Sources of Law on Sales
-Constitution of the Philippines
-Civil law of the Philippines and common law
principles
-new rules adopted with modifications from the
Uniform Sales Act of the United States
Sale (Art 1458)
-A contact whereby one of the contracting
parties (known as the seller or vendor),
obligates himself to transfer the
ownership of and to deliver a determinate
thing, and the other party (known as the
buyer or vendee), obligates himself to pay
therefor a price certain in money or its
equivalent.
Concepts
 Sale is a transaction
 Sale is a special contract
 Sale is a source of obligation
Elements
Essential Elements- Those without which a
contract of sale would not exist
a. Consent of the contracting parties
b. Subject matter which should be a
determinate thing
c. Price certain in money or its equivalent
Natural Elements-Those inherent in a contract
of sale
a. Warranty against eviction
b. Warranty against hidden defects and
encumbrances
Accidental Elements- They refer to particular
stipulations of the parties, like conditions,
interest, penalty, time or place of payment, etc.
Characteristics of a contract of sale:
(1) Consensual, because it is perfected by mere
consent without
any further act;
(2) Bilateral, because both the contracting
parties are bound to fulfill correlative
obligations towards each other — the seller,
to deliver and transfer ownership of the thing
sold and the buyer, to pay the price.
(3) Onerous, because the thing sold is conveyed
in consideration of the price.
(4) Commutative, because the thing sold is
considered the equivalent of the price paid and
vice versa. However, the contract may be
aleatory2 as in the case of the sale of a hope.
(e.g., sweepstakes ticket)
(5) Nominate, because it is given a special name
or designation in the Civil Code, namely, “sale”;
and
(6) Principal, because it does not depend for its
existence and validity upon another contract.
Sale vs. other contracts
1.Donation
donation is gratuitous; sale is onerous
donation is formal contract; sale is consensual
donation is governed by law on donation; sale
is governed by law on sales
2.Agency to sell
in sale, buyer pays for price of object; in
agency to sell, agent not obliged to pay for
price, merely obliged to deliver price received
from buyer.
in sale, buyer becomes owner of thing; in
agency; principal remains owner even if object
delivered to him
in sale, seller warrants; in agency, agent
assumes no risk/liability as long as within
authority given
in sale, not unilaterally revocable; in agency,
may be revoked unilaterally because fiduciary &
even w/o ground
in sale, seller receives profit; in agency, agent
not allowed to profit
TEST: essential clauses of whole instrument
(art 1466 –motherhood statement, not good
law)
Agency is a personal contract; sale is real
contract (to give) –rescission not available in
agency
3.Dacion en pago
in dacion: contract where property is alienated
to satisfy/extinguish obligation to pay debt
in dacion: novates creditor-debtor relationship
into seller-buyer
in dacion: delivery is required (real contract)
4.Lease
in sale: obligation to absolutely transfer
ownership of thing; in lease: use of thing is for
specified period only with obligation to return
in sale: consideration is price; in lease:
consideration is rent
in sale: seller needs to be owner of thing to
transfer ownership; in lease: lessor need not be
owner
lease with option to buy: really a contract of
sale but designated as lease in name only; it is a
safe by installments
5.Contract to Sell
in sale: the title to the property passes to the
vendee upon delivery; in contract to sell:
ownership is reserved to the vendor and is not
to pass to the vendee until full payment of the
purchase price.
in sale: risk of loss is on the buyer; in contract
to sell the risk of loss is on the seller.
Barter (Art 1468)
-If the consideration of the contract consists
partly in money, and partly in another thing, the
transaction shall be characterized by the
manifest intention of the parties. If such
intention does not clearly appear, it shall be
considered a barter if the value of the thing
given as a part of the consideration exceeds the
amount of the money or its equivalent;
otherwise, it is a sale.
Agency to Sell (Art 1466)
-In construing a contract containing provisions
characteristic of both the contract of sale and of
the contract of agency to sell, the essential
clauses of the whole instrument shall be
considered.
Contract for a piece of work (1467)
-A contract for the delivery at a certain price of
an article which the vendor in the ordinary
course of his business manufactures or procures
for the general market, whether the same is on
hand at the time or not, is a contract of sale, but
if the goods are to be manufactured specially
for the customer and upon his special order,
and not for the general market, it is a contract
for a piece of work.
CASES:

1. Medina v. CIR, 1 SCRA 302 (1961)

Facts:

 Petitioning taxpayer Antonio Medina married Antonia Rodriguez.

 Petitioner acquired forest, concessions in the municipalities of San Mariano and Palanan in the
Province of Isabela.
 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.

2. Reman Recio v. Heirs of the Spouses Aguedo and maria Altamirano, GR 182349, July 24, 2013

Facts:

 In the 1950’s, Nena Recio (Nena), the mother of Reman Recio (petitioner), leased from the
respondents Altamiranos a parcel of land with improvements, situated at No. 39 10 de Julio
Street (now Esteban Mayo Street), Lipa City, Batangas.
 The petitioner claimed that in 1988, the Altamiranos offered to sell the subject property to
Nena for Five Hundred Thousand Pesos (P500,000.00).
 The latter accepted such offer, which prompted the Altamiranos to waive the rentals for the
subject property. However, the sale did not materialize at that time due to the fault of the
Altamiranos. Nonetheless, Nena continued to occupy and use the property with the consent of
the Altamiranos.
 In the latter part of 1994, the petitioner renewed Nena’s option to buy the subject property. The
petitioner conducted a series of negotiations with respondent Alejandro who introduced himself
as representing the other heirs.
 After the said negotiations, the Altamiranos through Alejandro entered into an oral contract of
sale with the petitioner over the subject property. In January 1995, in view of the said oral
contract of sale, the petitioner made partial payments to the Altamiranos in the total amount of
One Hundred Ten Thousand Pesos (P110,000.00).
 Alejandro duly received and acknowledged these partial payments as shown in a receipt dated
January 24, 1995. On April 14, 1995, the petitioner made another payment in the amount of
Fifty Thousand Pesos (P50,000.00), which Alejandro again received and acknowledged through a
receipt of the same date.
 Subsequently, the petitioner offered in many instances to pay the remaining balance of the
agreed purchase price of the subject property in the amount of Three Hundred Forty Thousand
Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner. Because of this, the
petitioner demanded from the Altamiranos, through Alejandro, the execution of a Deed of
Absolute Sale in exchange for the full payment of the agreed price.
 On February 24, 1997, the petitioner filed a complaint for Specific Performance with Damages.
 Pending the return of service of summons to the Altamiranos, the petitioner discovered that the
subject property has been subsequently sold to respondents Lauro and Marcelina Lajarca
(Spouses Lajarca). 
  Alejandro was called to testify at the instance of the petitioner but after a brief testimony, he
excused himself and never returned to the witness stand despite several subpoenas.
 For the respondents, the Altamiranos manifested that they would no longer present any witness
while the Spouses Lajarca were considered to have waived their right to present evidence since
they failed to appear on the day set for them to do so.

Issues:
 Whether or not the verbal contract of sale between Alejandro and the petitioner is valid?
 Whether or not the contract of sale between the Altamiranos and the Spouses Lajarca valid?
Held:

 Yes, but up to the aliquot share of respondent Alejandro only.  A valid contract of sale requires:
(a) a meeting of minds of the parties to transfer ownership of the thing sold in exchange for a
price; (b) the subject matter, which must a possible thing; and (c) the price certain in money or
its equivalent.
 However, the Court found that it was only Alejandro who agreed to the sale. There is no
evidence to show that the other co-owners consented to Alejandro’s sale transaction with the
petitioner. Hence, for want of authority to sell Lot No. 3, the Court ruled that Alejandro only sold
his aliquot share of the subject property to the petitioner.
 Yes, the sale of the lot of the Altamiranos to the Spouses Lajarca is valid only insofar as their
shares are concerned.

3. Spouses Herrera v. Caguiat, G.R. No. 139173, 28 February 2007

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.

Held:

 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
HUNDRED THOUSAND 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. “It is true that Article
1482 provides that whenever earnest money is given in a contract of sale, it shall be considered
as part of the price and proof of the perfection of the contract. However, this article speaks of
earnest money given in a contract of sale. In this case, the earnest money was given in a
contract to sell.
 The earnest money forms part of the consideration only if the sale is consummated upon full
payment of the purchase price. “Clearly, respondent cannot compel petitioners to transfer
ownership of the property to him.”

4. Reyes v. Tuparan, G.R. No. 188064, 1 June 2011

Facts:

 Mila Reyes owns a three-storey commercial building in Valenzuela City. Victoria Tuparan
leased a space on said building for a monthly rental of P4, 000. A close friendship developed
between the two which led the respondent to invest in petitioner's financing business. On
 June 20, 1988, Petitioner borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank)
and mortgaged the building and lot (subject real properties).
 Reyes decided to sell the property forP6.5 Million to liquidate her loan and finance her business.
Respondent offered to conditionally buy the real properties for P4.2 Million on installment basis
without interest and to assume the bank loan.
  The conditions are the following: 1. Sale will be cancelled if the petitioner can find a buyer of
said properties for the amount of P6.5 Million within the next three months. All payments made
by the respondent to the petitioner and the bank will be refunded to Tuparan with an additional
6% monthly interest. 2. Petitioner Reyes will continue using the space occupied by her drug
store without rentals for the duration of the installment payments.3. There will be a lease for 15
years in favor of Reyes for a monthly rental of P8, 000 after full payment has been made by the
defendant. 4. The defendant will undertake the renewal and payment of the fire insurance
policies of the 2 buildings, following the expiration of the current policies, up to the time the
respondent has fully paid the purchase price.
 They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank
approved on the condition that the petitioner would remain as co-maker of the mortgage
obligation. FSL Bank and the parties executed Deed of Conditional Sale of Real Properties with
Assumption of Mortgage.
 Petitioner's Contention: Under their Deed of Conditional Sale, the respondent is obliged to pay a
lump sum of P1.2 Million in three fixed installments.
 Respondent, however defaulted in the payment of the installments. To compensate for her
delayed payments, respondent agreed to pay petitioner monthly interest. But again, respondent
failed to fulfill this obligation.
 The petitioner further alleged that despite her success in finding another buyer according
to their conditional sale agreement, respondent refused to cancel their transaction. The
respondent also neglected to renew the fire insurance policy of the buildings.
 So, the petitioner filed a Complaint for Rescission of Contract with damages against Victoria
Tuparan. Respondent alleges that the 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 performance of the obligation therein did not depend
upon a future and uncertain event. She also averred that she was able to fully pay the loan and
secure the release of the mortgage. Since she also paid more than the P4.2 Million purchase
price, rescission could not be resorted to since the parties could no longer be restored to their
original positions.

Issue: Whether or not the Deed of Conditional Sale can be Rescinded

Held:

 The SC agrees that the conditional sale is a contract to sell. 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.
 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. The court agrees that 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.
 The court considered fulfillment of 20% of the purchase price is NOT a substantial
breach. Unless the parties stipulated it, rescission is allowed only when the breach of the
contract is substantial and fundamental to the fulfillment of the obligation.
 Whether the breach is slight or substantial is largely determined by the attendant
circumstance. As for the 6% interest, petitioner failed to substantiate her claim that the
respondent committed to pay it.
 In a contract to sell, title is retained by the vendor until the full payment of the purchase price.
Thus, the non-payment of the purchase price is an event which terminates the contract to sell.
Since title has not transferred, there is no need of judicial action to terminate the contract.
 In a contract of sale, the seller conveys ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded. If the contract is silent on the manner of
rescission, the seller must file an action for rescission in court. However, it is permissible to
stipulate in the contract of sale that default by the buyer shall result to automatic rescission
without need of judicial action. Thus, it is advisable to include an automatic rescission clause in
a contract of sale in order to avoid unnecessary litigation

5. Spouses Reyes v. Salvador, G.R. No. 139047 (2008)

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 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 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 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, 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, involving a portion of the subject property measuring 2,000
square meters, in favor of Maria Q. Cristobal.
 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, or more than seven
months after the former’s death.

Issue: Which party acquired valid and registrable title to the same.

Held:

 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.
 In the construction or interpretation of an instrument, the intention of the parties is primordial
and is to be pursued. 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. Lim v. Court of Appeals, 182 SCRA 566 (1990)

7. Pingol v. Court of Appeals, 226 SCRA 118 (1993)

Facts:

 Vicente Pingol was the owner of the subject lot. He executed in favor of Francisco Donasco a
deed of absolute sale under which the purchase price will be paid in installments. 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 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 Pingol, 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 Pingol 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
 Francisco of his contractual obligation, the sale was deemed to have been cancelled.

Issue: Whether the parties entered into a contract to sell.

Held:

 NO. The plain and clear tenor of the deed of sale and Pingol’s failure to reserve his title led 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 effected when the heirs took possession of and constructed a
house.

8. Ace Foods, Inc., vs. Micro Pacific Technologies Co., Ltd., GR 200602, December 11, 2013, 712
SCRA 679

Facts:

 Respondent MTCL sent a letter-proposal for the delivery and sale of computer hardware and
products for various offices of ACE Foods. ACE accepted and issued Purchase Orders for the
subject products.
  The products were delivered as reflected in the Invoice Receipt, which stated a title reservation.
ACE failed to pay the purchase price despite demands and instead sent a letter to MTCL stating
the return of the subject products thru its sales representative.
 ACE filed a complaint before RTC praying that MTCL pull out from its premises the subject
products for breach of its “after delivery services” obligations.
 MTCL maintained that it had duly complied with its obligations that the products were in good
conditions, when they were delivered, installed and configured in ACE’s premises.
 It prayed that ACE and MTCL was in the nature of a contract to sell ordered MTCL to remove the
subject products from ACE’s premises and pay actual damages and attorney’s fees.

Issue: Whether or not the contract between ACE and MTCL a contract of sale?

Held:

 YES, A contract of sale had been perfected the precise moment ACE Foods sent MTCL he
Purchase Order and accepted the latter’s proposal to sell the subject products in consideration
of the purchase price.
 Thereafter, the reciprocal obligations of the parties- i.e. on one hand, of MTCL to deliver the said
products to ACE NOR Foods, and on the other hand ACE Foods to pay the purchase price
therefore within thirty (30) days from delivery-already arose and consequently may be
demanded.
 The stipulation concerning MTCL’s reservation of ownership of the subject products as reflected
in the Invoice Receipt did not change the complexion of the transaction from a contract of sale
into a contract to sell.
 It had not been shown that the file reservation stipulation had been included in the original
agreement 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
itself , prove novation of the contract since (1) it was not shown that the signatory was
authorized by ACE Foods (the actual party to the transaction) to novate the original agreements;
(2) to show that the fact of delivery, and (3) as matter of judicial notice, invoices are generally
issued at the consummation stage of the contract and not its perfection, and have been treated
as documents which are not actionable, although they may prove sufficient delivery.
 Thus, absent any clear indication that the reservation stipulation was actually agreed upon the
same is deemed to be a mere unilateral imposition on the part of o MTCL and which has no
effect on the nature of the party’s original agreement.
 As a contract of sale. The obligations arising therein among others. ACE Food’s obligation to pay
the purchase price as well as to accept the delivery of the goods remain enforceable and
substituting.

9. Dao Heng Bank, Inc. v. Spouses Laigo, 571 SCRA 434 (2008)

Facts:
 Spouses Laigo obtained a loan from Dao Heng Bank Inc. in the total amount of P11 million. As a
security 3 real estate mortgages were exe-cuted 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
properties to Dao Heng by way of dacion en pago (dation in payment). In August 2000,
Dao Heng, thru a letter informed the Laigos that there total obligation amounts to P10.8 million.
 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 con-tend 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: Whether the obligation of the spouses has been extinguished through dacion en pago

Held:

 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 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.