THE LAW ON SALES, AGENCY AND CREDIT TRANSACTIONS CASES WITH ANSWERS

Submitted by: Airene B. Geraldino

1. Natoy, minor, bought a pair of imported shoes worth P5, 000.00 from a department store. Can
Kanor, father, cancel the sale on the ground of minority of Natoy?

It depends, Article 1489, second paragraph entails that contracts entered into by a minor and
other incapacitated persons (e.g., insane or demented persons, deaf-mutes who do not know how to
write) are voidable. However, where necessaries are sold and delivered to him, (without the
intervention of the parent or guardian), he must pay reasonable price therefore.

2. Juan and Juana are husband and wife. After selling his property to Juana, Juan borrowed a
large amount of money from Carlota. It appears that Juan is now bankrupt. Has Carlota the
right to question the sale of Juan’s property to Juana in order to have said property answer for
Juan’s indebtedness to him?

No, because certain transfers between husband and wife are prohibited under the Article 1490,
such prohibition can be taken advantage of only by persons who bear such relation to the parties
making the transfer or to the property itself that such transfer interferes with their rights or interests.
Thus, the heirs of either spouse, as well as creditors at the time of the transfer, can attack the validity of
the sale but not creditors (like Carlota) who became such only after the transaction. In addition, the
government can question the validity or legitimacy of sales subject to tax between husband and wife
whenever necessary to prevent tax evasion.

3. S agreed to deliver to A, monthly for a period of 5 years, a specified amount of red juice and
orange juice. S failed to make delivery up to certain date and flatly refused to make any delivery
under the contract. May A be able to sue for breach of the entire contract?

Yes. As a general rule, a contract to do several things at several times is divisible in nature, so
as to entitle the injured party to damages from time to time for breaches as they occur. But an
unqualified and positive refusal to perform a contract though the performance thereof is not yet due
may be treated as a complete breach entitling and requiring the injured party to recover all his damages
in one suit.

4. Y granted B the exclusive right to sell hi T-shirts in Calamba, Laguna. The price for his
merchandise is payable within 60 days from delivery, and promising B a commission of 30% on
all sales. After the delivery of the merchandise to B, before he could sell any of them, B’s store in
Calamba, Laguna was completely burned together with all Y’s T-shirts without his fault. Must B
pay for his lost T-shirts? Why?

Yes. The contract between Y and B is a sale, not an agency to sell because the price is payable
by B upon 60 days from delivery even if B is unable to resell it. If B were an agent, he is not bound to
pay the price if he is unable to resell it. As a buyer, ownership passed to B upon delivery, and under
Art. 1504 of the Civil Code, the thing perishes for the owner. Hence, B must still pay the price.
5. On February 14, 2018, Paeng sold a parcel of registered land to Guipo. On February 28, 2018, he
sold the same land to Kokoy. Who has a better right if:
a. The first sale is registered ahead by the second sale, with knowledge of the latter.
Why?
b. The second sale is registered ahead of the first sale, with knowledge of the latter.
Why?
(a) The first buyer has the better right if his sale was first to be registered, even though the first buyer
knew the second sale. The fact that he knew of the second sale at the time of his registration does
not make him as acting in bad faith because the sale to him was ahead in time, hence, has a priority
in right. What creates bad faith in the case of double sale of land is knowledge of a previous sale.
(b) The first buyer is still to be preferred, where the second sale is registered ahead of the first sale but
with knowledge of the latter. This is because the second buyer, who at the time he registered his
sale knew that the property had already been sold to someone else, acted in bad faith. (Art. 1544)

6. X owner of a parcel of land, sold it to Y. but the deed of sale was not registered. One year later, X
sold the parcel again to Z who succeeded to register the deed and to obtain a transfer a certificate
of title over the property in his own name. Who has a better right over the parcel of land, Y or Z?
Explain the legal basis of your answer.

It depends on whether or not Z is an innocent purchaser for value. Under the Torrens system, a
deed or instrument operated only as a contract between the parties and as evidence of authority to the
register of deeds to make the registration. It is the registration of the deed or the instrument that is the
operative act that conveys or affects the land. In cases of double sale of title land, it is a well- settled
rule that the buyer who first registers the sale in good faith acquires a better right to the land. (Art. 1544
of the civil code).
Persons dealing with property covered by Torrens title are not required to go beyond what
appears on its face. Thus, absent any showing that Z knew about or ought to have known the prior sale
of the land to Y or that he acted in bad faith and being first to register the sale, Z acquired a good and a
clean title to property as against Y.

7. I sold to You a ring. At the time of the sale, Me is not the owner of the goods. May there be a
valid sale to You?

Yes, because In Art. 1459, it was stated there that the things or goods must be within the
commerce of men, which means in concerning about the object or subject matter, aside from being
determinate, the law requires that it must be licit or lawful, i.e. it should not be contrary to law, morals,
good customs, public order or public policy and should not be impossible. Therefore, there is a valid
sale to You as long as I acted in good faith and must be able to transfer ownership where the thing is
lawful. It is a well-known principle of law that nobody can disposed of that thing that which he does
not have.

8. The property sold by I is portion of a parcel land without indicating the specific portion thereof.
May there be a valid sale to You?

Yes, there is a valid sale to You because I as a co-owner of a portion of parcel of land, can
dispose of his share even without the consent of the co-owner/s. The effect of the alienation shall be
limited to the portion which may be allotted to the vendor in the division of the property upon
termination of the co-ownership. In Article 1463, the sole owner of a thing may sell an undivided
interest therein.
 9. Ara grants Bea the right to sell the former’s appliances in the province. Ara is to furnish Bea
with the appliances which the latter may order. The price agreed upon is the invoice price of the
appliances in Boracay with a discount of 30%. Payment to be made at the end of 30 days. Is the
contract an agency to sell?

No. Here, there is an obligation on the part of Ara to supply the appliances and on
part of Bea to pay the price, on receiving them without any other consideration than the
discount of 30% and regardless of whether Bea sells the appliances or not.

10. W, a fisherman, and E, a manufacturer and fish dealer, entered into an agreement whereby W
was to deliver fish worth P5, 000 to E who was to give 1,000 can of sardines worth also P5, 000. Is
this a contact of sale or barter?

A contract of barter. Here, one of the parties bind himself to give one thing in
consideration of the other’s to give another thing.

11. Suppose in the same problem above, E had no sardines at the stipulated date of delivery and he
paid W P5, 000 instead of giving sardines. Did the contract become one of sale? Why?

No. The reason is that the payment is in consideration of the value of sardines, and
not of the of the fish. The manifest intention of the parties was to enter into a contract of
barter.

.
12. Romeo sold his mobile phone to Juliet. Unknown to both of them, the mobile phone has been
totally destroyed before they agreed on the sale. Is there is still a valid contract of sale if the
object has been already destroyed?

There is no valid contract of sale for lack of object. Romeo, as owner, bears the loss
and Juliet does not have to pay for the price. If the mobile phone is only partially destroyed,
there are still remains of the object. However, since it is not of the character or in the
condition contemplated by the parties, the buyer may withdraw from the contract or demand
the delivery of the mobile phone, paying its proportionate price.

13. Jonas sold to Rose 5 kilos of mangoes at P120.00 per kilo or of total price of P600.00, delivery to
be made at the place of Rose. If Jonas only delivers 2 kilos, can Rose refuse to accept them? What
will happen if she accepts it?

Yes, Rose can refuse to accept them. If she accepts them knowing that Jonas is not going to
perform the contract in full, she is liable to pay at the rate agreed upon for the 2 kilos for
P240.00. But, if Rose was not aware that full delivery would not be made, she would only
liable for the fair value of the mangoes at the time of delivery even if it should be less than the
contract price.

14. Jomel sold to Kelly a branded shoes payable at P3, 000 upon delivery and the balance of P3, 000
within 30 days. Kelly failed to take delivery of the branded shoes and pay the purchase price.
Jomel was forced to sell the same to Jenny for only P2, 000. Is Kelly liable for the difference of
P1, 000?

Yes. In a contract of sale which is executor as to both parties, the vendor is entitled to
resell the goods if the purchaser fails to take delivery and pay the purchase price. If he is
obliged to sell for less the contract price, he holds the buyer for the difference; if he sells for
as much or more than the contact price, the breach of contract by the original buyer is
damnum absque injuria (damage without injury).
15. Jejemon sold his chickens to Kahlug for P5, 000. No date or condition was stipulated for the
delivery of the chickens. While still in the possession of Jejemon, the chickens produced eggs.
Who has a right to the eggs?

Kahlug is entitled to the eggs which were born after the perfection of the contract.
This holds true even if the delivery is subject to a suspensive period or a suspensive condition
if Kahlug has paid the purchase price.

16. Mary sells to Jane an motorcycle for P65, 000 telling that it is a 2019 model and that is worth
about P80, 000. Jane sees the motorcycle and after a test run expresses satisfaction over its
condition. The motorcycle is really 2013 model and is worth only P50, 000. Is Jane has a right of
action for breach of warranty?

Jane has no right of action for breach of warranty because the inducing cause of the
purchase is not the erroneous statement as to its model and value but Jane’s reliance on its
appearance and demonstrated condition. But the statement that the motorcycle is in excellent
running condition constitutes a warranty if such is not the fact.

17. Lesley sold to Bruno 20 boxes of oranges for P20, 000. Upon examination, it was discovered that
oranges equivalent to 5 boxes were rotten. Can Bruno set up the breach of Lesley of his
warranty?

In an action by Lesley against Bruno for the purchase price, Yes, Bruno can set up
the breach of Lesley of his warranty by way of recoupment in diminution of the price of P20,
000. By means of recoupment, the seller’s damages are reduced to an amount which will
compensate him for the value of what has been given. In other words, from the purchase price
of P20, 000 shall be deducted the amount value of the 5 boxes of oranges. So Bruno is liable
only for P5, 000, the value of the orange received.

18. Kara sells her dress for P250.00 on sale or return within 10 days after delivery. On the 5th day
after delivery, the dress was lost trough fortuitous event. Who bears the lost?

No one, because the loss was due to a fortuitous event.

19. White obtains a loan of P500, 000 from Black payable on May 03, 2020. As security for the
payment of his loan, White constituted a mortgage on his residential house and lot in Black’s
favor. Grey, a good friend of White, guaranteed and obligated himself to pay Black, in case
White fails to pay his loan at maturity. If White sells his residential house and lot to Red, can
Black foreclose the real estate mortgaged?

Yes. Black can foreclose the real estate mortgage because real estate mortgage
creates a real right that attaches to the property.

20. Mio Dah was the owner of the subject lot. He executed in favor of Gerald Kah a deed of absolute
sale under which the purchase price will be paid in installments. Gerald immediately took
possession of the subject lot and constructed a house thereon. He started paying the monthly
installments but was able to pay only for up to two years. When he died, the subject house and lot
remained in the possession of his heirs. Now, the heirs filed an action for Specific Performance
against spouses Dah, and prayed that the defendants be ordered to accept the payment of the
balance for the agreed price on the lot. In their answer, spouses Dah argued that the deed of sale
embodied a conditional contract of sale as the consideration is to be paid on installment basis,
and considering the breach by Gerald of his contractual obligation, the sale was deemed to have
been cancelled. Does the parties entered into a contract to sell?
 No. The plain and clear tenor of the deed of sale and Dah’s failure to reserve his title
lead to the conclusion that the deed embodies a contract of sale. A deed of sale is absolute in
nature although denominated as a "Deed of Conditional Sale" where there is no stipulation in
the deed that title to the property sold is reserved in the seller until the full payment of the
price, nor is there a stipulation giving the vendor the right to unilaterally resolve the contract
the moment the buyer fails to pay within a fixed period. The deed of sale in this case contains
neither stipulation. In addition, 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 constructive delivery of the subject lot was made upon the execution of the deed of sale
while the actual delivery was affected when the heirs took possession of and constructed a
house.

21. Kaluh Kohan, a son of the spouses Kohan borrowed from his mother, Magdalena, the certificates
of title to several parcels of land registered under the name of the spouses. Later, when Dadi
Kohan died, the heirs of the deceased wished to have all the properties of the spouses collated. So,
Magdalena asked Kaluh for the return of the titles. However, Kaluh manifested that the said
titles no longer exist. Instead, he showed Magdalena Transfer Certificate of Title registered in his
and his brother Budoy’s names. The said title was brought about by a deed of sale by which the
spouses Kohan purportedly sold the parcels of land to their two sons. When confronted by his
mother of the fraud, Budoy denied any participation, and reconvened the portion of the subject
lot conveyed to him in the void deed of sale. Kaluh, on the other hand, refused to do the same.
Consequently, the heirs filed the present action for annulment of title. Is the contract of sale is
merely voidable on the ground of fraud?

No. The alleged contract of sale is void for total absence of a valid cause or
consideration. A closer scrutiny of the records of the case readily supports a finding that fraud
and mistake are not the only vices present in the assailed contract of sale. Magdalena never
knew of the existence of the questioned deed of sale, and came to know of the supposed sale
only after Kaluh showed to her the controversial deed of sale and certificate of title. More than
that, Kaluh's brother Budoy, who was allegedly his co-vendee in the transaction, disclaimed
any knowledge or participation therein. Inevitably, no consideration was ever paid at all by
Kaluh. Applying the provisions of Articles 1350, 1352, and 1409 of the New Civil Code in
relation to the indispensable requisite of a valid cause or consideration in any contract, and
what constitutes a void or inexistent contract, it is undisputed that deed of sale is void ab initio
or inexistent, not merely voidable.

22. The subject of this case involves a motor vehicle originally owned by Goodyear Philippines, Inc.
It had since been in the service of Goodyear until April 1986 when it was hijacked. It was later
on recovered. The vehicle was used by Goodyear until 1996, when it sold it to Anthony Sy, who in
turn sold it to Jose L. Lee. But Lee filed an action for rescission of contract with damages against
Sy because he could not register the vehicle in his name due to the certification from the PNP
Regional Traffic Management Office that it was a stolen vehicle and the alarm covering the same
was not lifted. Instead, the PNP impounded the vehicle and charged Lee criminally. Does
Goodyear breach any warranty in the absence of proof that at the time it sold the subject vehicle
to Sy, it was not the owner thereof?

No. In a contract of sale, the vendor is bound to transfer the ownership of and to
deliver the thing that is the object of the sale. Moreover, the implied warranties are as follows:
first, the vendor has a right to sell the thing at the time that its ownership is to pass to the
vendee, as a result of which the latter shall from then on have and enjoy the legal and peaceful
possession of the thing; and, second, the thing shall be free from any charge or encumbrance
not declared or known to the vendee. Upon the execution of the Deed of Sale, Goodyear did
transfer ownership of and deliver the vehicle to Sy. No other owner or possessor of the vehicle
had been alleged, and the ownership and possession rights of Goodyear over it had never been
contested. The Deed of Sale showed that Goodyear was the absolute owner. Therefore, at the
time that ownership passed to Sy, Goodyear alone had the right to sell the vehicle.
 Gratia argumenti that there was a breach of the implied warranty against hidden
encumbrances, notice of the breach was not given to Goodyear within a reasonable time.
Article 1586 of the Civil Code requires that notice be given after the breach, of which Sy
ought to have known. In his Third-party Complaint against Goodyear, there was no allegation
at all that Sy had given Goodyear the requisite notice. More important, an action for damages
for a breach of implied warranties must be brought within six months from the delivery of the
thing sold. (GOODYEAR PHILIPPINES, INC. v. ANTHONY SY AND JOSE L. LEE G.R. No.
154554, November 09, 2005, J. Panganiban)

23. Having discovered that part of her ancestral house was erected on an adjoining lot of 59 square
meters, Julia wanted to exercise her right of pre-emption but the lot owner asked for the
exorbitant sum of P9, 000. Later, the 59-square meter lot was sold to another adjoining owner for
only P3, 000. Who has a better right to the lot, Julia, or the other adjoining owner?

Julia, because her intended use of the land appears best justified. Her house was
occupying the lot through no fault on her part. (Legazpi vs. Court of Appeals, 69 SCRA 360.)

24. Maymay and Edward entered into a contract whereby Maymay agreed to sell her Honda Jazz
car to Edward for P500, 000. Upon the perfection of the contract, Edward advanced the entire
purchase price of P500, 000 to Maymay. It was, however, stipulated that the Honda Jazz car shall
be delivered to Edward at the end of April 2019, after his graduation. Unfortunately, before the
arrival of that date, the car was struck by lightning ads was thus, completely destroyed. Can
Edward now recover the P500, 000 he had advanced to Maymay?

Yes, since the obligation of Maymay to deliver the car is extinguished, then the
obligation of Edward to pay the price is also extinguished, and in conformity with the
principle of res perit domino.

25. Rose sold to Marie her bird where the bird has a disease. Is the contract of sale is valid or void?

According to Article 1575, sale of animals suffering from contagious diseases shall be void.

26. Daniel sold his piano to Katherine for P20, 000 to be delivered on July 12, 2018. Katherine does
not accept the delivery or pay the price without lawful cause. What is the remedy of Daniel?

Daniel may elect to enforce compliance or to rescind the contract with the right to
damages in either case.

27. Jade. A farmer, found a ring which he sold to Zeki. Honestly believing and representing to Zeki
that it was a diamond ring. It turned out the ring was ordinary glass. Is Jade liable to of a crime
or legal violation?

No, because Jade merely expressed an opinion. Since the misrepresentation was
made in good faith, it is considered a mere error or mistake.

28. Loleng sells a parcel of land to Susan. Subsequently, Annabelle files an action for the recovery of
possession claiming that she is the owner of land. At the instance of Susan, Susan was summoned
to defend her title. The court renders a final judgement declaring that Annabelle has a better
right. Accordingly, Susan is evicted. What is the liability of Loleng to Susan?

Loleng is liable to Susan for a failure to comply his warranty against eviction. The
judgement is based on a right of a third person prior to the sale.

29. Edison sold to Stephanie his land worth P 800, 000 for only P 500,000. Is the contract of sale valid
or void?
 The contract of sale is valid although the price is gross inadequate.

30. Y sold to X a parcel of land for the lump of P 500, 000. The contract states that the area is 500
square meter. Subsequently, it was ascertain that the area included within the boundaries is
really 600 square meters. What is the obligation of Y to X?

Y is bound to deliver all the 600 square meters which are included within said boundaries
without increase in price.

31. Neneng a buyer entered into a contract with Nonoy for the purchase of certain machinery. The
arrival of goods to be shipped from Japan is made a condition of the bargain, there being no
promise by Nonoy that the goods will arrive. Is Nonoy liable for a breach of contract?

No, because he did not promise the goods will arrive.

32. Daphne sold to Andrea a specific blender for P500.00. Daphne is bound to deliver the
refrigerator until payment by Andrea neither is Andrea required paying P500.00 until delivery
of Daphne. Daphne did not perform her duty. He is guilty of what?

Daphne is guilty of delay because she does not perform her obligation.

33. Jenny sold her TV to Mae for P2, 000 to be paid as follows: P500.00 upon delivery of the TV
and the balance at the rate of P500.00 every week thereafter. Before the payment of the
remaining balance of P1, 000, the TV was burned when there was big fire in a subdivision
where Mae’s house was situated. The said fire was without the fault of Mae or Jenny. Is Mae
obligated to pay the balanced?

No, because the subject matter was lost without Mae’s fault.

34. B obliged himself to deliver a certain thing to Z. upon delivery, Z would pay a sum of money to
B. Is that a contract of sale?

Not necessarily. Even if there is an obligation to deliver, if there is no obligation to

transfer ownership, it will not be a contract of sale. It may be a contract of lease.

35. In a contract of sale, what is the effect if one of the contracting parties cannot determine the price
of a certain goods?

Pay for reasonable price if he is delay plus damages.

36. S offers to buy Y’s property under the following terms and conditions: P1 million purchase price,
10% option money, the balanced payable in cash upon the clearance of the property of all illegal
occupants. The option money was promptly paid and Y cleared the property of all illegal
occupants in no time at all. However, when S tendered the balanced and asked Y for the deed of
absolute sale, S suddenly had a change of heart, claiming that the deal is disadvantageous to her
as she has found out that the property can fetch P3 million. S seeks specific performance but Y
contends that she has merely given S an option bought and nothing more and offers to return the
option money which S refuses to accept. Will S action for specific performance prosper?

Yes. S action for specific performance against Y will prosper. In an option contract,
there should be a separate and distinct consideration which is not part of purchase price. In the
case of bar, what was in entered by the parties is a contract of sale in which Y will deliver the
determinate thing and transfer ownership to S after the latter will give 10% of the purchase
 price as down payment and subsequently clear the property from illegal occupants. This
condition were fulfilled thus a perfected contract of sale was already made by parties.

37. Based from the problem above, what was paid by S is earnest money and not option money?

In a perfected contract of sale, the other party may seek compliance by the other,
because of their reciprocal obligations. Specific performance is a valid remedy in this case.

38. May S justify her refusal to proceed with the sale by the fact by the deal was financially
disadvantageous to her?

No. S has no valid ground to back out from the perfected contract of sale if her
contention is that the deal was financially disadvantageous to her. Article 19 of the new civil
code on human relations states that every person in the exercise of his rights and in the
performance of his duties shall act with equity, justice, and good faith. In the case at bar, S
cannot whimsically withdraw the contract without the consent of the buyer since there was
already an agreement between them as to the sale of the property.

39. Jasmine sold to Cathy a parcel of land. There was no express stipulation reserving to Cathy the
right to repurchase. Does the land subject to redemption?

No, the land is not subject to redemption as the sale is an absolute and unconditional sale.

40. Blythe owes Catherine P30, 000 with Daniel as guarantor. Catherine assigns her credit to Marky
with notice given to Blythe. Blythe fails to pay Marky. Can the latter may enforced?

The latter may enforced the guaranty of Daniel unless the credit was transferred with
express stipulation that Daniel shall be released from his obligation.

41. C went to Motor Trade Inc., to buy motor. After he was shown motor of different models and
makes, he choose a particular motor. C intended to enter in the motor race but this fact was not
known to the seller. If the motor does not run as fast as C had expected, does the Motor Trade
Inc., liable to it?

No because C relied upon his own judgement in buying a motor.

42. Dana sold to Mitos a house and lot for P 2.5 million payable one month after the execution of the
deed of absolute sale. It was expressly stipulated in the deed of absolute sale that the sale would
ipso facto be of no effect upon the failure of Mitos to pay as agreed. Mitos failed to pay on
maturity and Dana sued to declare the contract without force and effect. If Mitos tendered
payment before the action was filed by Dana, but subsequent to the stipulated date of payment,
what situation is not applicable?

The action of Dana will not prosper; even with the express agreement with the
contract will be automatically rescinded in case there is failure to pay the price, because Dana
should have made a demand either trough a judicial or notarial act.

43. Jane owns a house and lot which was leased to Lizell. Lizell was given the right of first refusal.
When Jane decided to sell the house and lot to Lizell in the amount of P 5 million, Lizell rejected
said purchase price but rather offered the house and lot for P4.5 million. Jane later on sold the
house and lot to Judy for P5 million. Can Lizell compel Jane to cancel the sale with Judy and sell
house to her?
 No. Lizell cannot compel Jane to cancel the sale with Judy and sell the house to her.
In a right of first refusal, the optionee is merely given the first priority to decide whether to
purchase the property or not. It is merely a privilege granted to the optionee by the optioner to
be the first to make the acceptance of the offer to the optioner in case the latter would decide
to sell the property. Once the offer is rejected, the optioner may now offer the property to
others.
In this case, Lizell has already rejected the offer made by Jane to her. Instead, she
made a counter-offer to Judy. Thus, there was no showing that there was mutual agreement
between the parties. There was no acceptance made to Lizell. Judy may now offer the property
to others.

44. The spouses Rosario purchased a truck from Car merchants, Inc., and made a down payment
therefore. Then, they obtained from PCI a loan secured by a chattel mortgage over the truck.
Later, the spouses Rosario failed to pay the amortizations on their loan. Thus, PCI filed a
Complaint against the spouses for "Sum of Money with Damages with a Prayer for a Writ of
Replevin." The RTC issued an Order for the issuance of a writ of replevin. On the other hand,
the spouses alleged that the chattel mortgage covering the truck was in effect a contract of sale of
personal property, payable in installments to be governed by Article 1484 of the Civil Code.
They further alleged that by securing a writ of replevin from the RTC, PCI Leasing had opted to
foreclose the chattel mortgage under Article 1484 of the New Civil Code; thus, it was barred
from suing for the unpaid balance of the purchase price of the vehicle. Does securing a writ of
replevin is equivalent to foreclosing the chattel mortgage which thus bars further collection of the
balance of the purchase price?

NO. At the outset, it must be noted that Article 1484 of the New Civil Code does not
apply in this case since the contract is a loan, and no assignment of credit has been made by
the original seller of the truck. Assuming however that Article 1484 of the New Civil Code is
applicable, PCI is not proscribed from suing the spouses for their unpaid balance. The fact of
the matter is that PCI did not foreclose the chattel mortgage, but opted to sue the spouses for
the balance of their account, with a plea for a writ of replevin. By securing a writ of replevin,
the PCI did not thereby foreclose the chattel mortgage. Thus, if there has been no foreclosure
of the chattel mortgage, then the prohibition against further collection of the balance of the
price does not apply.
A creditor is not obliged to foreclose a chattel mortgage even if there is one;
precisely the law says that any of the remedies "may" be exercised by the seller. He may still
sue for fulfillment or for cancellation of the obligation, if he does not want to foreclose. As a
matter of fact, he may avail himself of remedy no. 1 (specific performance) and may still ask
that a real estate mortgage be executed to secure the payment of the obligation, in which case,
and in the event of foreclosure, there can still be recovery of the deficiency. (SPOUSES
ALFREDO AND BRIGIDA ROSARIO v. PCI LEASING AND FINANCE, INC. G.R. No.
139233, November 11, 2005, J. Callejo, Sr.)

45. Jose T. Santiago owned a parcel of land. Alleging that Jose had fraudulently registered it in his
name alone, his sisters Nicolasa and Amanda Santiago (respondents), sued Jose for recovery of
2/3 share of the property. On April 20, 1981, the trial court in that case decided in favor of the
sisters, recognizing their right of ownership over portions of the property. Jose died intestate.
Thereafter, the respondents filed an action before the Regional Trial Court of Manila seeking to
recover Jose’s 1/3 share over the property.

Respondents claim that Jose’s share in the property ipso jure belongs to them because
they are the only legal heirs of their brother, who died intestate and without issue. They allege
that it is highly improbable for petitioner to have paid the supposed consideration of P150, 000
for the sale of the subject property because petitioner was unemployed and without any visible
means of livelihood at the time of the alleged sale. Petitioner Labagala, on the other hand, claims
that she is the daughter of Jose and argued that the purported sale of the property was in fact a
donation to her. The RTC held that while there was indeed no consideration for the deed of sale
 executed by Jose in favor of petitioner, but said deed constitutes a valid donation. Is the
purported deed of sale was valid?

There is no valid sale. Clearly, there is no valid sale in this case. Jose did not have the right to
transfer ownership of the entire property to petitioner since 2/3 thereof belonged to his sisters. Petitioner could
Circe Duran claims to be the owner of the two parcels of land subject of this case. It was alleged that a deed of
sale was made in favor of her mother, Fe Duran, who subsequently mortgaged the same to Erlinda Marcelo-
Tiangco. The said lots were sold to Erlinda in the foreclosure sale conducted. Circe asserts that her signature in
the deed was a forgery. The CA rendered judgment modifying the decision of the trial court. It dismissed the
petition ruling that the signature of Circe is genuine because there is the presumption of regularity in the case of
a public document. But even if the signatures were a forgery, and the sale would be regarded as void, still the
Deed of Mortgage is valid, with respect to the mortgagees. Insofar as innocent third persons are concerned the
owner was already Fe Duran inasmuch as she had already become the registered owner. not have given her
consent to the contract, being a minor at the time. Consent of the contracting parties is among the essential
requisites of a contract, including one of sale, absent which there can be no valid contract. Moreover, petitioner
admittedly did not pay any centavo for the property, which makes the sale void. Article 1471 of the Civil Code
provides: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation,
or some other act or contract. (Labagala vs. Santiago)

46. Circe Duran claims to be the owner of the two parcels of land subject of this case. It was alleged
that a deed of sale was made in favor of her mother, Fe Duran, who subsequently mortgaged the
same to Erlinda Marcelo-Tiangco. The said lots were sold to Erlinda in the foreclosure sale
conducted. Circe asserts that her signature in the deed was a forgery. The CA rendered
judgment modifying the decision of the trial court. It dismissed the petition ruling that the
signature of Circe is genuine because there is the presumption of regularity in the case of a public
document. But even if the signatures were a forgery, and the sale would be regarded as void, still
the Deed of Mortgage is valid, with respect to the mortgagees. Insofar as innocent third persons
are concerned the owner was already Fe Duran inasmuch as she had already become the
registered owner. Is Erlinda was a buyer in good faith and for value?

YES. Good faith consists in the possessor's belief that the person from whom he
received the thing was the owner of the same and could convey his title. While it is always
presumed in the absence of proof to the contrary, good faith requires a well-founded belief
that the person from whom title was received was himself the owner of the land, with the right
to convey it. There is good faith where there is an honest intention to abstain from taking any
unconscientiously advantage from another.
In this case, private respondents, in good faith relied on the certificate of title in the
name of Fe Duran. Even on the supposition that the sale was void, the general rule that the
direct result of a previous illegal contract cannot be valid (on the theory that the spring cannot
rise higher than its source) cannot apply here for the Court is confronted with the
functioning’s of the Torrens System of Registration. The doctrine to follow is simple enough:
a fraudulent or forged document of sale may become the root of a valid title if the certificate
of title has already been transferred from the name of the true owner to the name of the forger
or the name indicated by the forger. Every person dealing with registered land may safely rely
on the correctness of the certificate of title issued therefore and the law will in no way oblige
him to go behind the certificate to determine the condition of the property.

47. Teodoro Santos agreed to sell his car to Vicente Marella on the condition that the price would be
paid only after the car had been registered in Marella’s name. The deed of sale was then
executed and the car was registered in Marella’s name. However, Marella, instead of paying,
asked for an extension and instructed his nephew, L. De Dios, to go to the house of Marella’s
sister to get the money. L. De Dios and Ireneo, Teodoro went to the said house using the subject
 car. When they arrived, Ireneo was made to wait inside the house. After some time, Ireneo went
out and discovered that the car and L. De Dios were gone.
On that same day, Marella was able to sell the car to petitioner Jose Aznar. While the
subject car was in the possession of Aznar, agents of the Philippine Constabulary seized the same
based on the report that the same was stolen from Santos. Thus, Aznar filed a complaint for
replevin against Captain Rafael Yapdiangco, the head of the Philippine Constabulary unit which
seized the subject car. The lower court ruled in favor of Santos and held that although Aznar
acquired the car in good faith and for a valuable consideration from Marella, Santos was still
entitled to its recovery under Article 559 of the Civil Code. Is Jose Aznar is entitled to the subject
car?

NO. Under Article 1506 of the Civil Code, it is essential that the seller should have a
voidable title at least. It is very clearly inapplicable where, as in this case, the seller had no title at all.
Vicente Marella 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 Marella
could have acquired ownership or title to the subject matter thereof only by the delivery or tradition of
the car to him. Under Article 712 of the Civil Code, ownership is not transferred by contract merely but
by tradition or delivery. Contracts only constitute titles or rights to the transfer or acquisition of
ownership, while delivery or tradition is the mode of accomplishing the same.
In the case on hand, the car in question was never delivered to the vendee by the vendor as to
complete or consummate the transfer of ownership by virtue of the contract. While there was indeed a
contract of sale between Vicente Marella and Teodoro Santos, the former, as vendee, took possession
of the subject matter thereof by stealing the same while it was in the custody of the latter's son. The
lower court was correct in applying Article 559 of the Civil Code to the case at bar, for under it, the
rule is to the effect that if the owner has lost a 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 third persons who may have
acquired it in good faith from such finder, thief or robber.

48. Spouses Enrique Castro and Herminia Castro sold a parcel of unregistered coconut land to
Manuelito Palileo by virtue of which a deed of absolute sale was executed. However, the said deed
of absolute sale was not registered in the Registry of Property for unregistered land. Nonetheless,
Palileo exercised acts of ownership over the said land. Sometime after, in a civil case filed against
spouses Castro, the court rendered a decision ordering the former to pay Radio wealth Finance
Company. Upon the finality of the judgment, a writ of execution was issued ordering the sheriff
to levy and sell at public auction the land sold to Palileo. Consequently, a certificate of sale and a
deed of final sale was executed and registered with the Registry of Deeds in favor of Radio
wealth. Learning of what happened to the land; private respondent Manuelito Palileo filed an
action for quieting of title over the same. After a trial on the merits, the court a quo rendered a
decision in his favor. On appeal, the decision of the trial court was affirmed. Hence, this petition
for review on certiorari. Is the CA erred in recognizing the ownership of the first buyer in a prior
sale that was unrecorded over the second buyer who purchased the land in an execution sale
whose transfer was registered in the Register of Deeds?

NO, the Court of Appeals correctly held that the execution sale of the unregistered land in
favor of Radio wealth is of no effect because the land no longer belonged to the judgment
debtor as of the time of the said execution sale. The case of Carumba vs. Court of Appeals is a
case in point. It was held there in that Article 1544 of the Civil Code has no application to
land not registered under Act No. 496. Xxx. Applying Section 35, Rule 39 of the Revised
Rules of Court, this Court held that Article 1544 of the Civil Code cannot be invoked to
benefit the purchaser at the execution sale though the latter was a buyer in good faith and even
if this second sale was registered. It was explained that this is because the purchaser of
unregistered land at a sheriff’s execution sale only steps into the shoes of the judgment debtor,
and merely acquires the latter's interest in the property sold as of the time the property was
levied upon. (RADIOWEALTH FINANCE COMPANY v. MANUELITO S. PALILEO G.R. No.
83432, May 20, 1991, Gancayco, J. )
49. Carlos B. De Guzman purchased a brand new Toyota Hi-Lux motor vehicle from Toyota Cubao,
Inc. Two years from the delivery of the vehicle, its engine developed a crack after traversing
Marcos Highway during a heavy rain. Thus, De Guzman asserted that Toyota should replace the
engine with a new one based on implied warranty but to no avail. Hence, he filed a complaint for
damages against Toyota before the Regional Trial Court. The RTC dismissed the complaint on
the ground that the cause of action had already prescribed based on Article 1571 of the Civil
Code. De Guzman contended that the applicable prescriptive period should be based on Article
169 of R.A. No. 7394, otherwise known as “The Consumer Act of the Philippines” and not Article
1571. The (CA) affirmed the RTC decision. Hence, this petition was filed. Does the applicable
prescriptive period for implied warranty in the given case is Article 169 of R.A. No. 7394 and not
Article 1577 of the Civil Code?

The applicable prescriptive period is Article 1571 of the Civil Code which provides
that Actions arising from the provisions of preceding ten articles shall be barred after six
months from the delivery of the thing sold.
Under Article 1599 of the Civil Code, once an express warranty is breached, the
buyer can accept or keep the goods and maintain an action against the seller for damages. In
the absence of an existing express warranty on the part of the respondent, as in this case, the
allegations in petitioner’s complaint for damages were clearly anchored on the enforcement of
an implied warranty against hidden defects, i.e., that the engine of the vehicle which
respondent had sold to him was not defective. By filing this case, petitioner wants to hold
respondent responsible for breach of implied warranty for having sold a vehicle with defective
engine. Such being the case, petitioner should have exercised this right within six months
from the delivery of the thing sold.
Since petitioner filed the complaint on April 20, 1999, or more than nineteen months
counted from November 29, 1997 (the date of the delivery of the motor vehicle), his cause of
action had become time-barred. Petitioner contends that the subject motor vehicle comes
within the context of Republic Act No. 7394. Thus, petitioner relies on Article 68 (f) (2) in
relation to Article 169 of Republic Act No. 7394. Xxx the following provisions of Republic
Act No. 7394 state: Art. 67. Applicable Law on Warranties. — The provisions of the Civil
Code on conditions and warranties shall govern all contracts of sale with conditions and
warranties. Art. 68. Additional Provisions on Warranties. — In addition to the Civil Code
provisions on sale with warranties, the following provisions shall govern the sale of consumer
products with warranty: e) Duration of warranty. Xxx Any other implied warranty shall
endure not less than sixty (60) days or more than one (1) year following the sale of new
consumer products. Xxx Consequently, even if the complaint is made to fall under the
Republic Act No. 7394, the same should still be dismissed since the prescriptive period for
implied warranty there under, which is one year, had likewise lapsed. (CARLOS B. DE
GUZMAN v. TOYOTA CUBAO, INC. G.R. No. 141480, November 29, 2006, AZCUNA, J.)

50. The subject of this case involves a motor vehicle originally owned by Goodyear Philippines, Inc.
It had since been in the service of Goodyear until April 1986 when it was hijacked. It was later
on recovered. The vehicle was used by Goodyear until 1996, when it sold it to Anthony Sy, who in
turn sold it to Jose L. Lee. But Lee filed an action for rescission of contract with damages against
Sy because he could not register the vehicle in his name due to the certification from the PNP
Regional Traffic Management Office that it was a stolen vehicle and the alarm covering the same
was not lifted. Instead, the PNP impounded the vehicle and charged Lee criminally. Does
Goodyear breach any warranty in the absence of proof that at the time it sold the subject vehicle
to Sy, it was not the owner thereof?
 NO. In a contract of sale, the vendor is bound to transfer the ownership of and to
deliver the thing that is the object of the sale. Moreover, the implied warranties are as follows:
first, the vendor has a right to sell the thing at the time that its ownership is to pass to the
vendee, as a result of which the latter shall from then on have and enjoy the legal and peaceful
possession of the thing; and, second, the thing shall be free from any charge or encumbrance
not declared or known to the vendee. Upon the execution of the Deed of Sale, Goodyear did
transfer ownership of and deliver the vehicle to Sy. No other owner or possessor of the vehicle
had been alleged, and the ownership and possession rights of Goodyear over it had never been
contested. The Deed of Sale showed that Goodyear was the absolute owner. Therefore, at the
time that ownership passed to Sy, Goodyear alone had the right to sell the vehicle.

Gratia argumenti that there was a breach of the implied warranty against hidden
encumbrances, notice of the breach was not given to Goodyear within a reasonable time.
Article 1586 of the Civil Code requires that notice be given after the breach, of which Sy
ought to have known. In his Third-party Complaint against Goodyear, there was no allegation
at all that Sy had given Goodyear the requisite notice. More important, an action for damages
for a breach of implied warranties must be brought within six months from the delivery of the
thing sold. (GOODYEAR PHILIPPINES, INC. v. ANTHONY SY AND JOSE L. LEE G.R. No.
154554, November 09, 2005, J. Panganiban )