same, at the time of such purchase, or before he has notice of the claim or interest of some other
person in the property.
1. The Rules of Court allows the annotation of a notice of lis pendens in
actions affecting the title or right of possession of real property, or an
interest in such real property. It is declared that the rule of lis pendens
applied to suits brought to establish an equitable estate, interest, or right
in specific real property or to enforce any lien, charge, or encumbrance
against it x x x.
2. Pencil markings are not an accepted form of annotating a notice of lis
pendens. SC cannot accept the argument that such pencil annotation can be
considered as a valid annotation of notice of lis pendens, and thus an effective
notice to the whole world as to the status of the title to the land. The law
requires proper annotation, not provisional annotation of a notice of lis
pendens.
3. To allow provisional annotations as a valid form of annotation of notice of
lis pendens will erode the very value of the indefeasibility of the Torrens
system. If there were a valid annotation of notice of lis pendens, the same
would have been carried over to the titles issued to AFP, but there was none,
so the TCTs of the vendor Investco conveyed to AFP were clean and without
any encumbrance.
4. There could be no valid annotation on the titles issued to AFP because the
case used as basis of the annotation pending with the trial court was an action
for collection of a sum of money and did not involve the titles to,
possession or ownership of the subject property or an interest therein.
The SC, categorized the action initiated by Investco against Solid Homes as:
“An action for collection of sums of money, damages and attorneys fees was
filed with the RTC…”
5. Such action did not directly involve titles to, ownership or possession
of the subject property, & therefore, was not a proper subject of a notice
of lis pendens.
6. The Torrens system was believed to be the most effective measure to
guarantee the integrity of land titles and to protect their indefeasibility
once the claim of ownership is established and recognized. If a person
purchases a piece of land on the assurance that the sellers title thereto is valid,
he should not run the risk of being told later that his acquisition was
ineffectual after all. This would not only be unfair to him; if this were
permitted, public confidence in the system would be eroded and land
transactions would be attended by complicated and not necessarily
conclusive investigations and proof of ownership. The further consequence
would be that land conflicts could be even more numerous and complex than
they are now and possibly also more abrasive, if not even violent.
7. All persons dealing with property covered by the Torrens certificate of title
are not required to go beyond what appears on the face of the title. The
buyer is not obligated to look beyond the certificate to investigate the titles
of the seller appearing on the face of the certificate. Hence, AFP is a buyer in
good faith and for value.
Contract of Sale vs. Contract to Sell
8. The contractual relation between Investco and Solid Homes, is based on
an agreement executed as a contract to sell and to buy, in which AFP is not
a party.
9. The relationship between AFP and Investco arose out of a contract of
absolute sale after Solid Homes defaulted on its contract to sell, and
Investco rescinded extra-legally such contact to sell with Solid Homes.
AFP did not acquire from Solid Homes its rights or interest over the
property in question; Investco sold the property itself which AFP paid in
full, causing transfer of titles in the name of AFP.
10. When the contract was entered into between Solid Homes and Investco
in September 1976, the titles to the QC and Marikina property had not
been transferred in the name of Investco as assignee of the owners. Hence,
Investco merely agreed to sell, and Solid Homes to buy the rights and
interest of Investco in the property which at the time was still registered in
the names of Staley and Perez, Investco’s predecessors-in-interest.
11. Under the contract of sale, the vendors bound themselves to cause the
titles to the land to be transferred in the name of Investco after which,
should Solid Homes complete the installment payments, Investco would
execute a Deed of Absolute Sale in favor of Solid Homes & Solid Homes
would execute a first preferred mortgage in favor of Investco. The deed
of absolute sale would replace the contract to sell. Only then would Solid
Home be entitled to take possession of the QC and Marikina parcels of
land and introduce improvements thereon.
12. Around March 1979, the titles to the property were issued in the name
of Investco but Investco did not execute a deed of absolute sale in favor of
Solid Homes because Solid Homes never paid in full its stipulated
obligation payable in installments. Solid Homes did not even bother to
register its contract to sell with the Register of Deeds pursuant to the
Property Registration Decree (PD 1529).
13. Solid Homes’ contention that the transaction between AFP, Investco and
Solid Homes is in the nature of a double sale is untenable. The transaction
between:
(a) Investco and Solid Homes: contract to sell and to buy (not
consummated because Solid Homes defaulted on its payments)
(b) Investco and AFP: absolute sale (culminated in the registration of the
deeds + issuance of certificate of titles in favor of AFP)
14. Salazar v. CA: Differentiated the Contract to Sell and Contract of Sale
Contract to Sell Contract of Sale
Ownership is, by agreement, Title to the property passes to the
reserved in the vendor and is not vendee upon the delivery of the
to pass to the vendee until full thing sold
payment of the purchase price.
Title is retained by the vendor until Vendor loses ownership over the 14y, and appreciation in the value of real estate, the property is now worth
full payment of the price. property and cannot recover it until billions of pesos,thus enriching Solid Homes for its violation of the contract
and unless the contract is resolved or and default on its obligation.
rescinded
Payment of the price is a 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.
15. Upon Solid Homes’ failure to comply with its obligation to pay the
installments for the purchase of the properties on the dates specified in the
contract to sell, there was no need to judicially rescind the contract to sell.
Failure by one of the parties to abide by the conditions in a contract to sell
resulted in the rescission of the contract.

Solid Homes has no Personality to Move for Execution

16. The court found untenable Solid Homes’ last contention that when the
decision in the previous Civil Case became final, there was no one to move
for execution of the decision since Investco had absconded, and had re-
sold the property. Investco was the party which had the right to demand
execution.
17. Once a judgment becomes final and executory, the prevailing party can
have it executed as a matter of right, and the issuance of a writ of
execution becomes a ministerial duty of the court. In fact, the prevailing
party is the one really entitled to file a motion for the issuance of a writ
of execution.
18. In this case, it was Solid Homes that filed a motion for execution of
judgment in the court of origin which court denied the motion. Hence, 2 years
later, Solid Homes filed a petition for certiorari with the SC.
19. Assuming that AFP was bound by the judgment in the previous and be
substituted for Investco, it is clear that Investco prevailed in the case. It was
the winning party which is entitled as a matter of right to a writ of
execution in its favor. It is not an option of the losing party to file a motion
for execution of judgment to compel the winning party to take the
judgment. As the losing party, Solid Homes can not now insist on the
performance of the very contract on which it defaulted for more than
14y. Hence, Solid Homes has no personality to move for execution of the
final judgment in the Civil Case. The trial court correctly denied its motion
for execution.
20. It would be unfair if Solid Homes which has failed to pay anything since
1981 and defaulted since 1982, would now get the property by performance
of the very contract which it violated. With the passage of time, more than
01 ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z.
LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA
vs. ALONZO MACHUCA (sarmiento)
June 16, 2000 | Gonzaga-Reyes, J. | Contract of sale
PETITIONER: Roberto Laforteza et al.
RESPONDENTS: Alonzo Machuca
SUMMARY: The subject property of the case is registered in the name of Francisco
Laforteza. Francisco already died thus his heirs were in the process of settling his
estate, including the subject property. The heirs, Lea Laforteza, Michael Laforteza
and Dennis Laforteza authorized Roberto and Gonzalo Laforteza to sell the property.
The agents thus entered into a Memorandum of Agreement (Contract to sell) with
Machuca. In the agreement, it contained a provision stating that upon issuance by the
proper Court of the new title, the BUYER-LESSEE shall be notified in writing and
said BUYER-LESSEE shall have thirty (30) days to produce the balance
of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution
of the Extrajudicial Settlement with sale. Mahuca paid earnest money of P30,000.
Then he asked for an extension within which to pay the balance. It was approved by
Roberto but not by Gonzalo. Thus when Machuca said that he already had the money
to pay the full amount, the sellers told him that they were cancelling the sale.
Machuca thus filed a complaint for specific performance. The court ruled that the
sellers should perform their obligation to deliver and transfer ownership over the
property to the buyer, as there was already a perfected contract of sale. The six-month
period during which the respondent would be in possession of the property as lessee,
was clearly not a period within which to exercise an option. the six-month period
merely delayed the demandability of the contract of sale and did not determine its
perfection for after the expiration of the six-month period, there was an absolute
obligation on the part of the petitioners and the respondent to comply with the terms
of the sale. Furthermore, The issuance of the new certificate of title in the name of
the late Francisco Laforteza and the execution of an extrajudicial settlement of his
estate was not a condition which determined the perfection of the contract of sale.
The petitioners fail to distinguish between a condition imposed upon the perfection
of the contract and a condition imposed on the performance of an obligation. Failure
to comply with the first condition results in the failure of a contract, while the failure
to comply with the second condition only gives the other party the option either to
refuse to proceed with the sale or to waive the condition. What further militates
against petitioners argument that they did not enter into a contract of sale is the fact
that the respondent paid thirty thousand pesos (P30,000.00) as earnest money.
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
DOCTRINE: Failure to comply with condition imposed upon perfection of the
contract results in failure of a contract, while the failure to comply with a condition
imposed on the performance of an obligation only gives the other party the option
either to refuse to proceed with sale or waive the condition.
FACTS:
1. The property involved consists of a house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila. The
subject property is registered in the name of the late Francisco Q. Laforteza,
although it is conjugal in nature
2. Defendant Lea Zulueta-Laforteza, Michael Laforteza and Dennis Laforteza
executed a Special Power of Attorney in favor of defendants Roberto Z.
Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-
fact authorizing them jointly to sell the subject property and sign any
document for the settlement of the estate of the late Francisco Q. Laforteza
3. In the exercise of the above authority, the heirs of the late Francisco Q.
Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr.
entered into a Memorandum of Agreement (Contract to Sell) with the
plaintiff over the subject property for the sum of (P630,000.00) payable as
follows:
a. P30,000.00 as earnest money, to be forfeited in favor of the
defendants if the sale is not effected due to the fault of the plaintiff;
b. P600,000.00 upon issuance of the new certificate of title in the
name of the late Francisco Q. Laforteza and upon execution of an
extra-judicial settlement of the decedents estate with sale in favor of
the plaintiff.
4. Significantly, the fourth paragraph of the Memorandum of Agreement
(Contract to Sell) contained a provision as follows:
xxx. Upon issuance by the proper Court of the new title, the
BUYER-LESSEE shall be notified in writing and said BUYER-
LESSEE shall have thirty (30) days to produce the balance
of P600,000.00 which shall be paid to the SELLER-LESSORS upon
the execution of the Extrajudicial Settlement with sale.
5. Plaintiff paid the earnest money of (P30,000.00), plus rentals for the subject
property
6. Defendant heirs, through their counsel wrote a letter to the plaintiff furnishing
the latter a copy of the reconstituted title to the subject property, advising him
that he had thirty (30) days to produce the balance of (P600,000.00) under
the Memorandum of Agreement which plaintiff received on the same date

7. Plaintiff sent the defendant heirs a letter requesting for an extension of the 30
days deadline up to November 15, 1989 within which to produce the balance
of (P600,000.00). Defendant Roberto Z. Laforteza, signed his conformity to
the plaintiffs letter request. The extension, however, does not appear to have
been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his
conformity does not appear to have been secured.
8. Plaintiff informed the defendant heirs, through defendant Roberto Z.
Laforteza, that he already had the balance of (P600,000.00). However, the
defendants, refused to accept the balance. Defendant Roberto Z. Laforteza
had told him that the subject property was no longer for sale.
9. Defendants informed the plaintiff that they were canceling the Memorandum
of Agreement (Contract to Sell) in view of the plaintiffs failure to comply
with his contractual obligations.
10. Thereafter, plaintiff reiterated his request to tender payment of the balance of
(P600,000.00). Defendants, however, insisted on the rescission of the
Memorandum of Agreement. Thereafter, plaintiff filed the instant action for
specific performance.
11. Lower court: judgment is hereby rendered in favor of plaintiff Alonzo
Machuca and against the defendant heirs of the late Francisco Q. Laforteza,
ordering the said defendants. Defendants are ordered to accept the balance of
P600,000.00 as full payment of the consideration for the purchase of the
house and lot.
12. CA: affirmed the decision of the lower court
13. Hence this petition.
ISSUE: Whether or not there was a perfected contract of sale-YES
RULING:
ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No.
47457 is AFFIRMED and the instant petition is hereby DENIED.
RATIO:
Petitioner’s CONTENTIONS:
14. Petitioners contend that the Memorandum of Agreement is merely a lease
agreement with "option to purchase". As it was merely an option, it only gave
the respondent a right to purchase the subject property within a limited period
without imposing upon them any obligation to purchase it. Since the
respondents tender of payment was made after the lapse of the option
agreement, his tender did not give rise to the perfection of a contract of sale.
15. It is further maintained by the petitioners that the Court of Appeals erred in
ruling that rescission of the contract was already out of the question.
Rescission implies that a contract of sale was perfected unlike the
Memorandum of Agreement in question which as previously stated is
allegedly only an option contract.
16. Petitioner adds that at most, the Memorandum of Agreement (Contract to
Sell) is a mere contract to sell, as indicated in its title. The obligation of the
petitioners to sell the property to the respondent was conditioned upon the
issuance of a new certificate of title and the execution of the extrajudicial
partition with sale and payment of the P600,000.00. This is why possession
of the subject property was not delivered to the respondent as the owner of
the property but only as the lessee thereof. And the failure of the respondent
to pay the purchase price in full prevented the petitioners obligation to convey
title from acquiring obligatory force.
17. Petitioners also allege that assuming for the sake of argument that a contract
of sale was indeed perfected, the Court of Appeals still erred in holding that
respondents failure to pay the purchase price of P600,000.00 was only a
"slight or casual breach".
18. The petitioners also claim that the Court of Appeals erred in ruling that they
were not ready to comply with their obligation to execute the extrajudicial
settlement. The Power of Attorney to execute a Deed of Sale made by Dennis
Z. Laforteza was sufficient and necessarily included the power to execute an
extrajudicial settlement. At any rate, the respondent is estopped from
claiming that the petitioners were not ready to comply with their obligation
for he acknowledged the petitioners ability to do so when he requested for an
extension of time within which to pay the purchase price. Had he truly
believed that the petitioners were not ready, he would not have needed to ask
for said extension.
19. Finally, the petitioners allege that the respondents uncorroborated testimony
that third persons offered a higher price for the property is hearsay and should
not be given any evidentiary weight. Thus, the order of the lower court
awarding moral damages was without any legal basis.
COURT:
20. A perusal of the Memorandum Agreement shows that the transaction between
the petitioners and the respondent was one of sale and lease. The terms of the
agreement read: (See Annex A)
21. A contract of sale is a consensual contract and is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. From that moment the parties may reciprocally
demand performance subject to the provisions of the law governing the form
of contracts.
22. In the case at bench, there was a perfected agreement between the petitioners
and the respondent whereby the petitioners obligated themselves to transfer
the ownership of and deliver the house and lot located at 7757 Sherwood St.,
Marcelo Green Village, Paraaque and the respondent to pay the price
amounting to six hundred thousand pesos (P600,000.00).
a. All the elements of a contract of sale were thus present.
b. However, the balance of the purchase price was to be paid only upon
the issuance of the new certificate of title in lieu of the one in the
name of the late Francisco Laforteza and upon the execution of an
extrajudicial settlement of his estate.
c. Prior to the issuance of the "reconstituted" title, the respondent was
already placed in possession of the house and lot as lessee thereof
for six months at a monthly rate of three thousand five hundred
pesos (P3,500.00).
d. It was stipulated that should the issuance of the new title and the
execution of the extrajudicial settlement be completed prior to
expiration of the six-month period, the respondent would be liable
only for the rentals pertaining to the period commencing from the
date of the execution of the agreement up to the execution of the
extrajudicial settlement.
e. It was also expressly stipulated that if after the expiration of the six
month period, the lost title was not yet replaced and the extrajudicial
partition was not yet executed, the respondent would no longer be
required to pay rentals and would continue to occupy and use the
premises until the subject condition was complied with by the
petitioners.
23. The six-month period during which the respondent would be in possession of
the property as lessee, was clearly not a period within which to exercise an
option. An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price.
a. In the present case, the six-month period merely delayed the
demandability of the contract of sale and did not determine its
perfection for after the expiration of the six-month period, there was
an absolute obligation on the part of the petitioners and the
respondent to comply with the terms of the sale.
b. The parties made a "reasonable estimate" that the reconstitution of
the lost title of the house and lot would take approximately six
months and thus presumed that after six months, both parties would
be able to comply with what was reciprocally incumbent upon them.
c. The fact that after the expiration of the six-month period, the
respondent would retain possession of the house and lot without
need of paying rentals for the use therefor, clearly indicated that the
parties contemplated that ownership over the property would
already be transferred by that time.
24. The issuance of the new certificate of title in the name of the late Francisco
Laforteza and the execution of an extrajudicial settlement of his estate was
not a condition which determined the perfection of the contract of sale.
a. Petitioners contention that since the condition was not met, they no
longer had an obligation to proceed with the sale of the house and
lot is unconvincing.
b. The petitioners fail to distinguish between a condition imposed upon
the perfection of the contract and a condition imposed on the
performance of an obligation.
c. Failure to comply with the first condition results in the failure of a
contract, while the failure to comply with the second condition only
gives the other party the option either to refuse to proceed with the
sale or to waive the condition.
25. Thus, Art. 1545 of the Civil Code states:
a. "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 described 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.
26. In the case at bar, there was already a perfected contract. The condition was
imposed only on the performance of the obligations contained therein.
 Considering however that the title was eventually "reconstituted" and that the
petitioners admit their ability to execute the extrajudicial settlement of their
fathers estate, the respondent had a right to demand fulfillment of the
petitioners obligation to deliver and transfer ownership of the house and lot
27. What further militates against petitioners argument that they did not enter
into a contract of sale is the fact that the respondent paid thirty thousand pesos
(P30,000.00) as 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
28. We do not subscribe to the petitioners view that the Memorandum Agreement
was a contract to sell. There is nothing contained in the Memorandum
Agreement from which it can reasonably be deduced that the parties intended
to enter into a contract to sell.
a. There is clearly no express reservation of title made by the
petitioners over the property, or any provision which would impose
non-payment of the price as a condition for the contracts entering
into force.
b. Although the memorandum agreement was also denominated as a
"Contract to Sell", we hold that the parties contemplated a contract
of sale.
c. In such cases, ownership of the thing sold passes to the vendee upon
actual or constructive delivery thereof. The mere fact that the
obligation of the respondent to pay the balance of the purchase price
was made subject to the condition that the petitioners first deliver
the reconstituted title of the house and lot does not make the contract
a contract to sell for such condition is not inconsistent with a
contract of sale.
29. The next issue to be addressed is whether the failure of the respondent to pay
the balance of the purchase price within the period allowed is fatal to his right
to enforce the agreement. We rule in the negative.
30. Admittedly, the failure of the respondent to pay the balance of the purchase
price was a breach of the contract and was a ground for rescission thereof.
The extension of thirty (30) days allegedly granted to the respondent by
Roberto Z. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was
correctly found by the Court of Appeals to be ineffective inasmuch as the
signature of Gonzalo Z. Laforteza did not appear thereon as required by the
Special Powers of Attorney.
a. However, the evidence reveals that after the expiration of the six-
month period provided for in the contract, the petitioners were not
ready to comply with what was incumbent upon them, i.e. the
delivery of the reconstituted title of the house and lot.
b. It was only on September 18, 1989 or nearly eight months after the
execution of the Memorandum of Agreement when the petitioners
informed the respondent that they already had a copy of the
reconstituted title and demanded the payment of the balance of the
purchase price.
c. The respondent could not therefore be considered in delay for in
reciprocal obligations, neither party incurs in delay if the other party
does not comply or is not ready to comply in a proper manner with
what was incumbent upon him.
31. Even assuming for the sake of argument that the petitioners were ready to
comply with their obligation, we find that rescission of the contract will still
not prosper. The rescission of a sale of an immovable property is specifically
governed by Article 1592 of the New Civil Code, which reads:
a. "In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place, the vendee
may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not
grant him a new term.
32. It is not disputed that the petitioners did not make a judicial or notarial
demand for rescission. The November 20, 1989 letter of the petitioners
informing the respondent of the automatic rescission of the agreement did not
amount to a demand for rescission, as it was not notarized.
a. It was also made five days after the respondents attempt to make the
payment of the purchase price. This offer to pay prior to the demand
for rescission is sufficient to defeat the petitioners right under article
1592 of the Civil Code.
33. Besides, the Memorandum Agreement between the parties did not contain a
clause expressly authorizing the automatic cancellation of the contract
without court intervention in the event that the terms thereof were violated.
a. A seller cannot unilaterally and extrajudicially rescind a contract of
sale where there is no express stipulation authorizing him to
extrajudicially rescind. Neither was there a judicial demand for the
rescission thereof.
b. Thus, when the respondent filed his complaint for specific
performance, the agreement was still in force inasmuch as the
contract was not yet rescinded. At any rate, considering that the six-
month period was merely an approximation of the time it would take
 to reconstitute the lost title and was not a condition imposed on the
perfection of the contract and considering further that the delay in
payment was only thirty days which was caused by the respondents
justified but mistaken belief that an extension to pay was granted to
him, we agree with the Court of Appeals that the delay of one month
in payment was a mere casual breach that would not entitle the
respondents to rescind the contract.
c. Rescission of a contract will not be permitted for a slight or casual
breach, but only such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement.
34. Petitioners insistence that the respondent should have consignated the amount
is not determinative of whether respondents action for specific performance
will lie. Petitioners themselves point out that the effect of consignation is to
extinguish the obligation. It releases the debtor from responsibility
therefor. The failure of the respondent to consignate the P600,000.00 is not
tantamount to a breach of the contract for by the fact of tendering payment,
he was willing and able to comply with his obligation.
_______________
Annex A:
"1. For and in consideration of the sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) payable in a manner herein
below indicated, SELLER-LESSOR hereby agree to sell unto
BUYER-LESSEE the property described in the first WHEREAS of
this Agreement within six (6) months from the execution date
hereof, or upon issuance by the Court of a new owners certificate of
title and the execution of extrajudicial partition with sale of the
estate of Francisco Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY
THOUSAND (P630,000.00) shall be paid in the following manner:
P30,000.00- as earnest money and as consideration for this
Agreement, which amount shall be forfeited in favor of
SELLER-LESSORS if the sale is not effected because of
the fault or option of BUYER-LESSEE;
P600,000.00- upon the issuance of the new certificate of
title in the name of the late Francisco Laforteza and upon
the execution of an Extrajudicial Settlement of his estate
with sale in favor of BUYER-LESSEE free from lien or
any encumbrances.
3. Parties reasonably estimate that the issuance of a new title in place
of the lost one, as well as the execution of extrajudicial settlement
of estate with sale to herein BUYER-LESSEE will be completed
within six (6) months from the execution of this Agreement. It is
therefore agreed that during the six months period, BUYER-
LESSEE will be leasing the subject property for six months period
at the monthly rate of PESOS: THREE THOUSAND FIVE
HUNDRED (P3,500.00). Provided however, that if the issuance of
new title and the execution of Extrajudicial Partition is completed
prior to the expiration of the six months period, BUYER-LESSEE
shall only be liable for rentals for the corresponding period
commencing from his occupancy of the premises to the execution
and completion of the Extrajudicial Settlement of the estate,
provided further that if after the expiration of six (6) months, the lost
title is not yet replaced and the extra judicial partition is not
executed, BUYER-LESSEE shall no longer be required to pay
rentals and shall continue to occupy, and use the premises until
subject condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the execution
of this Agreement and the payment by BUYER-LESSEE of the
amount of P30,000.00 as herein above provided, SELLER-
LESSORS shall immediately file the corresponding petition for the
issuance of a new title in lieu of the lost one in the proper Courts.
Upon issuance by the proper Courts of the new title, the BUYER-
LESSEE shall have thirty (30) days to produce the balance of
P600,000.00 which shall be paid to the SELLER-LESSORS upon
the execution of the Extrajudicial Settlement with sale.
 02 Heirs of Escanlar v CA (Siapno)
October 23, 1997 | Romero, J. | Stipulation affecting effectivity, not validity
PETITIONER: Heirs of Pedro Escanlar, Francisco Holgado, and Spouses Edwin
Jayme and Elisa Tan-Jayme
RESPONDENTS: The Honorable Court of Appeals, Generosa Martinez,
Carmen Cari-An, Rodolfo Cari-An, Nelly Chue Cari-An, for herself and as
guardian ad litem of her minor son, Leonell Cari-An, Fredisminda Cari-An, the
Spouses Paquito Chua and Ney Sarrosa-Chua and The Register of Deeds of
Negros Occidental
SUMMARY: The Heirs of Cari-an executed a Deed of Sale of Rights, Interests,
and Participation over a parcel of undivided land in favor of Escanlar and
Hogaldo. It was stipulated that “the contract shall become effective only upon
approval of the CFI of Negros Occidental.” The Heirs of Escanlar failed to pay
the balance of the purchase price, but the Heirs of Cari-an never demanded
payment and continued to accept belated payments. They later on sold their
interests over the same land to the Chuas and assailed the validity of the Deed of
Sale they executed with the Heirs of Escanlar. The lower courts annulled the
contract for not having the approval of the court as stipulated. Issue is WON the
Deed of Sale to the Heirs of Escanlar is valid. SC said yes. There is a distinction
between the validity and effectivity. Only the effectivity was made subject to the
condition. So long as all the requisites (consent, subject matter, and price) are
present, as in this case, the contract is already perfected. Nonetheless, the intent
of the parties clearly manifests their intention to give efficacy to the contract. In
fact, the vendors continued to accept payments. That being the case, the sale in
favor of the Heirs of Escanlar must be preferred as it is a valid and subsisting one.
DOCTRINE: There is a distinction between the validity and effectivity. Only the
effectivity was made subject to the condition.
FACTS:
1. Spouses Guillermo Nombre and Victoriana Cari-an died. Nombres heirs
include his nephews and grandnephews. Victoriana Cari-an was succeeded by
her late brothers son, Gregorio Cari-an. Gregorio was declared as Victorianas
heir in the estate proceedings for Nombre and his wife.
2. After Gregorio died, his wife, Generosa Martinez, and children, Rodolfo,
Carmen, Leonardo and Fredisminda, all surnamed Cari-an, were also adjudged
as heirs by representation to Victorianas estate. Leonardo Cari-an passed away,
leaving his widow, Nelly Chua vda. de Cari-an and minor son Leonell, as his
heirs. (heirs of Cari-an)
3. Two parcels of land of the Kabankalan Cadastre formed part of the estate of
Nombre and Cari-an.
4. The Cari-ans, executed the Deed of Sale of Rights, Interests and Participation
in favor of Escanlar and Hogaldo which had the ff stipulations:
a. P275,000.00 is to be paid by Escanlar and Hogaldo to the Cari-ans, except the
share of the minor child of Leonardo Cari-an, which should be deposited with
the Municipal Treasurer of Himamaylan, Negros Occidental, by the order of
the CFI of Negros Occidental, Branch VI, Himamaylan
b. Cari-ans sell, cede, transfer, convey, by way of absolute sale all the rights,
interests, and participation of the Vendors as to the ½ portion pro-indiviso of
the 2 lots (Fishpond), of the Kabankalan Cadastre, pertaining to the one-half
(1/2) portion pro-indiviso of the late Victoriana Cari-an
c. That this Contract of Sale shall become effective only upon the approval
by the Honorable Court of First Instance of Negros Occidental, Branch
VI-Himamaylan.
d. Escanlar and Holgado were concurrently the lessees of the lots. They stipulated
that the balance of the purchase price P225,000.00 shall be paid on or before
May 1979 in a Deed of Agreement and that pending the complete payment
thereof, Vendees shall not assign, sell, lease, nor mortgage the rights, interests
and participation thereof
e. Vendees’ failure to pay the balance of said purchase price on May 31, 1979 and
the cancellation of said Contract of Sale is made thereby, P50,000.00 shall be
deemed as damages thereof to Vendors.
5. Escanlar and Hogaldo were unable to pay the heirs but said heirs received at
least 12 installments from petitioners after May 1979. Cari-ans were fully
compensated for their individual shares, per receipts given in evidence. The
minor Leonell’s share was deposited with the RTC.
6. Being former lessees, petitioners continued in possession of the 2
lots. Interestingly, they continued to pay rent based on their lease contract.
7. The probate court approved Cari-ans’ sale of shares in eight parcels of land
including the 2 lots to the Spouses Chua for P1,850,000.00.
8. Cari-ans opposed the motion for approval of the sale of Escanlar and Holgado
in the probate proceedings of Nombre and Cari-an as the buyers of private
respondent Cari-ans share in the 2 lots because of petitioners failure to pay the
balance of the purchase price by May 31, 1979 and alleged that they only
received a total of P132,551.00 in cash and goods.
9. Petitioners replied that the Cari-ans, having been paid, had no right to resell the
subject lots; that the Chuas were purchasers in bad faith; and that the court
approval of the sale to the Chuas was subject to their existing claim over said
properties.
10. Escanlar and Holgado also sold their rights and interests in the 2 lots to the
Jaymes for P735,000.00 and turned over possession of both lots to the
latter. The Jaymes in turn, were included in the civil case as fourth-party
defendants.
11. The probate court approved the sale without prejudice to whatever rights,
claims and interests over any of those properties of the estate which cannot be
 properly and legally ventilated and resolved by the court in the same intestate
proceedings.
12. The certificates of title over the eight lots sold by the heirs of Nombre and Cari-
an were later issued in the name of Spouses Chua.
13. Escanlar and Holgado alleged that the Cari-ans conspired with the Chuas when
they executed the second sale on and that the latter sale is illegal and of no
effect. Spouses Chua countered that they did not know of the earlier sale of
one-half portion of the subject lots to Escanlar and Holgado.
14. Trial court approved Spouses Chua’s motion to file a fourth-party complaint
against the spouses Jayme. Spouses Chua alleged that the Jaymes refused to
vacate said lots despite repeated demands; and that by reason of the illegal
occupation of 2 Lots by the Jaymes, they suffered from uncollected rentals.
15. RTC of Himamaylan held that the properties of the estate of Guillermo Nombre
and Victoriana Cari-an had long been disposed of by the rightful heirs of
Guillermo Nombre and Victoriana Cari-an.
16. Therefore, there is no need to resolve the Motion for Subrogation of Movants
Escanlar and Holgado to be subrogated to the rights of the heirs of Victoriana
Cari-an since all the properties of the estate had been transferred and titled to
in the name of Spouses Chua.
17. The seminal case at bar was resolved by the trial court in favor of cancellation
of the sale to Escanlar and Holgado. Said transaction was nullified because it
was not approved by the probate court as required by the contested deed
of sale of rights, interests and participation and because the Cari-ans were
not fully paid. Sale to Spouses Chua was upheld.
18. Escanlar and Holgado raised the case to the CA and it affirmed the decision of
the trial court and held that the questioned deed of sale of rights, interests
and participation is a contract to sell because it shall become effective only
upon approval by the probate court and upon full payment of the purchase price.
ISSUE:
1. WoN the Contract of Sale was invalid because of the lack of approval by the CFI
of Negros Occidental? NO, it merely affected the effectivity of sale [ISSUE IN
SYLLABUS]
2. WoN the Deed of Sale of Rights, Interests and Participation is a contract to sell?
NO, it was a SALE
RULING: WHEREFORE, the petitions are hereby GRANTED. The decision of the
Court of Appeals under review is hereby REVERSED AND SET ASIDE. The case is
REMANDED to the Regional Trial Court of Negros Occidental, Branch 61 for
petitioners and private respondents Cari-an or their successors-in-interest to determine
exactly which 1/2 portion of Lot Nos. 1616 and 1617 will be owned by each party, at
the option of petitioners. The trial court is DIRECTED to order the issuance of the
corresponding certificates of title in the name of the respective parties and to resolve
the matter of rental payments of the land not delivered to the Chua spouses subject to
the rates specified above with legal interest from date of demand.
RATIO:
The stipulation only affected the effectivity and not the validity of the sale*
1. There has arisen here a confusion in the concepts of validity and the efficacy of
a contract. The essential requisites of a contract (consent, subject matter, price)
were all present, the result is a valid contract.
2. However, some parties introduce various kinds of restrictions or modalities, the
lack of which will not, however, affect the validity of the contract.
3. In this case, the Deed of Sale, the essential requisites being complete, is a valid
one. However, it did not bear the stamp of approval of the court. Only the
effectivity and not the validity of the contract is affected.
4. Heirs of Escanlar are correct in saying that the need for approval by the
probate court exists only where specific properties of the estate are sold and
not when only ideal and indivisible shares of an heir are disposed of.
5. When Cari-ans sold their rights, interests and participation in the 2 lots, they
could legally sell the same without the approval of the probate court.
6. As a general rule, the pertinent contractual stipulation (requiring court approval)
should be considered as the law between the parties. However, the presence of
two factors militate against this conclusion.
a. First, the evident intention of the parties appears to be contrary to the
mandatory character of said stipulation. Receipt and acceptance of the
numerous installments on the balance of the purchase price by the Cari-ans
and leaving petitioners in possession of the 2 lots reveal their intention to
effect the mutual transmission of rights and obligations. It was only after
private respondents Cari-an sold their shares in the subject lots again to the
spouses Chua that these same heirs filed the case at bar for the cancellation
of the conveyance to petitioners. This reveals the original objective of the
parties to give effect to the deed of sale even without court approval.
b. Second, we hold that the requisite approval was virtually rendered impossible
by the Cari-ans because they opposed the motion for approval of the sale filed
by petitioners and sued them for the cancellation of that sale.
7. Having provided the obstacle and the justification for the stipulated
approval not to be granted, private respondents Cari-an should not be allowed to
cancel their first transaction with petitioners because of lack of approval by the
probate court, which lack is of their own making
Failure to pay is not a breach of contract
8. SC disagrees with the CA, stating that in contracts to sell, ownership is retained
by the seller and is not passed until the full payment of the price. Such payment
is a positive suspensive condition, the failure of which is not a breach of contract
but simply an event that prevented the obligation of the vendor to convey title
from acquiring binding force.
9. Although a deed of conditional sale is denominated as such, absent a proviso that
title to the property sold is reserved in the vendor until full payment of the
purchase price nor a stipulation giving the vendor the right to unilaterally rescind
the contract the moment the vendee fails to pay within a fixed period, by its
nature, it shall be declared a deed of absolute sale
10. The Deed of sale of rights, interests and participation to Escanlar and Hogaldo as
to 1/2 portion pro indiviso of the two subject lots is a contract of sale for the
following reasons:
a. First, private respondents as sellers did not reserve unto themselves the
ownership of the property until full payment of the unpaid balance
b. Second, there is no stipulation giving the sellers the right to unilaterally rescind
the contract the moment the buyer fails to pay within the fixed period. Upon sale
to them of the rights, interests and participation as to the 1/2 portion pro indiviso,
they remained in possession, not in concept of lessees anymore but as owners
now through symbolic delivery
c. Under Article 1477 of the Civil Code, the ownership of the thing sold is acquired
by the vendee upon actual or constructive delivery thereof.
11. In a contract of sale, the non-payment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and discharges the
obligations created. The remedy of an unpaid seller in a contract of sale is to seek
either specific performance or rescission.
Vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made
12. With respect to rescission of a sale of real property, Article 1592 of the Civil
Code governs, “the vendee may pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not grant him a
new term.”
13. In the instant case, the sellers gave the buyers until May 1979 to pay the balance
of the purchase price. After the latter failed to pay installments due, the former
made no judicial demand for rescission of the contract nor did they execute any
notarial act demanding the same, as required under Article 1592.
14. Upon the expiration of the period to pay, the sellers made no move to rescind but
continued accepting late payments, an act which cannot but be construed as a
waiver of the right to rescind. They were thus estopped.
15. The sole witness in the cancellation of sale case was private respondent herein
Fredisminda Cari-an Bustamante. She claims that Escanlar and Holgado made
her sign the receipt of the P5,000 late in the afternoon and promised to give the
money to her the following morning when the banks opened but never received
them. She also claimed that the total of all the installments of amounts paid with
the rest of the Cari-ans is P132,551. She thus claimed that they were defrauded
because petitioners are wealthy and private respondents are poor.
16. However, despite all her claims, Fredismindas testimony fails to convince this
Court that they were not fully compensated by petitioners. Fredisminda admits
that her mother and her sister signed their individual receipts of full payment on
their own and not in her presence. The receipts presented in evidence show that
the rest of the heirs were paid by Escanlar. Court thus finds it incredible that a
mature woman like Fredisminda Cari-an, would sign a receipt for money she did
not receive. Worth noting too is the absence of supporting testimony from her
co-heirs and siblings Carmen Cari-an, Rodolfo Cari-an and Nelly Chua vda.
de Cari-an.
Continuing to pay the rent does not mean they have not fully paid Cari-ans
17. The trial court reasoned out that petitioners, in continuing to pay the rent for the
parcels of land they allegedly bought, admit not having fully paid the Cari-ans.
Petitioners response, that they paid rent until 1986 in compliance with their lease
contract, only proves that they respected this contract and did not take undue
advantage of the heirs of Nombre and Cari-an who benefited from the
lease. Moreover, it is to be stressed that petitioners purchased the hereditary
shares solely of the Cari-ans and not the entire lot.
18. The foregoing discussion ineluctably leads us to conclude that the Cari-ans were
indeed paid the balance of the purchase price, despite having accepted
installments therefor belatedly. There is thus no ground to rescind the contract of
sale because of non-payment.
Division of the lots
19. It must be emphasized that what was sold was only the Cari-ans hereditary shares
in 2 lots being held pro indiviso by them and is thus a valid conveyance only of
said ideal shares. Specific or designated portions of land were not involved.
20. Consequently, the subsequent sale of 8 parcels of land, including 2 subject lots,
to the spouses Chua is valid except to the extent of what was sold to Escanlar. It
must be noted however, that the probate court in Special Proceeding No. 7-7279
desisted from awarding the individual shares of each heir because all the
properties belonging to the estate had already been sold. Thus it is not certain
how much private respondents Cari-an were entitled to with respect to the two
lots, or if they were even going to be awarded shares in said lots.
21. The proceedings surrounding the estate of Nombre and Cari-an having attained
finality for nearly a decade now, the same cannot be re-opened. The protracted
proceedings which have undoubtedly left the property under a cloud and the
parties involved in a state of uncertainty compels us to resolve it definitively.
22. The decision of the probate court declares private respondents Cari-an as the sole
heirs by representation of Victoriana Cari-an who was indisputably entitled to
half of the estate. There being no exact apportionment of the shares of each heir
and no competent proof that the heirs received unequal shares in the disposition
of the estate, it can be assumed that the heirs of Victoriana Cari-an collectively
 are entitled to half of each property in the estate. More particularly, private
respondents Cari-an are entitled to half of the 2 subject lots.
23. Consequently, Heirs of Escanlar, as their successors-in-interest, own said half of
the subject lots and ought to deliver the possession of the other half, as well as
pay rents thereon, to the Spouses Chua but only if the petitioners remained in
possession thereof
 03 Power Commercial and Industrial Corporation vs CA (Mel)
June 20, 1997 | Panganiban, J.| Conditions vs Warranties
PETITIONER: Power Commercial and Industrial Corporation
RESPONDENTS-APPELLEE: Court of appeals, Spouses Reynaldo and
Angelita R. Quiambao and Philippine National Bank
SUMMARY: Power Commercial, an industrial asbestos manufacturer, needed
a bigger office space and warehouse for its products. So it entered into a contract
of sale with Spouses Quiambao. Power Commercial agreed to assume the
mortgages thereon. A Deed of Absolute Sale with Assumption of Mortgage was
executed. Power Commercial failed to settle the mortgage debt contracted by the
spouses, thus it could not undertake the proper action to evict the lessees on the
lot. Power Commercial Corp thereafter sought to rescind the contract of sale
alleging that it failed to take actual and physical possession of the lot. The trial
court ruled that the failure of Spouses Quiambao to deliver actual possession to
Power Commercial entitled the latter to rescind the sale. On appeal, the Court of
Appeals reversed the trial court. It held that the deed of sale between Spouses
Quiambao and Power Commercial did not obligate the Spouses Quiambao to
eject the lessees from the land in question as a condition of the sale, nor was the
occupation thereof by said lessees a violation of the warranty against eviction.
Hence, there was no substantial breach to justify the rescission of said contract
or the return of the payments made. The issues are WON there was an imposed
condition? No. First, such a condition that the Quiambao spouses would evict
the lessees therein was not stipulated in the contract. In fact, Power Commercial
was well aware of the presence of the tenants therein. Also in this case, Power
Commercial was given control over the said lot and it endeavored to terminate
the occupation of the actual tenants. (2) WON there was a breach of warranty
against eviction? – NO. The facts of the case do not show the requisites for a
breach of warranty. (check ruling for other issues)
DOCTRINE: (from book) There can be no action for breach of the said warranty
when the buyer was well aware of the presence of the tenants at the time the
buyer entered into the sale transaction, and it even undertook the job of ejecting
the squatters which in fact filed suit to eject the occupants.
FACTS:
1. Petitioner Power Commercial & Industrial Development Corporation (Power
Commercial), an industrial asbestos manufacturer, needed a bigger office
space and warehouse for its products. For this purpose, it entered into a
contract of sale with the spouses Reynaldo and Angelita R. Quiambao, herein
private respondents (Spouses Quiambao).
2. The contract involved a 612-sq. m. parcel of land located at the corner of
Bagtican and St. Paul Streets, San Antonio Village, Makati City.
3. The parties agreed that Power Commercial would pay Spouses Quiambao
P108,000.00 as down payment, and the balance of P295,000.00 upon the
execution of the deed of transfer of the title over the property. Further, Power
Commercial assumed, as part of the purchase price, the existing mortgage on
the land. In full satisfaction thereof, Power Commercial paid P79,145.77 to
Respondent PNB.
4. Spouses Quiambao mortgaged again said land to PNB to guarantee a loan of
P145,000.00, P80,000.00 of which was paid to Spouses Quiambao. Power
Commercial agreed to assume payment of the loan.
5. The parties executed a Deed of Absolute Sale With Assumption of Mortgage
(see end of digest for the terms and conditions). On the same date, Mrs. C.D.
Constantino, then General Manager of Power Commercial, submitted to PNB
said deed with a formal application for assumption of mortgage.
6. PNB informed Spouses Quiambao that, for Power Commercial’s failure to
submit the papers necessary for approval, the application for assumption of
mortgage was considered withdrawn; that the outstanding balance of
P145,000.00 was deemed fully due and demandable; and that said loan was
to be paid in full within 15 days from notice.
7. Power Commercial paid PNB P41,880.45 on June 24, 1980 and P20,283.14
on December 23, 1980, payments which were to be applied to the outstanding
loan.
8. PNB received a letter from Power Commercial which said that they desired
to make use of the lot for their own purpose and requested that the assumption
of mortgage be given favorable consideration, and that the mortgage and title
be transferred to their name
9. PNB replied that there was lack of payment and in order to place their account
in current form, Power Commercial had to remit payments to cover interest,
charges and at least part of the principal.
10. Later on, Power Commercial filed a case against Spouses Quiambao for
rescission and damages. Power Commercial also demanded from PNB the
return of the payments it made as the assumption of mortgage was never
approved. While the case was pending, the mortgage was foreclosed. The
property was bought by PNB during the public auction. Thus, an amended
complaint was filed impleading PNB as party defendant.
11. The trial court ruled that the failure of Spouses Quiambao to deliver actual
possession to Power Commercial entitled the latter to rescind the sale, and in
view of such failure and of the denial of the latter's assumption of mortgage,
PNB was obliged to return the payments made by the latter.
12. On appeal, the Court of Appeals reversed the trial court. It held that the deed
of sale between Spouses Quiambao and Power Commercial did not obligate
the former to eject the lessees from the land in question as a condition of the
sale, nor was the occupation thereof by said lessees a violation of the warranty
against eviction. Hence, there was no substantial breach to justify the
rescission of said contract or the return of the payments made.
ISSUES:
1. (RELATED ISSUE) WON there was an imposed condition? – No.
2. WON there was delivery? – Yes.
3. (RELATED ISSUE) WON there was a breach of warranty against eviction?
– No.
4. WON there was a mistake in payment? –No.
RULING: WHEREFORE, the petition is hereby DENIED, and the assailed Decision
is AFFIRMED.
RATIO:
Conspicuous Absence of an Imposed Condition
1. The petition is devoid of merit. It fails to appreciate the difference between a
condition and a warranty and the consequences of such distinction.
2. The alleged "failure" of Spouses Quiambao to eject the lessees from the
lot in question and to deliver actual and physical possession thereof
cannot be considered a substantial breach of a condition for two reasons:
first, such "failure" was not stipulated as a condition — whether
resolutory or suspensive — in the contract; and second, its effects and
consequences were not specified either.
3. The provision adverted to by Power Commercial does not impose a condition
or an obligation to eject the lessees from the lot. The deed of sale provides in
part: We hereby also warrant that we are the lawful and absolute owners of
the above described property, free from any lien and/or encumbrance, and
we hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims whatsoever of
any and all third persons; subject, however, to the provisions hereunder
provided to wit…
4. By his own admission, Anthony Powers, General Manager of the Power
Commercial, did not ask the corporation's lawyers to stipulate in the contract
that Reynaldo Quiambao was guaranteeing the ejectment of the occupants,
because there was already a proviso in said deed of sale that the sellers were
guaranteeing the peaceful possession by the buyer of the land in question.
Any obscurity in a contract, if the above-quoted provision can be so
described, must be construed against the party who caused it. Power
Commercial itself caused the obscurity because it omitted this alleged
condition when its lawyer drafted said contract.
5. If the parties intended to impose on Spouses Quiambao the obligation to eject
the tenants from the lot sold, it should have included in the contract a
provision similar to that referred to in Romero vs. Court of Appeals, where
the ejectment of the occupants of the lot sold by private respondent was the
operative act which set into motion the period of petitioner's compliance with
his own obligation, i.e., to pay the balance of the purchase price. Absent a
stipulation therefor, we cannot say that the parties intended to make its
nonfulfillment a ground for rescission. If they did intend this, their
contract should have expressly stipulated so.
Effective Symbolic Delivery
1. The Court disagrees with Power Commercial's allegation that the Spouses
Quiambao failed to deliver the lot sold. Power Commercial asserts that the
legal fiction of symbolic delivery yielded to the truth that, at the execution of
the deed of sale, transfer of possession of said lot was impossible due to the
presence of occupants on the lot sold. We find this misleading.
2. Although most authorities consider transfer of ownership as the primary
purpose of sale, delivery remains an indispensable requisite as our law does
not admit the doctrine of transfer of property by mere consent.
3. The Civil Code provides that delivery can either be (1) actual (2)
constructive. Symbolic delivery as a species of constructive delivery, effects
the transfer of ownership through the execution of a public document. Its
efficacy can, however, be prevented if the vendor does not possess control
over the thing sold, in which case this legal fiction must yield to reality.
4. The key word is control, not possession, of the land as Power Commercial
would like us to believe.
5. Considering that the deed of sale between the parties did not stipulate or infer
otherwise, delivery was effected through the execution of said deed.
6. The lot sold had been placed under the control of Power Commercialr;
thus, the filing of the ejectment suit was subsequently done. It signified
that its new owner intended to obtain for itself and to terminate said
occupants' actual possession thereof.
7. Prior physical delivery or possession is not legally required and the execution
of the deed of sale is deemed equivalent to delivery. This deed operates as a
formal or symbolic delivery of the property sold and authorizes the buyer to
use the document as proof of ownership. Nothing more is required.
There was no Breach of Warranty.
1. Despite its protestation that its acquisition of the lot was to enable it to set up
a warehouse for its asbestos products and that failure to deliver actual
possession thereof defeated this purpose, still no breach of warranty
against eviction can be appreciated because the facts of the case do not
show that the requisites for such breach have been satisfied.
2. A breach of this warranty requires the concurrence of the following
circumstances: (1) purchaser has been deprived of the whole or part of the
thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is
by virtue of a right prior to the sale made by the vendor; and
(4) The vendor
has been summoned and made co-defendant in the suit for eviction at the
instance of the vendee.
3. Power Commercial argues in its memorandum that it has not yet ejected the
 occupants of said lot, and not that it has been evicted therefrom. As correctly with offices located at 252-C Vito Cruz Extension, we hereby by these presents SELL,
pointed out by Respondent Court, the presence of lessees does not constitute TRANSFER and CONVEY by way of absolute sale the above described property with
an encumbrance of the land, nor does it deprive Power Commercial of its all the improvements existing thereon unto the said Power Commercial and Industrial
control thereof. Development Corporation, its successors and assigns, free from all liens and
4. Power Commercial's deprivation of ownership and control finally occurred encumbrances.
when it failed and/or discontinued paying the amortizations on the mortgage,
causing the lot to be foreclosed and sold at public auction. But this We hereby certify that the aforesaid property is not subject to nor covered by the
deprivation is due to it’s own fault, and not to any act attributable to the provisions of the Land Reform Code — the same having no agricultural lessee and/or
vendor-spouses. tenant.
5. Because Power Commercial failed to impugn its integrity, the contract is
presumed, under the law, to be valid and subsisting. We hereby also warrant that we are the lawful and absolute owners of the above
described property, free from any lien and/or encumbrance, and we hereby agree and
Absence of Mistake in Payment warrant to defend its title and peaceful possession thereof in favor of the said Power
1. Solutio indebiti does not apply in this case. Commercial and Industrial Development Corporation, its successors and assigns,
2. This doctrine applies where: (1) a payment is made when there exists no against any claims whatsoever of any and all third persons; subject, however, to the
binding relation between the payor, who has no duty to pay, and the person provisions hereunder provided to wit:
who received the payment, and (2) the payment is made through mistake, and
not through liberality or some other cause. That the above described property is mortgaged to the Philippine National Bank,
3. In this case, Power commercial was under obligation to pay the amortizations Cubao, Branch, Quezon City for the amount of one hundred forty-five thousand pesos,
on the mortgage under the contract of sale and the deed of real estate Philippine, evidenced by document No. 163, found on page No. 34 of Book No. XV,
mortgage. Under the deed of sale, both parties agreed to abide by any and all Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of
the requirements of PNB in connection with the real estate mortgage. Power Deeds of Pasig (Makati), Rizal . . . ;
Commercial was aware that the deed of mortgage made it solidarily and,
therefore, primarily liable for the mortgage obligation:
4. Therefore, it cannot be said that it did not have a duty to pay to PNB the
amortization on the mortgage.
5. Also, Power Commercial insists that its payment of the amortization was a
mistake because PNB disapproved its assumption of mortgage after it failed
to submit the necessary papers for the approval of such assumption.
6. But even if Power Commercial was a third party in regard to the mortgage of
the land purchased, the payment of the loan by Power Commercialwas a
condition clearly imposed by the contract of sale. This fact alone disproves
Power Commercial's insistence that there was a "mistake" in payment. On the
contrary, such payments were necessary to protect its interest as a "the buyers
and new owners of the lot."

DEED OF ABSOLUTE SALE terms and conditions

That for and in consideration of the sum of Two Hundred Ninety-Five Thousand Pesos
(P295,000.00) Philippine Currency, to us in hand paid in cash, and which we hereby
acknowledge to be payment in full and received to our entire satisfaction, by POWER
COMMERCIAL AND INDUSTRIAL DEVELOPMENT CORPORATION, a 100%
Filipino Corporation, organized and existing under and by virtue of Philippine Laws
 04 GUINHAWA v. PEOPLE (Paul)
Aug. 25, ’05 | Callejo, Sr., J. | Caveat Emptor does not apply if there is deceit
PETITIONER: Jaime Guinhawa
RESPONDENTS: People of the Philippines
SUMMARY: Guinhawa was engaged in the business of selling brand new cars under
the name Guinrox Motor Sales, and Azotea is the General Manager. In 1995, he bought
a Mitsubishi L-300 from UMC. As his driver was using the van, the driver suffered a
heart attack, and he met the accident. As a result, the car was damaged, and it had to be
repaired. After the repair of the van, Guinhawa put it in the showroom for selling. A
few months after, spouses Silo bought the van because they needed one for their
garments business. Convinced that the van was brand new, they only inspected mostly
the interior. They immediately bought the van, as sold to them by Azotea. The spouses,
accompanied by spouses Pingol went to Manila using the van. When they were going
back to Naga, Bayani Pingol heard a squeaking sound coming from below the van.
Upon inspection, he did not see any defect, but because the squeaking sound persisted,
he brought the car to Shell, thinking that it only needed grease. The mechanic of Shell,
upon inspection, said that some of the parts under the car were only welded. Spouses
Silo wanted the van to be exchanged for 2 Charade-Daihatsu vehicles but Guinhawa
did not agree. Josephine Silo then filed a complaint with the Prosecutor for a violation
of Art. 318 (other deceits). Guinhawa now argues that he should not be convicted
because of the principle of caveat emptor, and therefore, the Silo spouses should bear
the loss of their negligence. The Supreme Court ruled in favor of Silo spouses and said
that the principle of caveat emptor does not apply when the seller deceives the buyer.
In a contract of sale, if the vendor knowingly allowed the vendee to be deceived as to
the thing sold in a material manner by failing to disclose an intrinsic circumstance
that is vital to the contract, knowing that the vendee is acting upon the presumption
that NO FACT EXISTS, deceit is accomplished by suppression of the truth.
Clearly, Guinhawa and Azotea had the duty to disclose to the spouses that what they
were buying a only a repaired car, especially, because such belief that the car was new,
was the compelling reason why they bought the car in the first place. Moreover, since
the spouses were only experts in the garments industry, they were not expected to know
the details of a car to the extent that Guinhawa argues as regards the repaired parts.
DOCTRINE: Jurisprudence has held that the principle of caveat emptor only requires
that the purchaser exercises such care and attention that is usually exercised by
ordinarily prudent men in like business affairs, and only applies to defects which
are open and patent to the service of one exercising such care.
FACTS (This is the same case we read for SPL):
1. Jaime Guinhawa was engaged in the business of selling brand new motor
vehicles under the business name of Guinrox Motor Sales; and Gil Azotea is
his manager.
2. In 1995, Guinhawa purchased a brand new Mitsubishi L-300 Versa Van from
Union Motors Corp (UMC).
3. While the van was being driven from Manila to Naga by Guinhawa’s driver,
Leopoldo Olayan, the latter suffered a heart attack.
4. As a result, the van was damaged, and the left front tire had to be replaced.
5. The van was then repaired and offered for sale in Guinhawa’s showroom.
6. A few months after, spouses Ralph and Josephine Silo, wanted to buy a van
for their garment business. They went to Guinhawa’s showroom and saw the
same L-300 van.
7. The couple inspected the interior and liked it. They no longer inspected the
chases since they presumed that the vehicle was brand new. Unaware that
the van had been damaged, and repaired due to an accident, they made a
downpayment of Php 118,000. The balance was to be paid by United Coconut
Planters Bank (UCPB) on installments, with the van as collateral.
8. The deed of sale was subsequently furnished and the Spouses were given a
receipt and a service manual which contained the warranty terms and
conditions.
9. Ralph Silo did not conduct a test drive, because again, they assumed that the
van was new.
10. After a few days, Josephine Silo, accompanied by spouses Glenda and Bayani
Pingol, went to Manila using the van. On their way back to Naga, Bayani
heard a squeaking sound which was coming from underneath the van. When
Bayani examined the van, he didn’t find any defect.
11. Believing that the van only needed grease, they brought it to Shell and they
were informed by the mechanic that some parts underneath were just welded.
12. Because of this, Silo requested Guinhawa to just change the van with 2
Charade-Daihatsu vehicles. The spouses also stopped paying the
amortization on the loan, pending the replacement of the van.
13. Guinhawa initially agreed to their proposal but he changed his mind and told
them that he wanted to sell the van first.
14. Josephine Silo then filed for rescission and refund before the DTI. But when
she confronted Guinhawa, she found out that the latter bought the van from
UMC, and that it was involved in a car accident. The complaint in DTI was
withdrawn.
15. Josephine then filed a criminal complaint for par. 1, Art. 318 of the RPC
(OTHER DECEITS).
16. Guinhawa was arguing that he did not use the van, it was brand new, and that
it was not involved in any accident.
17. He said that Azotea informed him that spouses Silo had complained about
alleged defects but the van already had a kilometer reading of 4,000 km. He
allegedly made no false statement of fraudulent misrepresentation. He also
denied meeting Bayani Pingol.
18. Azotea also alleged that the buyers inspected the car, and even drove it.
19. RTC found Guinhawa guilty. It held that Guinhawa made false pretenses and
 misrepresentations that the van was brand new when in fact, it had been
damaged in an accident.
20. The CA affirmed the decision and held that spouses had the right to assume
that the van was brand new because Guinhawa held himself to be a dealer
of brand new vans. The act of displaying the van in the showroom without
notice that it was not brand new was tantamount to deceit.
ISSUES:
1. W/N the doctrine of caveat emptor applies, and therefore Guinhawa
should be acquitted? - No, because Guinhawa is guilty of deceit
RULING: IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
assailed Decision and Resolution are AFFIRMED WITH MODIFICATION.
Considering the surrounding circumstances of the case, the petitioner is hereby
sentenced to suffer a straight penalty of six (6) months imprisonment. The petitioner
shall suffer subsidiary imprisonment in case of insolvency.
RATIO:
THE ONLY RELEVANT PORTION: CAVEAT EMPTOR DOES NOT APPLY
1. Art. 1389 of the NCC provides that failure to disclose facts when there is a
duty to reveal them constitutes fraud.
2. In a contract of sale, a buyer and seller do not deal from equal bargaining
positions WHEN the latter has knowledge of a material fact which, if
communicated to the buyer, would render the grounds unacceptable, or, at least,
substantially less desirable.
3. In a contract of sale, if the vendor knowingly allowed the vendee to be
deceived as to the thing sold in a material manner by failing to disclose an intrinsic
circumstance that is vital to the contract, knowing that the vendee is acting upon the
presumption that NO FACT EXISTS, deceit is accomplished by suppression of
the truth.
4. Here, Guinhawa knew that the van had been damaged in an accident, and was
subsequently repaired. Despite this, the van was placed in the showroom, making it
appear that it was a brand new unit. Based on Art. 1389, Guinhawa was mandated
to reveal the facts to spouses Silo.
5. But, even in court, Guinhawa and Azotea declared that the vehicle was brand
new to spouses Silo.
6. Guinhawa is not relived of criminal liability even if spouses Silo made a
visual inspection of the van before they agreed to buy it, but they just failed to
inspect the chasis.
7. In Burnett v. Boyer, it has been held that when the vendee made only a partial
investigation and relies, in part, upon representation of the vendee, and is deceived
by such representation, he may maintain an action for such deceit.
8. The seller cannot say that the vendee should not have relied on the fraudulent
concealment. Negligence is not a defense to unjustly enrich the vendor from the fraud
which he caused.
9. Jurisprudence has held that the principle of caveat emptor only requires that
the purchaser exercises such care and attention that is usually exercised by ordinarily
prudent men in like business affairs, and only applies to defects which are open
and patent to the service of one exercising such care.
10. The principle can only be applied where it is shown or conceded that the
parties to the contract stand on equal footing and have equal knowledge or equal means
of knowledge, and there is no relation of trust or confidence between them.
11. BUT, where one party undertakes to sell to another property situated at a
distance of which he has or claims to have personal knowledge, and of which buyer
knows nothing except as he is informed by the seller, the buyer may rightfully rely
on the truth of the seller’s representations as to its kind, quality, and value made in
the courts of negotiation for the purpose of inducing the purchase. If, in such case, the
representations prove to be false, neither law nor equity will permit the seller to escape
liability.
12. Applying these doctrines to the case at bar, Azotea and Guinhawa had every
opportunity to reveal to private complainant that the van was defective. They chose to
stay silent, and this caused prejudice to spouses Silo, who were garment merchants
who had no special parts of motor vehicles.
1. Personal reflection: So assuming that the Silo spouses were car collectors
instead, it seems as if SC MIGHT HAVE ruled otherwise.
13. Based on these surrounding circumstances, Josephine Silo relied on her belief that
the van was new.
OTHER ISSUES (I doubt sir will ask these but read away if you wanna make sure)
GUINHAWA, LIABLE FOR ACTS OF AZOTEA
1. Guinhawa argues that he was not the one who dealt with the buyers, but Azotea, his
general manager.
2. It is well settled that the act or transaction of a given affair, when confided to an
agent, the authority to so act will, in accordance with a general rule often referred
to, carry with it, by implication, the authority to do all of the collateral acts which
are the natural, ordinary incidents of the main act or business authorized.
THE CRIME IS UNDER ART. 318, NOT ART. 315 PAR. 2(A) OF THE RPC
1. The elements of other deceits are as follows:
a. False pretense, fraudulent act or pretense other than those in the preceding
articles;
b. Such false pretense, fraudulent act, or pretense must be made or executed prior
to or simultaneously with the commission of the fraud;
c. As a result, the offended party suffered damage or prejudice
2. Guinhawa argues that he did not commit any false pretense.
3. First, as mentioned, Azotea in open court, declared that the car was brand new.
4. Assuming that there was no express statement that the car was indeed new, the SC
held that fraud or deceit may be committed by omission.
5. As mentioned as well, fraudulent concealment implies a purpose or design to hide
facts which the other party sought to know. Again, the act of putting the car in the
showroom, with the representation that Guinhawa deals brand new cars in general,
is enough to be punishable under this article.
6. As the Rules of Criminal Procedure says, the information alleges acts or omissions
complained of, and it is not the designation or title given by the prosecutor. Such
allegations are clearly under Art. 318.
7. The jurisdiction is also with MTC, not the RTC as the petitioner argues. The crime
is punishable by arresto mayor - within the exclusive jurisdiction of the MTC
because less than 6 years of imprisonment.
 05 ANG v. CA (Eliel)
September 29, 2008 | Carpio-Morales, J. | Warranty against Eviction
PETITIONER: Jaime D. Ang
RESPONDENTS: CA and Bruno Soledad
SUMMARY: Ang and Soledad entered into a car swapping agreement. Ang, a
buyer and seller of used vehicles, offer the Mitsubishi GSR for sale through Far
Eastern Motors, and was eventually sold to Bugash. Before the car was registered
to Bugash, a writ of replevin seized the vehicle on account of the failure to pay of
Panes, the previous owner prior to Soledad. In order to release the vehicle from
the writ, Ang paid BA Finance. Thereafter, Ang demanded recovery from
Soledad in the amount of P62,038.47. But Soledad refused, and so Ang filed a
complaint for damages in the MTCC, which dismissed the complaint of Ang
because of prescription. The RTC likewise affirmed the MTCC decision, but
granted reimbursement based on Unjust Enrichment. On appeal to the CA, it
reversed the RTC’s decision regarding the reimbursement for unjust enrichment.
Hence this petition. Ang contends that the warranty is expressed and has not yet
prescribed.
The SC maintains that the warranty has already prescribed. The provision in the
Deed of Absolute Sale (Ratio #8), stating that the title is free from liens and
encumbrances, and that Soledad will defend such from any claims is an implied
warranty, rather a warranty against eviction. And such action prescribed 6 months
after the delivery of the vehicle. Clearly, it was more than 6 months when Ang
filed since the deed was executed in 1992 and the complaint in 1995. Moreover,
given the fact that the action has not yet prescribed, the requirements for recover
under warranty against eviction (Ratio #12) were not met, and thus Ang has no
action. With regard to the unjust enrichment, it was shown that Soledad was not
actually the one who benefitted from the payment of Ang to BA Finance, instead
it was Ang’s own volition in order to secure the conveyance of the vehicle to
Bugash.
DOCTRINE: The seller, in declaring that he owned and had clean title to the
vehicle, gave an implied warranty of title, and in pledging that he “will defend
the same from all claims or any claim whatsoever [and] will save the vendee
from any suit by the government of the Republic of the Philippines,” he gave
a warranty against eviction, and the prescriptive period to file a breach
thereof is six months after the delivery of the vehicle
FACTS:
11. Under a car-swapping scheme, Soledad sold his Mitsubishi GSR sedan 1982
model to Ang by Deed of Absolute Sale. Ang in return, conveyed his
Mitsubishi Lancer model 1988, also by Deed of Absolute Sale. As Ang’s car
was of a later model, Soledad paid him an additional P55,000.
12. Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for
sale through Far Eastern Motors, a second-hand auto display center. The
vehicle was eventually sold to a certain Paul Bugash for P225,000 by a Deed
of Absolute Sale.
13. Before the deed could be registered in Bugash’s name, the vehicle was seized
by virtue of a writ of replevin, on account of the alleged failure of Ronaldo
Panes, the owner of the vehicle prior to Soledad, to pay the mortgage debt
constituted thereon.
14. To secure the release of the vehicle, Ang paid BA Finance the amount of
P62,038.47. Soleded refused to reimburse the said amount, despite repeated
demands, drawing Ang to charge him for Estafa with abuse of confidence
before the Office of the City Prosecutor, Cebu City. But was dismissed for
insufficience of evidence.
15. Ang thereafter sought for complaint of damages in the MTCC, which was
dismissed on the ground of prescription, alleging that the period for filing
should have been within 6 months in cases of warranty.
16. Ang appealed to the RTC, declared that the period has not prescribed, because
it was an express warranty (general law on prescription- since written
contract 10 years) and not an implied warranty (6 months). However, the
RTC dismissed the complaint for damages because it lacked the requirements
to recover under the warranty. Nevertheless, Soleded was required to pay
based on Unjust Enrichment.
17. Soledad then appealed to the CA, which reversed the decision of the RTC on
the ground of prescription, and it was not Soledad who was unjustly enriched.
18. Hence this petition.
ISSUES:
2. WoN the warranty is express and has not prescribed – NO
RULING: WHEREFORE, the petition is, in light of the foregoing disquisition,
DENIED.
RATIO:
28. A warranty is a statement or representation made by the seller of goods,
contemporaneously and as part of the contract of sale, having reference
to the character, quality or title of the goods, and by which he promises
or undertakes to insure that certain facts are or shall be as he then
represents them.
29. Warranties by the seller may be express or implied.
30. Art. 1546. Any affirmation of fact or any promise by the seller relating
to the thing is an express warranty if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the same, and
if the buyer purchases the thing relying thereon. No affirmation of the
value of the thing, nor any statement purporting to be a statement of the
seller’s opinion only, shall be construed as a warranty, unless the seller made
 such affirmation or statement as an expert and it was relied upon by the buyer. c. The basis thereof is by virtue of a right prior to the sale made by
31. On the other hand, an implied warranty is that which the law derives by the vendor; and
application or inference from the nature of the transaction or the relative d. The vendor has been summoned and made co-defendant in the
situation or circumstances of the parties, irrespective of any intention of suit for eviction at the instance of the vendee
the seller to create it. e. In the absence of these requisites, a breach of the warranty agasint
32. Among the implied warranty provision of the Civil Code are: as to the seller’s eviction under Art. 1547 cannot be declared.
title (Art. 1548), against hidden defects and encumbrances (Art. 1561), as to 40. For one, there is no judgment which deprived Ang of the vehicle. For another,
fitness or merchantability (Art. 1562), and against eviction (Art. 1548). there was no suit for eviction in which Soledad as seller was impleaded as
33. Engineering & Machinery Corp, states that “the prescriptive period for co-defendant at the instance of the vendee.
instituting actions based on a breach of express warranty is that specified in 41. Finally, even under the principle of solution indebiti, which the RTC applied,
the contract, and in the absence of such period, the general rule on rescission Ang cannot recover from Soleded that amount he paid BA Finance. For, as
of contract, which is four years. the appellate court observed, Ang settled the mortgage debt on his own
34. As for actions based on breach of implied warranty, the prescriptive volution under the supposition that he would resell the car. It turned out that
period s, under Art. 1571 (warranty against hidden defects of or he did pay BA Finance in order to avoid returning the payment made by the
encumbrances upon the thing sold) and Art. 1548 (warranty against ultimate Buyer Bugash.
eviction), six months from the ate of delivery of the thing sold. 42. It need not be stressed that Soledad did not benefit from Ang’s paying BA
35. “I hereby covenant my absolute ownership to (sic) the above-described Finance, he not being the one who mortgaged the vehicle, hence, did not
property and the same is free from all liens and encumbrances and I will benefit form the proceeds thereof.
defend the same from all claims or any claim whatsoever; will save the
vendee from any suit by the government of the Republic of the
Philippines.”
36. In declaring that he owned and had clean title to the vehicle at the time
the Deed of Absolute Sale was forged, Soledad gave an implied warranty
of title. In pledging that he “will defend the same from all claims or any
claim whatsoever [and] will save the vendee from any suit by the
government of the Republic of the Philippines,” Soledad gave a warranty
of eviction.
37. Given Ang’s business of buying and selling used vehicles, he could not have
merely relied on Soledad’s affirmation that the car was free from all liens and
encumbrances. He was expected to have thoroughly verified the car’s
registration and related documents.
38. Since what Soledad, as seller, gave was an implied warranty, the
prescriptive period to file a breach thereof is six months after the
delivery of the vehicle, following Art. 1571. But even if the date of filing
of the action is reckoned form the date Ang instituted his first complaint
for damages on November 9, 1993 and not on July 15, 1996 when he filed
the complaint subject of the present petition, the action just the same had
prescribed.
39. On the merits of his complaint for damages, even if Ang invokes breach of
warranty against eviction as inferred form the second part of the earlier-
quoted provision (Ration #8) of the Deed of Absolute Sale,the following
essential requisites for such breach have not been met.
a. The purchaser has been deprived of the whole or part of the thing
sold.
b. This eviction is by a final judgment.
 06 NUTRIMIX FEEDS CORPORATION v. CA (CHIQUI and RICA)
Oct. 25, 2004 | Callejo, Sr. J. | Hidden warranty
PETITIONER: Nutrimix Feeds Corporation
RESPONDENTS: Court of Appeals and Spouses Efren and Maura Evangelista
SUMMARY:
The Spouses Efren buys animal feeds from Nutrimix Feeds Corporation. The
Spouses Efren were good paying customers. But at some instances, the Spouses
failed to issue checks despite deliveries. The Spouses consequently incurred an
aggregate unsettled amount with Nutrimix. When the Spouses issued checks to
answer to this, the checks were dishonored because Maura had already closed her
account in the bank. There was a trial regarding this but what is vital in the case is
that in the trial, the Spouses presented witnesses that theorized that Nutrimix is liable
for hidden defects. The Spouses claimed that several deliveries of animal feeds (three
deliveres) were made and that on the same day the feeds were delivered, they had
fed these to their animals. The night of the delivery, 18, 000 broiler chickens died.
The Spouses tried to point out that the chickens died because of the animal feeds of
Nutrimix (see facts for more details). Some of those witnesses testified that they
found traces of rat poison in the feeds. Other witnesses testified that the feeds
delivered to them for testing were contained in unmarked sacks (basically, the feeds
could have already been tampered with). The RTC ruled in favor of Nutrimix but the
CA reversed.
The SC said that in the sale of animal feeds, there is an implied warranty that it is
reasonably fit and suitable to be used for the purpose which both parties
contemplated. To be able to prove liability on the basis of breach of implied warranty,
three things must be established by the Evangelistas. The first is that they sustained
injury because of the product; the second is that the injury occurred because the
product was defective or unreasonably unsafe; and finally, the defect existed when
the product left the hands of Nutrimix.
A manufacturer or seller of a product cannot be held liable for any damage allegedly
caused by the product in the absence of any proof that the product in question was
defective.
A review of the facts of the case would reveal that Nutrimix delivered the animal
feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the
Evangelistas had the animal feeds examined only on October 20, 1993, or barely
three months after their broilers and hogs had died.
The Court finds it difficult to believe that the feeds delivered on July 26 and 27, 1993
and fed to the broilers and hogs contained poison at the time they reached the
respondents.
In essence, the Court holds that the Evangelistas failed to prove that the Nutrimix is
guilty of breach of warranty due to hidden defects. It is, likewise, rudimentary that
common law places upon the buyer of the product the burden of proving that the
seller of the product breached its warranty.
In any case, the Evangelistas have already admitted, both in their testimonies and
pleadings submitted, that they are indeed indebted to Nutrimix for the unpaid animal
feeds delivered to them. For this reason alone, they should be held liable for their
unsettled obligations to the Nutrimix.
DOCTRINE:
1. A hidden defect is one which is unknown or could not have been known to
the buyer. Under the law, the requisites to recover on account of hidden
defects are as follows: Defect must: (a) be hidden; (b) exist at the time the
sale was made; (c) ordinarily have been excluded from the contract; and (d)
be important to render the thing unfit or considerably decreases fitness; and
2. The action must be instituted within the statute of limitations.
2. In order to enforce the implied warranty that the goods are reasonably fit
and suitable to be used for the purpose which both parties contemplated, the
following must be established: (a) that the buyer sustained injury because
of the product; (b) that the injury occurred because the product was
defective or unreasonably unsafe; and finally (c) the defect existed when the
product left the hands of the petitioner.
3. A manufacturer or seller of a product cannot be held liable for any damage
allegedly caused by the product in the absence of any proof that the product
in question is defective, which was present upon the delivery or
manufacture of the product; or when the product left the seller’s or
manufacturer’s control; or when the product was sold to the purchaser; or
the product must have reached the user or consumer without substantial
change in the condition it was sold.
4. The remedy against violation of warranty against hidden defects is either to
withdraw from the contract (accion redhibitoria) or to demand a
proportionate reduction of the price (accion quanti minoris), with damages
in either case.
FACTS:
1. Spouses Efren and Maura Evangelista started to directly procure various
kinds of animal feeds from Nutrimix Feeds Corporation. Evangelista gave
the Spouses Efren a credit period of thirty to forty-five days to postdate
checks to be issued in payment for the delivery of the feeds. The
accommodation was made because of the company president's close
 friendship with Eugenio Evangelista, the brother of respondent Efren
Evangelista.
2. The various animal feeds were paid and covered by checks with due dates
from July 1993 to September 1993. Initially, the Evangelistas were good
paying customers. In some instances, however, they failed to issue checks
despite the deliveries of animal feeds which were appropriately covered by
sales invoices. Consequently, the Evangelistas incurred an aggregate
unsettled account with Nutrimix in the amount of P766,151.00.
3. When the above-mentioned checks were deposited at the Nutrimix’s
depository bank, the same were, consequently, dishonored because Maura
Evangelista had already closed her account. Nutrimix made several demands
for the respondents to settle their unpaid obligation, but the latter failed and
refused to pay their remaining balance with Nutrimix.
4. On December 15, 1993, Nutrimix filed with the Regional Trial Court of
Malolos, Bulacan, a complaint, against the Evangelistas for sum of money
and damages with a prayer for issuance of writ of preliminary attachment.
a. In their answer with counterclaim, the Evangelistas admitted their
unpaid obligation but impugned their liability to Nutrimix. They
asserted that the nine checks issued by Maura Evangelista were
made to guarantee the payment of the purchases, which was
previously determined to be procured from the expected proceeds in
the sale of their broilers and hogs. They contended that inasmuch as
the sudden and massive death of their animals was caused by the
contaminated products of Nutrimix, the nonpayment of their
obligation was based on a just and legal ground.
5. On January 19, 1994, the Evangelistas also lodged a complaint for damages
against Nutrimix for the untimely and unforeseen death of their animals
supposedly effected by the adulterated animal feeds the petitioner sold to
them.
a. Nutrimix filed its Answer with Counterclaim, alleging that the death
of the respondents' animals was due to the widespread pestilence in
their farm. It also received information that the respondents were in
an unstable financial condition and even sold their animals to settle
their obligations from other enraged and insistent creditors. It also
theorized that it was the Evangelistas who mixed poison to its feeds
to make it appear that the feeds were contaminated.
6. A joint trial thereafter ensued.
7. During the hearing, Nutrimix presented Rufino Arenas (Nutrimix assistant
manager). Arenas testified that he met the Spouses to discuss the settlement
for their unpaid account. The Spouses pleaded for Nutrimix to continue to
supply them because their livestock were supposedly suffering from a
disease.
8. Maura Evangelista testified that the Nutrimix president gave them a discount
of Php12 per bag and a credit term of 45 to 75 days.
9. On July 26, 1993, three various kinds of animals feeds (130 bags) were
delivered to the residence of the Spouses. The deliveries were then fed to the
animals on the same day. Around 8:30 om of the same day, Maura received
a radio message from a worker in her farm that the chickens were dying in
rapid intervals. The Spouses went to the farm and witnessed the death of 18,
000 broilers (kind of chicken).
10. The Spouses received another delivery of 160 bags from Nutrimix, some
were distributed to contract growers of the Spouses. Maura requested a
representative of Nutrimix to notify Mr. Bartolome (the company president)
that their broilers died. She also asked that a technician or a veterinarian be
sent to oversee the untoward occurrence. But the feeds that were delivered
that day were still fed to the animals.
11. Efren suffered from a heart attack and was hospitalized. This, they said, was
a consequence of the massive death of their animals.
12. Another set of animal feeds were delivered. The spouses didn’t return the
feeds still because at this time, the Spouses don’t know that the cause of death
of their animals was the polluted feeds.
13. The Spouses eventually met with Mr. Bartolome. Maura attributed the
improbable incident to the animal feeds and asked Mr. Bartolome for
indemnity. Mr. Bartolome disavowed liability and filed a case against the
Spouses.
14. After the meeting, Maura requested Dr. Sanchez, a vet, to conduct an
inspection in the poultry. The Spouses also took amounts of feeds and gave
them to government agencies for lab examination.
15. The Clinical Laboratory Report revealed that the feeds were negative of
salmonella and that the very high aflatoxin level found would not cause
instantaneous death if taken orally by birds.
16. Dr. Diaz, a vet who accompanied Efren at the Bureau of Animal Industry,
testified that sometime in October 1993, Efren sought for his advice regarding
the death of the chickens. He suggested that the remaining feeds be brought
to the lab for examination. Dr. Diaz claimed that the feeds brought to the lab
came from one bag of sealed Nutrimix feeds which was covered with a sack.
17. Samples of the blood and bone marrow were taken for chromosome analysis,
which showed pulverized chromosomes both from marrow and blood
chromosomes.
18. On cross examination, Dr. Medina (a cytogenetic analysis who conducted the
exam on number 17), admitted that the feeds brought to him were merely
placed in a small unmarked plastic bag and that he had no way of ascertaining
whether the feeds were indeed manufactured by Nutrimix.
19. A witness for the Sppuses, Magsipoc, a forensic chemist verified that the
sample feeds yielded positive results to Coumatetralyl compound, the active
component of racumin, a brand name for a commercially known rat poison.
According to Magsipoc, the presence of the compound in chicken feeds will
be fatal to internal organs.
 20. Austria, Chief of the Pesticide Analytical Section of the Bureau of Plants
Industry conducted a test to determine the presence of pesticide. The tests
disclosed no pesticide residue but discovered that the feeds were positive for
Warfarin, a rodenticide, which is in the chemical family of Coumarin.
21. Trial Court ruled in favor of Nutrimix. It said that Nutrimix cannot be held
liable under “hidden defects” of commodities sold. The subject feeds were
contaminated sometime between their storage at the bodega and their
consumption by the animals. The contamination was made by unidentified
ill-meaning mischief-makers.
22. The Spouses sought a review for the decision, arguing that the TC erred in
holding that they failed to prove that their broilers and hogs died as a reault
of the feeds.
23. The CA modified the decision of the TC. It ruled that the Spouses were not
obligated to pay the outstanding obligation to Nutrimix in view of the breach
of warrant against hidden defects. It gave credecnce to the testimony of Dr.
Diaz. Dr. Diaz’s declarations were not effectively impugned during cross
examination, nor was there any contrary evidence.
24. Hence this petition.
ISSUE/s:
11. W/N Nutrimix is liable - NO
RULING: WHEREFORE, in light of all the foregoing, the petition is GRANTED.
The assailed Decision of the Court of Appeals, dated February 12, 2002, is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Malolos,
Bulacan, Branch 9, dated January 12, 1998, is REINSTATED. No costs.
RATIO:
1. The provisions on warranty against hidden defects are found in Articles 1561
and 1566 of the New Civil Code of the Philippines, which read as follows:
a. Art. 1561. The vendor shall be responsible for warranty against
hidden defects which the thing sold may have, should they render it
unfit for the use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the vendee been aware
thereof, he would not have acquired it or would have given a lower
price for it; but said vendor shall not be answerable for patent defects
or those which may be visible, or for those which are not visible if
the vendee is an expert who, by reason of his trade or profession,
should have known them.
b. Art. 1566. The vendor is responsible to the vendee for any hidden
faults or defects in the thing sold, even though he was not aware
thereof. This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden faults or
defects in the thing sold.
2. A hidden defect is one which is unknown or could not have been known
to the vendee. Under the law, the requisites to recover on account of
hidden defects are as follows:
a. the defect must be hidden;
b. the defect must exist at the time the sale was made;
c. the defect must ordinarily have been excluded from the
contract;
d. the defect, must be important (renders thing UNFIT or
considerably decreases FITNESS);
e. the action must be instituted within the statute of limitations.
3. In the sale of animal feeds, there is an implied warranty that it is reasonably
fit and suitable to be used for the purpose which both parties contemplated.
To be able to prove liability on the basis of breach of implied warranty,
three things must be established by the Evangelistas. The first is that they
sustained injury because of the product; the second is that the injury
occurred because the product was defective or unreasonably unsafe; and
finally, the defect existed when the product left the hands of Nutrimix.
4. A manufacturer or seller of a product cannot be held liable for any
damage allegedly caused by the product in the absence of any proof that
the product in question was defective.
5. Tracing the defect to Nutrimix requires some evidence that there was no
tampering with, or changing of the animal feeds. The nature of the animal
feeds makes it necessarily difficult for the Evangelistas to prove that the
defect was existing when the product left the premises of the Nutrimix.
6. A review of the facts of the case would reveal that Nutrimix delivered the
animal feeds, allegedly containing rat poison, on July 26, 1993; but it is
astonishing that the Evangelistas had the animal feeds examined only on
October 20, 1993, or barely three months after their broilers and hogs had
died.
a. We find it difficult to believe that the feeds delivered on July 26 and
27, 1993 and fed to the broilers and hogs contained poison at the
time they reached the respondents.
i. In a span of three months, the feeds could have already
been contaminated by outside factors and subjected to
many conditions unquestionably beyond the control of the
petitioner. In fact, Dr. Garcia, one of the witnesses for the
respondents, testified that the animal feeds submitted to her
for laboratory examination contained very high level of
aflatoxin, possibly caused by mold (aspergillus flavus).
b. We agree with the contention of Nutrimix that there is no evidence
on record to prove that the animal feeds taken to the various
governmental agencies for laboratory examination were the same
animal feeds given to the respondents' broilers and hogs for their
consumption. Moreover, Dr. Diaz even admitted that the feeds that
 were submitted for analysis came from a sealed bag.
c. It bears stressing, too, that the chickens brought to the Philippine
Nuclear Research Institute for laboratory tests were healthy animals,
and were not the ones that were ostensibly poisoned. There was even
no attempt to have the dead fowls examined. Neither was there any
analysis of the stomach of the dead chickens to determine whether
the petitioner's feeds really caused their sudden death. Mere sickness
and death of the chickens is not satisfactory evidence in itself to
establish a prima facie case of breach of warranty.
d. There was evidence tending to show that the Evangelistas combined
different kinds of animal feeds and that the mixture was given to the
animals. Maura Evangelista even testified that it was common
practice among chicken and hog raisers to mix animal feeds.
e. In essence, we hold that the Evangelistas failed to prove that the
Nutrimix is guilty of breach of warranty due to hidden defects. It is,
likewise, rudimentary that common law places upon the buyer of
the product the burden of proving that the seller of the product
breached its warranty.
7. For these reasons, the expert testimonies lack probative weight. The
Evangelista’s case of breach of implied warranty was fundamentally based
upon the circumstantial evidence that the chickens and hogs sickened,
stunted, and died after eating Nutrimix feeds; but this was not enough to raise
a reasonable supposition that the unwholesome feeds were the proximate
cause of the death with that degree of certainty and probability required. The
rule is well-settled that if there be no evidence, or if evidence be so slight
as not reasonably to warrant inference of the fact in issue or furnish
more than materials for a mere conjecture, the court will not hesitate to
strike down the evidence and rule in favor of the other party.
8. It must be stressed, however, that the remedy against violations of warranty
against hidden defects is either to withdraw from the contract (accion
redhibitoria) or to demand a proportionate reduction of the price (accion
quanti minoris), with damages in either case.
9. In any case, the Evangelistas have already admitted, both in their testimonies
and pleadings submitted, that they are indeed indebted to Nutrimix for the
unpaid animal feeds delivered to them. For this reason alone, they should be
held liable for their unsettled obligations to the Nutrimix.
 001 ROBERTS v. PAPIO (Nikki V)
09 February 2007 | J. Callejo, Sr. | G.R. No. 166714 |
Promise to sell v. Agreement to repurchase
PETITIONER: Amelia S. Roberts
RESPONDENT: Martin B. Papio
SUMMARY: The Spouses Papio were the owners of a residential lot located in
Makati. In order to secure the loan from the Amparo Investments Corp, they executed
a real estate mortgage on the property. Upon Papio’s failure to pay the loan, the
corporation filed a petition for the extrajudicial foreclosure of the mortgage. Since the
couple needed money to redeem the property and to prevent the foreclosure of the real
estate mortgage, they executed a Deed of Absolute Sale over the property in favor of
Martin Papio’s cousin, Amelia Roberts. As soon as the spouses had settled their
obligation, the corporation returned the owner’s duplicate TCT which was then
delivered to Amelia Roberts.Roberts and Papio then executed a 2-year lease subject to
renewa. However, Papio failed to pay rentals and Roberts instituted this case. Papio
claims that he repurchased the said land under an equitable mortgage. The issue is
WON the contract between Roberts and Papio is an equitable mortgage. The SC said
that it is not; it is only a contract of sale where no right to repurchase was reserved.
Moreover, Papio admitted the existence of sale by insisting he repurchased the land
which is incompatible with the defense of equitable mortgage as an equitable mortgage
does not transfer ownership.
DOCTRINE: An agreement to repurchase becomes a promise to sell when made after
the sale because when the sale is made without such agreement the purchaser acquires
the thing sold absolutely; and, if he afterwards grants the vendor the right to
repurchase, it is a new contract entered into by the purchaser as absolute owner. An
option to buy or a promise to sell is different and distinct from the right of repurchase
that must be reserved by means of stipulations to that effect in the contract of sale.
FACTS:
7. The Spouses Papio were the owners of a 274 sq m residential lot located in
Makati. In order to secure a 59k loan from the Amparo Investments Corp,
they executed a real estate mortgage on the property. Upon Papio’s failure to
pay the loan, the corporation filed a petition for the extrajudicial foreclosure
of the mortgage.
8. Since the couple needed money to redeem the property and to prevent the
foreclosure of the real estate mortgage, they executed a Deed of Absolute
Sale over the property in favor of Martin Papio’s cousin, Amelia Roberts. Of
the 85k purchase price, 59k was paid to the Amparo Investments Corp, while
the 26k difference was retained by the spouses. As soon as the spouses had
3333 Art. 1602. The contract shall be presumed to be an equitable mortage, in any of the following cases:
settled their obligation, the corporation returned the owner’s duplicate TCT
which was then delivered to Amelia Roberts.
9. METC: Papio’s claim that the transfer of property was one with right of
repurchase lacks merit since the Deed of Sale is termed absolute and
unconditional.
10. RTC: affirmed MeTC as regards the nature of the contract.
11. CA: METC and RTC erred in ignoring Papio’s defense of equitable mortgage
and in not finding that the transaction convered by the deed of absolute sale
by and between the parties was one of equitable mortgage under Art. 160233
of the New Civil code. CA ruled that Papio retained the ownership of the
property and its peaceful possession. By virtue of this CA ruling, Roberts
brought the case to the SC.
12. ROBERTS: Papio is barred from raising the issue of equitable mortgage
because his defense in the RTC and METC was that he had repurchased the
property from Roberts. By such representation, he had impliedly admitted the
existence and validity of the deed of absolute sale whereby ownership of the
property was transferred to Roberts but reverted to him [Papio] upon the
exercise of the said right. In fact, Papio even filed a complaint for specific
performance where Papio claims that his transaction with Roberts was a sale
with pacto de retro. Roberts posits that Art. 1602 applies only when the
defendant [Papio] specifically alleges this defense. Consequently, CA was
proscribed from finding that Papio and Roberts had entered into an equitable
mortgage under the deed of absolute sale.
13. PAPIO: the defense of equitable mortgage need not be particularly stated to
apprise Roberts of the nature and character of the repurchase agreement since
he had amply discussed in his pleadings before the trial and appellate courts
all the surrounding circumstances of the case and the negotiations that led to
the repurchase agreement. He then argues that CA correctly ruled that the
contract was one of equitable mortgage. He insists that Roberts allowed him
to redeem and reacquire the property, and accepted his full payment through
Roberts’ agent as shown by the receipts.
ISSUE:
1. WON the transaction entered into between the parties under the Deed of Absolute
Sale and the Contract of Lease is an equitable mortgage over the property – NO.
The contract is one of absolute sale and not one with right to repurchase.
RULING: IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 69034 is REVERSED
and SET ASIDE. The Decision of the Metropolitan Trial Court, affirmed with
modification by the Regional Trial Court, is AFFIRMED.
(2) when the vendor remains in possession as lessee or otherwise
RATIO: allegation and evidence of palpable mistake on the part of respondent, or a fraud
1. Papio alleged the following: on the part of Roberts.
a. Roberts had granted him the right to redeem or repurchase the property at any Art. 1601. Conventional redemption shall take place when the vendor reserves the
time and for a reasonable amount; right to repurchase the thing sold, with the obligation to comply with the provisions of
b. and that Papio had, in fact, repurchased the property in July 1985 for Php250k Art. 1616 and other stipulations which may have been agreed upon.
which he remitted through Roberts’ agent who signed receipts therefor;
c. Papio acquired ownership and juridical possession of the property after his
repurchase thereof in 1985
d. Consequently, Roberts was obliged to execute a deed of absolute sale over the
property in Papio’s favor.
2. As gleaned from the April 13, 1982 deed, the right of Papio to repurchase the
property is not incorporated therein. The contract is one of absolute sale and not
one with right to repurchase. The law states that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning
of its stipulations shall control.
3. The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same instrument
of sale as one of the stipulations of the contract. Once the instrument of absolute
sale is executed, the vendor can no longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee in a separate instrument cannot
be a right of repurchase but some other right.
4. An equitable mortgage is one that, although lacking in some formality, form or
words, or other requisites demanded by a statute, nevertheless reveals the intention
of the parties to charge a real property as security for a debt and contain
nothing impossible or contrary to law.
5. A contract between the parties is an equitable mortgage if the following requisites
are present: a. the parties entered into a contract denominated as a contract of sale
and b. the intention was to secure an existing debt by way of mortgage. The
decisive factor is the intention of the parties. In an equitable mortgage, the
mortgagor retains ownership over the property but subject to foreclosure and
sale at public auction upon failure of the mortgagor to pay his obligation.
6. In contrast, in a pacto de retro sale, ownership of the property sold is
immediately transferred to the vendee a retro subject only to the right of the
vendor a retro to repurchase the property upon compliance with legal
requirements for the repurchase. The failure of the vendor a retro to exercise the
right to repurchase within the agreed time vests upon the vendee a retro, by
operation of law, absolute title over the property. One repurchases only what one
has previously sold. The right to repurchase presupposes a valid contract of sale
between same parties.
7. By insisting that he had repurchased the property, Papio thereby admitted that the
deed of absolute sale executed by him and Roberts was in fact and in law a deed of
absolute sale and not an equitable mortgage; he had acquired ownership over the
property based on said deed. Papio, is thus estopped from asserting that the
contract under the deed of absolute sale is an equitable mortgage unless there is an
 002 MISTERIO v. CEBU STATE COLLEGE (JP)
June 23, 2005 | Callejo, J. | Redemption Period
PETITIONER: Luis Misterio, Gabriel Misterio, Francis Misterio, et al.
RESPONDENTS: Cebu State College of Science and Technology (CSCST),
represented by its President, Dr. Jose Tan
SUMMARY: Misterio executed a Deed of Sale of a parcel of land of the Banilad
Friar Lands Estate in favor of Sudol Agricultural High School (SAHS). The sale
was subject to the right of Ministerio as vendor to repurchase the property after
the high school has ceased to exist. In the meantime, the Provincial Board of Cebu
donated 41 parcels of the Banilad Friar Lands Estate to SAHS, the previous parcel
of land subject of the sale being part of the estate.
BP 412 then took effect. The law incorporated certain schools in the Cebu
Province into one Cebu State College of Science and Technology, including the
SAHS. The Provincial Board of Cebu then tried to recover the property by
claiming that the donation they made was void because SAHS did not anymore
exist, because of the consolidation. Upon hearing the recovery of the Cebu
Province of the parcels of land, the heirs of Misterio exercised their intention to
repurchase the lot sold to them. The RTC held that the donation was void. CA
reversed and said that although it is true that SAHS ceased to exist, the action for
repurchase has prescribed.
The SC held that according to Art. 1606 of the NCC, if the contract as in this case,
did not expressly agree on the period for repurchase, the vendor may extend the
period until 4 years from the happening of the condition in the deed. In this case,
the petitioner heirs had 4 years after the abolishment of the SAHS to repurchase
the property but they failed to do so. (See doctrine for additional ruling). Their
action has prescribed.
DOCTRINE: The four-year period to repurchase is not suspended merely
because there is a divergence of opinion between the parties as to the precise
meaning of the phrase providing for the condition upon which the right to
repurchase is triggered. The existence of seller a retro’s right to repurchase the
proper is not dependent upon the prior final interpretation by the court of the said
phrase.
FACTS:
178. The Sudlon Agricultural High School (SAHS) was established in Cebu
Province.
179. In 1952, the Provincial Board of Cebu granted the usufruct of 41 parcels of
land, covering 104.54 hectares of the Banilad Friar Lands Estate to the SAHS.
180. Asuncion Sadaya-Misterio (Misterio) executed a Deed of Sale of a parcel
of land denominated as Lot No. 1064 of the Banilad Friar Lands Estate, in
favor of the SAHS.
181. The sale was subjet to the right of the vendor (Misterio) to repurchase the
property after the high school shall have ceased to exist, or shall have
transferred its site elsewhere.
182. Consequently, the old TCT was cancelled and a new TCT in the name of
SAHS was issued by the Registry of Deeds of Cebu. The right of the vendor
to repurchase the property was annotated at the dorsal portion thereof.
183. On March 18, 1960, the Provincial Board of Cebu, through Resolution
No. 491, donated the aforementioned 41 lots to SAHS (from Fact No. 2),
subject to two (2) conditions:
a. that if the SAHS ceases to operate, the ownership of the lots would
automatically revert to the province, and
b. that the SAHS could not alienate, lease or encumber the properties.
184. Personal note: we have two transactions here, a pacto de retro sale in Fact
No. 3 and a donation in Fact No. 6. But as the case progresses, it seems
only the pacto de retro sale is relevant.
185. On June 10, 1983, Batas Pambansa (B.P.) Blg. 412, entitled "An Act
Converting the Cebu School of Arts and Trades in Cebu City into a Chartered
College to be Known as the Cebu State College of Science and Technology,
Expanding its Jurisdiction and Curricular Programs" took effect.
186. The law incorporated and consolidated as one school system certain
vocational schools in the province of Cebu, including the SAHS, and which
became an extension of the Cebu State College of Science and Technology
(CSCST).
187. In the meantime, the province of Cebu decided to recover the 41 lots it had
earlier donated to SAHS on the ground that the said deed was void.
188. The province of Cebu opined that based on the initial report of its provincial
attorney, the SAHS had no personality to accept the donation.
189. In the meantime, Asuncion died intestate.
190. When her heirs learned that the province of Cebu was trying to recover the
property it had earlier donated to SAHS, they went to the province of Cebu,
informing it of their intention to exercise their right to repurchase the property
as stipulated in the aforecited deed of sale executed by their predecessor-in-
interest.
191. The province of Cebu (represented by then Governor Osmeña), and the
CSCST (represented by then DECS Secretary Quisumbing), entered into a
Memorandum of Agreement over the 40 parcels of land, allocating 53
hectares to the province of Cebu, and 51 hectares for the SAHS.
192. In a Letter, the heirs of the late Asuncion Sadaya-Misterio informed CSCST
of the heirs' intention to exercise the option to repurchase Lot No. 1064
granted to them under the deed of sale, as the SAHS had ceased to exist.
193. In response thereto, Jesus T. Bonilla, as Vocational School Superintendent II
 of CSCST, wrote the heirs, informing the latter that the SAHS still existed
and "in fact, from a purely secondary school it is now offering collegiate
courses." He explained that "what has been changed is only the name of the
school [to CSCST] which does not imply the loss of its existence."
194. Luis, Gabriel, Francis, Thelma, all surnamed Misterio, and Estella S.
Misterio-Tagimacruz, the legitimate heirs of the late Asuncion Sadaya-
Misterio and herein petitioners, filed a Complaint before the RTC "Nullity of
Sale and/or Redemption."
195. RTC ruled in favor of the petitioner heirs and declared the Deed of Sale
entered into by and between Misterio and SAHS as null and void for the
latter’s lack of juridical personality to acquire real property.
196. The RTC ruled that the donation was void ab initio as the SAHS, in the first
place, did not have the personality to be a donee of real property. Moreover,
with the enactment of B.P. Blg. 412, the SAHS ceased to exist and to operate
as such.
197. The CA reversed. While it affirmed the RTC ruling that the SAHS had ceased
to exist when B.P. Blg. 412 took effect, the appellate court ruled that the
period for the petitioner heirs to repurchase the property expired on June
1987, four years after the enactment of B.P. Blg. 412.
198. Their MR was denied; hence, the appeal.
ISSUE/s:
160. WoN SAHS still retained its personality as such school or was still in
existence - NO
161. WoN the petitioner heirs had the right to exercise the right to repurchase the
property – NO
162. WoN the petitioner heirs’ action for repurchase has prescribed - YES
RULING: Petition is DENIED DUE COURSE.
RATIO:
1. Citing Article 1606(3) of the New Civil Code, the petitioner heirs argue that
"prescription should start to run from the time it is legally feasible for the
party to redeem the land, which is the time when the action to redeem has
accrued." The petitioners argue that this is so since the issue of whether the
SAHS had ceased to exist had still yet to be resolved.
2. The petitioner heirs posit that unless and until judgment would be rendered
stating that the SAHS has ceased to exist, the period to repurchase the
property would not start to run. It is only from the finality of the said judgment
that the right to repurchase the property may be exercised; hence, they still
had thirty (30) days from the date of the promulgation of the CA decision
within which to repurchase the property.
3. The petitioner heirs further aver that since the lien, their right to repurchase
the property, was annotated on the title of the land, the right to exercise the
same is imprescriptible.
4. They argue that they had been vigilant of their right to repurchase the
property, as far back as 1973. In fact, they made tender of payment in March
1990, well within the ten-year prescriptive period.
5. They point out that the CSCST had abandoned its defense of prescription by
contending that the condition for repurchase had not yet become operational.
6. The essence of a pacto de retro sale is that title and ownership of the property
sold is immediately rested in the vendee a retro, subject to the restrictive
condition of repurchase by the vendor a retro within the period provided in
Article 1606 of the New Civil Code.
7. Art. 1606:
i. The right referred to in Article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.
ii. Should there be an agreement, the period cannot exceed ten years.
iii. However, the vendor may still exercise the right to repurchase
within thirty days from the time final judgment was rendered in a
civil action on the basis that the contract was a true sale with right
to repurchase.
8. In this case, the vendor a retro and the vendee a retro did not agree on
any period for the exercise of the right to repurchase the property.
Hence, the vendor a retro may extend the said right within four years
from the happening of the allocated condition contained in the deed: (a)
the cessation of the existence of the SAHS, or (b) the transfer of the school
to other site.
9. As gleaned from the petitioner heirs’ complaint before the trial court,
they alleged that the SAHS ceased to exist on June 10, 1983, when B.P.
Blg. 412 took effect, abolishing therein the SAHS which, in the meantime,
had been converted into the Sudlon Agricultural College.
10. The CA found the position of the petitioners to be correct, and declared
that conformably to the condition in the deed of sale, and under Article
1606 of the New Civil Code, the right of the petitioners as successors-in-
interest of the vendee a retro commenced to run on June 10, 1983.
11. Hence, they had until June 10, 1987 within which to repurchase the
property; however, they failed to do so.
12. It is true that respondent CSCST, through counsel, was of the view that
despite the effectivity of B.P. Blg. 412, the structure and facilities of the
SAHS remained in the property and, as such, it cannot be said that the said
school had ceased to exist.
13. It argued that the phrase "SAHS ceased to exist" in the deed meant that the
structure and facilities of the school would be destroyed or dismantled, and
had no relation whatsoever to the abolition of the school and its integration
into the Cebu State College for Science and Technology.
14. The four-year period for the petitioners to repurchase the property was
 not suspended merely and solely because there was a divergence of
opinion between the petitioners, on the one hand, and the respondent, on
the other, as to the precise meaning of the phrase "after the SAHS shall
cease to exist" in the deed of sale.
15. The existence of the petitioners' right to repurchase the property was not
dependent upon the prior final interpretation by the court of the said
phrase.
16. The petitioner heirs, by specifically alleging in the complaint that the
SAHS has ceased to exist, are estopped from changing on appeal their
theory of the case in the trial court and in the CA.
17. The SC agrees with the contention of the OSG that the annotation of the
petitioners' right to repurchase the property at the dorsal side of TCT No.
15959 has no relation whatsoever to the issue as to when such right had
prescribed.
18. The annotation was only for the purpose of notifying third parties of the
petitioners' right to repurchase the property under the terms of the deed of
sale, and the law.
 003 SOLID HOMES, INC. v. CA (HENRY)
July 8, 1997 | Panganiban, J. | Pactum Commissorium
PETITIONER: Solid Homes, Inc.
RESPONDENTS: CA, State Financing Center, Inc., and RD for Rizal
SUMMARY: This case is basically about the contention of whether or not a
subsequent MOA/Dacion en pago entered by both parties in lieu of a prior REM
constitutes pactum commisorium, to which the SC ruled in the negative.
Solid Homes executed a REM in favor of SFC for two of its properties (where
VV Soliven Towers II was erected), to secure a loan of 10M, which eventually
increased to about 13M in total until it became due. Despite repeated demands by
SFC, Solid Homes failed to pay, which lead to the filing of a petition for
extrajudicial foreclosure of SFC, that led to the posting of the sheriff of the notice
of the sale of the properties that were mortgaged.
Prior to the scheduled auction sale, Solid Homes was able to induce SFC to forego
of the mortgage, but that they enter into a MOA/Dacion en Pago, which
essentially translated the agreement from that of REM to a sale with the right to
repurchase. Pertinent provisions of the MOA included the obligation of Solid
Homes to pay loan (amounting to 14M, which counted the interests, costs, among
others), and the fact that if by 180 days there is failure to pay, SFC will be in
possession of the property, with 10 months right to repurchase after the said 180
days.
Apparently even this deal wasn’t enough and Solid Homes was unable to pay
once again, which necessarily meant that its properties are to be transferred under
the names of SFC. (small issue arose here when the right to repurchase wasn’t
annotated in the title when it was transferred to SFC, to which the lower court
already fixed, so nvm)
Solid Homes is contesting that such MOA shall be struck down as void because
it is in violation of the CC for being pactum commissorium, as he claims that his
mortgaged properties were automatically transferred to SFC as creditor when he
was unable to satisfy his debt. Both RTC and CA ruled in favor of SFC and said
that the MOA is not a pactum commisorium.
This was echoed in the ruling of the SC, wherein they said that such MOA/Dacion
en pago was in fact a sale with the right to repurchase. This essentially means that
the possession of the property really goes to SFC, and when there is no right to
repurchase exercised by Solid Homes within the provided period, it shall
completely transfer ownership to SFC.
DOCTRINE: The provision in MOA/Dacion en pago with a right to repurchase
that if borrower fails to comply with the new terms of restructuring the loan, the
agreement shall automatically operate as a dacion en pago without need of
executing any new document does not constitute pactum commissorium.
FACTS:
16. June 4, 1979, Solid Homes executed a Real Estate Mortgage (REM) in favor
of State Financing Center (SFC) its properties (2 TCTs, both in Pasig) to
secure a loan of Php 10M.
17. A year later, Solid Homes applied for and was granted a loan by SFC
amounting to Php 1,511,270.03, to which Solid Homes executed an Amended
REM (June 1980) where the credits secured increased to Php 11,511,270.03.
18. Solid Homes then acquired additional credits and financing facilities from
SFC in the sum of Php 1,499,811.97 which led them to execute another
Amended REM (March 1982) which further increased the total credit to Php
13,011,082.00.
19. The loans became due and unfortunately despite repeated demands, Solid
Homes failed to pay, this lead SFC to file for a petition for extrajudicial
foreclosure of the mortgages with the Provincial Sheriff of Rizal.
20. Sheriff issued then a Notice of Sheriff’s Sale where the mortgaged properties
of Solid Homes and the improvements (including the VV Soliven Towers II
Building) were set for public auction to satisfy Sold Home’s indebtedness,
interest, and fees and expenses.
21. Prior to the scheduled public auction sale, Solid Homes made representations
and induced SFC to forego with the foreclosure. This lead to both parties
executing a MOA, with the following terms, among others:
a. Solid Homes acknowledges his debt (Php 14,225,178.40 + 14%
interest/annum + 16% penalty/annum from March 1, 1983 until fully
paid) and that he agrees to pay the total amount within 180 days from
date of signing the instrument
b. Should Solid Homes be able to pay SFC an amount equivalent to
60% of the principal (this is around Php 8.5M) within the first 180
days, SFC shall allow the balance to be restructured at a rate of
interest amenable to both parties.
c. If Solid Homes fails to comply within 180 days, this MOA shall
operate to be an instrument of dacion en pago without the need of
executing any document to such an effect and Solid Homes binds
itself to transfer, convey, and assign to SFC by way of dacion en
pago, its heirs, successors, and assigns, and SFC accepts the
conveyance and transfer of the 2 real properties + improvements
d. State Financing grants Solid Homes the right to repurchase
(properites + improvements) within 10 months counted from and
after 180 days from signing of MOA
22. Solid Homes failed to pay SFC an amount equivalent to 60% (in
contravention of the MOA, letter b). Hence, the document “operated to be an
instrument of dacion en pago without the need of executing any document to
such an effect. Now, both properties are transferred under the name of SFC.
23. When through a letter SFC demanded that the VV Soliven Towers II
Building be transferred to their possession, Solid Homes asked for 10 days
to categorize its position—well after the 10 days, they sent a reply to SFC
and said that the MOA they entered into is null and void because its essence
 is that, as mortgagee creditor, SFC would be able to appropriate unto itself
the properties mortgaged by Solid Homes, which is in contravention of Art.
2088 of the CC. Of course, SFC replied with a letter saying that Art. 2088
does not apply to the MOA they entered into.
24. Solid Homes haggled with SFC and even sent a letter proposing for
repayment schemes, to which SFC did not agree with. There were also
conferences where both were negotiating the arrangement on the outstanding
obligation.
25. Both ends never met and with the right to repurchase nearing (June 27, 1984),
Solid Homes requested that it be extended to another 60 days, and that the
obligation to pay the loan (14M) be extended for another year.
26. No response from SFC was received, and so a day before the expiry of the
right to repurchase, a petition was filed before the RTC, who ruled that the
MOA/Dacion en pago was valid and binding.
27. Both appealed: Solid Homes assails the denial of its claim for damages, which
it claims to have been resulted from the bad faith and malice of SFC in failing
to annotate their right to repurchase in the titles.
28. State Financing on the other hand questioned the ruling as far as the grant of
the court as to the 30 days more for the right of repurchase, among others.
29. CA ruled in favor of SFC and among others, ordered Solid Homes to deliver
possession of the subject properties to SFC, on the ground that in a sale with
pacto de retro, the vendee shall immediately acquire title over and possession
of the real property sold, subject only to the vendor’s right of redemption.
Hence, this petition.
mortgaged or under antichresis shall automatically become property of the
creditor in the event of nonpayment of the debt within the term fixed (Art.
2088, CC).
69. Looking closely in the facts of this case, specifically Fact #6, the MOA was
entered into in order to forego with the foreclosure of the mortgaged
properties. The MOA is necessarily an entirely new contract—a new
agreement. Moving forward, there was no “mortgage” anymore. Reading
plainly the MOA itself (refer to the items enumerated under Fact#6 for more
details), it can be inferred that now it became a sale with pacto de retro.
70. It became as such, when the “loan” became the payment of SFC for the
properties that were previously mortgaged. So basically what we’re looking
at is a change in the contract: it was no longer a real estate mortgage, it was
now a sale, by virtue of the MOA.
71. Now, looking at it as a sale with pacto de retro, it is evident that the properties
shall go with SFC unless Solid Homes exercises its right of redemption in
accordance with the period granted to it by the SC.

ISSUE/s:
4. WoN the MOA/Dacion en pago constitutes pactum commissorium – NO

RULING: The SC affirmed the CA ruling, with modification that the redemption price
shall not include the registration and other expenses incurred by SFC in the issuance
of new certificates of title in its name, as this was doen without proper judicial order
required under Art. 1607 of the CC.
RATIO:
65. In a sale with pacto de retro, the vendee has a right to the immediate
possession of the property sold, unless otherwise agreed upon.
66. It is basic that in a pacto de retro sale the title and ownership of the property
sold are immediately vested in the vendee a retro, subject only to the
resolutory condition of repurchase by the vendor a retro within the stipulated
period.
67. (guys, until number 2 lang talaga yung sa ratio related sa relevant issue so
moving forward below, allow me to elaborate how this case is related to the
topic. Feel free to read the originals if you’re not confident with what I’m
about to right)
68. Pactum commisorium is defined as a stipulation whereby a thing pledged or
 004 A. FRANCISCO REALTY v. CA (Salve)
October 30, 1998 | Mendoza, J. | Pactum Commissorium
PETITIONER: A. Francisco Realty and Development Corporation
RESPONDENTS: Court of Appeals and Spouses Romulo S.A. Javillonar and
Erlinda P. Javillonar
SUMMARY: A. Francisco Realty granted a loan to Spouses Javillonar. The
promissory note stated that upon failure of the Spouses to pay the interest, full
possession of the property will be transferred and the deed of sale will be
registered to A. Francisco Realty. A. Francisco Realty claims that the spouses
failed to pay so the sale of the land was registered in its favor and a title was
issued in its name. RTC declared A. Francisco the owner of the property. CA
reversed RTC’s decision and declared the the sale was void for being a pactum
commissorium. WoN the deed of sale is void for being in fact a pactum
commissorium. YES. This Court categorically ruled that a mortgagees mere act
of registering the mortgaged property in his own name upon the mortgagors
failure to redeem the property amounted to the exercise of the privilege of a
mortgagee in a pactum commissorium. The act of applicant in registering the
property in his own name upon mortgagors failure to redeem the property would
amount to a pactum commissorium which is against good morals and public
policy. Thus, in the case at bar, the stipulations in the promissory notes providing
that, upon failure of respondent spouses to pay interest, ownership of the property
would be automatically transferred to A. Francisco Realty and the deed of sale in
its favor would be registered, are in substance a pactum commissorium. They
embody the two elements of pactum commissorium as laid down in Uy Tong v.
Court of Appeals.
DOCTRINE: The two elements for pactum commissorium to exist: (1) that there
should be a pledge or mortgage wherein a property is pledged or mortgaged by
way of security for the payment of the principal obligation; (2) that there should
be a stipulation for an automatic appropriation by the creditor of the thing pledged
or mortgaged in the event of non-payment of the principal obligation within the
stipulated period.
ART. 2088. The creditor cannot appropriate the things given by way to pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
FACTS:
26. A. Francisco Realty and Development Corporation granted a loan of P7.5
Million to the spouses Romulo and Erlinda Javillonar, in consideration of
which the latter executed the following documents: (a) a promissory note,
dated November 27, 1991, stating an interest charge of 4% per month for six
months; (b) a deed of mortgage over realty covered by TCT No. 58748,
together with the improvements thereon; and (c) an undated deed of sale of
the mortgaged property in favor of the mortgagee, A. Francisco Realty.
27. The interest on the said loan was to be paid in four installments.
28. The promissory note expressly provided that upon failure of the
MORTGAGOR [Spouses Javillonar] to pay the interest without prior
arrangement with the MORTGAGEE [A. Francisco Realty], full possession
of the property will be transferred and the deed of sale will be registered. For
this purpose, the owners duplicate of TCT No. 58748 was delivered to A.
Francisco Realty.
29. A. Francisco Realty claims that Spouses Javillonar failed to pay the interest
and, as a consequence, it registered the sale of the land in its favor. As a result,
a title was issued in the name of A. Francisco Realty.
30. Regional Trial Court rendered a decision declaring as legal and valid, the
right of ownership of A. Francisco Realty And Development Corporation,
over the property subject of this case situated at No. 56 Dragonfly Street,
Valle Verde VI, Pasig, Metro Manila.
31. Spouses appealed to the Court of Appeals which reversed the decision of the
trial court and dismissed the complaint against them. The appellate court
ruled that the Regional Trial Court had no jurisdiction over the case because
it was actually an action for unlawful detainer which is exclusively
cognizable by municipal trial courts.
32. Furthermore, CA ruled that, even presuming jurisdiction of the trial court, the
deed of sale was void for being in fact a pactum commissorium which is
prohibited by Art. 2088 of the Civil Code.
ISSUES:
1. WoN the deed of sale is void for being in fact a pactum commissorium. YES.
RULING: WHEREFORE, the decision of the Court of Appeals is AFFIRMED,
insofar as it dismissed petitioners complaint against respondent spouses on the ground
that the stipulations in the promissory notes are void for being a pactum
commissorium, but REVERSED insofar as it ruled that the trial court had no
jurisdiction over this case. The Register of Deeds of Pasig City is hereby ORDERED
to CANCEL TCT No. PT-85569 issued to petitioner and ISSUE a new one in the name
of respondent spouses.
SO ORDERED.
RATIO:
1. A. Francisco Realty’s action could not succeed because the deed of sale on which
it was based was void, being in the nature of a pactum commissorium prohibited
by Art. 2088 of the Civil Code which provides:
2. ART. 2088. The creditor cannot appropriate the things given by way to pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
3. A. Francisco Realty denies, however, that the promissory notes contain a pactum
commissorium. Before Article 2088 can find application herein, the subject deed
of mortgage must be scrutinized to determine if it contains such a provision giving
the creditor the right to appropriate the things given by way of mortgage without
following the procedure prescribed by law for the foreclosure of the mortgage.
4. IN SHORT, THE PROSCRIBED STIPULATION SHOULD BE FOUND IN
THE MORTGAGE DEED ITSELF.
5. The contention is patently without merit. To sustain the theory of petitioner would
be to allow a subversion of the prohibition in Art. 2088.
6. In Reyes v. Sierra this Court categorically ruled that a mortgagees mere act of
registering the mortgaged property in his own name upon the mortgagors failure
to redeem the property amounted to the exercise of the privilege of a mortgagee
in a pactum commissorium.
7. The act of applicant in registering the property in his own name upon mortgagors
failure to redeem the property would amount to a pactum commissorium which is
against good morals and public policy.
8. Thus, in the case at bar, the stipulations in the promissory notes providing that,
upon failure of respondent spouses to pay interest, ownership of the property
would be automatically transferred to A. Francisco Realty and the deed of sale in
its favor would be registered, are in substance a pactum commissorium. They
embody the two elements of pactum commissorium as laid down in Uy Tong v.
Court of Appeals, to wit:
9. The two elements for pactum commissorium to exist: (1) that there should be a
pledge or mortgage wherein a property is pledged or mortgaged by way of security
for the payment of the principal obligation;
(2) that there should be a stipulation for an automatic appropriation by the creditor
of the thing pledged or mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
10. The subject transaction being void, the registration of the deed of sale, by virtue
of which petitioner A. Francisco Realty was able to obtain TCT No. PT-85569
covering the subject lot, must also be declared void, as prayed for by respondents
in their counterclaim.
 005 HOME GUARANTY CORPORATION
vs. LA SAVOIE DEVELOPMENTCORPORATION (Lorena)
January 28, 2015 | Leonen, J. | Pactum sommissorium
FACTS:
PETITIONER: Home Guaranty Corporation
RESPONDENTS: La Savoie Development Corporation
SUMMARY: La Savoie found itself unable to pay its obligations to its creditors
due to the onset of the Asian financial crisis in 1997. Thus, La Savoie filed before
the RTC, Makati City a "petition for the declaration of state of suspension of
payments with approval of proposed rehabilitation plan" under the Interim Rules
of Procedure on Corporate Rehabilitation (Interim Rules). Home Guaranty
Corporation filed an Opposition even though "it [was] not a creditor of
Petitioner.” It asserted that it had a "material and beneficial interest in the . . .
Petition, in relation to the interest of Philippine Veterans Bank (PVB),
Planters Development Bank (PDB), and Land Bank of the Philippines (LBP),
which are listed as creditors of La Savoie vis-à-vis certain properties or assets that
might have been taken cognizance of, and placed under the custody of the RTC
and[/]or the appointed Rehabilitation Receiver." Home Guaranty Corporation
noted that through the "La Savoie Asset Pool Formation and Trust
Agreement" (Trust Agreement), La Savoie obtained financing for some of its
projects through a securitization process in which Planters Development Bank as
nominal issuer issued PI50 million in asset participation certificates dubbed as
the "La Savoie Development Certificates" (LSDC certificates) to be sold to
investors. Home Guaranty Corporation argued that they should be excluded from
the coverage of La Savoie's Petition for Rehabilitation because it and the investors
on the LSDC certificates had "preferential rights" over the properties making up
the Asset Pool as these "were conveyed as security or collaterals for the
redemption of the [LSDC certificates]." The issue in this case is WoN the
properties comprising the Asset Pool should be excluded from the proceedings
on La Savoie Development Corporation's Petition for Rehabilitation. The Court
ruled in the negative. The transfer of the properties comprising the Asset Pool
was made in favor of Home Guaranty Corporation is invalid. Thus, the properties
would then no longer be under the dominion of La Savoie. They would thus be
within the reach of rehabilitation proceedings and susceptible to the rule against
preference of creditors.
DOCTRINE: In this case, Sections 13.1 and 13.2 of the Contract of Guaranty
call for the "prompt assignment and conveyance to [Home Guaranty Corporation]
of all the corresponding properties in the Asset Pool" that are held as security in
favor of the guarantor. Moreover, Sections 13.1 and 13.2 dispense with the need
of conducting foreclosure proceedings, judicial or otherwise. Albeit requiring the
intervention of the trustee of the Asset Pool, Sections 13.1 and 13.2 spell out what
is, for all intents and purposes, the automatic appropriation by the paying
guarantor of the properties held as security. This is thus a clear case of pactum
commissorium. It is null and void. Accordingly, whatever conveyance was made
by Planters Development Bank to Home Guaranty Corporation in view of this
illicit stipulation is ineffectual. It did not vest ownership in Home Guaranty
Corporation.
1. La Savoie Development Corporation (La Savoie) is a domestic corporation
incorporated engaged in the business of "real estate development, subdivision
and brokering."
2. La Savoie found itself unable to pay its obligations to its creditors due to the
onset of the Asian financial crisis in 1997.
a. Thus, La Savoie filed before the RTC, Makati City a "petition for
the declaration of state of suspension of payments with approval of
proposed rehabilitation plan" under the Interim Rules of Procedure
on Corporate Rehabilitation (Interim Rules).
3. The proceedings before the RTC were initially held in abeyance
as La Savoie failed to attach to its Petition some of the requirements under
Rule 4, Section 2 of the Interim Rules.
a. With La Savoie's compliance and finding its "petition to be
sufficient in form and substance," then RTC Judge Estela Perlas-
Bernabe issued the Stay Order staying the enforcement of all claims
against La Savoie.
i. La Savoie is prohibited:
1. selling, encumbering, transferring, or disposing in
any manner any of its properties except in the
ordinary course of business
2. making any payment of its liabilities outstanding
as of the date of the filing of the petition
ii. La Savoie’s suppliers of goods or services are likewise
prohibited from withholding supply of goods and services
in the ordinary course of business for as long as it makes
payments for the services and goods supplied after the
issuance of the stay order.|||
iii. La Savoie is directed to pay in full all administrative
expenses incurred after the issuance of the stay order.|||
4. Following the issuance of the Stay Order, La Savoie's creditors —
Planters Development Bank, Philippine Veterans Bank, and Robinsons
Savings Bank — filed their Comments and/or Oppositions.
5. Home Guaranty Corporation filed an Opposition even though "it [was] not a
creditor of Petitioner.”
a. It asserted that it had a "material and beneficial interest in the . . .
Petition, in relation to the interest of Philippine Veterans Bank
(PVB), Planters Development Bank (PDB), and Land Bank of the
Philippines (LBP), which are listed as creditors of La Savoie vis-à-
vis certain properties or assets that might have been taken
cognizance of, and placed under the custody of the RTC and[/]or the
 appointed Rehabilitation Receiver."
6. Home Guaranty Corporation noted that through the "La Savoie Asset Pool
Formation and Trust Agreement" (Trust Agreement), La Savoie obtained
financing for some of its projects through a securitization process in which
Planters Development Bank as nominal issuer issued PI50 million in asset
participation certificates dubbed as the "La Savoie Development
Certificates" (LSDC certificates) to be sold to investors.
a. The projects financed by these certificates consisted of
the development of real properties in General Trias, Cavite; Sto.
Tomas, Batangas; Los Baños, Laguna; and Quezon City.
b. The same properties were conveyed in trust by La Savoie, as trustor,
to Planters Development Bank, as trustee, and constituted into
the La Savoie Asset Pool (Asset Pool).
7. The redemption of the LSDC certificates upon maturity and the interest
payments on them were "backed/collateralized by the assets that were
conveyed by [La Savoie] to the Trust." Moreover, the LSDC certificates were
covered by a guaranty extended by Home Guaranty Corporation through a
"Contract of Guaranty" entered into by Home Guaranty Corporation with La
Savoie and Planters Development Bank.
8. Section 17 of the Contract of Guaranty designates Home Guaranty
Corporation to "undertake financial controllerships of the Projects." Thus, in
its Opposition, Home Guaranty Corporation noted that it was "charged with
the duty of ensuring that all funds due to the Asset Pool are collected, and
that funds are disbursed for the purposes they were intended for."
9. Home Guaranty Corporation added that in the course of its business, La
Savoie collected P60,569,134.30 from the buyers of some of the properties
covered by the Asset Pool.
a. This amount, however, was not remitted by La Savoie to the trust.
10. With La Savoie's failure to complete some of its projects and failure to remit
sales collections:
a. the Asset Pool defaulted in redeeming and paying interest on the
LSDC certificates. Thus, La Savoie's investors placed a call on the
guaranty.
b. With La Savoie's failure to remit collections, Home Guaranty
Corporation held in abeyance the settlement of the investors' call.
This settlement was then overtaken by the filing of La Savoie's
Petition for Rehabilitation.
11. Home Guaranty Corporation argued that they should be excluded from the
coverage of La Savoie's Petition for Rehabilitation because it and the
investors on the LSDC certificates had "preferential rights" over the
properties making up the Asset Pool as these "were conveyed as security or
collaterals for the redemption of the [LSDC certificates]."
a. La Savoie argued in a Consolidated Answer that the assignment of
assets to the Asset Pool was not absolute and subject to certain
conditions. Specifically, it asserted that for the assignment to take
effect, Home Guaranty Corporation had to first pay the holders of
the LSDC certificates. Thus, La Savoie claimed that the properties
comprising the Asset Pool remained to be its assets
12. In the interim, a Verification Report on Accuracy of Petition was filed by the
Rehabilitation Receiver.
13. The RTC denied La Savoie’s Petition. La Savoie, then filed an Appeal before
the CA.
14. In the meantime, Home Guaranty Corporation approved and processed the
call on the guaranty for the redemption of the LSDC certificates.
a. Thus, Home Guaranty Corporation, through Planters Development
Bank, paid a total of P128.5 million as redemption value to
certificate holders. Acting on this, Planters Development Bank
executed a "Deed of Assignment and Conveyance" in favor of Home
Guaranty Corporation through which, in the words of Home
Guaranty Corporation, Planters Development Bank "absolutely
conveyed and assigned to [Home Guaranty Corporation] the
ownership and possession of the entire assets that formed part of the
La Savoie Asset Pool."
b. Home Guaranty Corporation claims, in addition, that, through the
same Deed, Planters Development Bank "absolutely conveyed and
assigned to [Home Guaranty Corporation] the right to collect from
[La Savoie] cash receivables . . . representing the amount collected
by [La Savoie] from sales in the course of the development of the
projects which it failed to remit to the Trust."
15. The CA reversed the RTC’s order and reinstated the Stay Order, gave due
course to the Petition for Rehabilitation, and remanded the case to the trial
court for further proceedings.
16. Home Guaranty Corporation filed before this court the present Petition for
Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure.
ISSUES:
1. WoN the properties comprising the Asset Pool should be excluded from the
proceedings on La Savoie Development Corporation's Petition for
Rehabilitation
a. WoN the conveyance to Home Guaranty Corporation of the
properties comprising the Asset Pool was valid and effectual – NO
i. WoN following the issuance of the RTC’s Order and
pending La Savoie's Appeal, Home Guaranty Corporation
was barred from making payment on the guaranty call, and
Planters Development Bank, concomitantly barred from
conveying the properties comprising the Asset Pool to
Home Guaranty Corporation - NO
ii. WoN the payment by Home Guaranty Corporation and the
 conveyance of the properties by Planters Development reference to orders on appeal, affirms that it is equally
Bank made Home Guaranty Corporation a creditor of La applicable to final orders. We entertain no doubt that Rule
Savoie - YES 3, Section 5 of the Interim Rules covered the trial court's
iii. WoN recognizing the validity of the transfer made to Home Order dismissing the Petition for Rehabilitation and lifting
Guaranty Corporation was tantamount to giving it the Stay Order The same Order was thus immediately
inordinate preference as a creditor -NO executory.
2. WoN Atty. Danilo C. Javier was authorized to sign the verification and c. The filing of La Savoie's Appeal did not restrain the
certificate of non-forum shopping of Home Guaranty Corporation's Petition effectivity of the Order.
-YES d. Rehabilitation proceedings are not bound by procedural
3. WoN Home Guaranty Corporation engaged in forum shopping -YES rules spelled out in the Rules of Court but under the Interim
Rules, which (at the time of the pivotal incidents in this case)
governed rehabilitation proceedings.
RULING: WHEREFORE, the Petition is DENIED. The Regional. Trial Court,
e. In Rule 3, Section 5, the Interim Rules explicitly carved an
Branch 142, Makati City is directed to proceed with dispatch in resolving the
exception to the general principle that an appeal stays the
Petition for Rehabilitation filed by respondent La Savoie Development Corporation.
judgment or final order appealed from. It explicitly requires
SO ORDERED. the issuance by the appellate court of an order enjoining or
restraining the order appealed from.
RATIO: f. Thus, the Order, lifting the restrictions on the payment of
1. The properties comprising the Asset Pool should be included in the claims against La Savoie, remained in effect.
proceedings on La Savoie Development Corporation's Petition for i. La Savoie's creditors were then free to enforce their
Rehabilitation
claims.
a. the conveyance to Home Guaranty Corporation of the properties ii. Conversely, La Savoie and "its guarantors and sureties
comprising the Asset Pool was invalid and ineffectual not solidarity liable with it" were no longer restrained
i. Home Guaranty Corporation was not barred from making from effecting payment.
payment on the guaranty call, and Planters Development Bank,
ii. The payment by Home Guaranty Corporation and the
concomitantly was not barred from conveying the properties
conveyance of the properties by Planters Development Bank
comprising the Asset Pool to Home Guaranty Corporation due to
made Home Guaranty Corporation a creditor of La Savoie
the lifting of the RTC’s Order 1. Section 13 of the Contract of Guaranty provides for how
1. Rule 3, Section 534 of the Interim Rules governs the effectivity guaranty claims are to be processed and paid by Home Guaranty
of orders issued in proceedings relating to the rehabilitation of Corporation. Likewise, it echoes Section 3.4 of the Trust
corporations, partnerships, and associations under Presidential Agreement in providing for transfer of the Asset Pool in the
Decree No. 902-A, as amended. event of a call on the guaranty:
a. Nowhere from its text can it be gleaned that it does not cover
a. Per Sections 13.135 and 13.236 of the Contract of Guaranty,
orders such as those issued by the trial court
the consequence of this payment was the execution by
b. If at all, its second sentence, which explicitly makes Planters Development Bank, as trustee of the Asset Pool,

34 a) Deed of Assignment and Conveyance to HIGC of the entire Asset Pool pursuant to the Trust
Sec. 5. Executory Nature of Orders. - Any order issued by the court under these Rules is immediately
Agreement;
executory. A petition for review or an appeal therefrom shall not stay the execution of the order unless
b) All tax declarations, transfer certificates of title, original certificates of title and official receipts
restrained or enjoined by the appellate court. The review of any order or decision of the court or an appeal
of payments of real estate taxes covering properties comprising the Asset Pool; and,
therefrom shall be in accordance with the Rules of Court: Provided, however, that the reliefs ordered by
c) All other documents and papers in the Asset Pool, as defined in the Trust Agreement.
the trial or appellate courts shall take into account the need for resolution of proceedings in a just, 36 Upon receipt of the acknowledgment by HIGC of the guaranty claim, the Trustee shall submit the
equitable, and speedy manner.
35 Upon receipt of the guaranty claim filed by the Trustee, HIGC shall have thirty (30) working days to documents and make a prompt assignment and conveyance to- HIGC of all the corresponding properties
in the Asset Pool pursuant to the Trust Agreement.
evaluate the guaranty claim. Within such period, HIGC shall acknowledge the guaranty claim and require
from the Trustee submission of the required documents, as follows:
 of a Deed of Conveyance in favor of Home Guaranty
Corporation.
b. Ostensibly, all formal and substantive requisites for the
execution of this Deed, as per the Trust Agreement and
the Contract of Guaranty, were fulfilled.
c. La Savoie failed to intimate that any such condition or
requisite was not satisfied.
iii. Recognizing the validity of the transfer made to Home Guaranty
Corporation was not tantamount to giving it inordinate
preference as a creditor
1. The execution of a Deed of Conveyance, which holds the transfer
made to Home Guaranty Corporation, without resorting to
foreclosure is indicative of pactum commissorium.
a. Sections 13.1 and 13.2 of the Contract of Guaranty
i. call for the "prompt assignment and conveyance to
[Home Guaranty Corporation] of all the corresponding
properties in the Asset Pool" that are held as security in
favor of the guarantor.
ii. dispense with the need of conducting foreclosure
proceedings, judicial or otherwise.
b. Albeit requiring the intervention of the trustee of the Asset
Pool, Sections 13.1 and 13.2 spell out what is, for all intents
and purposes, the automatic appropriation by the paying
guarantor of the properties held as security.
c. This is thus a clear case of pactum commissorium. It is null
and void.
i. Accordingly, whatever conveyance was made by
Planters Development Bank to Home Guaranty
Corporation in view of this illicit stipulation is
ineffectual. It did not vest ownership in Home Guaranty
Corporation.
2. La Savoie cites Article 2067 of the Civil Code and argues that
with Home Guaranty Corporation's payment of the LSDC
certificates' redemption value, Home Guaranty Corporation was
subrogated into the rights of La Savoie's creditors (i.e., the
certificate holders). It asserts that "effectively, HGC is already
the creditor of La Savoie" and that as creditor, it cannot be given
a preference over the assets of La Savoie, something that is
"prohibited, in rehabilitation proceedings."
3. It is true, as La Savoie asserts, that the suspension of the
enforcement of claims against corporations under
receivership is intended "to prevent a creditor from obtaining
an advantage or preference over another."
a. It applies only to corporations under receivership.Plainly, it
does not apply to corporations who have sought to put
themselves under receivership but, for lack of judicial
sanction, have not been put under or are no longer under
receivership.
b. The trial court's Order denied due course to and dismissed
La Savoie's Petition for Rehabilitation.
i. It superseded the trial court's Stay Order appointing
Rito C. Manzana as rehabilitation receiver and thereby
relieving him of his duties and removing La Savoie
from receivership.
2. Atty. Danilo C. Javier was authorized to sign the verification and
certificate of non-forum shopping of Home Guaranty Corporation's
Petition
a. Home Guaranty Corporation’s board of directors issued Board
Resolution No. 30, Series of 2001, "specifically authorizing its
President to designate the officer to institute the appropriate legal
actions[.]"
b. It was pursuant to this resolution that Atty. Danilo C. Javier, Home
Guaranty Corporation's then Officer-in-Charge and Vice President
for Legal, was made signatory to the present Petition's verification
and Certification of non-forum shopping.
3. Home Guaranty Corporation engaged in forum shopping
a. However, the present Petition or Appeal, being a mere offshoot of
La Savoie's original Petition for Rehabilitation, is not the act
constitutive of forum shopping
b. Forum shopping was committed through the filing of Civil Case No.
05314 before the Regional Trial Court.
i. Another case between Home Guaranty Corporation and La
Savoie, docketed as Civil Case No. 05314, was pending
before the Makati City RTC.
ii. Civil Case No. 05314 is an action for injunction,
mandamus, specific performance, and sum of money with
application for temporary restraining order and/or
preliminary prohibitory and mandatory injunction.
c. In both cases, Home Guaranty Corporation is invoking the same
right and is proceeding from the same cause of action
d. True, there is divergence in the details of the specific reliefs it is
seeking, but Home Guaranty Corporation is seeking the
same basic relief, i.e., the recognition of its alleged ownership.
e. The exclusion of the properties from corporate rehabilitation
proceedings and the remittance to it of payments are mere incidents
of this basic relief.
f. Accordingly, in simultaneously pursuing the present case and Civil
Case No. 05314, Home Guaranty Corporation engaged in forum
shopping.
 006 Abilla v. Gobongseng
G.R. No. 146651 | January 17, 2002 | Ynares-Santiago, J.
PETITIONER: RONALDO P. ABILLA and GERALDA A. DIZON,
RESPONDENTS: CARLOS ANG GOBONSENG, JR. and THERESITA
MIMIE ONG
SUMMARY: Petitioners filed a case against respondents in regards to a certain
transaction. Respondents raised the defense that the transaction covered by the
Deed of Sale and Option to Buy, which appears to be a Deed of Sale with Right
of Repurchase, was in truth, in fact, in law, and in legal construction, a mortgage.
Respondents first argued that the transaction was a mrotgage, however,
respondents abandoned their theory that the transaction was an equitable
mortgage and adopted the finding of the Court of Appeals that it was in fact
a pacto de retro sale. Respondents now insist that they are entitled to exercise the
right to repurchase pursuant to the third paragraph of Article 1606 of the Civil
Code. However, the SC ruled that respondents are only entitled to the right
granted in the third paragraph of Art. 1606 and agreed with the the Court of
Appeals that if respondents really believed that the transaction was indeed an
equitable mortgage, as a sign of good faith, they should have, at the very least,
consigned with the trial court the amount of P896,000.00, representing their
alleged loan, on or before the expiration of the right to repurchase on August 21,
1983.
DOCTRINE: The application of the third paragraph of Article 1606 is predicated
upon the bona fides of the vendor a retro. It must appear that there was a belief
on his part, founded on facts attendant upon the execution of the sale
with pacto de retro, honestly and sincerely entertained, that the agreement was in
reality a mortgage, one not intended to affect the title to the property ostensibly
sold, but merely to give it as security for a loan or other obligation.
FACTS:
17. Petitioner spouses instituted against respondents an action for specific
performance, recovery of sum of money and damages, seeking the
reimbursement of the expenses they incurred in connection with the
preparation and registration of two public instruments, namely a Deed of
Sale[3] and an Option to Buy.
18. In their answer, respondents raised the defense that the transaction covered
by the Deed of Sale and Option to Buy, which appears to be a Deed of Sale
with Right of Repurchase, was in truth, in fact, in law, and in legal
construction, a mortgage.
19. On October 29, 1990, the trial court ruled in favor of petitioners and declared
that the transaction between the parties was not an
equitable mortgage. Citing Villarica v. Court of Appeals,[6]it ratiocinated that
neither was the said transaction embodied in the Deed of Sale and Option
to Buy a pacto de retro sale, but a sale giving respondents until August 31,
1983 within which to buy back the seventeen lots subject of the
controversy. The dispositive portion thereof reads:
a. 1. Ordering defendants to pay plaintiffs the sum of
P171,483.40 representing the total expenses incurred by plaintiffs in
the preparation and registration of the Deed of Sale, amount paid to
the Bank of Asia and America (IBAA) and capital gains tax with
legal rate of interest from the time the same was incurred by
plaintiffs up to the time payment is made by defendants…
20. On appeal by respondents, the Court of Appeals ruled that the transaction
between the parties was a pacto de retro sale, and not an equitable mortgage.
MR denied. Petitioner for review with SC denied for being filed out of time.
MR also denied.
21. Undaunted, respondents filed a second motion for reconsideration, claiming
that since the transaction subject of the controversy was declared a pacto de
retro sale by the Court of Appeals, they can therefore repurchase the property
pursuant to the third paragraph of Article 1606 of the Civil Code. The issue
of the applicability of Article 1606 of the Civil Code was raised by the
respondents only in their motion for clarification with the Court of Appeals,
and not before the trial court and on appeal to the Court of Appeals. Thus,
respondents second motion for reconsideration was denied.
22. On February 23, 1999, respondents filed with the trial court in Civil Case No.
8148 an urgent motion to repurchase the lots in question with tender of
payment. The motion was, however, denied on November 10, 1999[14] by
Judge Ibarra B. Jaculbe, Jr., who subsequently inhibited himself from the
case.
23. On January 14, 2001, Branch 41 of the RTCof Dumaguete City, to which the
case was reraffled, set aside the November 10, 1999 order and granted
respondents motion to repurchase.
24. Hence, the instant recourse.
ISSUES:
4. May the vendors in a sale judicially declared as a pacto de retro exercise the
right of repurchase under Article 1606, third paragraph, of the Civil Code,
after they have taken the position that the same was an equitable mortgage?
No.
RULING: WHEREFORE, in view of all the foregoing, the instant petition is
GRANTED and the January 14, 2001 Order of
the Regional Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148,
is REVERSED and SET ASIDE
RATIO:
34. At the outset, it must be stressed that it has been respondents consistent claim
that the transaction subject hereof was an equitable mortgage and not
a pacto de retro sale or a sale with option to buy. Even after the Court of
Appeals declared the transaction to be a pacto de retro sale, respondents
maintained their view that the transaction was an equitable mortgage.
35. Seeing the chance to turn the decision in their favor, however, respondents
abandoned their theory that the transaction was an equitable mortgage and
adopted the finding of the Court of Appeals that it was in fact a pacto de
retro sale. Respondents now insist that they are entitled to exercise the right
to repurchase pursuant to the third paragraph of Article 1606 of the Civil
Code, which reads:
a. However, the vendor may still exercise the right to repurchase
within thirty days from the time final judgment was rendered in a
civil action on the basis that the contract was a true sale with right
to repurchase.
36. The question now is, can respondents avail of
the aforecited provision? Following the theory of the respondents which was
sustained by the trial court, the scenario would be that although respondents
failed in their effort to prove that the contract was an equitable mortgage, they
could nonetheless still repurchase the property within 30 days from the
finality of the judgment declaring the contract to be truly a pacto de
retro sale. However, under the undisputed facts of the case at bar, this cannot
be allowed.
37. In the parallel case of Vda. de Macoy v. Court of Appeals, the petitioners
therein raised the defense that the contract was not a sale with right to
repurchase but an equitable mortgage. They further argued as an alternative
defense that even assuming the transaction to be a pacto de retro sale, they
can nevertheless repurchase the property by virtue of Article 1606, third
paragraph of the Civil Code. It was held that the said provision was
inapplicable, thus:
a. The application of the third paragraph of Article 1606 is predicated
upon the bona fides of the vendor a retro. It must appear that there
was a belief on his part, founded on facts attendant upon the
execution of the sale with pacto de retro, honestly and sincerely
entertained, that the agreement was in reality a mortgage, one not
intended to affect the title to the property ostensibly sold, but merely
to give it as security for a loan or other obligation.
b. In that event, if the matter of the real nature of the contract is
submitted for judicial resolution, the application of the rule is meet
and proper; that the vendor a retro be allowed to repurchase the
property sold within 30 days from rendition of final judgment
declaring the contract to be a true sale with right to
repurchase. Conversely, if it should appear that the parties
agreement was really one of sale transferring ownership to the
vendee, but accompanied by a reservation to the vendor of the right
to repurchase the property and there are no circumstances that may
reasonably be accepted as generating some honest doubt as to the
parties' intention, the proviso is inapplicable. The reason is quite
obvious. If the rule were otherwise, it would be within the power of
every vendor a retro to set at naught a pacto de retro, or resurrect
an expired right of repurchase, by simply instituting an action to
reform the contract known to him to be in truth a sale with pacto de
retro into an equitable mortgage.
c. This Court has already had occasion to rule on the proper
interpretation of the provision in question. In Adorable v. Inacala,
where the proofs established that there could be no honest doubt as
to the parties intention, that the transaction was clearly and definitely
a sale with pacto de retro, the Court adjudged the vendor a retro not
to be entitled to the benefit of the third paragraph of Article 1606.
38. In the case at bar, both the trial court and the Court of Appeals were of the
view that the subject transaction was truly a pacto de retro sale; and that none
of the circumstances under Article 1602 of the Civil Code exists to warrant a
conclusion that the transaction subject of the Deed of Sale and Option to Buy
was an equitable mortgage. The Court of Appeals correctly noted that if
respondents really believed that the transaction was indeed an equitable
mortgage, as a sign of good faith, they should have, at the very least,
consigned with the trial court the amount of P896,000.00, representing their
alleged loan, on or before the expiration of the right to repurchase on August
21, 1983.
39. Clearly, therefore, the declaration of the transaction as a pacto de retro sale
will not, under the circumstances, entitle respondents to the right of
repurchase set forth under the third paragraph of Article 1606 of the Civil
Code.
 007 FRANCISCO vs BOISER (Abs)
May 31, 2000 | Mendoza, J. | Summary of case-law on Article 1623
PETITIONER: Adalia B. Francisco
RESPONDENT: Zenaida F. Boiser
SUMMARY: Francisco and three of her sisters were co-owners of four parcels
of land. They sold 1/5 of their undivided shares to their mother, Adela Blas. In
1986, without knowledge of her co-owner daughters, Blas sold her 1/5 share to
Boiser. In 1992, Boiser filed a civil case against Francisco for the collection of
her share of the rentals. Francisco informed Boiser that she will exercise her right
of redemption as co-owner and deposited 10K as redemption price but said case
was dismissed. In 1995, Francisco filed a case wherein she alleged that the 30-
day period for redemption under Art 1623 of NCC had NOT yet run against her
since vendor Blas never informed her co-owners about the sale to Boiser. She
only learned about it in 1992 after being informed of the complaint filed against
her by Boiser. Boiser, on the other hand, contends that Francisco knew of the sale
earlier when she wrote a letter to Francisco about getting her share of the rentals.
Francisco confirmed that she received said letter. RTC dismissed said case
because Art 1623 does not prescribe any particular form of notifying co-owners
of the sale for them to exercise their right of redemption. Thus, knowledge of the
sale via the letter is enough substantial compliance for notification under Art
1623. The sole issue is whether or not the letter served as substantial compliance
of notification under Art 1623. The Supreme Court held that said letter by buyer
Boiser is not enough because *see doctrine*
DOCTRINE:
•For the 30-day redemption period to begin to run, notice must be given by seller
(as in by Blas); notice given by the buyer or even by the Register of Deeds is not
sufficient.
•When notice is given by the proper party (seller), no particular form of written
notice is prescribed under Art. 1623, so that the furnishing of the copies of the
deeds of sale to the co-owner would be sufficient.
•Filing of suit for ejectment or collection of rentals against a co-owner actually
dispenses with the written notice, and commences running of period to exercise
the right of redemption, since filing of the suit amounted to actual knowledge of
the sale.
FACTS:
16. Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth and
Adeluisa, were co-owners of four parcels of registered lands on which stands
the Ten Commandments Building at 689 Rizal Avenue Extension, Caloocan
City. On August 6, 1979, they sold 1/5 of their undivided share in the subject
parcels of land to their mother, Adela Blas, for P10,000.00, thus making the
latter a co-owner of said real property to the extent of the share sold.
17. On August 8, 1986, without the knowledge of the other co-owners, Adela
Blas sold her 1/5 share for P10,000.00 to respondent Zenaida Boiser who is
another sister of petitioner.
18. On August 5, 1992, petitioner received summons, filed by respondent
demanding her share in the rentals being collected by petitioner from the
tenants of the building. Petitioner then informed respondent that she was
exercising her right of redemption as a co-owner of the subject property. On
August 12, 1992, she deposited the amount of P10,000.00 as redemption
price with the Clerk of Court. However, said case was dismissed after
respondent was declared non-suited with the result that petitioners
counterclaim was likewise dismissed.
19. On September 14, 1995, petitioner instituted a civil case before the RTC in
Caloocan City. She alleged that the 30-day period for redemption under Art.
1623 of the Civil Code had not begun to run against her since the vendor,
Adela Blas, never informed her and the other owners about the sale to
respondent. She learned about the sale only on August 5, 1992, after she
received the summons of the case filed against her.
20. Respondent, on the other hand, contended that petitioner knew about the sale
as early as May 30, 1992, because, on that date, she wrote petitioner a letter
informing the latter about the sale, with a demand that the rentals
corresponding to her 1/5 share of the subject property be remitted to her. Said
letter was sent with a copy of the Deed of Sale between respondent and Adela
Blas. On the same date, letters were likewise sent by respondent to the tenants
of the building, informing them of the sale and requesting that, thenceforth,
they pay 1/5 of the monthly rentals to respondent. That petitioner received
these letters is proved by the fact that on June 8, 1992, she wrote the buildings
tenants advising them to disregard respondents request and continue paying
full rentals directly to her.
21. RTC dismissed the petitioners complaint for legal redemption. It ruled that
Art. 1623 does not prescribe any particular form of notifying co-owners about
a sale of property owned in common to enable them to exercise their right of
legal redemption. While no written notice was given by the vendor, Adela
Blas, to petitioner or the other owners, petitioner herself admitted that she
had received respondents letter of May 30, 1992 and was in fact furnished a
copy of the deed evidencing such sale.
22. The trial court considered the letter sent by respondent to petitioner with a
copy of the deed of sale as substantial compliance with the required written
notice under Art. 1623 of the New Civil Code. Consequently, the 30-day
period of redemption should be counted not from August 5, 1992, when
petitioner received summons in the first civil case, but at the latest, from June
8, 1992, the date petitioner wrote the tenants of the building advising them to
continue paying rentals in full to her. Petitioner failed to redeem the property
within that period.
23. CA affirmed RTC’s decision.
ISSUES: WoN the letter of May 30, 1992 sent by respondent to petitioner notifying
her of the sale on August 8, 1986 of Adela Blas 1/5 share of the property to respondent,
containing a copy of the deed evidencing such sale, can be considered sufficient as
compliance with the notice requirement of Art. 1623 for the purpose of legal
redemption? –NO.
RULING: WHEREFORE, in view of the foregoing, the petition is GRANTED and
the decision of the Court of Appeals is REVERSED and the Regional Trial Court,
Branch 122, Caloocan City is ordered to effect petitioners exercise of her right of legal
redemption in Civil Case No. C-17055.
RATIO:
9. The trial court and the Court of Appeals relied on the ruling in Distrito v.
Court of Appeals that Art. 1623 does not prescribe any particular form of
written notice, nor any distinctive method for notifying the redemptioner.
They also invoked the rulings in De Conejero v. Court of Appeals and Badillo
v. Ferrer that furnishing the redemptioner with a copy of the deed of sale is
equivalent to giving him the written notice required by law.
10. On the other hand, petitioner points out that the cited cases are not relevant
because the present case does not concern the particular form in which notice
must be given. Rather, the issue here is whether a notice sent by the vendee
may be given in lieu of that required to be given by the vendor or prospective
vendor.
11. In ruling that the notice given by the vendee was sufficient, the appellate court
cited the case of Etcuban v. Court of Appeals. In said case, notice to the co-
owners of the sale of the share of one of them was given by the vendees
through their counterclaim in the action for legal redemption. Despite the
apparent meaning of Art. 1623, it was held in that case that it was "of no
moment" that the notice of sale was given not by the vendor but by the
vendees. "So long as the [co-owner] is informed in writing of the sale and the
particulars thereof, the 30 days for redemption start running, and the
redemptioner has no cause to complain," so it was held. The contrary doctrine
of Butte v. Manuel Uy and Sons, Inc. was thus overruled sub silencio.
12. However, in the later case of Salatandol v. Retes, decided a year after the
Etcuban case, the Court expressly affirmed the ruling in Butte that the notice
required by Art. 1623 must be given by the vendor. In Salatandol, the notice
given to the redemptioner by the Register of Deeds of the province where the
subject land was situated was held to be insuffucient. Resolving the issue of
whether such notice was equivalent to the notice from the vendor required
under Art. 1623, this Court stated: The appeal is impressed with merit. In
Butte vs. Manuel Uy and Sons, Inc., the Court ruled that Art. 1623 of the
Civil Code clearly and expressly prescribes that the thirty (30) days for
making the pre-emption or redemption are to be counted from notice in
writing by the vendor.
13. The test of Article 1623 clearly and expressly prescribes that the thirty days
for making the redemption are to be counted from notice in writing by the
vendor. The reasons for requiring that the notice should be given by the seller,
and not by the buyer, are easily divined. The seller of an undivided interest
is in the best position to know who are his co-owners that under the law
must be notified of the sale. Also, the notice by the seller removes all doubts
as to fact of the sale, its perfection, and its validity, the notice being a
reaffirmation thereof; so that that party notified need not entertain doubt that
the seller may still contest the alienation. This assurance would not exist if
the notice should be given by the buyer.
14. Art. 1623 of the Civil Code is clear in requiring that the written
notification should come from the vendor or prospective vendor, not from
any other person. There is, therefore, no room for construction.
15. Now, it is clear that by not immediately notifying the co-owner, a vendor can
delay or even effectively prevent the meaningful exercise of the right of
redemption. In the present case, for instance, the sale took place in 1986, but
it was kept secret until 1992 when vendee (herein respondent) needed to
notify petitioner about the sale to demand 1/5 rentals from the property sold.
Compared to serious prejudice to petitioners right of legal redemption, the
only adverse effect to vendor Adela Blas and respondent-vendee is that the
sale could not be registered. It is non-binding, only insofar as third persons
are concerned. It is, therefore, unjust when the subject sale has already
been established before both lower courts and now, before this Court, to
further delay petitioners exercise of her right of legal redemption by
requiring that notice be given by the vendor before petitioner can
exercise her right. For this reason, we rule that the receipt by petitioner of
summons in Civil Case No. 15510 on August 5, 1992 constitutes actual
knowledge on the basis of which petitioner may now exercise her right of
redemption within 30 days from finality of this decision.
16. Our ruling is NOT without precedent. In Alonzo v. Intermediate Appellate
Court, we dispensed with the need for written notification considering that
the redemptioners lived on the same lot on which the purchaser lived and
were thus deemed to have actual knowledge of the sales. We stated that the
30-day period of redemption started, not from the date of the sales in 1963
and 1964, but sometime between those years and 1976, when the first
complaint for redemption was actually filed. For 13 years, however, none of
the co-heirs moved to redeem the property. We thus ruled that the right of
redemption had already been extinguished because the period for its exercise
had already expired.
17. In the present case, as previously discussed, receipt by petitioner of summons
in the first civil case on August 5, 1992 amounted to actual knowledge of the
sale from which the 30-day period of redemption commenced to run.
Petitioner had until September 4, 1992 within which to exercise her right
of legal redemption, but on August 12, 1992 she deposited the P10,000.00
redemption price. As petitioners exercise of said right was timely, the
same should be given effect.
 008 SORIANO v. BAUTISTA (Ram)
December 29, 1962 | Makalintal, J. | Right to Redeem a Mortgaged Property &
Option to Buy
PLAINTIFFS-APPELLEES: Ruperto Soriano et al (1st case) ; Basilio Bautista
et al (2nd case)
DEFENDANTS-APPELLANTS: Basilio Bautista and Sofia De Rosas (1st
case); Ruperto Soriano (2nd case)
SUMMARY: Spouses Bautista are the absolute and registered owners of a parcel
of land in Rizal. In May 30, 1956, Spouses Bautista mortgaged the said land in
favor of Spouses Soriano for the amount of P1,800 with a stipulation in paragraph
5, “the Spouses Soriano may purchase the said land absolutely within the 2-year
term of the mortgage for P3,900 if their financial condition permits.” A certain
Atty. Angel O. Ver informed the spouses Bautista that the spouses Soriano have
decided to purchase the subject property pursuant to par. 5 of the document. The
spouses Bautista refused to comply with Soriano’s demand. As such, spouses
Soriano filed a case, praying that they be allowed to consign or deposit with the
Clerk of Court the sum of P1,650 as the balance of the purchase price of the land
in question. Subsequently spouses Bautista filed another case against Soriano,
asking the court to order Soriano to accept the payment of the principal obligation
and release the mortgage and to make an accounting the harvest for the 2 harvest
seasons (1956-1957). CFI ruled in Soriano’s favor and ordered the Spouses
Bautista to execute of the deed of sale upon payment of the Spouses Soriano of
P1,650. Spouses Bautista argued that as mortgagors, they cannot be deprived of
the right to redeem the mortgaged property, as such right is inherent in and
inseparable from a mortgage. WoN Spouses Bautista are entitled to redeem the
subject property? – NO.
DOCTRINE:
While the transaction is undoubtedly a mortgage and contains the customary
stipulation concerning redemption, it carries the added special provision, which
renders the mortgagor’s right to redeem defeasible at the election of the
mortgagees. There is nothing illegal or immoral in this as this is allowed under
Art 1479 NCC. The mortgagor’s promise was in the nature of a continuing
offer, non-withdrawable during a period of 2 years, which upon acceptance
by the mortgagees gave rise to a perfected contract of sale. Bautista’s offer to
redeem could be defeated by Soriano’s preemptive right to purchase within the
period of 2 years from May 30, 1956.
A stipulation to render the right to redeem defeasible by an option to buy on the
part of the creditor. Note: (from the syllabus)
FACTS:
11. Spouses Bautista are the absolute and registered owners of a parcel of land in
Rizal.
a. Spouses Bautista – Mortgagors
b. Spouses Soriano – Mortgagees
12. In May 30, 1956, Spouses Bautista entered into an agreement entitled
Kasulatan ng Sanglaan (mortgage) in favor of Spouses Soriano for the
amount of P1,800.
a. The mortgage will last for 2 years
b. The fruits of the farm will belong to the Spouses Soriano as guaranty
for the loan
c. Taxes shall be paid by the Spouses Bautista
d. The said land cannot be further mortgaged without the consent of
the Spouses Soriano
e. The Spouses Soriano may purchase the said land absolutely within
the 2-year term of the mortgage for P3,900 if their financial
condition permits
f. However, failure to pay or failure to comply with the conditions
within the said period the law on Foreclosure of Mortgages, Judicial
or Extrajudicial will apply
13. Simultaneously with the signing of the deed, the spouses Bautista transferred
the possession of the subject property to spouses Soriano. The spouses
Soriano have, since that date, been in possession of the property and are still
enjoying the produce thereof to the exclusion of all other persons.
14. Sometime after May 1956, the spouses Bautista received from spouses
Soriano the sum of P450 pursuant to the conditions agreed upon in the
document. However, no receipt was issued. The said amount was returned by
the spouses Bautista.
15. In May 13, 1958, a certain Atty. Angel O. Ver informed the spouses Bautista
that the spouses Soriano have decided to purchase the subject property
pursuant to par. 5 of the document which states that “…the mortgagees
may purchase the said land absolutely within the 2-year term of the mortgage
for P3,900.”
16. Despite the receipt of the letter, the spouses Bautista refused to comply with
Soriano’s demand
17. As such, spouses Soriano filed a case, praying that they be allowed to consign
or deposit with the Clerk of Court the sum of P1,650 as the balance of the
purchase price of the land in question
18. Spouses Bautista also filed a complaint, but was dismissed for lack of
jurisdiction.
19. Subsequently spouses Bautista filed another case against Soriano, asking the
court to order Soriano to accept the payment of the principal obligation and
release the mortgage and to make an accounting the harvest for the 2 harvest
seasons (1956-1957).
20. CFI decision
a. Held in Soriano’s favor and ordered the Spouses Bautista to execute
of the deed of sale upon payment of the Spouses Soriano of P1,650
(balance of the price agreed upon plus amount previously received
through the loan – from P3,900)
 21. Spouses Bautista argued that as mortgagors, they cannot be deprived of the the right within one year after the sale of the real estate, to redeem the property by
right to redeem the mortgaged property, as such right is inherent in and paying the amount due under the mortgage deed, with interest thereon at the rate
inseparable from a mortgage. specified in the mortgage, and all the costs and expenses incurred by the bank or
institution from the sale and custody of said property less the income derived
ISSUES: therefrom. However, the purchaser at the auction sale concerned whether in a judicial
4. WoN Spouses Bautista are entitled to redeem the subject property? – NO. or extrajudicial foreclosure shall have the right to enter upon and take possession of
such property immediately after the date of the confirmation of the auction sale and
RULING: The judgment appealed from is affirmed, with costs. administer the same in accordance with law. Any petition in court to enjoin or restrain
the conduct of foreclosure proceedings instituted pursuant to this provision shall be
RATIO: given due course only upon the filing by the petitioner of a bond in an amount fixed
1. While the transaction is undoubtedly a mortgage and contains the by the court conditioned that he will pay all the damages which the bank may suffer
customary stipulation concerning redemption, it carries the added special by the enjoining or the restraint of the foreclosure proceeding.
provision, which renders the mortgagor’s right to redeem defeasible at the
election of the mortgagees. There is nothing illegal or immoral in this as this
is allowed under Art 1479 NCC which states:
a. “A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy or
to sell a determinate thing for a price certain is binding upon the
promisor if the promise supported by a consideration apart from the
price.”
2. In the case at bar, the mortgagor’s promise is supported by the same
consideration as that of the mortgage itself, which is distinct from the
consideration in sale should the option be exercised. The mortgagor’s
promise was in the nature of a continuing offer, non-withdrawable during
a period of 2 years, which upon acceptance by the mortgagees gave rise to
a perfected contract of sale.
3. Tender Ineffective as Preemptive Right to Purchase by Other Party has been
a. The tender of P1,800 to redeem the mortgage by spouses Bautista
was ineffective for the purpose intended.
b. Such tender must have been made after the option to purchase
had been exercised by spouses Soriano.
c. Bautista’s offer to redeem could be defeated by Soriano’s
preemptive right to purchase within the period of 2 years from May
30, 1956.
d. Such right was availed of and spouses Bautista were accordingly
notified by Soriano. Offer and acceptance converged and gave rise
to a perfected and binding contract of purchase and sale.

ADDITIONAL NOTES:
Redemption in Judicial Foreclosure of Mortgage (Sec. 47, R.A. 8791)

SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure,

whether judicially or extrajudicially, of any mortgage on real estate which is security
for any loan or other credit accommodation granted, the mortgagor or debtor whose
real property has been sold for the full or partial payment of his obligation shall have
 001 NYCO SALES CORP V BA FINANCE (Nicolin)
August 16, 1991 | Paras, J | Warranties of Assignor
PETITIONER: Nyco Sales Corporation
RESPONDENTS: BA Finance Corporation, Judge Rosalio De Leon (RTC), IAC,
First Civil Cases Division
SUMMARY: Nyco Sales Corporation, represented by Ruffino Yao (as president and
GM), granted Sanshell, represented by the Fernandez Brothers (Santiago and
Renato), discounting privileges, which Nyco had with BA Finance. The Fernandez
brothers approached Yao to discount Sanshell’s post-dated BPI check, which Nyco
(through Yao) endorsed in favor of BA Finance. In turn, BA Finance issued a check
payable to Nyco who endorsed it to Sanshell. Subsequently, Sanshell made
use/negotiated the check. Upon presentment for payment, the BPI check was
dishonored. When BA Finance reported this to the Fernandez brothers, they issed a
SBTC check as substitute, but was also dishonored. Despite repeated demands, Nyco
and the brothers failed to settle their obligation with BA Finance, so BA Finance
instituted an action in court. Lower court ruled in favor of BA Finance ordering Nyco
and the Brothers to pay jointly and severally. Nyco appealed the said decision but
CA upheld the decision in favor of BA Finance. Hence, this petition. The issue is
whether or not the assignor (Nyco) is liable to its assignee (BA Finance) for its
dishonored checks. SC held yes. According to Article 1628 of the Civil Code, the
assignor-vendor warrants both the credit itself (its existence and legality) and the
person of the debtor (his solvency), if so stipulated, as in the case at bar. Hence, the
assignor-vendor should be held answerable for the invalidity of whatever he assigned
to the assignee-vendee i.e. by virtue of the Deed of Assignment executed by Nyco in
favor of BA finance, Nyco shall be held liable if there be any breach of the above
warranties. Further, Nyco’s pretension that it had not been notified of the fact of
dishonor of the SBTC check is belied by the formal demand letter issued by BA
Finance and the frequent contacts between Nyco and Sanshell before, during and
after the dishonor. There was also no novation when BA Finance accepted the SBTC
check as substitute because there was no express agreement that BA Finance's
acceptance of the SBTC check will discharge Nyco from liability. Lastly, Nyco is
estopped from denying Rufino Yao's authority as far as the latter's transactions with
BA Finance are concerned.
DOCTRINE: General rule: Assignor warrants only the existence or legality of the
credit but not the solvency of the debtor. Exception: if so stipulated, as in the case
at bar.
FACTS:
5. Nyco Sales Corporation (Nyco) is engaged in the business of selling
construction materials with principal office in Davao City. Ruffino Yao
(Yao) is the president and general manager.
6. Sometime in 1978, the brothers Santiago and Renato Fernandez (Brothers),
both acting in behalf of Sanshell Corporation, approached Rufino Yao for
credit accommodation.
a. The brothers requested Nyco (through Yao) to grant Sanshell
discounting privileges which Nyco had with BA Finance.
b. Yao acquiesced so the brothes went to Yao to discount Sanshell’s
post-dated check (BPI-Davao Branch Check No. 499648) dated
February 17, 1979, for Php 60,000. The check was payable to Nyco.
7. Following the discounting process agreed upon, Nyco, thru Yao, endorsed
the check in favor of BA Finance. BA Finance issued a check payable to
Nyco which endorsed it in favor of Sanshell. Sanshell then made use of
and/or negotiated the check.
a. Accompanying the exchange of checks, a Deed of Assignment was
executed by Nyco in favor of BA Finance with the conformity of
Sanshell where the subject of the discounting was the BPI check.
i. At the back of every deed of assignment was the
Continuing Suretyship Agreement whereby the brothers
unconditionally guaranteed to BA Finance the full, faithful
and prompt payment and discharge of any and all
indebtedness of Nyco.
b. However, the BPI check was dishonored by BPI upon presentment
for payment. BA Finance immediately reported to the brothers who
then issued a substitute check (Security Bank and Trust Company
Check No. 183157) for the same amount in favor of BA Finance,
which was also dishonored.
8. Despite repeated demands, Nyco and the brothers failed to settle their
obligation with BA Finance, so BA Finance instituted an action in court.
a. Both Nyco and the brothers were served summons and copies of the
complaint but failed to file their answer and subsequently declared
in default.
9. Lower court ruled in favor of BA Finance ordering Nyco and the Brothers to
pay jointly and severally the sum of Php 65, 536.67 plus 14% interest per
 annum from July 1, 1979 and attorney’s fees in the amount of Php 3,000 and
costs. Nyco moved to set aside the order of default
a. Nyco, however, moved to set aside the order of default, to have its
answer admitted and to be able to implead Sanshell. Prayer was
granted and decision was set aside only as to Nyco. Judgment
rendered in favor of BA Finance and against Nyco.
10. On appeal, CA also upheld BA Finance but modified the running period to
Feb 19 1979 until paid, not from Feb 1, 1979. MR denied. Hence, this
petition.
ISSUE/s:
1. W/N the assignor (Nyco) is liable to its assignee (BA Finance) for its
dishonored checks – Yes. Assignor-vendor is held liable for the invalidity of
whatever he assigned to assignee-vendee.
RULING: PREMISES CONSIDERED, the decision appealed from is AFFIRMED.
SO ORDERED.
RATIO:
EXECUTION OF DEED OF ASSIGNMENT BY NYCO
1. An assignment of credit is the process of transferring the right of the
assignor to the assignee, who would then be allowed to proceed against the
debtor. It may be done either gratuitously or generously, in which case, the
assignment has an effect similar to that of a sale.
2. Article 1628 of the Civil Code37, the assignor-vendor warrants both the
credit itself (its existence and legality) and the person of the debtor (his
solvency), if so stipulated, as in the case at bar.
a. Consequently, if there be any breach of the above warranties, the
assignor-vendor should be held answerable.
b. There is no question then that the assignor-vendor is indeed liable
for the invalidity of whatever he assigned to the assignee-vendee
3. It is undisputed that Nyco executed a deed of assignment in favor of BA
Finance with Sanshell Corporation as the debtor-obligor
a. BA Finance is actually enforcing said deed and the check covered
thereby is merely an incidental or collateral matter
37
Article 1628. The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have been sold as doubtful;
but not for the solvency of the debtor, unless it has been so expressly stipulated or
unless the insolvency was prior to the sale and of common knowledge.
i. Check merely evidenced the credit, which was actually
assigned to BA Finance. Designation is immaterial as it
could be any other check
ii. Nyco cannot be held liable for both BPI and SB checks as
nowhere in the decisions of lower and appellate courts said
BA Finance can recover from two checks.
NOTICE OF DISHONOR WAS GIVEN AND LIABILITY ON CREDIT
SUBSISTS
2. Nyco's pretension that it had not been notified of the fact of dishonor (of the
SB check) is belied not only by the formal demand letter but also by the
findings of the trial court that Rufino Yao of Nyco and the Fernandez
Brothers of Sanshell had frequent contacts before, during and after the
dishonor
3. Also, as long as the credit remains outstanding, Nyco shall continue to be
liable to BA Finance as its assignor. The cause of action stems from the
breach of the warranties embodied in the Deed of Assignment, and not from
the dishonoring of the check alone (See Article 1628 CC)
a. The dishonor of an assigned check simply stresses its liability and
the failure to give a notice of dishonor will not discharge it from
such liability.
NO NOVATION
1. SC found the defense of novation took place when BA finance accepted the
SB check in replacement of the dishonored BPI check untenable.
a. First, novation must be explicitly stated and declared in unequivocal
terms as novation is never presumed (Mondragon v. Intermediate
Appellate Court)
b. Secondly, the old and the new obligations must be incompatible on
every point.
2. In the instant case, there was no express agreement that BA Finance's
acceptance of the SBTC check will discharge Nyco from liability. Neither is
there incompatibility because both checks were given precisely to terminate
a single obligation arising from Nyco's sale of credit to BA Finance. As
novation speaks of two distinct obligations, such is inapplicable to this case
YAO AUHTORIZED TO APPLY FOR CREDITACCOMMODATION
Even in these cases he shall only be liable for the price received and for the expenses
specified in No. 1 of Article 1616.
The vendor in bad faith shall always be answerable for the payment of all expenses,
and for damages (1529).
1. Nyco disowns its President's acts claiming that it never authorized Yao to
even apply to BA Finance for credit accommodation. It supports its argument
with the fact that it did not issue a Board resolution giving Yao such authority.
However, the very evidence on record readily belies Nyco's contention.
2. Its corporate By-Laws clearly provide for the powers of its President, which
include, inter alia, executing contracts and agreements, borrowing money,
signing, indorsing and delivering checks, all in behalf of the corporation.
3. Also, there was already a previous transaction of discounting of checks
involving the same personalities wherein any enabling resolution from Nyco
was dispensed with and yet BA Finance was able to collect from Nyco and
Sanshell was able to discharge its own undertakings.
a. Thus, Nyco is placed under estoppel in pais which arises when
one, by his own representations or admissions, or by his silence
when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such
other rightfully relies and acts on such belief, so that he will be
prejudiced if the former is permitted to deny the existence of such
facts.
4. Nyco remained silent in the course of the transaction and spoke out only later
to escape liability. This cannot be countenanced. Nyco is estopped from
denying Rufino Yao's authority as far as the latter's transactions with BA
Finance are concerned.
 002 LICAROS v. GATMAITAN (JOSEF)
August, 9, 2001 | Gonzaga-Reyes, J. | Conventional Subrogation v. Assignment
PETITIONER: Abelardo B. Lecaros
RESPONDENTS: Antonio B. Gatmaitan
SUMMARY: Abelardo Licaros (Licaros) decided to make a fund placement (invest)
in the Anglo-Asean Bank and Trust Limited (Anglo-Asean). Unfortunately, when
Licaros decided to retrieve his investment together with the interest, he encountered
difficulty and subsequently he failed to retrieve such. Licaros then decided to seek
the counsel of Antonio Gatmaitan (Gatmaitan). To Licaros relief, Gatmaitan
voluntarily offered to assume the payment of the indebtedness of Anglo-Asean to
Licaros and their agreement was formalized in a Memorandum of Agreement.
However, when Gatmaitan made the effort himself of collecting the amount of
investments from Anglo-Asean by showing the Memorandum of Agreement, the
former was not able to elicit any formal response from the latter. Because of this,
Gatmaitan reneged on his promise to undertake the obligation of Anglo-Asean to
Licaros. Licaros now filed the complaint to collect from Gatmaitan the amount of the
PN that the latter issued. The issues are: 1.) WoN the Memorandum of Agreement is
an assignment or conventional subrogation – Conventional Subrogation as this was
shown by the WHEREAS clause of their Memorandum of Agreement (please see
ratio no. 6) wherein the parties intended to secure the express consent of Anglo-
Asean; 2.) WoN the Memorandum of Agreement was perfected – No, because as
earlier said from the first issue, the agreement requires the consent of Anglo-Asean.
However, the latter did not give its express consent, thereby making the
Memorandum of Agreement as ineffective as to any of the parties thereto.
DOCTRINE: (This is the doctrine in the syllabus and this is basically the same as
the one in the ratio part but just condensed) Subrogation extinguishes the obligation
and gives rise to a new one; assignment refers to the same right, which passes from
one person to another. Nullity of an old obligation may be cured by subrogation, such
that a new obligation will be perfectly valid; but such nullity is not remedied by the
assignment of the creditor’s right to another. In an assignment of credit, the consent
of the debtor is not necessary in order that the assignment may fully produce legal
effects; whereas, conventional subrogation requires an agreement among the three
parties concerned – original creditor, debtor, and new creditor. It is a new contractual
relation based on the mutual agreement among all the necessary parties.
FACTS:
1. The Anglo-Asean Bank and Trust Limited (Anglo-Asean), is a foreign
private bank. Its business consists primarily in receiving fund placements
by way of deposits from institutions and individual investors from different
parts of the world and there after investing such deposits in money market
placements and potentially profitable capital ventures in Hongkong, Europe
and the United States for the purpose of maximizing the returns on those
investments.
2. Abelardo Licaros, a Filipino businessman, decided to make a fund placement
with said bank.
3. Unfortunately, Licaros, after having invested in Anglo-Asean, encountered
tremendous and unexplained difficulties in retrieving, not only the interest or
profits, but even the very investments he had put in Anglo-Asean.
4. Licaros then decided to seek the counsel of Antonio P. Gatmaitan, a reputable
banker and investment manager who had been extending managerial,
financial and investment consultancy services to various firms and
corporations both here and abroad.
5. To Licaros relief, Gatmaitan was only too willing enough to help. Gatmaitan
voluntarily offered to assume the payment of Anglo-Aseans indebtedness
to Licaros subject to certain terms and conditions. In order to effectuate and
formalize the parties respective commitments, the two executed a notarized
MEMORANDUM OF AGREEMENT.
6. Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of
Agreement earlier executed by him and Licaros for the purpose of collecting
the latters placement thereat of U.S.$150,000.00. However, no formal
response was ever made by said bank to either Licaros or Gatmaitan
(take note of this because fact because as can be gleaned later from the ratio
part, the consent of Anglo-Asean bank being the original debtor is necessary
in this case). To date, Anglo-Asean has not acted on Gatmaitans monetary
claims.
7. Because of his inability to collect from Anglo-Asean, Gatmaitan did not
bother anymore to make good his promise to pay Licaros the amount stated
in his promissory note. Licaros, however, thought differently. He felt that he
had a right to collect on the basis of the promissory note regardless of the
outcome of Gatmaitan's recovery efforts. Thus, Licaros, thru counsel,
addressed successive demand letters to Gatmaitan, demanding payment of
the latters obligations under the promissory note. Gatmaitan, however, did
not accede to these demands.
8. Hence, Licaros filed a complaint in the RTC to collect for the amount.
9. Trial court rendered judgment in favor of Licaros and found Gatmaitan liable
under the Memorandum of Agreement and Promissory Note.
10. Respondent Gatmaitan appealed to the CA and the appellate court reversed
the decision of the trial court and held that respondent Gatmaitan did not at
any point become obligated to pay to petitioner Licaros the amount stated in
the promissory note. The MR was also denied.
11. Hence this petition for review on certiorari.
ISSUE/s: (note: guys basically the issue is WoN Licaros can collect from Gatmaitan
but the court finds it necessary – and they did not directly address the issue as WoN
licaros can collect from Gatmaitan – to answer first the questions below because the 2. In an assignment of credit, the consent of the debtor is not necessary in order
issue of collection hinges on the answer of the issues below since related yung answer that the assignment may fully produce legal effects. What the law requires in
sa issue no.2 sa answer sa no.1) an assignment of credit is not the consent of the debtor but merely notice to
12. (RELEVANT IN OUR TOPIC) WoN the Memorandum of Agreement him (debtor) as the assignment takes effect only from the time he has
between Licaros and Gatmaitan is one of assignment of credit or one of knowledge thereof. A creditor may, therefore, validly assign his credit and
conventional subrogation – CONVENTIONAL SUBROGATION as its accessories without the debtors consent.
shown by the WHEREAS clause (fact no. 5) of the Memorandum of
Agreement of the parties wherein Licaros and Gatmaitan stipulated that 3. On the other hand, conventional subrogation requires an agreement among
the express consent of Anglo-Asean as the original debtor must be given the three parties concerned the original creditor (Licaros), the debtor
13. WoN the Memorandum of Agreement was perfected (If perfected, then (Anglo-Asean), and the new creditor (Gatmaitan). It is a new contractual
Gatmaitan still has subsisting commitment to pay Licaros, otherwise the suit relation based on the mutual agreement among all the necessary
for collection must fail) – NO, the absence of consent on the part of one of parties. Thus, Article 1301 of the Civil Code explicitly states that
the parties (Anglo-Asean) prevented the agreement to become effective Conventional subrogation of a third person requires the consent of the
original parties and of the third person.
RULING: WHEREFORE, the instant petition is DENIED and the Decision of the
Court of Appeals dated February 10, 2000 and its Resolution dated April 7, 2000 are 4. The appellate court (correct ruling) held that the agreement was one of
hereby AFFIRMED. conventional subrogation which necessarily requires the agreement of all the
parties concerned. The Court of Appeals thus ruled that the
RATIO: Memorandum of Agreement never came into effect due to the failure of
FIRST ISSUE the parties to get the consent of Anglo-Asean Bank (debtor) (remember
that in Conventional subrogation, the consent of ALL parties are required)
Assignment Subrogation to the agreement and, as such, respondent never became liable for the
The process of transferring the right of The transfer of all the rights of the amount stipulated.
the assignor to the assignee who would creditor to a third person, who
then have the right to proceed against substitutes him in all his rights. 5. Pronouncement of the CA:
the debtor.
Immediately discernible from above is the common feature of contracts
May be done gratuitously or onerously May either be legal (by operation of involving conventional subrogation, namely, the approval of the debtor to the
(same effect with sale) law) or conventional (by agreement of subrogation of a third person in place of the creditor. That Gatmaitan and
the parties) Licaros had intended to treat their agreement as one of conventional
subrogation is plainly borne by a stipulation in their Memorandum of
Consent of debtor is not required In Conventional subrogation, consent of Agreement, to wit:
original debtor is required
Refers to the same right which passes Extinguishes the obligation and creates WHEREAS, the parties herein have come to an agreement on the
from one person to another. a new one nature, form and extent of their mutual prestations which they
now record herein with the express conformity of the third
The nullity of an obligation is not The nullity of an old obligation may be parties concerned, which third party is admittedly Anglo-Asean
remedied by the assignment of the cured by subrogation, such that a new Bank.
creditors right to another. obligation will be perfectly valid.
6. Aside for the whereas clause cited by the appellate court in its
decision, we likewise note that on the signature page, right under the
1. For our purposes, the crucial distinction deals with the necessity of the place reserved for the signatures of petitioner and respondent, there is,
consent of the debtor in the original transaction. typewritten, the words WITH OUR CONFORME. Under this
notation, the words ANGLO-ASEAN BANK AND TRUST were
 written by hand. To our mind, this provision which contemplates
the signed conformity of Anglo-Asean Bank, taken together with
the aforementioned preambulatory clause leads to the conclusion
that both parties intended that Anglo-Asean Bank should signify
its agreement and conformity to the contractual arrangement
between petitioner and respondent.
7. Had the intention been merely to confer on appellant the status of a
mere assignee of appellees credit, there is simply no sense for them to
have stipulated in their agreement that the same is conditioned on the
express conformity thereto of Anglo-Asean Bank.
SECOND ISSUE
8. Here, it bears stressing that the subject Memorandum of Agreement
expressly requires the consent of Anglo-Asean to the
subrogation. Upon whom the task of securing such consent devolves,
be it on Licaros or Gatmaitan, is of no significance. What counts most
is the hard reality that there has been an abject failure to get Anglo-
Aseans nod of approval over Gatmaitans being subrogated in the place
of Licaros. Doubtless, the absence of such conformity on the part
of Anglo-Asean, which is thereby made a party to the same
Memorandum of Agreement, prevented the agreement from
becoming effective, much less from being a source of any cause of
action for the signatories thereto.
Other contentions of the petitioner and the answer of SC in case sir asks
9. 1st argument: Petitioner argues that the parties to the Memorandum of
Agreement could not have intended the same to be a conventional
subrogation considering that no new obligation was created.
o SC: It is true that conventional subrogation has the effect of
extinguishing the old obligation and giving rise to a new
one. However, the extinguishment of the old obligation is the
effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for
conventional subrogation may not be created. As such, it is not
determinative of whether or not a contract of conventional
subrogation was constituted.
10. 2nd argument: Petitioner next argues that the consent or conformity of Anglo-
Asean Bank is not necessary to the validity of the Memorandum of
Agreement. He claims that the preambulatory clause requiring the express
conformity of third parties, which admittedly was Anglo-Asean Bank, is a
mere surplusage which is not necessary to the validity of the agreement.
o SC: As previously discussed, the intention of the parties to treat
the Memorandum of Agreement as embodying a conventional
subrogation is shown not only by the whereas clause but also by
the signature space captioned WITH OUR CONFORME
reserved for the signature of a representative of Anglo-Asean
Bank (Ratio No. 6). These provisions in the aforementioned
Memorandum of Agreement may not simply be disregarded or
dismissed as superfluous. It is a basic rule in the interpretation of
contracts that (t)he various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly.
11. 3rd argument: Petitioner next argues that assuming that the conformity of
Anglo-Asean was necessary to the validity of the Memorandum of
Agreement, respondent only had himself to blame for the failure to secure
such conformity as was, allegedly, incumbent upon him under the
memorandum.
o SC: Basically the court said here that either of them (Licaros or
Gatmaitan) could secure the consent of Anglo-Asean.
12. Last argument: Petitioner argues that respondent himself allegedly admitted
in open court that an assignment of credit was intended.
o Respondent apparently used the word assignment in his testimony
in the general sense. Respondent is not a lawyer and as such, he is
not so well versed in law that he would be able to distinguish
between the concepts of conventional subrogation and of
assignment of credit.
 002 DBP v. JUDGE OF RTC OF MANILA (Regine)
February 5, 1990 | Fule, J. | Bulk Sales Law
PETITIONER: Development Bank of the Philippines and Union Glass & Container
Corporation
RESPONDENTS: Judge of the Regional Trial Court of Manila, Branch XXV, et.al;
Antonio Yu
SUMMARY: Pioner purchased from Yu equipment parts worth P7,019.00 which
upon demand Pioneer failed or refused to pay and without informing Yu, Pioneer
transferred all its assets to DBP in a “deed of cession of property in payment of
obligation or dacion en pago”. DBP in turn sold these asssets to Union in an
agreement; that the transfer of assets to DBP is fraudulent, hence, void by reason of
which Yu suffered actual and other damages. Union filed a motion to dismiss on the
grounds of lack of cause of action and lack of jurisdiction over the subject matter of
the action. Pioneer argued that by virture of the dacion en pago in favor of DBP, its
business operations had ceased. DBP denied the material allegations and interposed
that the bank is not a privy to the sale between Yu and Pioneer and Yu holds no lien
over Pioneer’s properties and that the validity of the dacion en pago being placed in
issue, the action is one incapable of pecuniary estimation, hence, outside the
jurisdiction of the MTC. Important Issue: WoN the Bulk Sales Law covers the
conveyance in question (its violation would make DBP, Union Glass, and Pioneer
Glass liable to Yu). NO. The technical terms convey the intention that the Bulk Sales
Law applies to merchants who are in the business of selling goods and wares and
similar merchandise, hence the said law was held not to apply to sale of assets by a
manufacturer since the nature of his business does not partake of merchandising. In
the case at bar, there is undisputed evidence the Pioneer manufactures glass only on
specific orders; that it does not sell directly to consumers but manufactures its
products only for particular clients. It cannot be said therefore that Pioneer is a
merchandiser. This is not all. In the dacion en pago between Pioneer and DBP, the
former ceded, transferred and conveyed the bulk of its corporate assets to extinguish
its outstanding obligations to DBP in the total amount of about 63.2 million pesos.
The subject matter of the deed of cession were therefore assets, not stock-in-trade, of
which it had none. Such conveyance is clearly outside the ambit of the Bulk Sales
Law.
DOCTRINE: Bulk Sales Law applies to merchants who are in the business of selling
goods and wares and similar merchandise, and cannot cover the sale of assets by a
manufacturer since the nature of his business does not partake of merchandise.
FACTS:
99. Antonio Yu, doing business under the name and style “Ancar Equipment
Parts” and “Tonicar” as plaintiff, instituted an action against Pioneer Glass
Manufacturing Corporation (Pioneer). Development Bank of the Philippines
(DBP) and Union Glass and Container Corporation (Union) as defendants.
100. The complaint alleged that during the period from October 21, 1977 to March
22, 1978, Pioner purchased from Yu equipment parts worth P7,019.00 which
upon demand Pioneer failed or refused to pay; that without informing Yu,
Pioneer transferred all its assets to DBP in a “deed of cession of property in
payment of obligation or dacion en pago”; that DBP in turn sold these asssets
to Union in an agreement; that the transfer of assets to DBP is fraudulent,
hence, void by reason of which Yu suffered actual and other damages.
101. Union filed a motion to dismiss on grounds of lack of cause of action and
lack of jurisdiction over the subject matter of the action
102. Pioneer acknowledge indebtedness to Yu on the purchase of the equipment
parts however, it interposed the affirmative defenses that by virture of the
dacion en pago in favor of DBP, its business operations had ceased; that the
cession of its assets was made known to all its creditor; and that by virture of
the Board of Governors Res. No. 3509. DBP agreed to assume its obligations
to creditors including Yu under a payment scheme which is pending
implementation.
103. DBP denied the material allegations of the complaint and interposed as an
affirmative defenses lack of cause of action in that the complaint does not
allege that the good sold to Pioner were among those ceded to DBP; that the
bank is not a privy to the sale between Yu and Pioneer; that Yu holds no lien
over Pioneer’s properties; and that the validity of the dacion en pago being
placed in issue, the action is one incapable of pecuniary estimation, hence,
outside the jurisdiction of the MTC.
104. MTC issued an order denying the two motions to dismiss complaint on the
ground that the said motions are prohibited pleadings.
105. Motion for reconsideration was also denied.
106. On appeal to the RTC, the decision of the MTC was affirmed.
107. Hence, this appeal.
ISSUE/s:
14. WoN the cause of action is incapable of pecuniary estimation, hence, the
Metropolitan Trial Court has no jurisdiction. NO
15. (IMPT) WoN the Bulk Sales Law covers the conveyance in question (its
violation would make DBP, Union Glass, and Pioneer Glass liable to Yu).
NO.
RULING: Wherefore, the decision of the Metropolian Trial Court dated July 12,
1984, as affirmed by the memorandum decision dated June 26, 1985 of respondent
Regional Trial Court is hereby MODIFIED and judgement is hereby rendered
ordering only defendant Pioneer Glass Manufacturing Corporation to pay the plaintiff,
Antonio D. Yu, the amount of P7,019.00 plus 12% interest from July 12, 1984 until
the same is fully paid; attorney’s fees in the amount of P1,000.00; and to pay the costs.

RATIO:
FIRST ISSUE:
30. As correctly settled by the trial court: As to the jurisdiction of this Court, the
declaration of nullity of the transaction of the transfer to the DBP insofar as
Yu is concerned is merely incidental to the proceedings. The principal action
is still recovery of the sum of P7,019.00 which is within the jurisdiction of
this court.
31. A reading of the complaint in the Civil Case confirms that the cause of action
is one of collection of a sum of money wherein judgement is prayed, ordering
the DBP, Union Glass and Pioneer Glass to pay Yu the sum of P7,019.00
with interest, consequential, moral and exemplary damages and attorney’s
fees.
SECOND ISSUE:
1. Under the Bulk Sales Law, the terms "goods" and "merchandise,"
having acquired a fixed meaning, refer to things and articles, which are
kept for sale by a merchant. Likewise, the term "fixtures" has been
interpreted to mean the chattels, which the merchants usually possess
and annex to the premises occupied by them in order to enable the latter
to store, handle and display their goods and wares.
2. These technical terms convey the intention that the Bulk Sales Law applies
to merchants who are in the business of selling goods and wares and similar
merchandise, hence the said law was held not to apply to sale of assets by
a manufacturer since the nature of his business does not partake of
merchandising.
3. In our jurisdiction, this Court has unequivocally ruled in People v. Wong Szu
Tung that the sale of a foundry shop- a purely manufacturing concern-
together with its goodwill and credits is not contemplated nor covered by
the Bulk Sales Laws.
4. In the case at bar, there is undisputed evidence the Pioneer manufactures glass
only on specific orders; that it does not sell directly to consumers but
manufactures its products only for particular clients. It cannot be said
therefore that Pioneer is a merchandiser. This is not all. In the dacion en
pago between Pioneer and DBP, the former ceded, transferred and
conveyed the bulk of its corporate assets to extinguish its outstanding
obligations to DBP in the total amount of about 63.2 million pesos.
5. The subject matter of the deed of cession were therefore assets, not stock-
in-trade, of which it had none. Such conveyance is clearly outside the ambit
of the Bulk Sales Law.
ISSUE OF FRAUD:
1. As to whether the transaction is fraudulent, it bears emphasis that contrary
to the findings of the trial court, there was no concealment of the fact that
Yu was an existing small trade creditor of Pioneer. DBP was furnished a list
of all such small creditors and the former, in Resolution No. 3509 of its
Board of Governors, provided for a liquidation schedule for paying all such
other creditors. The concurrence of the foregoing circumstances
convinces this Court that there are no badges of fraud in the execution
of the dacion en pago.
IMPORTANT PROVISIONS OF THE BULK SALES LAW:
Sec. 2. Sale and transfer in bulk. — Any sale, transfer, mortgage or assignment of a stock of
goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of
trade and the regular prosecution of the business of the vendor, mortgagor, transferor, or
assignor, or sale, transfer, mortgage or assignment of all, or substantially all, of the business or
trade theretofore conducted by the vendor, mortgagor, transferor, or assignor, or of all, or
substantially all, of the fixtures and equipment used in and about the business of the vendor,
mortgagor, transferor, or assignor, shall be deemed to be a sale and transfer in bulk, in
contemplation of this Act: Provided, however, That if such vendor, mortgagor, transferor or
assignor, produces and delivers a written waiver of the provisions of this Act from his creditors
as shown by verified statements, then, and in that case, the provisions of this section shall not
apply.
Sec. 3. Statement of creditors. — It shall be the duty of every person who shall sell, mortgage,
transfer, or assign any stock of goods, wares, merchandise, provisions or materials in bulk, for
cash or on credit, before receiving from the vendee, mortgagee, or his, or its agent or
representative any part of the purchase price thereof, or any promissory note, memorandum, or
other evidence therefor, to deliver to such vendee, mortgagee, or agent, or if the vendee,
mortgagee, or agent be a corporation, then to the president, vice-president, treasurer, secretary
or manager of said corporation, or, if such vendee or mortgagee be a partnership firm, then to a
member thereof, a written statement, sworn to substantially as hereinafter provided, of the
names and addresses of all creditors to whom said vendor or mortgagor may be indebted,
together with the amount of indebtedness due or owing, or to become due or owing by said
vendor or mortgagor to each of said creditors, which statement shall be verified by an oath to
the following effect…
Sec. 4. Fraudulent and void sale, transfer or mortgage. — Whenever any person shall sell,
mortgage, transfer, or assign any stock of goods, wares, merchandise, provisions or materials,
in bulk, for cash or on credit, and shall receive any part of the purchase price, or any promissory
note, or other evidence of indebtedness for said purchase price or advance upon mortgage,
without having first delivered to the vendee or mortgagee or to his or its agent or representative,
the sworn statement provided for in section three hereof, and without applying the purchase or
mortgage money of the said property to the pro rata payment of the bona fide claim or claims
of the creditors of the vendor or mortgagor, as shown upon such sworn statement, he shall be
deemed to have violated this Act, and any such sale, transfer or mortgage shall be fraudulent
and void.
HON. CORNELIO BALMACEDA V. UNION CARBIDE
 PHILIPPINES (CASTRO)
30 September 1983 | Fernando, CJ. | Retail business
PETITIONER: Hon. Cornelio Balmaceda, now Leonides Virata in his capacity
as Secretary of Commerce and Industry
RESPONDENTS: Union Carbide Philippines and Hon. Alikpala, Presiding
Judge
PETITIONER: Hon. Marcelo Balatbat in his capacity as Secretary of Comerce
and Industry
RESPONDENTS: Union Carbide Philippines, Inc.
SUMMARY: The Solicitor general was trying to clarify the definition of retail
business given the fact that the Retail act was amended and at the same time they
wanted to appeal the decision of the lower court declaring that Union Carbide is
not engaged in the retail business.
The Supreme Court enunciated its decision by saying that it is in line with the
previously decided cases, comments by economists, Central Bank Governor, and
judicial opinions that the goods contemplated in a retail business refer to the final
and end [uses] of a product which directly satisfy human wants and desires and
are needed for home and daily life. Furthermore, SC believes that what removes
Union Carbide from the definition of a retail business was that “The goods handled
by the five remaining departments of Industrial Products Division are generally
raw materials used in the manufacture of other goods, or if not, as one of the
component raw materials, or at the least as elements utilized in the process of
production or manufacturing”
DOCTRINE: The goods handled by the five remaining departments of Industrial
Products Division are generally raw materials used in the manufacture of other
goods, or if not, as one of the component raw materials, or at the least as elements
utilized in the process of production or manufacturing”
FACTS:
1. The question raised in the said petition filed by the Solicior general is to
review the decision of the late judge Hon Alikpala declaring that Union
Carbide is not engaged in the retail business
2. The court believes that the said case is in harmony with the previous
jurisprudence laid down (namely Goodrich Philippines v. Reyes Sr.,
Goodyear Tire v. Reyes Sr., and Mobil Oil Philippines v. Reyes Sr.) and the
doctrines therein announced applying the Presidential decree amending the
retail trade is in point.
3. The amendatory provision of the PD added two more paragraphs which was
the basis for the three previous decisions of the court.
4. The relevant section states that:
a. Retail business- occupation or calling of habitually selling direct to
the general public merchandise, commodities or goods for
consumption.
b. According to the amendment, retail business excludes: a
manufacturer or processor selling to the industrial and commercial
users or consumers who use the products brought by them to render
service to general public and/or produce or manufacture goods
which are in turn sold to them.
5. Hence, this appeal before the SC was sought to clarify the definition of retail
business
ISSUE/s:
1. WoN Union Carbide Philippines is engaged in the retail business - No
RULING: WHEREFORE, the Court affirms the lower court decision holding
that Union Carbide Philippines, Inc. is not engaged in the "retail business" as
this term is defined in Section 4 of Republic Act No. 1180 and malting permanent
the restraining order of June 22, 1964 issued in this case. No costs
RATIO:
6. The case at bar is in accord with the ruling of the Supreme Court in the Ichong
case regarding the nature and kind of goods a retailer handles. Under the
situation, the Court is persuaded to hold that the goods for consumption
mentioned in Republic Act No. 1180 should be construed to refer to the final
and end [uses] of a product which directly satisfy human wants and desires
and are needed for home and daily life.
7. Accordingly, the goods which the Industrial Products Division handle
(commonly referred to as intermediate goods), do not fall and cannot be
classified as consumption goods
8. Unionbide has two divisions, the Consumer Products Division and the
Industrial Products Division. As to the former, it effected its sales through
retail outlets, dealers and distributors. Thus, there was no question as to the
character of its business. It was not embraced in the category of retail. As to
the Industrial Products Division, its Agricultural Chemicals Department sold
its products through exclusive distributors. Again, it could be concluded that
such Department was not covered by the Act even before its amendment.
9. Again, it could be concluded that such Department was not covered by the
Act even before its amendment. The products handled by the five other
departments of the Industrial Products Division, namely, the Metals and
Carbide; Plastics; Industrial Chemicals; Linde, Haynes Stellite and Carbon
Products and Polyethylene Bags were generally sold to producers,
processors, fabricators and to industries. While these departments had a
limited fixed clientele, still there was no prohibition as to the general public
malting similar purchases from them

10. What removed these departments from the operation of the Retail Trade Act
was pointed out in the appealed decision in these words: "The goods handled
by the five remaining departments of Industrial Products Division are
generally raw materials used in the manufacture of other goods, or if not,
as one of the component raw materials, or at the least as elements utilized
in the process of production or manufacturing."

11. After considering the statutory definition in the Retail Trade Act itself, its
definition by economists, and in judicial opinions, as well as the view of
former Central Bank Governor Cuaderno as to the adverse consequences in
terms of increased cost to consumers, loss of official assistance from
producers, elimination of much needed foreign capital and loss of technical
assistance, the lower court held it was not engaged in the retail business
 GOODYEAR TIRE v. REYES (KC)
July 2, 1983 | Fernando, C.J. | Meaning of “General Public”
PETITIONER: The Goodyear Tire & Rubber Co. of the Philippines, Ltd.
INTERVENOR: Firestone Tire & Rubber Co. of the Philippines
RESPONDENTS: The Honorable Teofilo Reyes, Sr., in his capacity as Acting
Secretary of Commerce and Industry
SUMMARY: Goodyear Tire and Firestone Tire claim that they are exempt from
RA 1180 which regulates the retail business arguing that their costumers do not
fall under the category “general public”. The lower court ruled partially in favor
of both parties. The SC affirmed this saying that in so far as the proprietary
planters, entities engaged in the exploitation of natural resources, and the
employees and officers of both parties, their selling of rubber should be considered
as retail. The legal question has long been settled when PD 714 amended Retail
Trade Nationalization Law. As in the case of Goodrich, the SC found therein
petitioner engaged in retail business as to its employees and officers, proprietory
planters, and persons engaged in the exploitation of natural resources costumers.
DOCTRINE: Even when consumer goods is limited only to the officers of the
company, the same would still constitute retail trade covered by the Law.
FACTS:
199. Both Goodyear Tire & Rubber Co. of the Philippines and (intervenor)
Firestone Tire & Rubber Co. of the Philippines appealed from the decision of
the lower court holding that they are engaged in retail business as to their
customers – which are proprietory planters, persons engaged in the
exploitation of natural resources, and employees and officers of the
petitioner.
200. Hence, this appeal.
ISSUE/s:
56. WoN Goodyear Tire and Firestone Tire is engaged in retail business – YES
but only as to letters C, D, and G under Fact #3.
RULING: WHEREFORE, the lower court decision is affirmed declaring that
petitioner and intervenor are not engaged in retail business within the purview of
Section 4 of Republic Act No. 1180 and Presidential Decree No. 714, except as to its
sales to its employees and officers. The injunction issued is likewise made permanent
but subject to the above qualification. No costs.
38
Not petitioner in this case. This was lifted from the Goodrich case.
RATIO:
163. This legal question has been put to rest by PD 714, which amended the Retail
Trade Nationalization Law.
164. As originally worded, the term “retail business” covers any act, occupation
or calling of habitually selling direct to the general public merchandise,
commodities or goods for consumption but shall not include:
a. A manufacturer, processor, laborer or worker selling to the general
public the products manufactured, processed or produced by him if
his capital does not exceed P5,000.
b. Farmer or agriculturist selling the product of his farm.
c. A manufacturer or processor selling to the industrial and
commercial users or consumers who use the products bought by
them to render to the general public and/or to produce or
manufacture goods which are in turn sold to them
d. A hotel-owner or keeper operating a restaurant irrespective of the
amount of capita, provided that the restaurant is necessarily included
in, or incidental to the hotel business.
165. As noted by the decision of the lower court Goodyear Tire and Firestone Tire
sold their rubber products to certain types or class of customers:
a. The government and all its instrumentalities
b. Public utilities
c. Agricultural enterprises, proprietary planters, agricultural
processing plants and agricultural cooperatives
d. Logging, mining and other entities engaged in exploitation of
natural resources
e. Automotive assembly plants
f. Industrial and commercial enterprises engaged in the sale of prime
and essential commodities
g. Employees and officers of the Goodyear Tire and Firestone Tire
166. Goodyear Tire and Firestone year are not exempt from RA 1180 (An Act to
Regulate the Retail Business) in so far as the said costumers. As in the case
of Goodrich, a similar conclusion is proper. The SC in that case held that:
a. “It is dear from above that proprietary planters and persons engaged
in the ploration of natural resources are included x x x. The lower
court decision x x x is in accordance with law insofar as employees
and officers of petitioner38 are concerned.”
 DBP v. JUDGE OF RTC OF MANILA (Paolo; but I just edited the
digest of Regine)
February 5, 1990 | Fule, J. | Meaning of General Public
PETITIONER: Development Bank of the Philippines and Union Glass & Container
Corporation
RESPONDENTS: Judge of the Regional Trial Court of Manila, Branch XXV, et.al;
Antonio Yu
SUMMARY: Pioner purchased from Yu equipment parts worth P7,019.00 which upon
demand Pioneer failed or refused to pay and without informing Yu, Pioneer transferred
all its assets to DBP in a “deed of cession of property in payment of obligation or dacion
en pago”. DBP in turn sold these asssets to Union in an agreement; that the transfer of
assets to DBP is fraudulent, hence, void by reason of which Yu suffered actual and
other damages. Union filed a motion to dismiss on the grounds of lack of cause of action
and lack of jurisdiction over the subject matter of the action. Pioneer argued that by
virture of the dacion en pago in favor of DBP, its business operations had ceased. DBP
denied the material allegations and interposed that the bank is not a privy to the sale
between Yu and Pioneer and Yu holds no lien over Pioneer’s properties and that the
validity of the dacion en pago being placed in issue, the action is one incapable of
pecuniary estimation, hence, outside the jurisdiction of the MTC. Bulk Sales Issue:
WoN the Bulk Sales Law covers the conveyance in question (its violation would make
DBP, Union Glass, and Pioneer Glass liable to Yu). NO. The technical terms convey
the intention that the Bulk Sales Law applies to merchants who are in the business of
selling goods and wares and similar merchandise, hence the said law was held not to
apply to sale of assets by a manufacturer since the nature of his business does not
partake of merchandising. In the case at bar, there is undisputed evidence the Pioneer
manufactures glass only on specific orders; that it does not sell directly to consumers
but manufactures its products only for particular clients. It cannot be said therefore that
Pioneer is a merchandiser. This is not all. In the dacion en pago between Pioneer and
DBP, the former ceded, transferred and conveyed the bulk of its corporate assets to
extinguish its outstanding obligations to DBP in the total amount of about 63.2 million
pesos. The subject matter of the deed of cession were therefore assets, not stock-in-
trade, of which it had none. Such conveyance is clearly outside the ambit of the Bulk
Sales Law. [For Chapter 16 issue; look at end of ratio]
DOCTRINE: Where company manufactures glass products only on specific
orders, it does not sell directly to consumers but manufacturers its products
only for the particular clients, it cannot be said that it is a merchandiser.
FACTS:
20. Antonio Yu, doing business under the name and style “Ancar Equipment
Parts” and “Tonicar” as plaintiff, instituted an action against Pioneer Glass
Manufacturing Corporation (Pioneer). Development Bank of the Philippines
(DBP) and Union Glass and Container Corporation (Union) as defendants.
21. The complaint alleged that during the period from October 21, 1977 to March
22, 1978, Pioner purchased from Yu equipment parts worth P7,019.00 which
upon demand Pioneer failed or refused to pay; that without informing Yu,
Pioneer transferred all its assets to DBP in a “deed of cession of property in
payment of obligation or dacion en pago”; that DBP in turn sold these asssets
to Union in an agreement; that the transfer of assets to DBP is fraudulent,
hence, void by reason of which Yu suffered actual and other damages.
22. Union filed a motion to dismiss on grounds of lack of cause of action and
lack of jurisdiction over the subject matter of the action
23. Pioneer acknowledge indebtedness to Yu on the purchase of the equipment
parts however, it interposed the affirmative defenses that by virture of the
dacion en pago in favor of DBP, its business operations had ceased; that the
cession of its assets was made known to all its creditor; and that by virture of
the Board of Governors Res. No. 3509. DBP agreed to assume its obligations
to creditors including Yu under a payment scheme which is pending
implementation.
24. DBP denied the material allegations of the complaint and interposed as an
affirmative defenses lack of cause of action in that the complaint does not
allege that the good sold to Pioneer were among those ceded to DBP; that the
bank is not a privy to the sale between Yu and Pioneer; that Yu holds no lien
over Pioneer’s properties; and that the validity of the dacion en pago being
placed in issue, the action is one incapable of pecuniary estimation, hence,
outside the jurisdiction of the MTC.
25. MTC issued an order denying the two motions to dismiss complaint on the
ground that the said motions are prohibited pleadings.
26. Motion for reconsideration was also denied.
27. On appeal to the RTC, the decision of the MTC was affirmed.
28. Hence, this appeal.
ISSUE/s:
13. WoN the cause of action is incapable of pecuniary estimation, hence, the
Metropolitan Trial Court has no jurisdiction. NO
14. WoN the Bulk Sales Law covers the conveyance in question (its violation
would make DBP, Union Glass, and Pioneer Glass liable to Yu). NO.
15. WoN Pioneer corp sells goods to the general public. NO. only
manufactures goods for specific clients.
RULING: Wherefore, the decision of the Metropolian Trial Court dated July 12,
1984, as affirmed by the memorandum decision dated June 26, 1985 of respondent
Regional Trial Court is hereby MODIFIED and judgement is hereby rendered
ordering only defendant Pioneer Glass Manufacturing Corporation to pay the plaintiff, trade, of which it had none. Such conveyance is clearly outside the ambit of
Antonio D. Yu, the amount of P7,019.00 plus 12% interest from July 12, 1984 until the Bulk Sales Law.
the same is fully paid; attorney’s fees in the amount of P1,000.00; and to pay the costs.
ISSUE OF FRAUD:
a.i.1. As to whether the transaction is fraudulent, it bears emphasis that
RATIO: contrary to the findings of the trial court, there was no concealment of the
fact that Yu was an existing small trade creditor of Pioneer. DBP was
FIRST ISSUE: furnished a list of all such small creditors and the former, in Resolution No.
• As correctly settled by the trial court: As to the jurisdiction of this Court, the 3509 of its Board of Governors, provided for a liquidation schedule for
declaration of nullity of the transaction of the transfer to the DBP insofar as paying all such other creditors. The concurrence of the foregoing
Yu is concerned is merely incidental to the proceedings. The principal action circumstances convinces this Court that there are no badges of fraud in the
is still recovery of the sum of P7,019.00 which is within the jurisdiction of execution of the dacion en pago.
this court.
• A reading of the complaint in the Civil Case confirms that the cause of action MEANING OF “GENERAL PUBLIC”: (this is literally the only took worth
is one of collection of a sum of money wherein judgement is prayed, ordering taking from the case for this chapter)
the DBP, Union Glass and Pioneer Glass to pay Yu the sum of P7,019.00
with interest, consequential, moral and exemplary damages and attorney’s • According to CLV: “General Public” must mean that the activities of the
fees. seller must be such that the target clientele or customers must not only
be a particular person or group of persons.
SECOND ISSUE: • This is not determined by the nature of the goods sold on whether they
a.i.1. Under the Bulk Sales Law, the terms "goods" and "merchandise," would be acceptable or usable only by a sector of society.
having acquired a fixed meaning, refer to things and articles, which are kept • So in this case, Pioneer Corp. is not a merchandiser that sells goods to
for sale by a merchant. Likewise, the term "fixtures" has been interpreted to the general public. The business operations of the company show that it
mean the chattels, which the merchants usually possess and annex to the only manufactures glass products for particular clients. It is not a
premises occupied by them in order to enable the latter to store, handle and merchandiser that sells indiscriminately to just any customer, hence it
display their goods and wares. cannot be conducting a business enterprise that serves the interests of
the “General Public”.
2. These technical terms convey the intention that the Bulk Sales Law applies
to merchants who are in the business of selling goods and wares and similar
merchandise, hence the said law was held not to apply to sale of assets by a
manufacturer since the nature of his business does not partake of
merchandising.
3. In our jurisdiction, this Court has unequivocally ruled in People v. Wong Szu
Tung that the sale of a foundry shop- a purely manufacturing concern-
together with its goodwill and credits is not contemplated nor covered by the
Bulk Sales Laws.
4. In the case at bar, there is undisputed evidence the Pioneer manufactures
glass only on specific orders; that it does not sell directly to consumers
but manufactures its products only for particular clients. It cannot be
said therefore that Pioneer is a merchandiser. This is not all. In the dacion
en pago between Pioneer and DBP, the former ceded, transferred and
conveyed the bulk of its corporate assets to extinguish its outstanding
obligations to DBP in the total amount of about 63.2 million pesos.
5. The subject matter of the deed of cession were therefore assets, not stock-in-