CASES

1. Antonio Medina v. CIR and CTA

Facts:

Subsequent to marriage, petitioners engaged in concessions with the government, while his wife
started to engage in business as a lumber dealer. From 1949 to 1952, petitioner sold logs to his wife.
On the thesis that the sales are null and void, CIR considered the sales by Mrs. Medina as the
petitioner’s original sales taxable under the NIRC. Petitioner filed a petition for reconsideration,
revealing for the first time the alleged premarital agreement of complete separation of property.

Issue:

Whether or not the sales made by the petitioner to his wife could be considered as his original taxable
sales

Held:

It appears that at the time of the marriage between petitioner and his wife, they neither had any
property nor business of their own, as to have really urged them to enter into the supposed property
agreement. Secondly, the testimony that the separation of property agreement was recorded in the
Registry of Property three months before the marriage, is patently absurd, since such a prenuptial
agreement could not be effective before marriage is celebrated, and would automatically be cancelled
if the union was called off. In the third place, despite their insistence on the existence of the ante
nuptial contract, the couple, strangely enough, did not act in accordance with its alleged covenants. It
was not until July of 1954 that he alleged, for the first time, the existence of the supposed property
separation agreement. Finally, the Day Book of the Register of Deeds on which the agreement would
have been entered, had it really been registered as petitioner insists, and which book was among
those saved from the ravages of the war, did not show that the document in question was among
those recorded therein.

The wife is authorized to engage in business and for the incidents that flow therefrom when she so
engages therein. But the transactions permitted are those entered into with strangers, and do not
constitute exceptions to the prohibitory provisions of Article 1490 against sales between spouses.

Contracts violative of the provisions of Article 1490 of the Civil Code are null and void. Being void
transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector
in his tax assessments that considered as the taxable sales those made by the wife through the
spouses' common agent, Mariano Osorio. In upholding that stand, the Court below committed no
error.

2. Reman Recio vs. Heirs and the Spouses Aguedo and Maria Altamirano

Facts:
Nena Recio, mother of Reman Recio leased from the Altamiranos a parcel of land with improvements.
The Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo
Altamirano and Maria Vaduvia. The sale of the land to Nena Recio did not materialize. The
Altamiranos consolidated the two parcels of land covered by the TCT and subdivided into 3 parcels of
lands. Reman and his family remained in the peaceful possession of Lot 3. He renewed Nena’s option
to buy the subject property. They conducted negotiations with Alejandro who introduced himself as
representing the other heirs. After which, the Altamiranos through Alejandro entered into an oral
contract of sale with the petitioner and made partial payments which Alejandro received. Then, the
petitioner offered to pay the remaining balance, but Alejandro kept on avoiding the petitioner. Recio
filed a case and while its pending, it was discovered that the property was sold to respondents
Spouses Lajarca.

The RTC ruled that the Absolute Sale between Altamiranos and the Lajarcas was Null and Void, but
the Court of Appeals modified that the sale between Alejandro and Recio is valid only with respect to
the aliquot share of Alejandro. CA held that Alejandro’s sale of Not. No. 3 did not bind his co-owners
because a sale of real property by one purporting to be an agent of the owner without any written
authority from the latter is null and void. An SPA from co-owners pursuant to Art 1878 of the NCC is
necessary.

Issue:

Can the contract of sale between Alejandro (representing the share of his co-owners) and Recio be
held valid pursuant to Apparent Authority of an Agent based on Estoppel?

Ruling:

No. Woodchild Holdings, Inc. vs. Roxas Electric and Construction Company, Inc. stressed that apparent
authority based on estoppel can rise from the principal who knowingly permit the agent with indicia
of authority that would lead a reasonable prudent person to believe that he actually has such
authority. Apparent authority of an agent arises only from acts or conducts on the part of the
principal and such act or conduct of the principal must have been known and relied upon in good faith
and as a result of the exercise of a reasonable prudence by a third person as claimant and such must
have produced a change of position to its detriment. In this case, there was no evidence on record of
specific acts which the Altamiranos made before the sale to the petitioner, indicating that they fully
knew of the representation of Alejandro. All that the petitioner relied upon were acts that happened
after the sale to him. Absent the consent of Alejandro’s co-owners, the Court held that the sale
between the other Altamarinos and the petitioner was null and void.

3. Spouses Onnie Serrano and Amparo Herrera vs. Godofredo Caguiat

Facts:
Petitioners are registered owners of a lot located in Las Piñas. On March 23,1900, respondent offered
to buy the lot and petitioners agreed to sell it at ₱1,500 per square meter. Respondent then gave
₱100,000 as partial payment. A few days after, respondent,through his counsel, wrote petitioners
informing them of his readiness to pay the balance of the contract price and requesting them to
prepare the Deed of Sale. Petitioners, through counsel, informed respondent in a letter that Amparo
Herrera would be leaving for abroad on or before April 15, 1990 and they are canceling the
transaction and that respondent may recover the earnest money (₱100,000) anytime.Petitioners also
wrote him stating that they already delivered a manager’s check to his counsel in said amount.
Respondent thus filed a complaint for specific performance and damages with the RTC of Makati.The
trial court ruled that there was already a perfected contract of sale between the parties and ordered
the petitioners to execute a final deed of sale in favor of respondent. The Court of appeals affirmed
said decision.Issue: Whether or not there was a contract of sale.Ruling: The transaction was a contract
to sell.“When petitioners declared in the “Receipt for Partial Payment” that they –“RECEIVED FROM
MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDREDTHOUSAND PESOS AS PARTIAL PAYMENT
OF OUR LOT SITUATED IN LAS PIÑAS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE
PURCHASE PRICE ON OR BEFORE MARCH 23,1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL
DEED OF SALE ON THIS DATE.” there can be no other interpretation than that they agreed to a
conditional contract of sale, consummation of which is subject only to the full payment of the
purchase price.“A contract to sell is akin to a conditional sale where the efficacy or obligatory force of
the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain
event, so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. The suspensive condition is commonly full payment of the
purchase price.“In this case, the “Receipt for Partial Payment” shows that the true agreement
between the parties is a contract to sell.“First, ownership over the property was retained by
petitioners and was not to pass to respondent until full payment of the purchase price. Second, the
agreement between the parties was not embodied in a deed of sale. The 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. Third, petitioners retained possession of the
certificate of title of the lot.

4. Reyes v. Tuparan

Facts:

Mila A. Reyes filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan
before the RTC.In her Complaint, petitioner alleged, among others, that she was the registered owner
of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City, and
covered by TCT No. V-4130.

Petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL
Bank) to secure a loan. Petitioner then decided to sell her real properties so she could liquidate her
bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to
conditionally buy petitioner's real properties.

The parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with
Assumption of Mortgage. Due to their close personal friendship and business relationship, both
parties chose not to reduce into writing the other terms of their agreement mentioned in paragraph
11 of the complaint.

Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of
paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in
small amounts from time to time.

Respondent countered, among others, that the tripartite agreement erroneously designated by the
petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a
pure and absolute contract of sale with a term period. It could not be considered a conditional sale
because the acquisition of contractual rights and the performance of the obligation therein did not
depend upon a future and uncertain event.

Respondent further averred that she successfully rescued the properties from a definite foreclosure
by paying the assumed mortgage plus interest and other finance charges.

The RTC handed down its decision finding that respondent failed to pay in full the total purchase price
of the subject real properties. It stated that the checks and receipts presented by respondent refer to
her payments of the mortgage obligation with FSL Bank. The RTC also considered the Deed of
Conditional Sale of Real Property with Assumption of Mortgage executed by and among the two
parties and FSL Bank a contract to sell, and not a contract of sale.

The CA rendered its decision affirming with modification the RTC Decision.The CA agreed with the RTC
that the contract entered into by the parties is a contract to sell but ruled that the remedy of
rescission could not apply because the respondent's failure to pay the petitioner the balance of the
purchase was not a breach of contract, but merely an event that prevented the seller (petitioner)
from conveying title to the purchaser (respondent).

Issue:

Was the agreement a contract to sell and not a contract of sale?

Held:

The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26,
1990 is a contract to sell and not a contract of sale.

The title and ownership of the subject properties remains with the petitioner until the respondent
fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL
Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall
execute the corresponding deed of absolute sale in favor of the respondent.

Accordingly, the petitioner's obligation to sell the subject properties becomes demandable only upon
the happening of the positive suspensive condition, which is the respondent's full payment of the
purchase price. Without respondent's full payment, there can be no breach of contract to speak of
because petitioner has no obligation yet to turn over the title. Respondent's failure to pay in full the
purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code
but rather just an event that prevents the petitioner from being bound to convey title to the
respondent.

Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed of
Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase
price of the subject property in the amount of ?4,200,000.00, the remaining unpaid balance of
Tuparan (respondent) is only ?805,000.00, a substantial amount of the purchase price has already
been paid.It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase
price to Reyes."

Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment
of the obligation.

Out of the P1,200,000.00 remaining balance, respondent paid on several dates the first and second
installments of P200,000.00 each. She, however, failed to pay the third and last installment of
P800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through
counsel, offered to pay the amount of P751,000.00, which was rejected by petitioner for the reason
that the actual balance was P805,000.00 excluding the interest charges.

Considering that out of the total purchase price of P4,200,000.00, respondent has already paid the
substantial amount of P3,400,000.00, more or less, leaving an unpaid balance of only P805,000.00, it
is right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid
purchase price. The Court agrees with the courts below that the respondent showed her sincerity and
willingness to comply with her obligation when she offered to pay the petitioner the amount of
P751,000.00. DENIED.

5. Spouses Emma H. Ver Reyes and Ramon Reyes vs. Dominador Salvador

FACTS:

A parcel of unregistered land located the Province of Rizal, now a part of Metro Manila, designated as
Lot 1 of Plan Psu-205035, with an area of 19,545 square meters (subject property) is the core of the
controversy in the Petitions at bar. It previously formed part of a bigger parcel of agricultural land first
declared in the name of Domingo Lozada (Domingo) in the year 1916 under Tax Declaration No. 2932.
Domingo married Graciana San Jose in the year 1887and their marriage produced two children,
namely Nicomedes and Pablo.

After the settlement, the subject property, i.e., Lot 1, was adjudicated to Nicomedes; while Lot 2 was
given to the heirs of Pablo. Nicomedes then declared the subject property in his name in 1965 under
Tax Declaration No. 2050.
On 23 June 1965, Nicomedes executed a Deed of Conditional Sale over the subject property in favor
of Emma Ver Reyes (Emma), which stated that the Vendor [Nicomedes] is the true and lawful owner
of a parcel of land situated at Tungtong, Las Pinas, Rizal. Emma was only able to pay the first
installment of the total purchase price agreed upon by the parties. Furthermore, as will be discussed
later on, Nicomedes did not succeed in his attempt to have any title to the subject property issued in
his name.

On 14 June 1968, Nicomedes entered into another contract involving the subject property with
Rosario D. Bondoc (Rosario).Designated as an Agreement of Purchase and Sale.

On 7 March 1969, Nicomedes and Rosario executed a Joint Affidavit,[14] whereby they confirmed the
sale of the subject property by Nicomedes to Rosario through the Agreement of Purchase and Sale
dated 14 June 1968. They likewise agreed to have the said Agreement registered with the Registry of
Deeds in accordance with the provisions of Section 194 of the Revised Administrative Code, as
amended by Act No. 3344. The Agreement of Purchase and Sale was thus registered on 10 March
1969.

Five months thereafter, Nicomedes executed on 10 August 1969 a third contract, a Deed of Absolute
Sale of Unregistered Land,[16] involving a portion of the subject property measuring 2,000 square
meters, in favor of Maria Q. Cristobal (Maria).

Nicomedes passed away on 29 June 1972. The Deed of Absolute Sale of Unregistered Land between
Nicomedes and Maria was registered only on 8 February 1973,[18] or more than seven months after
the former’s death.

ISSUE:

Which party acquired valid and registrable title to the same.

RULING:

After a conscientious review of the arguments and evidence presented by the parties, the Court finds
that the Deed of Conditional Sale between Nicomedes and Emma and the Agreement of Purchase and
Sale between Nicomedes and Rosario were both mere contracts to sell and did not transfer
ownership or title to either of the buyers in light of their failure to fully pay for the purchase price of
the subject property.
A Contract to Sell may not be considered as a Contract of Sale because the first essential element is
lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of
the purchase price is delivered to him. In other words the full payment of the purchase price partakes
of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and
thus, ownership is retained by the prospective seller without further remedies by the prospective
buyer.

Viewed in light of the foregoing pronouncements, the Deed of Conditional Sale executed by
Nicomedes in favor of Emma on 23 June 1965 is unmistakably a mere contract to sell. The Court looks
beyond the title of said document, since the denomination or title given by the parties in their
contract is not conclusive of the nature of its contents.[52] In the construction or interpretation of an
instrument, the intention of the parties is primordial and is to be pursued.[53] If the terms of the
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control. If the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.

6. Francisco Lao Lim v. CA

Facts:

The private respondent entered into a contract of lease with petitioner for a period of three(3) years,
that is, from 1976 to 1979. After the expiration of the contract, the lessor wishes the lessee to
evacuate the premises but the latter refuses. Hence the lessor filed an action of ejectment in the CTC
of Manila. The case was terminated by a judicially approved compromise agreement of the parties in
which it provides “that the lease shall be renewed every three years…as long as the lessee needed the
premises and can pay the said increases. The lessee shall give notice of his intent to renew sixty (60)
days before the expiration of the term.”

On August 1985, lessee informed his lessor in writing of his intention to renew the contract of lease
for another term, but the lessor did not agree to renew the contract. On January1986, because of
lessee’s refusal to vacate the premises, lessor filed another ejectment suit in the Metropolitan Trial
Court of Manila. In its decision on September 1987,the said court dismissed the complaint on the
grounds that according to the compromise agreement, it allows the lessee to stay on the premises as
long as he needs it and can pay rents. The petitioner appealed in the RTC and CA, both affirmed the
decision of the MeTC.

Issue:

Whether or not a compromise agreement, which allows the lessee to stay on the premises as long as
he can pay the rent, is valid?

Held:

The Supreme Court ruled that the compromise agreement is invalid. Art. 1182 of the Civil Code
provides, that when the fulfillment of the conditions depends upon the sole will of the debtor
(lessee), the conditional obligation is void. The conditional obligation in the case is the disputed
stipulation in which “it allows the defendant to stay on the premises as long as he can pay the rent ”.
According to the SC, it is a purely potestative condition because it leaves the effectivity and
enjoyment of leasehold rights to the sole and exclusive will of the lessee to pay the rent. In the case of
Encarnacion vs Baldomar, the SC ruled that contract of lease, which authorized the lessee to continue
occupying the premises as long as they paid the rents, is invalid. Because the lessor would never be
able to discontinue the said lease even if he wanted to do so.Thus the stipulation should be construed
that the contract of lessee is for definite period of3 years, and the renewal of the contract will only
take effect if both of the parties decided to renew the lease.Therefore the SC reversed the decision of
the CA, and ordered the private respondent to immediately vacate the leased premises.

7. Pingol v. CA

Facts:

Petitioner Vicente Pingol is the owner of Lot No. 3223 of the Cadastral Survey of Caloocan... he
executed a "DEED OF ABSOLUTE SALE OF ONE-HALF (1/2) [OF] AN UNDIVIDED PORTION OF A PARCEL
OF LAND" in favor of Francisco N. Donasco which was acknowledged before a notary public. Pursuant
to the contract, Donasco paid P2,000.00 to Pingol. The one-half portion, designated as Lot No. 3223-
A, was then segregated from the mother lot, and the parties prepared a subdivision plan... which was
approved by the Land Registration Commission. Francisco Donasco immediately took possession of
the subject lot and constructed a house thereon. He started paying the monthly installments but was
able to pay only up to 1972.
Francisco Donasco died. At the time of his demise, he had paid P8,369.00, plus the P2,000.00 advance
payment, leaving a balance of P10,161.00 on the contract price.
Lot No. 3223-A remained in the possession... of Donasco's heirs.

the heirs of Francisco Donasco filed an action for "Specific Performance and Damages, with Prayer for
Writ of Preliminary Injunction" against the spouses Vicente and Lourdes Pingol (petitioners herein)
before the RTC

In their complaint,[4] the plaintiffs (private respondents herein) averred that after the death of their
father, they offered to pay the balance of P10,161.00 plus the stipulated legal rate... of interest
thereon to Vicente Pingol but the latter rebuffed their offer and has "been demanding for a bigger
and unreasonable amount, in complete variance to what is lawfully due and payable."

They further alleged that the defendants were committing "acts of forcible entry and encroachment"
upon their land and asked that a writ of preliminary injunction be issued to... restrain the defendants
from the acts complained of.

In their answer with counterclaim,[6] defendants... set up the following... special and affirmative
defenses: (1) the plaintiffs' cause of action had already prescribed; (2) the deed of sale embodied a
conditional contract of sale "as the consideration is to be paid on installment basis within a period of
six years beginning January, 1970"; (3) the... subdivision plan was prepared on the assumption that
Francisco Donasco would be able to comply with his obligation; (4) when Francisco died, he had not
fully paid the total consideration agreed upon; and (5) considering the breach by Francisco of his
contractual obligation way... back in 1976, the sale was deemed to have been cancelled and the
continuous occupancy of Francisco after 1976 and by his heirs thereafter was by mere tolerance of
Vicente Pingol.

In their Reply and Answer to Counterclaim,[7] the plaintiffs pointed out that there is no provision in
the deed of sale for its cancellation in case of default in the payment of the monthly installments and
invoked Article 1592... of the New Civil Code.

the trial court rendered a decision[8] dismissing the complaint and ordering the plaintiffs to pay the
defendants P350.00 as reasonable monthly rental for the use of the premises from the filing of the...
complaint

It held that: (1) the deed of absolute sale in question, marked and offered in evidence as Exhibit "A," is
a contract to sell, not a contract... of sale, since Vicente Pingol had no intention to part with the
ownership of the lot unless the full amount of the agreed price had been paid; (2) the contract was
deemed to have been cancelled from the moment the late father of the plaintiffs... defaulted in the
payment of the monthly installments; (3) title and ownership over the lot did not pass to Francisco
Donasco and his heirs since the contract to sell was never consummated; and (5) assuming, arguendo,
that the plaintiffs have a cause of action for specific... performance, such action had already
prescribed since the complaint was filed only on 19 October 1988 or more than ten years from the
time that they could have lawfully demanded performance.

The Court of Appeals... endered a decision[10] reversing the appealed decision

The Court of Appeals ruled that the deed of sale in question reveals the clear intention of Vicente
Pingol to part with the ownership of the one-half portion of the land by way of an absolute sale; that
the failure to fully pay the agreed price was not a ground for the... cancellation of the sale; and that
the plaintiffs' action is imprescriptible since it is akin to an action to quiet title to property in one's
possession.

Issues:

whether Exhibit "A" embodies a contract of sale or a contract to sell and the action of the petitioners
is not barred by the statute of limitations.
Ruling:

The distinction between the two 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.

A perusal of Exhibit "A" leads to no other conclusion than that it embodies a contract of sale.

the vendor, petitioner Vicente Pingol, had that clear intention was further evidenced by his failure to
reserve his... title thereto until the full payment of the price.

Furthermore, as found by the Court of Appeals, the acts of the parties, contemporaneous and
subsequent to the contract, clearly show that an absolute deed of sale was intended by the parties
and not a contract to sell

The contract here being one of absolute sale, the ownership of the subject lot was transferred to the
buyer upon the actual and constructive delivery thereof.

The delivery of the object of the contract divested the vendor of the ownership over the same and he
cannot recover the title unless the contract is resolved or rescinded pursuant to Article 1592 of the
New Civil Code

Both the trial court and the Court of Appeals did not find that a notarial or judicial rescission of the
contract had been made.

We disagree.

Although the private respondents' complaint before the trial court was denominated as one for
specific performance, it is in effect an action to quiet title.

That a cloud has been cast on the title of the private respondents is indubitable.

Despite the fact that the title had been transferred to them by the execution of the deed of sale and
the delivery of the object of the contract, the petitioners adamantly refused to accept the... tender of
payment by the private respondents and steadfastly insisted that their obligation to transfer title had
been rendered ineffective.

A vendee in an oral contract to convey land who had made part payment thereof... is entitled to bring
suit to clear his title against the vendor who had refused to transfer the title to him.

It is... not necessary that the vendee has an absolute title, an equitable title being sufficient to clothe
him with personality to bring an action to quiet title.

Prescription thus cannot be invoked against the private respondents for it is aphoristic that an action
to quiet title to property in one's possession is imprescriptible.

The rationale for this rule has... been aptly stated thus:

"The owner of real property who is in possession thereof may wait until his possession is invaded or
his title is attacked before taking steps to vindicate his right.
Possession is a continuing right as is the right to defend such possession. So it has been determined
that an owner of real property in possession has a continuing right to invoke a court of equity to
remove a cloud that is a... continuing menace to his title. Such a menace is compared to a continuing
nuisance or trespass which is treated as successive nuisances or trespasses, not barred by statute
until continued without interruption for a length of time sufficient to affect a change of title as a...
matter of law."

WHEREFORE, except as above modified, the Decision appealed from is hereby AFFIRMED.

8. Ace Foods Inc. V. Micro Pacific Tech. Co.

FACTS:

ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in
wholesale and retail bases, while MTCL is one engaged in the supply of computer hardware and
equipment. MTCL sent a letter-proposal for the delivery and sale of the subject products to be
installed at various offices of ACE Foods. Aside from the itemization of the products offered for sale.

ACE Foods accepted MTCL’s proposal and accordingly issued Purchase Order No. 100023 (Purchase
Order) for the subject products amounting to P646,464.00 (purchase price). MTCL delivered the said
products to ACE Foods. The fine print of the invoice states, inter alia, that "[t]itle to sold property is
reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions
of above and payment of the price" (title reservation stipulation). After delivery, the subject products
were then installed and configured in ACE Foods’s premises. MTCL’s demands against ACE Foods to
pay the purchase price, however, remained unheeded. Instead of paying the purchase price, ACE
Foods sent MTCL a Letter stating that it "ha[s] been returning the [subject products] to [MTCL] thru
[its] sales representative Mr. Mark Anteola who has agreed to pull out the said [products] but had
failed to do so up to now."

ACE Foods lodged a Complaint against MTCL before the RTC, praying that the latter pull out from its
premises the subject products since MTCL breached its "after delivery services" obligations to it,
particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify
the purchase of the subject products; and (c) train ACE Foods’s technicians on how to use and
maintain the subject products. ACE Foods likewise claimed that the subject products MTCL delivered
are defective and not working.

RTC rendered Decision in favor of ACE Foods. CA reversed and set aside the RTC’s ruling.

ISSUE:

Whether ACE Foods should pay MTCL the purchase price for the subject products. YES.

Held:

Parties agreed to a contract of sale. A contract of sale had been perfected at the precise moment ACE
Foods accepted the latter’s proposal to sell the subject products in consideration of the purchase
price of P646,464.00. From that point in time, the reciprocal obligations of the parties (to deliver and
to pay PP respectively) already arose and consequently may be demanded.

At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of
ownership of the subject products as reflected in the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the transaction from a contract of sale into a contract to sell.
Records are bereft of any showing that the said stipulation novated the contract of sale between the
parties which, to repeat, already existed at the precise moment ACE Foods accepted MTCL’s proposal.
To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is extinctive
when an old obligation is terminated by the creation of a new obligation that takes the place of the
former; it is merely modificatory when the old obligation subsists to the extent it remains compatible
with the amendatory agreement. In either case, however, novation is never presumed, and the
animus novandi, whether totally or partially, must appear by express agreement of the parties, or by
their acts that are too clear and unequivocal to be mistaken.

In the present case, it has not been shown that the title reservation stipulation appearing in the
Invoice Receipt had been included or had subsequently modified or superseded the original
agreement of the parties. The fact that the Invoice Receipt was signed by a representative of ACE
Foods does not, by and of itself, prove animus novandi since: (a) it was not shown that the signatory
was authorized by ACE Foods (the actual party to the transaction) to novate the original agreement;
(b) the signature only proves that the Invoice Receipt was received by a representative of ACE Foods
to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the
consummation stage of the contract and not its perfection, and have been even treated as documents
which are not actionable per se, although they may prove sufficient delivery. Thus, absent any clear
indication that the title reservation stipulation was actually agreed upon, the Court must deem the
same to be a mere unilateral imposition on the part of MTCL which has no effect on the nature of the
parties’ original agreement as a contract of sale. Perforce, the obligations arising thereto, among
others, ACE Foods’s obligation to pay the purchase price as well as to accept the delivery of the goods,
remain enforceable and subsisting.

Petition is denied. CA decision is affirmed.

9. Dao Heng Bank Vs Sps Lilia And Reynaldo Laigo

Facts:

Spouses Laigo obtained a loan from Dao Heng Bank Inc. in the total amount of P11 million. As a
security real estate mortgages were executed covering 2 parcels of land. As of 2000, the Laigos failed
to pay on time so as a remedy, they verbally agreed to cede one of the mortgaged property to Dao
Heng by way of dacion en pago (dationinpayment).

In August2000,Dao Heng, thru a letter informed the Laigos that there total obligation amounts to
P10.8million. The Laigos took no action so their property was foreclosed and sold at public
auction.The spouses filed for a complaint praying for the annulment of the foreclosure of the
properties subject of the real estate mortgages and for them to be allowed "to deliver by way of
‘dacion en pago' one of the mortgaged properties as full payment of their mortgaged obligation".

They now contend that the foreclosure was illegal since there was a verbal agreement for dacion en
pago. Dao Heng, however, contends that the dacion en pago falls under the statute of fraud therefore
it is not enforceable.The Laigo’s counter this by stating that the dacion is an exception since it is no
longer executory but had undergone partial performance when the titles to the property were
delivered to Dao Heng.

Issues:

1. Whethertheobligationofthespouseshasbeenextinguished through dacion en pago?

2. Is the foreclosure valid?

Held:

1. No. There is no showing that the dacion en pago has been accepted by both parties. Since there is
no mutual consent, there is no dacion Dacion en pago as a mode of extinguishing an existing
obligation partakes of the nature of sale whereby property is alienated to the creditor in satisfaction
of a debt in money.

It is an objective novation of the obligation, hence, common consent of the parties is required in order
to extinguish the obligation .Being likened to that of a contract of sale, dacion en pago is governed by
the law on sales. The partial execution of a contract of sale takes the transaction out of the provisions
of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object
and cause of the obligation concur and are clearly established to be present. In the case at bar, the
titles to the property were delivered as a security for the mortgage.

2. The foreclosure is valid. It is the proper remedy for securing payment for a mortgage. The law
clearly provides that the debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be of the same value, or more valuable than that which is due (Article 1244,
New Civil Code). The obligee is entitled to demand fulfillment of the obligation or performance as
stipulated. The power to decide whether to foreclose on the mortgage is the sole prerogative of the
mortgagee.

10. FILINVEST vs. CA

Facts:

On Aug 26, 1978 FILINVEST awarde to the defendant PACIFIC the development of the residential
subdivision consisting of two lands located in Payatas, QC. PACIFIC issued two surety bonds issued by
PHILAMGEN. PACIFIC failed to finish the contracted work, FILINVEST intends to take over the project
and hold defendant liable for damages.

On October 26, plaintiff submitted its claim against PHILAMGEN under its performance and guarantee
bond but PHILAMGEN refused to acknowledge its liability for the single reason that its principal,
defendant pacific, refused to acknowledge liability therefore. Defendant said that the failure to finish
the contracted work was due to the weather, and the grant of extension of the work is a waiver to
claim any damages. PHILAMGEN contends that the various amendments made on the principal
contract and the deviation in the implementation thereof which were resorted to by plaintiff and
PACIFIC w/o its consent have automatically released the latter from any liability. The tc dismissed the
complaint, basing on the commissioner report. CA affirmed.

Issue:

WON the liquidated damages agrees upon by the parties should be reduced.

Held:

Decision of CA AFFIRMED.

Ratio:

Art. 1226 in obligations with a penal clause, the penalty of shall substitute the indemnity for damages
and the payment of interests in case of non-compliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms
and conditions as they see fit, as long as they are not contrary to law. But the courts may equitably
reduce the penalty in two instances, first,if the principal obligation has been irregularly complied with
and second, when it is iniquitous or unconscionable.

11. PCI Leasing and Finance Inc. v Giraffe - X Creative Imaging Inc.

FACTS:

PCI Leasing and Giraffe entered into a Lease Agreement whereby PCI Leasing leased several
machineries for a rent of P116, 878. 21/month for 36 months and P181, 362/month for 36 months for
a total of P10, 736, 647.56. Giraffe paid the amount of P3, 120, 000 as guaranty deposit. However,
after 1 year, Giraffe defaulted in its monthly-rental payment obligations.
After a 3-month default, PCI demanded a formal pay-orsurrender-equipment type but the demand
went unheeded thus PCI instituted the instant case and prayed for the issuance for the writ of
replevin. The trial court issued a writ of replevin. Giraffe filed a motion to dismiss arguing that PCI was
barred from pursuing any other claim since the seizure of the 2 leased equipments because the
contract was in reality a lease with option to buy. The RTC granted the motion to dismiss ruling that it
was akin to a contract covered by art. 1485 hence can no longer pursue its claim. Hence the case at
bar.

ISSUE:

W/N the contract was covered by Art. 1485 and 1484 hence barred PCI from recovering?

HELD:

YES, A financial lease is one where a financing company would, in effect, initially purchase a mobile
equipment and turn around to lease it to a client who gets, in addition, an option to purchase the
property at the expiry of the lease period. In the case at bar, PCI acquired the office equipments for
their subsequent lease to Giraffe, with the latter undertaking to pay a monthly fixed rental for the
whole 36 months. Giraffe made a guaranty deposit. Their agreement was that in case Giraffe fails to
pay any rental due, PCI will have cumulative remedies, such as, to recover all rentals for the remaining
term of the lease and recover all amounts advanced for Giraffe’s account. When PCI demanded for
payment of the balance, it made a demand for either of the choices. Either to pay the balance hence
Giraffe can keep the equipment or surrender them if he cannot. The so-called monthly rentals were in
fact monthly amortizations of the price of the leased office equipment. The imperatives of equity,
the contractual stipulations and the actuations of the parties, the SC has treated a purported financial
lease as actually a sale of movable property on installments and prevented recovery. The 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. In choosing replevin, PCI waived its right to bring an action to
recover unpaid rentals.

12. Quiroga vs Parsons

Facts:

On Jan 24, 1911, plaintiff and the respondent entered into a contract making the latter an “agent” of
the former. The contract stipulates that Don Andres Quiroga, here in petitioner, grants exclusive
rights to sell his beds in the Visayan region to J. Parsons. The contract only stipulates that J.Parsons
should pay Quiroga within 6 months upon the delivery of beds.

Quiroga files a case against Parsons for allegedly violating the following stipulations: 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. With the exception of the
obligation on the part of the defendant to order the beds by the dozen and in no other manner, none
of the obligations imputed to the defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff 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. The whole question,
therefore, reduced itself to a determination as to whether the defendant, by reason of the contract
herein before transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

Issue:

Whether the contract is a contract of agency or of sale.

Held:

In order to classify a contract, due attention must be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to
furnish the defendant with the beds which the latter might order, at the price stipulated, and that the
defendant was to pay the price in the manner stipulated. Payment was to be made at the end of sixty
days, or before, at the plaintiff’s request, or in cash, if the defendant so preferred, and in these last
two cases an additional discount was to be allowed for prompt payment. 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 the part of the defendant, to pay their price. These features
exclude the legal conception of an agency or order to sell whereby the mandatory or agent received
the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from
the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue
of the contract between 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.

In respect to the defendant’s obligation to order by the dozen, the only one expressly imposed by the
contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his
right and cannot complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the
defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a
cause of action are not imposed upon the defendant, either by agreement or by law.

13. Engineering and Machinery Corporation v. CA

Facts:

Pursuant to a contract, petitioner undertook to install air conditioning system in private respondent’s
building. The building was later sold to the National Investment and Development Corporation which
took possession of it. Upon NIDC’s failure to comply with certain conditions, the sale was rescinded.
NIDC reported to respondent that there were certain defects in the air conditioning system.
Respondent filed a complaint against petitioner for non-compliance with the agreed plans and
specifications. Petitioner moved to dismiss the complaint on the ground of the 6-month prescription
of warranty against hidden defects. Private respondent averred that the contract was not of sale but
for a piece of work, the action for damages of which prescribes after 10 years.

Issue:

Is a contract for the fabrication and installation of a central air-conditioning system in a building, one
of "sale" or "for a piece of work"?

Held:

A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the
inquiry as to whether the thing transferred is one not in existence and which would never have
existed but for the order, of the person desiring it. In such case, the contract is one for a piece of
work, not a sale. On the other hand, if the thing subject of the contract would have existed and been
the subject of a sale to some other person even if the order had not been given, then the contract is
one of sale. The distinction between the two contracts depends on the intention of the parties. Thus,
if the parties intended that at some future date an object has to be delivered, without considering the
work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties
accepts the undertaking on the basis of some plan, taking into account the work he will employ
personally or through another, there is a contract for a piece of work.
Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business to
manufacture air-conditioning systems to be sold "off-the-shelf." Its business and particular field of
expertise is the fabrication and installation of such systems as ordered by customers and in
accordance with the particular plans and specifications provided by the customers. Naturally, the
price or compensation for the system manufactured and installed will depend greatly on the
particular plans and specifications agreed upon with the customers. The remedy against violations of
the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to
demand a proportionate reduction of the price (accion quanti manoris), with damages in either case.

While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a
redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that
said rule may be applied only in case of implied warranties; and where there is an express warranty in
the contract, as in the case at bench, the prescriptive period is the one specified in the express
warranty, and in the absence of such period, "the general rule on rescission of contract, which is four
years (Article 1389, Civil Code) shall apply". It would appear that this suit is barred by prescription
because the complaint was filed more than four years after the execution of the contract and the
completion of the air-conditioning system. However, a close scrutiny of the complaint filed in the trial
court reveals that the original action is not really for enforcement of the warranties against hidden
defects, but one for breach of the contract itself. The governing law is Article 1715. However,
inasmuch as this provision does not contain a specific prescriptive period, the general law on
prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that
actions "upon a written contract" prescribe in ten (10) years. Since the governing contract was
executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the
action has not prescribed. The mere fact that the private respondent accepted the work does not,
ipso facto, relieve the petitioner from liability for deviations from and violations of the written
contract, as the law gives him ten (10) years within which to file an action based on breach thereof.

14. Fule v. CA

Facts:

Gregorio Fule, a banker and a jeweller, offered to sell his parcel of land to Dr. Cruz in exchange for
P40,000 and a diamond earring owned by the latter. A deed of absolute sale was prepared by Atty.
Belarmino, and on the same day Fule went to the bank with Dichoso and Mendoza, and Dr. Cruz
arrived shortly thereafter. Dr. Cruz got the earrings from her safety deposit box and handed it to Fule
who, when asked if those were alright, nodded and took the earrings. Two hours after, Fule
complained that the earrings were fake. He files a complaint to declare the sale null and void on the
ground of fraud and deceit.

Issue:

Whether the sale should be nullified on the ground of fraud

Held:

A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is
the object of the contract and upon the price. Being consensual, a contract of sale has the force of law
between the contracting parties and they are expected to abide in good faith by their respective
contractual commitments. It is evident from the facts of the case that there was a meeting of the
minds between petitioner and Dr. Cruz. As such, they are bound by the contract unless there are
reasons or circumstances that warrant its nullification.
Contracts that are voidable or annullable, even though there may have been no damage to the
contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract;
and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud. The records, however, are bare of any evidence manifesting that private respondents
employed such insidious words or machinations to entice petitioner into entering the contract of
barter. It was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her
jewelry for the Tanay property.

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil
Code within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he
was satisfied with the same. By taking the jewelry outside the bank, petitioner executed an act which
was more consistent with his exercise of ownership over it. This gains credence when it is borne in
mind that he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his signature to
the contract of sale. That after two hours he later claimed that the jewelry was not the one he
intended in exchange for his Tanay property, could not sever the juridical tie that now bound him and
Dr. Cruz. The nature and value of the thing he had taken preclude its return after that supervening
period within which anything could have happened, not excluding the alteration of the jewelry or its
being switched with an inferior kind.

Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred
to Dr. Cruz and petitioner, respectively, upon the actual and constructive delivery thereof. Said
contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold
since there was no stipulation in the contract that title to the property sold has been reserved in the
seller until full payment of the price or that the vendor has the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period.

While it is true that the amount of P40,000.00 forming part of the consideration was still payable to
petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the
transfer of ownership and possession of the things exchanged considering the fact that their contract
is silent as to when it becomes due and demandable.