1

How can be a generic thing can be the

object of a sale when the definition says
that the object is a determinate thing?

ARTICLE 1458 Ans: From the moment to segregate a generic

thing from the rest of its class can become a
Art 1458. By the contract of sale one of the determinate thing.
contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and Determinate Thing – is physically segregated
the other to pay therefor a price certain in money or particularly segregated from the same
or its equivalent. class.

A contract of sale may be absolute or conditional. 3. Cause or Consideration (Price certain in

money or its equivalent) - Refers not only to
the amount of the price, but also to the
I. NATURE AND CHARACTERISTICS
manner in the payment of the price.

A. Definition
Note: If you would not agree on the manner
Sale is a contract where one party (seller or vendor)
of payment whether cash or installments, then
obligates himself to transfer the ownership of and to
the Supreme Court said, you have not agreed
deliver a determinate thing, while the other party
on the price. Again, you must agree on the
(buyer or vendee) obligates himself to pay for said
amount of price and the manner of payment.
thing a price certain in money or its equivalent.
In order to perfect a contract of sale, it is not
Note:
enough to agree on a price certain. The
• In harmony with Art. 1164, ownership of the thing manner of payment of the price must also be
sold does not pass to the buyer until delivery. See agreed. - Toyota Shaw, Inc. v. CA
Arts. 1475, 1477, 1496.
What happens if all the essential elements are
B. Elements (Essential)
present? –Perfect contract of Sale.
1. Consent or meeting of the minds – consent
to transfer ownership in exchange for the
What if one of the essential elements is not
price.
present? – There is no contract.

What is the effect of counter offer? What if you have all the essential elements but
There is no perfected contract of sale when an one element is defective? – It depends.
offer is answered with a counter offer. There is
no meeting of the minds. A qualified
Example:
acceptance constitutes a counter-offer. -
• The object is marijuana – Void Contract
Manila Metal Container Corp. v. PNB ; see
(Unlawful subject matter).
also Art. 1319, CC
• The seller is a minor, is the contract of sale
valid? – Yes. But it’s a Voidable Contract;
2. Object/Subject Matter (Determinate
it is valid until annulled.
Subject Matter) - generally, there is no sale
of generic thing; moreover, if the parties differ
Note: Presence of all essential requisites
as to the object, there can be no meeting of
makes a valid contract of sale. If at least
the minds
one is absent, then the contract is void or

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inexistent. If at least one is defective such no contract of sale was perfected between it and
as the consent, then the contract is petitioner after the period to redeem the property
voidable. had expired.

Cases: Issue: whether or not the offer and counter-offer

Manila Metal Container Corporation vs PNB, resulted to a perfected contract of sale
G.R. No. 166862, December 20, 2006
Ruling: There was no perfected contract of sale
Facts: To secure a loan it had obtained from PNB, between the parties.
petitioner executed a real estate mortgage over • A contract is a meeting of minds between two
the lot. Petitioner executed an Amendment of Real persons whereby one binds himself, with
Estate Mortgage over its property. Petitioner respect to the other, to give something or to
secured another loan from PNB, payable in render some service.41 Under Article 1318 of
quarterly installments of P32,650.00, plus interests the New Civil Code, there is no contract unless
and other charges. the following requisites concur: (1) Consent of
PNB filed a petition for extrajudicial foreclosure of the contracting parties; (2) Object certain
the real estate mortgage and sought to have the which is the subject matter of the contract; (3)
property sold at public auction and was declared Cause of the obligation which is established.
the winning. The Certificate of Sale issued in its
favor was registered and was annotated at the • Contracts are perfected by mere consent.
dorsal portion of the title on February 17, 1983. Once perfected, they bind other contracting
Thus, the period to redeem the property was to parties and the obligations arising have the
expire on February 17, 1984. Petitioner reiterated form of law between the parties and should be
its request for a one year extension from February complied with in good faith. The parties are
17, 1984 within which to redeem/repurchase the bound not only to the fulfillment of what has
property on installment basis. It reiterated its been expressly stipulated but also to the
request to repurchase the property on installment. consequences which, according to their
Meanwhile, some PNB personnel informed nature, may be in keeping with good faith,
petitioner that as a matter of policy, the bank does usage and law. By the contract of sale, one of
not accept "partial redemption." Since petitioner the contracting parties obligates himself to
failed to redeem the property, the Register of transfer the ownership of and deliver a
Deeds issued a new title in favor of respondent determinate thing, and the other to pay a
PNB. Petitioner's offers had not yet been acted price certain in money or its equivalent. The
upon by respondent PNB. SAMD recommended to absence of any of the essential elements will
the management of respondent PNB that negate the existence of a perfected contract
petitioner be allowed to repurchase the property of sale. In Boston Bank of the Phils. v. Manalo:
for P1,574,560.00. PNB management informed “A definite agreement as to the price is an
petitioner that it was rejecting the offer and the essential element of a binding agreement to
recommendation of the SAMD. (Gracie’s Note: In sell personal or real property because it
a nutshell, there was a series of offers and counter- seriously affects the rights and obligations of
offers.) the parties. Price is an essential element in the
Petitioner filed a complaint against PNB for formation of a binding and enforceable
"Annulment of Mortgage and Mortgage contract of sale. The fixing of the price can
Foreclosure, Delivery of Title, or Specific never be left to the decision of one of the
Performance with Damages." PNB averred that it contracting parties. But a price fixed by one of
had acquired ownership over the property after the contracting parties, if accepted by the
the period to redeem had elapsed. It claimed that other, gives rise to a perfected sale.”

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Popong Bernardo, a sales representative of

• A contract of sale is consensual in nature and Toyota.
is perfected upon mere meeting of the minds.
When there is merely an offer by one party Sosa emphasized to Bernardo that he needed the
without acceptance of the other, there is no Lite Ace not later than 17 June 1989. Bernardo
contract. When the contract of sale is not assured Sosa that a unit would be ready for pick
perfected, it cannot serve as a binding juridical up. Bernardo then signed the "Agreements
relation between the parties. The stages of a Between Mr. Sosa & Popong Bernardo of Toyota
contract of sale are as follows: (1) negotiation; Shaw, Inc." It was also agreed upon by the parties
(2) perfection; and (3) consummation. that the balance of the purchase price would be
paid by credit financing through B.A. Finance, and
• A negotiation is formally initiated by an offer, for this Gilbert, on behalf of his father, signed the
which, however, must be certain. At any time documents of Toyota and B.A. Finance pertaining
prior to the perfection of the contract, either to the application for financing. Sosa and Gilbert
negotiating party may stop the negotiation. At went to Toyota to deliver the downpayment of
this stage, the offer may be withdrawn; the P100,000.00, but Bernardo told them that the car
withdrawal is effective immediately after its could not be delivered.
manifestation. To convert the offer into a
contract, the acceptance must be absolute Toyota contends that the Lite Ace was not
and must not qualify the terms of the offer; it delivered to Sosa because of the disapproval by
must be plain, unequivocal, unconditional and B.A. Finance of the credit financing application of
without variance of any sort from the Sosa. It further alleged that a particular unit had
proposal. already been reserved and earmarked for Sosa but
could not be released due to the uncertainty of
• A qualified acceptance or one that involves a payment of the balance of the purchase price.
new proposal constitutes a counter-offer and Toyota then gave Sosa the option to purchase the
a rejection of the original offer. A counter- unit by paying the full purchase price in cash but
offer is considered in law, a rejection of the Sosa refused.
original offer and an attempt to end the
negotiation between the parties on a different After it became clear that the Lite Ace would not
basis. Consequently, when something is be delivered to him, Sosa asked that his
desired which is not exactly what is proposed downpayment be refunded. Toyota did so on the
in the offer, such acceptance is not sufficient very same day by issuing a Far East Bank check for
to guarantee consent because any the full amount of P100,000.00, the receipt of
modification or variation from the terms of the which was shown by a check voucher of Toyota,
offer annuls the offer. The acceptance must be which Sosa signed with the reservation, "without
identical in all respects with that of the offer so prejudice to our future claims for damages."
as to produce consent or meeting of the
minds. Issue: whether or not there was a perfected
contract of sale
Toyota Shaw, Inc. vs. CA, G.R. No. L-116650,
May 23, 1995 Rule: There is no perfected contract of sale.
• Article 1458 of the Civil Code defines a
Facts: Sosa wanted to purchase a Toyota Lite Ace. contract of sale as follows: (par1.) By the
Upon contacting Toyota Shaw, Inc., he was told contract of sale one of the contracting parties
that there was an available unit. There they met obligates himself to transfer the ownership of
and to deliver a determinate thing, and the

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other to pay therefor a price certain in money any Toyota vehicle. It was incumbent upon
or its equivalent. (par2.) A contract of sale may Sosa to act with ordinary prudence and
be absolute or conditional. reasonable diligence to know the extent of
Bernardo's authority as an agent in respect of
• Article 1475 specifically provides when it is contracts to sell Toyota's vehicles. A person
deemed perfected: (par1.) The contract of sale dealing with an agent is put upon inquiry and
is perfected at the moment there is a meeting must discover upon his peril the authority of
of minds upon the thing which is the object of the agent.
the contract and upon the price. (par2.) From
that moment, the parties may reciprocally • At the most it may be considered as part of
demand performance, subject to the the initial phase of the generation or
provisions of the law governing the form of negotiation stage of a contract of sale. There
contracts. are three stages in the contract of sale,
namely: (a) preparation, conception, or
• The document denominated “Agreement generation, which is the period of negotiation
Between Mr. Sosa & Popong Bernardo of and bargaining, ending at the moment of
Toyota Shaw, Inc.” is not a contract of sale. No agreement of the parties; (b) perfection or
obligation on the part of Toyota to transfer birth of the contract, which is the moment
ownership of a determinate thing to Sosa and when the parties come to agree on the terms
no correlative obligation on the part of the of the contract; and (c) consummation or
latter to pay therefor a price certain appears death, which is the fulfillment or performance
therein. The provision on the downpayment of of the terms agreed upon in the contract.
P100,000.00 made no specific reference to a • The second phase of the generation or
sale of a vehicle. If it was intended for a negotiation stage in this case was the
contract of sale, it could only refer to a sale on execution of the VSP. It must be emphasized
installment basis, as the VSP executed the that thereunder, the downpayment of the
following day confirmed. But nothing was purchase price was P53,148.00 while the
mentioned about the full purchase price and balance to be paid on installment should be
the manner the installments were to be paid. financed by B.A. Finance Corporation. It is, of
course, to be assumed that B.A. Finance Corp.
• A definite agreement on the manner of was acceptable to Toyota, otherwise it should
payment of the price is an essential element in not have mentioned B.A. Finance in the VSP.
the formation of a binding and enforceable
contract of sale. This is so because the • Accordingly, in a sale on installment basis
agreement as to the manner of payment goes which is financed by a financing company,
into the price such that a disagreement on the three parties are thus involved: the buyer who
manner of payment is tantamount to a failure executes a note or notes for the unpaid
to agree on the price. Definiteness as to the balance of the price of the thing purchased on
price is an essential element of a binding installment, the seller who assigns the notes or
agreement to sell personal property. discounts them with a financing company, and
the financing company which is subrogated in
• There was no meeting of minds between the place of the seller, as the creditor of the
Toyota and Sosa. Sosa did not even sign it. installment buyer. Since B.A. Finance did not
Also, Sosa was well aware from its title that he approve Sosa's application, there was then no
was not dealing with Toyota but with Popong meeting of minds on the sale on installment
Bernardo and that the latter did not basis. We are inclined to believe Toyota's
misrepresent that he had the authority to sell version that B.A. Finance disapproved Sosa's

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application for which reason it suggested to the part of the parties. It is not a gratuitous
Sosa that he pay the full purchase price. contract.

• The VSP was a mere proposal which was 4. Nominate – (as distinguished from an
aborted in lieu of subsequent events. It follows innominate contract) because the Code refers
that the VSP created no demandable right in to it by a special designation or name, i.e., the
favor of Sosa for the delivery of the vehicle to contract of sale.
him, and its non-delivery did not cause any
legally indemnifiable injury. Petition is Note: There is a specific name of contract
GRANTED. given by law. The contract is named
according to how the law defines it to be, not
C. Characteristics how the parties call it to be.

1. Consensual – perfected by mere consent. Example: If the parties agreed that one will
deliver and transfer ownership of a
2. Bilateral - Both parties are obliged to determinate thing and the other party
perform; because both parties are bound by obligates himself to pay for the said thing a
obligations dependent upon each other. price certain in money or its equivalent. Then
it is a Contract of Sale.
Note:
Seller vs. Buyer (Both parties are creditors 5. Principal - (as distinguished from an
and debtors of each other.) accessory contract), because for the contract
o The seller has two major obligations to of sale to validly exist, there is no necessity for
transfer ownership and to deliver the it to depend upon the existence of another
thing and the buyer shall pay the price. valid contract (Examples of accessory
o The seller is a debtor in a sense that he contracts are those of pledge and mortgage)
has the obligation to deliver and to
transfer ownership at the same time he is Note: The moment the sale is consummated
a creditor because he can demand from then that’s the end of it; you don’t enter into
the buyer for the payment of the price. a contract of loan before you can enter into a
The seller has the right to collect and to contract of sale.
receive the price. That’s the role of the
creditor to demand performance. Contract of Pledge is an accessory contract
o The buyer is a debtor in a sense that he is constituted to secure the fulfillment or the
obliged to pay the price. He is a creditor performance of the principal obligation.
in a sense that he has the right to demand
the delivery and to transfer ownership of Contract of Loan is a principal obligation. You
the object of the sale. can enter into a contract of loan without first
entering into the contract of pledge.
3. Onerous – because to acquire the right,
valuable consideration must be given. Example: Do you purchase a car on
installments? The seller would require you a
Note: security. Usually the security is the car itself
The seller does not receive the price for free. subject to chattel mortgage.
He has to deliver and transfer ownership. The
buyer does not receive the pay for free; he has
to pay the price. It imposes an obligation on

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There can be no chattel mortgage (accessory D.

contract) if there is no perfected contract of a) Sales vs Agency to Sell
sale (principal contract).
Art. 1466. In construing a contract containing
“You cannot mortgage something that you do provisions characteristic of both the contract of
not own.” sale and of the contract of agency to sell, the
essential clauses of the whole instrument shall
6. Commutative – as a rule, because the values be considered. (n)
exchanged are almost equivalent to each
other; One where each of the party that
receives and gives an equivalent. Cases:
1. Effect of agreement for exclusive sale of beds
Example: I’ll buy the car worth 1.4 million where the other party is entitled to commission,
pesos. I paid 1.4 million pesos and I received a among others
vehicle worth 1.4 million pesos. –
Commutative Contract Quiroga vs Parsons Hardware Co., 38 Phil
501
Vs. Aleatory Contract - (NOTE: By way
ofexception, some contracts of sale are Facts: A contract was executed between
aleatory, i.e., what one receives may in time be Quiroga and J. Parsons for the exclusive right
greater or smaller than what he has given. to sell Quiroga beds in the Visayan Islands.
Example: The sale of a genuine sweepstakes Quiroga, says that Parsons caused a breach in
ticket; Insurance). You pay a small amount the contract on through: to sell the beds at
but you receive something more valuable. invoice price or lower; to have an establishment
in Iloilo; pay the advertisement expenses; and
7. Delivery transfers ownership to order the beds by the dozen. SC holds that
Note: Sale is only a title that creates an since it was a contract of purchase and sale, and
obligation to transfer ownership. The contract thus J. Parsons is not held liable for the breach
of sale itself does not transfer ownership. (See of the contract.
definition of Sale above). It is the delivery
transfers ownership. For the classification of contracts, due regard
must be paid to their essential clauses. In the
It is not right for us to claim that once you contract in the instant case, what was essential,
have paid the price you already own it, kung constituting its cause and subject matter, was
wala pa gi deliver. You have fully paid the that the plaintiff was to furnish the defendant
price, ako nana kay nakabayad nako until the with the beds which the latter might order, at
thing is delivered to you then you do not the stipulated price, and that the defendant
become the owner of the thing even you have was to pay this price in the manner agreed
fully paid the price. upon. These are precisely the essential features
of a contract of purchase and sale. There was
the obligation on the part of the plaintiff to
supply the beds, and, on that of the defendant,
to pay their price. These features exclude the
legal conception of an agency or older to sell
whereby the mandatary or agent receives the
thing to sell it, and does not pay its price, but
delivers to the principal the price he obtains

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from the sale of the thing to a third person, and Cases:

if he does not succeed in selling it, he returns it, 1. Nature of Transactions of company engaged
in the design, supply, and installation of
Held: That this contract is one of purchase and certain type of air conditioning system
sale, and not of commercial agency.
Commissioner of Internal Revenue vs
The agreements contained in the contract Engineering Equipment and Supply Co., 64
constitute, according to law, covenants of SCRA 590
purchase and sale, and not of commercial
agency. It must be understood that a contract Facts: Engineering Equipment and Supply Co.,
is what the law defines it to be, and not what it a domestic corporation, is engaged in the
is called by the contracting parties. design and installation of central type air
conditioning system, pumping plants and
Only the acts of the contracting parties, steel fabrications. CIR now denounced
subsequent to and in connection with, the Engineering for tax evasion by misdeclaring its
performance of the contract must be imports and failing to pay the correct
considered in the interpretation of the contract percentage taxes due thereon in connivance
when such interpretation is necessary, but not with its foreign suppliers. The Commissioner
when, as in the instant case its essential contends that Engineering is a manufacturer
agreements are clearly set forth and plainly and seller of air conditioning units and parts
show that the contract belongs to a certain kind or accessories thereof and, therefore, it is
and not to another. subject to the 30% advance sales tax.
Engineering is a contractor this subject only to
In fact, not a single one of the clauses in the the 3% tax imposed on contractors.
contact necessarily conveys the idea of an
agency. The words commission on sales used Contract of Sale v. Contract of Services; Test.
mean nothing else than a mere discount on the — The distinction between a contract of sale
invoice price. The word agency, also used, only and one for work, labor and materials is tested
expresses that the defendant was the only one by the inquiry whether the thing transferred is
that could sell the plaintiff's beds in the Visayan one not in existence and which never would
Islands. have existed but for the order of the party
desiring to acquire it, or a thing which would
Adviento: If it were a contract of agency, then have existed but has been the subject of sale
Parsons would be liable. to some other persons even if the order had
not been given. If the article ordered by the
b) Sales vs Lease of Service or Contract for a purchaser is exactly such as the seller makes
piece of work (1467) and keeps on hand for sale to anyone, and no
Art. 1467. A contract for the delivery at a change or modification of it is made at
certain price of an article which the vendor in purchaser's request, it is a contract of sale
the ordinary course of his business even though it may be entirely made after,
manufactures or procures for the general and in consequence of the purchaser's order
market, whether the same is on hand at the for it.
time or not, is a contract of sale, but if the
goods are to be manufactured specially for the Engineering is a contractor rather than a
customer and upon his special order, and not manufacturer. Supply of air conditioning units
for the general market, it is a contract for a to Engineer's various customers, whether the
piece of work. (n) said machineries were in hand or not, was

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especially made for each customer and entered into a Supply Agreement with
installed in his building upon his special order. Dynablocks / Aragones. Aragones thereupon
The air conditioning units installed in a central started assembling the machines for the
type of air conditioning system would not fabrication/casting of the concrete blocks
have existed but for the order of the party which MEGA specified to be hexagonal
desiring to acquire it and if it existed without shaped. MEGA later directed Aragones to
the special order of Engineering's customer, instead fabricate machines for S shaped
the said air conditioning units were not blocks. Dynablocks was not able to finish the
intended for sale to the general public. blocks on the specified date. Aragones
Moreover, it advertises itself as a contractor demanded payment for his services. But
and pays the contractor's tax for design and MEGA refused to pay because of the delay.
construction of central type air conditioning Aragones sent DMPI a letter obligating and
systems, and does not have ready-made air- requesting it to be paid directly to him. DMPI
conditioning units for sale, but must design refused saying he should get a court order.
and construct each unit to meet the particular DMPI released full payment to Mega. DMPI
requirements of its customers, said taxpayer is says it was a contract of sales and, thus, not a
considered a contractor rather than a privy to the contract between Mega and
manufacturer for purposes of the Tax Code. Aragones. SC said it was a privy since it was a
Thus, such taxpayer is not a manufacturer piece of work, thus it is liable.
subject to the 30% advance sales tax
prescribed in Section 185 (m) in relation to The “Supply Agreement" is replete with
Section 194 of the Tax Code, but is a specifications, terms or conditions showing
contractor subject to the 3% tax imposed by that it was one for a piece of work. The
Section 191 of the same Code. machines Aragones was obliged to fabricate
were those for casting the concrete blocks
A taxpayer is required by law to truly declare specified by Garcia. Aragones did not have
his importation in the import entries and those kind of machines in his usual business,
internal revenue declarations before it is hence, the special order. That, while initially
released. Thus, by requiring its foreign Garcia specified that the machines to be
supplier to change the nomenclature of air fabricated should be for hexagon shaped
conditioning parts and accessories, and blocks, he later asked Aragones to instead
misdeclaring its importation so as to make fabricate machines for casting S shaped
them subject to the lower rate of 7% blocks. For Aragones to fabricate machines for
percentage tax under Section 186 of the Tax casting S shaped, instead of hexagon shaped
Code, thereby evading the payment of the 30% blocks, show that the concrete blocks were
tax under Section 185(m) thereof, said "manufactured specifically for, and upon the
taxpayer is subject to the payment of the 50% special order" of Garcia and devoted only "for
fraud surcharge prescribed by Section 183(a). the exclusive use" of MEGA-WAFF.
Aragones having specially fabricated three
Del Monte Phils Inc vs Aragones, G.R. No. casting machines and furnished some
153033, June 23, 2005 materials for the production of the concrete
blocks specially ordered and specified by
Facts: Del Monte entered into an Agreement MEGA-WAFF which were to be and indeed
MEGA-WAFF whereby MEGA undertook "the they were for the exclusive use of MEGA-
supply and installation of modular pavement" WAFF, he has a cause of action upon DMPI up
at DMPI's condiments warehouse within 60 to the amount it owed MEGA-WAFF at the
days. To source its supply of blocks, MEGA time Aragones made his claim to petitioner.

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e) Sales vs Lease of Things

c) Sales vs Barter (1468) – Delivery in a contract of sale transfers
ownership, whereas delivery in the latter
Art. 1468. If the consideration of the contract does not transfer ownership
consists partly in money, and partly in another
thing, the transaction shall be characterized by f) Donation
the manifest intention of the parties. If such – Gratuitous in nature; requires special
intention does not clearly appear, it shall be formalities
considered a barter if the value of the thing given
as a part of the consideration exceeds the E. Promise to Sell: When binding (1479)
amount of the money or its equivalent; otherwise,
it is a sale. Art. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
d) Sales vs Dation in Payment

An accepted unilateral promise to buy or to sell a

SALE DACION EN
determinate thing for a price certain is binding
PAGO
upon the promisor if the promise is supported by
Pre-existing none yes
a consideration distinct from the price. (1451a)
credit
Obligations Gives rise Extinguishes
Cause or Seller: Price Person a) If bilateral
Consideration Buyer: offering the − The first paragraph refers to a bilateral
Obtaining payment: reciprocal contract there being a promise
the object extinguishment to buy on the part of the buyer, and a
of debt promise to sell on the part of the seller. This
Creditor: juridical relationship is reciprocally
acquisition of demandable. The object is a determinate
the object in thing and the price is certain. There is no
lieu of the need for a condition for this bilateral
original credit promise to buy and sell.
Freedom in Greater Lesser − The bilateral promise gives to the
price contracting parties personal rights to
determination demand fulfillment of the obligation from
Effects Giving the Giving of the each other. (Borromeo v. Franco, 5 Phil 49)
price may object may
− A bilateral promise to buy or to sell a
end the completely or
certain thing for a price certain gives to the
obligation of partially
contracting parties personal rights in that
the buyer extinguish the
each has the right to demand from the
credit
other the fulfillment of the obligation.

b) If unilateral
− The second paragraph refers to an
accepted unilateral promise of the –
o Buyer to buy a determinate property
for a price certain; or

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o Seller to sell a determinate property succeeded as lessor of the subject property.

for a price certain. Enrico used the subject property as his
residence and place of business. Spouses
− The acceptance of a unilateral promise to
Apeles and Enrico allegedly entered into a
sell must be plain, clear and unconditional.
Contract of Lease with Option to Purchase
Therefore, if there is qualified acceptance
involving the subject property. The contract
with terms different from the offer there is
purportedly afforded Enrico, before the
no acceptance, that there is no promise to
expiration of the three-year lease period, the
buy and there is no perfected sale.
option to purchase the subject property.
Before the expiration of the contract, Enrico
1) Option
exercised his option to purchase the subject
i. Option defined
property by communicating verbally and in
− An optional contract is a privilege existing in
writing to Luz his willingness to pay the
one person, for which he had paid a
agreed purchase price, but the spouses
consideration, which gives him the right to
Apeles supposedly ignored Enrico’s
buy, for example, certain merchandise or
manifestation.
certain specified property from another
person at any time within the agreed period
In a letter to Enrico, the spouses Apeles
at a fixed price. The contract of option is a
demanded that he pay his rental and that he
separate and distinct contract from the
vacates the subject property since it would be
contract where the parties may enter into
needed by the spouses Apeles themselves.
upon the consummation of the option. A
Without heeding the demand of the spouses
consideration for an optional contract is just
Apeles, Enrico instituted a Complaint for
as important as the consideration for any
Specific Performance with Damages against
other kind of contract.
the spouses.
− An option is a contract by which the owner of
the property agrees with another person that Rule: The provision on the option to
the latter shall have the right to buy the purchase in the Contract is unenforceable.
former’s property at a fixed price within a
certain time. It is a condition offered or Option is a contract by which the owner of
contract by which the owner stipulates with the property agrees with another person that
another that the latter shall have the right to he shall have the right to buy his property at
buy the property at a fixed price within a a fixed price within a certain time. He does
certain time, or under, or in compliance with not sell his land; he does not then agree to
certain terms and conditions; or which gives sell it; but he does sell something, i.e., the
to the owner of the property the right to sell right or privilege to buy at the election or
or demand a sale. An option is not of itself a option of the other party. Its distinguishing
purchase, but merely secures the privilege to characteristic is that it imposes no binding
buy. It is not a sale of property but a sale of obligation on the person holding the option,
the right to purchase. (Eulogio v. Apeles) aside from the consideration for the offer.
Cases:
It is also sometimes called an "unaccepted
Eulogio vs Apeles G.R. No. 167884, Jan 20,
offer." The second paragraph of Article 1479
2009
provides for the definition and consequent
rights and obligations under an option
Facts: Spouses Apeles leased the subject
contract. For an option contract to be valid
property to Arturo Eulogio, Enrico’s father.
and enforceable against the promissor, there
Upon Arturo’s death, his son Enrico

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must be a separate and distinct consideration consideration keeps this Court from
that supports it. In the landmark case of enforcing the rights of the parties under said
Southwestern Sugar and Molasses Company option contract.
v. Atlantic Gulf and Pacific Co., declared that
for an option contract to bind the promissor, PNOC vs Keppel, G.R. No. 202050, July 25,
it must be supported by consideration. "An 2016
accepted unilateral promise" can only have a
binding effect if supported by a Facts: Almost 40 years ago or on 6 August
consideration, which means that the option 1976, the respondent Keppel Philippines
can still be withdrawn, even if accepted, if the Holdings, Inc. (Keppel) entered into a lease
same is not supported by any consideration. agreement (the agreement) with Luzon
Without consideration that is separate and Stevedoring Corporation (Lusteveco)
distinct from the purchase price, an option covering 11 hectares of land located in
contract cannot be enforced; that holds true Bauan, Batangas. The lease was for a period
even if the unilateral promise is already of 25 years for a consideration of P2.1 million.
accepted by the optionee. At the option of Lusteveco, the rental fee
could be totally or partially converted into
The consideration is "the why of the equity shares in Keppel.
contracts, the essential reason which moves
the contracting parties to enter into the At the end of the 25-year Jease period,
contract." To support an option contract, Keppel was given the "firm and absolute
there need not be monetary. Actual cash option to purchase the land for P4.09 million,
need not be exchanged for the option. provided that it had acquired the necessary
However, by the very nature of an option qualification to own land under Philippine
contract, as defined in Article 1479, the same laws at the time the option is exercised.
is an onerous contract for which the Apparently, when the lease agreement was
consideration must be something of value, executed, less than 60% of Keppel's
although its kind may vary. shareholding was Filipino-owned, hence, it
was not constitutionally qualified to acquire
In Contract of Lease with Option to Purchase, private lands in the country.
there was no direct evidence to prove the
existence of consideration for the option If, at the end of the 25-year lease period (or
contract. The only consideration agreed in 2001), Keppel remained unqualified to own
upon by the parties in the said Contract is the private lands, the agreement provided that
supposed purchase price for the subject the lease would be automatically renewed for
property in the amount not exceeding P1.5 another 25 years. Keppel was further allowed
Million, which could not be deemed to be the to exercise the option to purchase the land
same consideration for the option contract up to the 30th year of the lease (or in 2006),
since the law and jurisprudence explicitly also on the condition that, by then, it would
dictate that for the option contract to be have acquired the requisite qualification to
valid, it must be supported by a own land in the Philippines.
consideration separate and distinct from the
price. Together with Keppel's lease rights and
option to purchase, Lusteveco warranted not
There no consideration was given by Enrico to sell the land or assign its rights to the land
to the Spouses for the option contract. The for the duration of the lease unless with the
absence of monetary or any material prior written consent of Keppel.[13]

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Accordingly, when the petitioner Philippine (or to sell) within a specified period. This
National Oil Corporation (PNOC) acquired acceptance is different from the acceptance
the land from Lusteveco and took over the of the offer itself whereby the offeree asserts
rights and obligations under the agreement, his or her right or privilege to buy (or to sell),
Keppel did not object to the assignment so which constitutes as his or her consent to the
long as the agreement was annotated on sales contract. The consideration in an
PNOC's title. With PNOC's consent and option contract may be anything of value,
cooperation, the agreement was recorded as unlike in a sale where the purchase price
Entry No. 65340 on PNOC's Transfer of must be in money or its equivalent. There is
Certificate of Title No. T-50724. sufficient consideration for a promise if there
is any benefit to the offeree or any detriment
Issue: WON the option to purchase the land to the offeror.
given to Keppel is supported by a separate
valuable consideration. In the present case, paragraph 5 of the
agreement provided that should Keppel
SC: No, the Agreement did not categorically exercise its option to buy, Lusteveco could
refer to any consideration to support opt to convert the purchase price into equity
Keppel's option to buy and for Keppel's in Keppel. May Lusteveco's option to convert
failure to present evidence in this regard, we the price for shares be deemed as a sufficient
cannot uphold the existence of an option separate consideration for Keppel's option to
contract in this case. buy?

An option contract is a contract where one As earlier mentioned, the consideration for
person (the offeror/promissor) grants to an option contract does not need to be
another person (the offeree/promisee) the monetary and may be anything of value.
right or privilege to buy (or to sell) a However, when the consideration is not
determinate thing at a fixed price, if he or she monetary, the consideration must be
chooses to do so within an agreed period. clearly specified as such in the option
contract or clause.
As a contract, it must necessarily have the
essential elements of subject matter, consent, ii. Remedy of optionee for breach
and consideration. Although an option – specific performance
contract is deemed a preparatory contract to
the principal contract of sale, it is separate Test to Determine Whether a Contract is a
and distinct therefrom, thus, its essential Contract of Sale or an Option
elements should be distinguished from those – Whether or not the agreement could
of a sale. be specifically enforced.

In an option contract, the subject matter is Effect of Breach of Promise to Buy or Sell
the right or privilege to buy (or to sell) a − The injured party can only seek
determinate thing for a price certain, while in damages. The obligation arising from
a sales contract, the subject matter is the the option contract are not obligations
determinate thing itself. The consent in an “to give” but “to do.”
option contract is the acceptance by the
offeree of the offerer's promise to sell (or to
buy) the determinate thing, i.e., the offeree
agrees to hold the right or privilege to buy

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Acceptance of an Offer when plaintiffs did not receive any reply, they
− The acceptance of the offer must be sent another letter dated January 28, 1987 with
unqualified and absolute in order to be the same request; that since defendants failed
binding. to specify the terms and conditions of the offer
to sell and because of information received that
Policitacion defendants were about to sell the property,
− a unilateral promise to buy or sell plaintiffs were compelled to file the complaint
which is not accepted by the other to compel defendants to sell the property to
party. It produces no legal effect. It is them.
a mere offer, and has not been
converted into any contract. "After the issues were joined, defendants filed
a motion for summary judgment which was
2) Right of First Refusal granted by the lower court. The trial court
found that defendants' offer to sell was never
− Right on the part of the owner that if he
accepted by the plaintiffs for the reason that
decides to sell the property in the future,
he would first negotiate its sale to the one the parties did not agree upon the terms and
conditions of the proposed sale, hence, there
he promised.
was no contract of sale at all. Nonetheless, the
Ang Yu Asuncion vs CA, G.R. No. 109125, Dec lower court ruled that should the defendants
subsequently offer their property for sale at a
2, 1994
price of P11-million or below, plaintiffs will
have the right of first refusal.
Facts: On July 29, 1987 a Second Amended
Complaint for Specific Performance was filed
Issue: Whether or not there is perfected
by Ann Yu Asuncion and Keh Tiong, et al.,
contract of sale
against Bobby Cu Unjieng, Rose Cu Unjieng
and Jose Tan before the Regional Trial Court,
Held: In the law on sales, the so-called "right of
Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a
tenants or lessees of residential and
commercial spaces owned by defendants perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first
described as Nos. 630-638 Ongpin Street,
Binondo, Manila; that they have occupied said refusal, understood in its normal concept, per
sebe brought within the purview of an option
spaces since 1935 and have been religiously
under the second paragraph of Article 1479,
paying the rental and complying with all the
conditions of the lease contract; that on several aforequoted, or possibly of an offer under
Article 1319 9 of the same Code. An option or
occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell an offer would require, among other things, 10
a clear certainty on both the object and the
the premises and are giving them priority to
acquire the same; that during the negotiations, cause or consideration of the envisioned
contract. In a right of first refusal, while the
Bobby Cu Unjieng offered a price of P6-million
object might be made determinate, the
while plaintiffs made a counter offer of P5-
exercise of the right, however, would be
million; that plaintiffs thereafter asked the
dependent not only on the grantor's eventual
defendants to put their offer in writing to which
request defendants acceded; that in reply to intention to enter into a binding juridical
relation with another but also on terms,
defendant's letter, plaintiffs wrote them on
October 24, 1986 asking that they specify the including the price, that obviously are yet to be
later firmed up. Prior thereto, it can at best be
terms and conditions of the offer to sell; that

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so described as merely belonging to a class of a) Absolute; or

preparatory juridical relations governed not by Ramos vs Heruela, G.R. No. 145330, Oct 14,
contracts (since the essential elements to 2005
establish the vinculum juris would still be
indefinite and inconclusive) but by, among
ABSOLUTE SALE CONDITIONAL SALE
other laws of general application, the pertinent
When title of the Ownership remains with
scattered provisions of the Civil Code on
property passes to the the vendor and does not
human conduct.
vendee upon delivery pass until full payment of
of the thing sold the purchase price
Even on the premise that such right of first
When there is no The full payment of the
refusal has been decreed under a final
stipulation in the purchase price partakes
judgment, like here, its breach cannot justify
contract that title to of a suspensive
correspondingly an issuance of a writ of
the property remains condition, and non-
execution under a judgment that merely
with the seller until full fulfillment of the
recognizes its existence, nor would it sanction
payment of the condition prevents the
an action for specific performance without
purchase price. obligation to sell from
thereby negating the indispensable element of
arising.
consensuality in the perfection of contracts. 11
If there is no
It is not to say, however, that the right of first
stipulation giving the
refusal would be inconsequential for, such as
vendor the right to
already intimated above, an unjustified
cancel unilaterally the
disregard thereof, given, for instance, the
contract the moment
circumstances expressed in Article 1912 of the
the vendee fails to pay
Civil Code, can warrant a recovery for damages.
within a fixed period.

Note: right of first refusal cannot be deemed a

Facts: Spouses Ramos own a parcel of land,
perfected sale because it merely pertains to a
consisting of 1,883 square meters. They made an
specific property w/out containing an
agreement with “spouses Heruela” covering 306
agreement as to the price.
square meters of the land. According to the
spouses Ramos, the agreement is a contract of
F. The Contract of Sale may be – A perfected
conditional sale. The spouses Heruela allege that
contract of sale may either be absolute or
the contract is a sale on installment basis.
conditional depending on whether the agreement
is devoid of, or subject to, any condition of the
The spouses Ramos filed a complaint for
passing of title of the thing to be conveyed or on
Recovery of Ownership with Damages against the
the obligation of a party thereto.
spouses Heruela. The spouses Ramos allege that
out of the P15,300 consideration for the sale of
the land, the spouses Heruela paid only P4,000.
The spouses Ramos assert that the spouses
Heruela’s unjust refusal to pay the balance of the
purchase price caused the cancellation of the
Deed of Conditional Sale. The Ramoses
discovered that the spouses Heruela were already
occupying a portion of the land. Spouses Pallori,
daughter and son-in-law of the spouses Heruela,
erected another house on the land. The spouses

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Heruela and the spouses Pallori refused to vacate to be inapplicable to the contract in controversy
the land despite demand by the spouses Ramos. — a contract to sell or promise to sell — "where
title remains with the vendor until fulfillment of a
The trial court ruled that the contract is a sale by positive suspensive condition, such as full
installment. The trial court ruled that the spouses payment of the price.
Ramos failed to comply with Section 4 of Republic
Act No. 6552 ("RA 6552"), 6 as follows: SEC. 4. In Spouses Heruela did not immediately take actual,
case where less than two years of installments physical possession of the land. According to the
were paid, the seller shall give the buyer a grace spouses Ramos, in March 1981, they allowed the
period of not less than sixty days from the date niece of the spouses Heruela to occupy a portion
the installment became due. If the buyer fails to of the land. Indeed, the spouses Ramos alleged
pay the installments due at the expiration of the that they only discovered in June 1982 that the
grace period, the seller may cancel the contract spouses Heruela were already occupying the
after thirty days from receipt by the buyer of the land. In their answer to the complaint, the
notice of cancellation or the demand for spouses Heruela and the spouses Pallori alleged
rescission of the contract by a notarial act. that their occupation of the land is lawful because
having made partial payments of the purchase
Ruling: The Agreement is a Contract to Sell price, "they already considered themselves
owners" of the land. 18 Clearly, there was no
In this case, the agreement of the parties is transfer of title to the spouses Heruela. The
embodied in a one-page, handwritten spouses Ramos retained their ownership of the
document. The document does not contain the land. This only shows that the parties did not
usual terms and conditions of a formal deed of intend the transfer of ownership until full
sale. The original document, elevated to this payment of the purchase price.
Court as part of the Records, is torn in part. Only
the words "LMENT BASIS" is legible on the title. RA 6552 is the Applicable Law. The trial court did
The names and addresses of the parties and the not err in applying RA 6552 to the present case.
identity of the property cannot be ascertained. Articles 1191 and 1592 of the Civil Code are
applicable to contracts of sale. In contracts to sell,
In Manuel v. Rodriguez, et al., the Court ruled that RA 6552 applies. In Rillo v. Court of Appeals, the
to be a written contract, all the terms must be in Court declared: “the Maceda Law, R.A. No. 6552
writing, so that a contract partly in writing and recognizes in conditional sales of all kinds of real
partly oral is in legal effect an oral contract. The estate (industrial, commercial, residential) the
Court reiterated the Manuel ruling in Alfonso v. right of the seller to cancel the contract upon
Court of Appeals: “. . . In Manuel, "only the price non-payment of an installment by the buyer,
and the terms of payment were in writing," but which is simply an event that prevents the
the most important matter in the controversy, the obligation of the vendor to convey title from
alleged transfer of title was never "reduced to any acquiring binding force. It also provides the right
written document.” It was held that the contract of the buyer on installments in case he defaults in
should not be considered as a written but an oral the payment of succeeding installments . .”
one; not a sale but a promise to sell; and that "the
absence of a formal deed of conveyance" was a Sec. 3. In all transactions or contracts
strong indication "that the parties did not intend involving the sale or financing of real estate on
immediate transfer of title, but only a transfer installment payments, including residential
after full payment of the price." Under these condominium apartments but excluding
circumstances, the Court ruled Article 1504 of the industrial lots, commercial buildings and sales
Civil Code of 1889 (Art. 1592 of the present Code) to tenants under Republic Act Numbered

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Thirty-eight hundred forty-four as amended In this case, the spouses Heruela paid less than
by Republic Act Numbered Sixty-three two years of installments. Thus, Section 4 of RA
hundred eighty-nine, where the buyer has paid 6552 applies. However, there was neither a
at least two years of installments, the buyer is notice of cancellation nor demand for
entitled to the following rights in case he rescission by notarial act to the spouses
defaults in the payment of succeeding Heruela. In Olympia Housing, Inc. v. Panasiatic
installments: Travel Corp., the Court ruled that the vendor
could go to court to demand judicial rescission
(a) To pay, without additional interest, in lieu of a notarial act of rescission. However,
the unpaid installments due within the total an action for reconveyance is not an action for
grace period earned by him, which is hereby rescission. The Court explained in Olympia:
fixed at the rate of one-month grace period for “The action for reconveyance filed by petitioner
every one year of installment payments made: was predicated on an assumption that its
Provided, That this right shall be exercised by contract to sell executed in favor of respondent
the buyer only once in every five years of the buyer had been validly cancelled or rescinded.
life of the contract and its extensions, if any. The records would show that, indeed, no such
cancellation took place at any time prior to the
(b) If the contract is cancelled, the seller institution of the action for reconveyance. . .
shall refund to the buyer the cash surrender .xxx xxx xxx
value of the payments on the property
equivalent to fifty per cent of the total In the present case, there being no valid
payments made and, after five years of rescission of the contract to sell, the action for
installments, an additional five per cent every reconveyance is premature. Hence, the spouses
year but not to exceed ninety per cent of the Heruela have not lost the statutory grace
total payments made: Provided, That the actual period within which to pay. The trial court
cancellation of the contract shall take place should have fixed the grace period to sixty days
after thirty days from receipt by the buyer of conformably with Section 4 of RA 6552.The
the notice of cancellation or the demand for spouses Heruela are not entirely fault-free.
rescission of the contract by a notarial act and They have been remiss in performing their
upon full payment of the cash surrender value obligation. The trial court found that the
to the buyer. spouses Heruela offered once to pay the
balance of the purchase price. However, the
Down payments, deposits or options on the spouses Heruela did not consign the payment
contract shall be included in the computation during the pendency of the case. In the
of the total number of installments made. meanwhile, the spouses Heruela enjoyed the
Sec. 4. In case where less than two years of use of the land. WHEREFORE, we AFFIRM the
installments were paid, the seller shall give the RTC, dismissing the complaint for Recovery of
buyer a grace period of not less than sixty days Ownership with Damages, with
from the date the installment became due. If MODIFICATION.
the buyer fails to pay the installments due at
the expiration of the grace period, the seller Heirs of Mascuñana vss CA, G.R. No. 158646,
may cancel the contract after thirty days from June 23, 2005
receipt by the buyer of the notice of Facts: Gertrudis Wuthrich and her 6 siblings
cancellation or the demand for rescission of the were the co-owners of a parcel of land.
contract by a notarial act. Gertrudis and two other co-owners sold each
of their one-seventh (1/7) shares to Jesus
Mascuñana. The latter then sold a portion of his

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140-square-meter undivided share of the expressing her willingness to buy the subject
property to Diosdado Sumilhig. Mascuñana property. The trial court and the CA rendered
later sold an additional 160-square-meter judgment in favor of Barte and the spouses
portion to Sumilhig. However, the parties Layumas. Petitioners filed the instant petition
agreed to revoke the said deed of sale and, in for review on certiorari with this Court.
lieu, executed a Deed of Absolute Sale. In the
said deed, Mascuñana sold an undivided 469- ISSUE: WAS THE SALE MADE BY JESUS M.
square-meter portion of the property for MASCUÑANA IN FAVOR OF DIOSDADO
P4,690.00, with P3,690.00 as downpayment. SUMILHIG A CONTRACT TO SELL OR
That the balance P1,000.00 shall be paid as CONTRACT OF SALE?
soon as they are surveyed in the name of the
VENDEE and all papers pertinent and necessary Held: The petitioners' contention has no factual
to the issuance of a separate Certificate of Title and legal bases.
in the name of the VENDEE shall have been The deed of absolute sale executed by Jesus
prepared Mascuñana and Sumilhig, provides that during
the lifetime of vendor Jesus Mascuñana, and
Mascuñana and Estabillo executed a Deed of even after his death, his heirs, declared that
Exchange and Absolute Sale of Real Estate. Diosdado Sumilhig was the owner of the
Sumilhig executed a Deed of Sale of Real property, and that the respondents acquired
Property in favor of Corazon Layumas. The title over the property, having purchased the
spouses Layumas then had the property same via a deed of absolute sale from
subdivided into two and took possession of the Diosdado Sumilhig. Thus Mascuñana and
property and allowed a chapel to be Estabillo executed a Deed of Exchange and
constructed. Spouses Layumas allowed Absolute Sale of Real Estate, in which both
Aquilino Barte to stay on a portion of the parties declared that they were co-owners
property to ward off squatters. Unknown to the abutted by the property owned by Sumilhig.
spouses Layumas, a title was issued in the name
of Jesus Mascuñana. The heirs of Mascuñana While it is true that Jesus Mascuñana executed
filed a Complaint for recovery of possession B the deed of absolute sale over the property on
and damages with a writ of preliminary August 12, 1961 in favor of Diosdado Sumilhig
injunction, alleging that they owned the subject for P4,690.00, and that it was only on July 6,
lot by virtue of successional rights from their 1962 that TCT No. 967 was issued in his name
deceased father. as one of the co-owners of Lot No. 124,
Diosdado Sumilhig and the respondents
Barte raised the following special defenses: (a) nevertheless acquired ownership over the
the petitioners were estopped from asserting property. The deed of sale executed by Jesus
ownership over the lot in question because Mascuñana in favor of Diosdado Sumilhig on
they did not object when he occupied the said August 12, 1961 was a perfected contract of
portion of the lot; (b) neither did the petitioners sale over the property. A perfected contract of
protest when a church was built on the sale cannot be challenged on the ground of the
property, or when residential houses were non-transfer of ownership of the property sold
constructed thereon; (c) the petitioners still at that time of the perfection of the contract,
asked Barte and the other occupants whether since it is consummated upon delivery of the
they had notified Rodolfo Layumas of the property to the vendee. It is through tradition
constructions on the property; and (d) the heirs or delivery that the buyer acquires ownership
of Mascuñana, through the lawyer of Mrs. of the property sold. As provided in Article
Renee M. Tedrew, even wrote a letter 1458 of the New Civil Code, when the sale is

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made through a public instrument, the lot to respondent. Art. 1477 provides that the
execution thereof is equivalent to the delivery ownership of the thing sold shall be transferred
of the thing which is the object of the contract, to the vendee upon the actual or constructive
unless the contrary appears or can be inferred. delivery thereof.
The record of the sale with the Register of
Deeds and the issuance of the certificate of title The condition in the deed that the balance of
in the name of the buyer over the property P1,000.00 shall be paid to the vendor by the
merely bind third parties to the sale. As vendee as soon as the property sold shall have
between the seller and the buyer, the transfer been surveyed in the name of the vendee and
of ownership takes effect upon the execution of all papers pertinent and necessary to the
a public instrument covering the real property. issuance of a separate certificate of title in the
31 Long before the petitioners secured a name of the vendee shall have been prepared
Torrens title over the property, the respondents is not a condition which prevented the efficacy
had been in actual possession of the property of the contract of sale. It merely provides the
and had designated Barte as their overseer. manner by which the total purchase price of the
property is to be paid. The condition did not
Art. 1458 of the NCC provides: By the contract prevent the contract from being in full force
of sale, one of the contracting parties obligates and effect.
himself to transfer the ownership of and to
deliver a determinate thing, and the other to The stipulation that the "payment of the full
pay a price certain in money or its equivalent. consideration based on a survey shall be due
In this case, there was a meeting of the minds and payable in five (5) years from the execution
between the vendor and the vendee, when the of a formal deed of sale" is not a condition
vendor undertook to deliver and transfer which affects the efficacy of the contract of sale.
ownership over the property covered by the It merely provides the manner by which the full
deed of absolute sale to the vendee for the consideration is to be computed and the time
price of P4,690.00 of which P3,690.00 was paid within which the same is to be paid. But it does
by the vendee to the vendor as down payment. not affect in any manner the effectivity of the
The vendor undertook to have the property contract.
sold, surveyed and segregated and a separate
title issued in the name of the vendee, upon b) Conditional which may in turn be –
which the latter would be obliged to pay the 1. an executed contract, or
balance of P1,000.00. There was no stipulation 2. an executory contract
in the deed that the title to the property
remained with the vendor, or that the right to Coronel vs CA., G.R. No. 103577, Oct 7,
unilaterally resolve the contract upon the 1996
buyer's failure to pay within a fixed period was
given to such vendor. Patently, the contract Facts: Coronel executed a document entitled
executed by the parties is a deed of sale and “Receipt of Downpayment” in favor of
not a contract to sell. Alcaraz for P50,000 downpayment of the
amount of P1.24M as purchase price for an
Applying these principles to this case, the inherited house and lot, without reservation
contract of sale between the parties is absolute, to withhold the transfer of such property until
not conditional. There is no reservation of full payment. The purpose of such
ownership nor a stipulation providing for a downpayment was for the heirs to transfer
unilateral rescission by either party. In fact, the the title to their name. Upon the registration
sale was consummated upon the delivery of the of the property to name of the heirs, the

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Coronels sold the same property to Catalina agreed to a conditional contract of sale,
B. Mabanag for P1.58M. The Coronels consummation of which is subject only to the
rescinded the contract with Alcaraz by successful transfer of the certificate of title
depositing the downpayment amount in a from the name of petitioners’ father to their
bank account in favor of Alcaraz. Alcaraz filed names. The suspensive condition was fulfilled
a complaint for specific performance, which thus, the conditional contract of sale between
the trial and the appellate court ruled in her the parties became obligatory, the only act
favor. required for the consummation thereof
being the delivery of the property by means
SC: The agreement is a contract of sale as of the execution of the deed of absolute sale
there was no express reservation of in a public instrument, which petitioners
ownership or title to the subject parcel of unequivocally committed themselves to do
land. as evidenced by the “Receipt of Down
Payment.”
Contract of sale Article 1458, as “one of the
contracting parties obligates himself to It is a canon in the interpretation of contracts
transfer the ownership of and to deliver a that the words used therein should be given
determinate thing, and the other to pay their natural and ordinary meaning unless a
therefor a price certain in money or its technical meaning was intended (Tan vs.
equivalent.” Sale, thus, by its very nature a Court of Appeals, 212 SCRA 586 [1992]).
consensual contract because it is perfected Thus, when petitioners declared in the said
by mere consent. "Receipt of Down Payment" that they —
Received from Miss Ramona Patricia Alcaraz
Conditional contract of sale: if suspensive of 146 Timog, Quezon City, the sum of Fifty
condition not fulfilled, pefection abated; if Thousand Pesos purchase price of our
fulfilled, contract of sale perfected such that inherited house and lot, covered by TCT No.
if there had already been previous delivery of 1199627 of the Registry of Deeds of Quezon
the property subject of the sale to the buyer, City, in the total amount of P1,240,000.00.
ownership thereto automatically transfers to
the buyer by operation of law without any Without any reservation of title until full
further act having to be performed by the payment of the entire purchase price, the
seller. In conditional contract of sale, sale natural and ordinary idea conveyed is that
becomes absolute upon fulfillment of they sold their property.
condition; if property sold to another, first
buyer may seek reconveyance When the "Receipt of Down Payment" is
considered in its entirety, it becomes more
Document entitled “Receipt of Down manifest that there was a clear intent on the
Payment” indicates Conditional Contract part of petitioners to transfer title to the
of Sale and not contract to sell. The buyer, but since the transfer certificate of title
agreement could not have been a contract to was still in the name of petitioner's father,
sell because the sellers made no express they could not fully effect such transfer
reservation of ownership or title to the although the buyer was then willing and able
subject parcel of land. What is clearly to immediately pay the purchase price.
established by the plain language of the Therefore, petitioners-sellers undertook
subject document is that when the said upon receipt of the down payment from
“Receipt of Down Payment” was prepared private respondent Ramona P. Alcaraz, to
and signed by petitioners, the parties had cause the issuance of a new certificate of title

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in their names from that of their father, after house and lot to the buyer if the documents
which, they promised to present said title, were then in order. It just happened,
now in their names, to the latter and to however, that the transfer certificate of title
execute the deed of absolute sale was then still in the name of their father. It
whereupon, the latter shall, in turn, pay the was more expedient to first effect the change
entire balance of the purchase price. in the certificate of title so as to bear their
names. That is why they undertook to cause
The agreement could not have been a the issuance of a new transfer of the
contract to sell because the sellers herein certificate of title in their names upon receipt
made no express reservation of ownership of the down payment in the amount of
or title to the subject parcel of land. P50,000.00. As soon as the new certificate of
Furthermore, the circumstance which title is issued in their names, petitioners were
prevented the parties from entering into an committed to immediately execute the deed
absolute contract of sale pertained to the of absolute sale. Only then will the obligation
sellers themselves (the certificate of title was of the buyer to pay the remainder of the
not in their names) and not the full payment purchase price arise
of the purchase price. Under the established
facts and circumstances of the case, the Condition deemed fulfilled when obligor
Court may safely presume that, had the voluntary prevents its fulfillment: Article
certificate of title been in the names of 1186 provides that “the condition shall be
petitioners-sellers at that time, there would deemed fulfilled when the obligor voluntarily
have been no reason why an absolute prevents its fulfillment.”
contract of sale could not have been
executed and consummated right there and The only requisite for a contract of sale or
then. contract to sell to exist in law is the meeting
of minds upon the thing which is the object
Moreover, unlike in a contract to sell, of the contract and the price, including the
petitioners in the case at bar did not merely manner the price is to be paid by the vendee.
promise to sell the properly to private Under Article 1458 of the New Civil Code, in
respondent upon the fulfillment of the a contract of sale, whether absolute or
suspensive condition. On the contrary, conditional, one of the contracting parties
having already agreed to sell the subject obliges himself to transfer the ownership of
property, they undertook to have the and deliver a determinate thing, and the
certificate of title changed to their names and other to pay therefor a price certain in money
immediately thereafter, to execute the or its equivalent. (Cantemprate v CRS Realty
written deed of absolute sale. Development Corporation G.R. 171399)

Thus, the parties did not merely enter into a Rescission creates the obligation to return
contract to sell where the sellers, after the object of the contract. It can be carried
compliance by the buyer with certain terms out only when the one who demands
and conditions, promised to sell the property rescission can return whatever he may be
to the latter. What may be perceived from the obliged to restore. Rescission abrogates the
respective undertakings of the parties to the contract from its inception and requires a
contract is that petitioners had already mutual restitution of the benefits received.
agreed to sell the house and lot they Thus, respondents Casal, Salvador and CRS
inherited from their father, completely willing Realty must return the benefits received from
to transfer full ownership of the subject the contract to sell if they cannot comply with

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their obligation to deliver the corresponding

certificates of title to petitioners. Condition in the context of a perfected
(Cantemprate v CRS Realty Development contract of sale
The term “condition” in the
Corporation G.R. 171399) context of a perfected contract of sale
pertains, in reality, to the compliance by one
SC: The deed of sale, even if denominated as party of an undertaking the fulfillment of
a deed of conditional sale, may be treated as which would beckon, in turn, the
absolute in nature, especially if title to the demandability of the reciprocal prestation of
property sold is not reserved in the vendor or the other party. The reciprocal obligations
if the vendor is not granted the right to referred to would normally be, in the case of
unilaterally rescind the contract predicated vendee, the payment of the agreed purchase
on the fulfillment or non-fulfillment of the price and, in the case of the vendor, the
prescribed condition. (Romero v CA G.R. fulfillment of certain express warranties
107207) (which, in the present case is the timely e
viction of the squatters on the property).
Perfected contract of sale: may either be (Romero v CA G.R. 107207)
absolute or conditional depending on
whether the agreement is devoid of, or i. Distinctions between executed and executory
subject to, any condition imposed on the contracts
passing of title of the thing to be conveyed
or on the obligation of party thereto. When EXECUTED CONTRACT EXECUTORY CONTRACT
ownership is retained until the fulfillment of a
Property (ownership) is No property is conveyed.
positive condition the breach of the
conveyed.
condition will simply prevent the duty to
convey title from acquiring an obligatory If buyer defaults, seller If buyer defaults, seller
force. If the condition is imposed on an may sue for the price. only entitled to damages.
obligation of a party which is not complied
Risk of loss is generally Risk of loss is generally
with, the other party may either refuse to
borne by the buyer. borne by the seller.
proceed or waive said condition (Art. 1545).
Where, of course, the condition is imposed
upon the perfection of the contract itself, the G. Contract of Sale vs Contract to Sell
failure of such condition would prevent the
juridical relation itself from coming into CONTRACT TO SELL CONTRACT OF SALE
existence. (Romero v CA G.R. 107207) Whereby agreement the Title passes to the buyer
ownership is reserved in upon delivery of the thing
Real character of a contract, substance the seller and is not to sold
more significant than title given to it by pass until the full
parties: For example, a deed of sale, payment, of the purchase
although denominated as a deed of price is made
conditional sale, may be treated as absolute The payment in full of the non-payment of the price
in nature, if title to the property sold is not price is a positive is a negative resolutory
reserved in the vendor or if the vendor is not suspensive condition. condition; in the second
granted the right to unilaterally rescind the Hence, if the price is not case, full payment is a
contract predicated on the fulfillment or paid, it is as if the positive suspensive
non-fulfillment, as the case may be, of the obligation to sell condition
prescribed condition. (Romero v CA G.R. the title remains in the the vendor has lost and
107207) vendor if the vendee does cannot recover the

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not comply with the ownership of the land Rather, his failure to do so brought about a
condition precedent of sold until and unless the situation which prevented the obligation of the
making payment at the contract of sale is itself spouses to convey title from acquiring an
time specified in the resolved and set aside. obligatory force.
contract
H. Contract to Sell vs Conditional Sale
Case: − In a conditional sale title, is transferred upon
Ong vs CA, G.R. No. 97347, July 6, 1999 happening of the condition. Seller cannot sell
to another person compared to Contract to
Facts: Ong and spouses Robles executed an sell where ownership is transferred upon
“Agreement of Purchase and Sale” of 2 parcels of creation of necessary documents.
land for P2M initial payment of P600,000 and
balance of 1.4M to be paid in 4 installments Cases:
binding themselves that upon the payment of the Coronel vs CA, G.R. No. 103577, October 7, 1996
total purchase price the seller delivers a good and
sufficient deed of sale and conveyance for the A contract to sell as defined hereinabove, may not
parcels of land. Ong took possession of the land, even be considered as a conditional contract of
building improvements thereon. Ong’s checks sale where the seller may likewise reserve title to
were dishonored due to insufficient funds. The the property subject of the sale until the fulfillment
spouses asked for the return of the properties and of a suspensive condition, because in a conditional
filed a complaint for rescission of contract and contract of sale, the first element of consent is
recovery of properties. present, although it is conditioned upon the
happening of a contingent event which may or
SC: “Agreement of Purchase and Sale” is in the may not occur. If the suspensive condition is not
nature of contract to sell. A careful reading of the fulfilled, the perfection of the contract of sale is
parties’ “Agreement of Purchase and Sale” shows completely abated (cf. Homesite and Housing
that it is in the nature of a contract to sell. The Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).
spouses bound themselves to deliver a deed of However, if the suspensive condition is fulfilled, the
absolute sale and clean title covering the two contract of sale is thereby perfected, such that if
parcels of land upon full payment by the buyer of there had already been previous delivery of the
the purchase price of P2M. This promise to sell was property subject of the sale to the buyer,
subject to the fulfillment of the suspensive ownership thereto automatically transfers to the
condition of full payment of the purchase price by buyer by operation of law without any further act
the Ong. The non-fulfillment of the condition of having to be performed by the seller.
full payment rendered the contract to sell
ineffective and without force and effect. It must be Olivares Realty Corp., vs Castillo, G.R. No.
stressed that the breach contemplated in Article 196251, July 9, 2014
1191 of the New Civil Code is the obligor’s failure
to comply with an obligation already extant, not a Benjamin Castillo was the registered owner of a
failure of a condition to render binding that 346,918-squaremeter parcel of land located in
obligation. Failure to pay, in this instance, is not Laurel, Batangas, covered by Transfer Certificate of
even a breach but merely an event which prevents Title No. T-19972. The Philippine Tourism
the vendor’s obligation to convey title from Authority allegedly claimed ownership of the same
acquiring binding force. Hence, the agreement of parcel of land based on Transfer Certificate of Title
the parties the present case may be set aside, but No. T-18493. On April 5, 2000, Castillo and
not because of a breach on the part of Ong for Olivarez Realty Corporation, represented by Dr.
failure to complete payment of the purchase price. Pablo R. Olivarez, entered into a contract of

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conditional sale over the property. Under the deed exemplary damages, attorney’s fees, and costs of
of conditional sale, Castillo agreed to sell his suit.
property to Olivarez Realty Corporation for
P19,080,490.00. Issue: WON Castillo is entitled to cancel the
contract of conditional sale
As to the balance of P14,080,490.00, Olivarez
Realty Corporation agreed to pay in 30 equal SC: Yes. Since Olivarez Realty Corporation illegally
monthly installments every eighth day of the withheld payments of the purchase price, Castillo
month beginning in the month that the parties is entitled to cancel his contract with petitioner
would receive a decision voiding the Philippine corporation. However, we properly characterize
Tourism Authority’s title to the property. Under the the parties’ contract as a contract to sell, not a
deed of conditional sale, Olivarez Realty contract of conditional sale.
Corporation shall file the action against the
Philippine Tourism Authority "with the full In both contracts to sell and contracts of
assistance of [Castillo]." conditional sale, title to the property remains with
the seller until the buyer fully pays the purchase
The parties agreed that Olivarez Realty price. Both contracts are subject to the positive
Corporation may immediately occupy the suspensive condition of the buyer’s full payment
property upon signing of the deed of conditional of the purchase price.
sale. Should the contract be cancelled, Olivarez
Realty Corporation agreed to return the property’s In a contract of conditional sale, the buyer
possession to Castillo and forfeit all the automatically acquires title to the property upon
improvements it may have introduced on the full payment of the purchase price. This transfer
property. of title is "by operation of law without any further
act having to be performed by the seller." In a
After the parties had signed the deed of contract to sell, transfer of title to the prospective
conditional sale, Olivarez Realty Corporation buyer is not automatic. "The prospective seller
immediately took possession of the property. [must] convey title to the property [through] a
However, the corporation only paid 2,500,000.00 deed of conditional sale."
of the purchase price. Contrary to the agreement,
the corporation did not file any action against the The distinction is important to determine the
Philippine Tourism Authority to void the latter’s applicable laws and remedies in case a party does
title to the property. The corporation neither not fulfill his or her obligations under the contract.
cleared the land of the tenants nor paid them In contracts of conditional sale, our laws on sales
disturbance compensation. Despite demand, under the Civil Code of the Philippines apply. On
Olivarez Realty Corporation refused to fully pay the other hand, contracts to sell are not governed
the purchase price. by our law on sales but by the Civil Code
provisions on conditional obligations.
Arguing that Olivarez Realty Corporation
committed substantial breach of the contract of
conditional sale and that the deed of conditional
sale was a contract of adhesion, Castillo prayed for
rescission of contract under Article 1191 of the
Civil Code of the Philippines. He further prayed
that Olivarez Realty Corporation and Dr. Olivarez
be made solidarily liable for moral damages,

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ARTICLES 1459-1465
Art. 1464. In the case of fungible goods, there
Art. 1459. The thing must be licit and the vendor may be a sale of an undivided share of a specific
must have a right to transfer the ownership mass, though the seller purports to sell and the
thereof at the time it is delivered. (n) buyer to buy a definite number, weight or
measure of the goods in the mass, and though
Art. 1460. A thing is determinate when it is the number, weight or measure of the goods in
particularly designated or physical segregated the mass is undetermined. By such a sale the
from all other of the same class. buyer becomes owner in common of such a share
of the mass as the number, weight or measure
The requisite that a thing be determinate is bought bears to the number, weight or measure
satisfied if at the time the contract is entered into, of the mass. If the mass contains less than the
the thing is capable of being made determinate number, weight or measure bought, the buyer
without the necessity of a new or further becomes the owner of the whole mass and the
agreement between the parties. (n) seller is bound to make good the deficiency from
goods of the same kind and quality, unless a
Art. 1461. Things having a potential existence contrary intent appears. (n)
may be the object of the contract of sale.
Art. 1465. Things subject to a resolutory
The efficacy of the sale of a mere hope or condition may be the object of the contract of
expectancy is deemed subject to the condition sale. (n)
that the thing will come into existence. I. OBJECT
• Licit – not contrary to law, morals, good
The sale of a vain hope or expectancy is void. (n) customs, public order or public policy, within the
commerce of man; if illicit, contract is void
Art. 1462. The goods which form the subject of a
• All rights which are not intransmissible or
contract of sale may be either existing goods,
personal may also be the object of sale (i.e. right
owned or possessed by the seller, or goods to be
of usufruct)
manufactured, raised, or acquired by the seller
after the perfection of the contract of sale, in this • Services cannot be the object of a contract of
Title called "future goods." sale

There may be a contract of sale of goods, whose TEST OF DETERMINABILITY

acquisition by the seller depends upon a ü Capacity to Segregate
contingency which may or may not happen. (n) ü No further agreement

Art. 1463. The sole owner of a thing may sell an A. Qualities – The object must be:
undivided interest therein. (n) a. Lawful (1459)
• Object must be licit
• Vendor must have the right to transfer
ownership at the time the object is
delivered

Unlawful object:
• Future inheritance
• Homestead (sale within 5 year
prohibitory period)

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to dispose of his landholding, could be

Case: relevant. Precisely, he had disposed of his rights
Manlapat vs CA, G.R. No. 125585, June 8, to the lot even before the government could
2005 give the title to him.

Facts: In 1976, a free patent was issued in The mortgage executed in favor of RBSP is also
Manlapat’s name. In 1954, before the subject lot beyond the pale of the prohibition, as it was
was titled, he sold a portion to Ricardo forged in December 1981 a few months past the
evidenced by a deed of sale. He conveyed period of prohibition.
another portion to Ricardo in 1981. Leon Banaag
(son-in-law of Manlapat) executed a mortgaged b. Determinate or Determinable
with the subject lot as the collateral. Heirs of − The requisite that a thing be determinate
Ricardo sought to obtain the title from is satisfied if at the time the contract is
petitioners which was in the custody of RBSP, entered into, the thing is capable of being
earlier surrendered as a consequence of the made determinate without the necessity
mortgage. of a new or further agreement between
the parties. Art. 1349 states that the object
SC: Five-year prohibition against alienation or of every contract must be determinate, as
encumbrances under the Public Land Act. to its kind. The fact that the quantity is not
Eduardo was issued a title in 1976 on the basis determinate shall not be an obstacle to
of his free patent application. Such application the existence of the contract, provided it
implies the recognition of the public dominion is possible to determine the same, without
character of the land and, hence, the 5-year the need of a new contract between the
prohibition imposed by the PLA against parties.
alienation or encumbrance of the land covered
− Art. 1460 defines that a thing is
by a free patent or homestead should have been
determinate when it is particularly
considered.
designated or physically segregated from
all others of the same class. The property
The deed of sale which was executed in 1981 is
sold by Loreto to Gabino was
obviously covered by the proscription, the free
determinable. (Vagilidad v Vagilidad)
patent having been issued in 1976. However,
petitioners may recover the portion sold since
the prohibition was imposed in favor of the free Cases:
patent holder. 1. Sale of co-heir of definite portion of
estate prior to partition
The sale executed 1954 was before the issuance
of the patent in 1976. Apparently, Eduardo Vagilidad vs Vagilidad, G.R. No. 161136,
disposed of the portion even before he thought Nov 16, 2006
of applying for a free patent. Where the sale or
transfer took place before the filing of the free Facts:
patent application, whether by the vendor or the 4,280 sqm of lot was owned by Zoilo. In
vendee, the prohibition should not be applied. 1931, ZOILO died. Subsequently son of
In such a situation, neither the prohibition nor Zolio, Loreto sold to Gabino Vagilidad a
the rationale therefore which is to keep in the portion of said lot as evidenced by the
family of the patentee that portion of the public Deed of Absolute Sale executed by Loreto
land which the government has gratuitously on 1986. After, Zoilo’s children executed an
given him, by shielding him from the temptation Extrajudicial Settlement of Estate

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adjudicating the entire lot to Loreto in in a spiritual part of a thing, not materially
1987. Gabino filed petition of surrender of or physically divided. Before the partition
lot against Loreto, claiming that he is of the property held in common, no
owner pursuant to deed of Sale issued individual or co-owner can claim title to
before the extra judicial settlement. any definite portion thereof. All that the
co-owner has is an ideal or abstract quota
However, there seemed to be an amicable or proportionate share in the entire
settlement between them, and the case property. LORETO sold the subject
was sent to archives. property to GABINO as a co-owner.
LORETO had a right, even before the
Gabino paid real estate taxes on the land partition to transfer in whole or in part his
he bought from Loreto which he later sold undivided interest in the lot even without
to Wilfredo Vagilidad. Likewise, a Deed of the consent of his co-heirs. This right is
Absolute Sale was also made by Loreto in absolute. Thus, what GABINO obtained by
favor of Wilfredo for the same portion of virtue of the sale on were the same rights
lot. Wlfredo mortgaged this property to as the vendor LORETO had as co-owner, in
obtain a loan. Gabino and his wife filed an ideal share equivalent to the
petition for reconveyance. consideration given under their
transaction. Consequently, when LORETO
The requisite that a thing be determinate is purportedly sold to WILFREDO the same
satisfied if at the time the contract is portion of the lot, he was no longer the
entered into, the thing is capable of being owner said lot. Based on the principle that
made determinate without the necessity of "no one can give what he does not have,"
a new or further agreement between the LORETO could not have validly sold to
parties. Art. 1349 states that the object of WILFREDO what he no longer had.
every contract must be determinate, as to
its kind. The fact that the quantity is not 2. Effect of agreement where the exact
determinate shall not be an obstacle to the number of palay to be sold was not fixed
existence of the contract, provided it is
possible to determine the same, without Case:
the need of a new contract between the National Grains Authority vs IAC, 171
parties. Art. 1460 defines that a thing is SCRA 131
determinate when it is particularly
designated or physically segregated from Facts: Leon Soriano submitted the
all others of the same class. The property documents required by the NFA for pre-
sold by Loreto to Gabino was qualifying as a seller. These were processed
determinable. and he was given a quota of 2,640 cavans
of palay. On August 1979, Soriano
A co-owner has full ownership of his delivered 630 cavans of palay. The palay
pro-indiviso share and has the right to delivered were not rebagged, classified
alienate, assign or mortgage it, and and weighed. When Soriano demanded
substitute another person for its payment, he was informed that it was held
enjoyment. The subject parcel, being an in abeyance since Mr. Cabal was still
inherited property, is subject to the rules of investigating on an information that
co-ownership under the Civil Code. Co- Soriano was not a bona fide farmer and the
ownership is the right of common palay delivered was not produced from his
dominion which two or more persons have farmland but was taken from the

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warehouse of a rice trader, Ben de acceptance referred to which determines

Guzman. Petitioner wrote Soriano advising consent is the acceptance of the offer of
him to withdraw the 630 cavans. Instead of one party by the other and not of the
withdrawing, Soriano insisted that the goods delivered.
palay grains delivered be paid. NFA was
ordered to pay Soriano. Compliance of mutual obligations once a
contract of sale is perfected. 
From the
Present case involves a perfected contract moment the contract of sale is perfected, it
of sale. Soriano initially offered to sell palay is incumbent upon the parties to comply
grains produced in his farmland to NFA. with their mutual obligations or “the parties
When the latter accepted the offer by may reciprocally demand performance”
noting in Soriano’s Farmer’s Information thereof. (Article 1475, Civil Code, 2nd par.)
Sheet a quota of 2,640 cavans, there was
already a meeting of the minds between 3. Sale of undivided share in a mass of
the parties. The object of the contract, fungible goods
being the palay grains produced in
Soriano’s farmland and the NFA was to pay c. Existing, or Future or Contingent (1462)
the same depending upon its quality. The
contention that – since the delivery were
Art. 1462. The goods which form the subject of
not rebagged, classified and weighed in
a contract of sale may be either existing goods,
accordance with the palay procurement
owned or possessed by the seller, or goods to
program of NFA, there was no acceptance
be manufactured, raised, or acquired by the
of the offer thus – this is a clear case of an
seller after the perfection of the contract of sale,
unaccepted offer to sell, is untenable.
in this Title called "future goods."

Quantity being indeterminate does not

affect perfection of contract; No need to Case:
create new contract. The fact that the exact i. Sale of Future Inheritance
number of cavans of palay to be delivered Tañedo vs CA (1996)
has not been determined does not affect
the perfection of the contract. In the Facts:
present case, there was no need for NFA On October 20, 1962, Lazaro Tañedo
and Soriano to enter into a new contract to executed a notarized deed of absolute sale
determine the exact number of cavans of in favor of his eldest brother, Ricardo
palay to be sold. Soriano can deliver so Tañedo, and the latter’s wife, Teresita
much of his produce as long as it does not Barera, private respondents herein,
exceed 2,640 cavans. (It did not need a new whereby he conveyed to the latter in
contract to make 630 cavans a determinate consideration of P1,500.00, “one hectare of
thing). whatever share I shall have over Lot No.
191 of the cadastral survey of Gerona,
Sale a consensual contract; Acceptance is Province of Tarlac and covered by Title T-
on the offer and not the goods delivered. l3829 of the Register of Deeds of Tarlac,”
Sale is a consensual contract, “there is the said property being his “future
perfection when there is consent upon the inheritance” from his parents (Exh. 1). Upon
subject matter and price, even if neither is the death of his father Matias, Lazaro
delivered.” (Obana vs. C.A., L-36249, executed an “Affidavit of Conformity”
March 29, 1985, 135 SCRA 557, 560). The dated February 28, 1980 (Exh. 3) to “re-

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affirm, respect. acknowledge and validate

the sale I made in 1962.” On January 13, d. Transferability of Ownership
1981, Lazaro executed another notarized − It need not exist at the perfection of the
deed of sale in favor of private respondents contract. Required at the time of
covering his “undivided ONE TWELVE delivery
(1/12) of a parcel of land known as Lot 191 − Subsequent acquisition of title by a
x x (Exh. 4). He acknowledged therein his vendor w/out title validates the sale
receipt of P 10,000.00 as consideration − Acquisition of title by the vendee may
therefor. In February 1981, Ricardo learned depend upon a contingency (right of
that Lazaro sold the same property to his redemption)
children, petitioners herein, through a
deed of sale dated December 29, 1980 • The seller must have the right to transfer
(Exh. E). On June 7, 1982, private the ownership of the thing or right sold to
respondents recorded the Deed of Sale the buyer at the time of delivery and not at
(Exh. 4) in their favor in the Registry of the time of the making of the contract.
Deeds and the corresponding entry was
made in Transfer Certificate of Title No. • Nemo dat quod non habet, as an ancient
166451 (Exh. 5). Latin maxim says. One cannot give what
does not have.
Petitioners on July 16, 1982 filed a
complaint for rescission (plus damages) of Note: When ownership is required –at the
the deeds of sale executed by Lazaro in time of sale but ownership may not be w/
favor of private respondents covering the the seller in case of future things.
property inherited by Lazaro from his
father. Cases:
i. Sale by Mortgagee of Land Not Proper
Issue: Is a sale of future inheritance valid? Subject of Mortgage
Cavite Development Bank vs Lim, 324
Held: SCRA 346
“(n)o contract may be entered into upon a
future inheritance except in cases expressly Facts: Rodolfo Guansing obtained a
authorized by law.” fraudulent title by executing an Extra-
Judicial Settlement of the Estate With
Consequently, said contract made in 1962 Waiver where he made it appear that he
is not valid and cannot be the source of any and Perfecto Guansing were the only
right nor the creator of any obligation surviving heirs entitled to the property,
between the parties. and that Perfecto had waived all his rights
thereto. Consequently, he acquired title
Hence, the “affidavit of conformity” dated and used this to acquire a loan. CDB
February 28, 1980, insofar as it sought to foreclosed the mortgage and granted him
validate or ratify the 1962 sale, is also the period of redemption, which he did
useless and, in the words of the respondent not exercise.
Court, “suffers from the same infirmity.”
Even private respondents in their It is not required that, at the perfection
memorandum concede this. stage, the seller be the owner of the thing
sold or even that such subject matter of
the sale exists at that point in time. Thus,

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under Art. 1434 of the Civil Code, when a

person sells or alienates a thing which, at ii. Conveyance of privilege to purchase land
that time, was not his, but later acquires before it is awarded to tenant or occupant
title thereto, such title passes by operation Hermosilla vs Remoquillo, G.R. No.
of law to the buyer or grantee. This is the 167320, Jan 30, 2007
same principle behind the sale of "future
goods" under Art. 1462 of the Civil Code. Facts: Apolinario Hermosilla was
However, under Art. 1459, at the time of occupying a lot in San Pedro Tunasan
delivery or consummation stage of the Homesite, a land of the Republic. He
st
sale, it is required that the seller be the divided the lot into 2. The 1 portion was
owner of the thing sold. Otherwise, he will given to his son Salvador and the
not be able to comply with his obligation other(questioned lot) to his grandson
to transfer ownership to the buyer. It is the Jaime Remoquillo through a Deed of
consummation stage where the principle Assignment. A law was passed prohibiting
of nemo dat quod non habet applies. In the transfer of ownership of the said lot.
this case, the sale by CDB to Lim of the Salvador and Jaime after made a
property mortgaged in 1983 by Rodolgo Kasunduan ng Paglipat Ng Karapatan sa
Guansing must, therefore, be deemed a Isang Lagay na Lupang Solar (Kasunduan)
nullity for CDB did not have a valid title to whereby Jaime transferred ownership of
the said property. To be sure, CDB never the 65 square meters (the questioned
acquired a valid title to the property property) in favor of Salvador. NHA
because the foreclosure sale, by virtue of awarded Jaime title. Salvador and his heirs
which the property had awarded to CDB questioned the title stating they have their
as highest bidder, is likewise void since the house and in actual possession of the
mortgagor was not the owner of the questioned lot.
property foreclosed.
When the Kasunduan was executed in
CDB cannot be considered a mortgagee 1972 by Jaime in favor of Salvador —
in good faith. While petitioners are not petitioners' predecessor-in-interest —
expected to conduct an exhaustive Lot 19, of which the questioned property
investigation on the history of the forms part, was still owned by the
mortgagor's title, CDB cannot be excused Republic. Nemo dat quod non habet.
from the duty of exercising the due Nobody can give what he does not
diligence required of banking institutions possess. Jaime could not thus have
in ascertaining the validity of the title. transferred anything to Salvador via the
Kasunduan.
That after the payment of the 10% “option
money”, the Offer to Purchase provides The transfer became one in violation of
for the payment only of the balance of the law and therefore void ab initio. Hence,
purchase price, implying that the "option petitioners acquired no right over the lot
money" forms part of the purchase price. from a Void Kasunduan, for no rights are
This is precisely the result of paying created. It is generally considered that as
earnest money under Art. 1482 of the Civil between the parties to a contract, validity
Code. It is clear then that the parties in this cannot be given to it by estoppel if it is
case actually entered into a contract of prohibited by law or is against public
sale, partially consummated as to the policy.
payment of the price.

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Since the property was previously a public of the property and was only expecting
land, petitioners have no personality to to inherit it. Hence, there was no valid sale
impute violation of the law. If the title was from which ownership of the subject
in fact fraudulently obtained, it is the State property could have transferred from
which should file the suit to recover the Miguel Socco to Arturo Reyes. Without
property through the Office of the acquiring ownership of the subject
Solicitor General. Consequently, Jaime’s property, Arturo Reyes also could not
ownership was valid not being contrary to have conveyed the same to his heirs,
any law and since there was no pending herein petitioners.
other application yet. That at the time he
applied for title, he was recogned as the The law specifically requires that the
actual applicant / occupant. vendor must have ownership of the
property at the time it is delivered.
iii. Contract to sell (by heir prior to partition) Petitioners cannot derive title to the
Heirs of Arturo Reyes vs Beltran, G.R. subject property by virtue of the Contract
No. 176474, Nov 27, 2008 to Sell. It was stated in the Contract that
the vendor was not yet the owner of the
Facts: A big parcel of lot was originally subject property and was merely
owned by Spouses Laquian. When the expecting to inherit the same. It was also
Spouses died, the property was left with declared that conveyance of the subject
the wife’s siblings. Through an to the buyer was a conditional sale. It is,
"Extrajudicial Settlement of the Estate of therefore, apparent that the sale of the
the Deceased Constancia R. Socco (wife)," subject property in favor of Arturo Reyes
the parcel of land was partitioned into 3 was conditioned upon the event that
lots. Before the partition, Miguel Socco, 1 Miguel Socco would actually inherit and
of the heirs sold his share to Arturo Reyes become the owner of the said property.
as evidenced by the Contract to Sell Absent such occurrence, Miguel R. Socco
stating that he is to inherit a particular never acquired ownership of the subject
portion. But upon partition, the said property which he could validly transfer to
portion sold was adjudicated to Arturo Reyes. Without acquiring
respondent, Elena Socco – Beltran, and ownership of the subject property, Arturo
not to Miguel Socco. Reyes also could not have conveyed the
same to his heirs, herein petitioners.
SC: Article 1459 of the Civil Code on
contracts of sale, “The thing must be licit
and the vendor must have a right to
transfer ownership thereof at the time
it is delivered.” The law specifically
requires that the vendor must have
ownership of the property at the time it is
delivered. Petitioners claim that the
property was constructively delivered to
them in 1954 by virtue of the Contract to
Sell. However, as already pointed out by
this Court, it was explicit in the Contract
itself that, at the time it was executed,
Miguel R. Socco was not yet the owner

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ARTICLE 1469-1474 Art. 1473. The fixing of the price can never be
left to the discretion of one of the contracting
Art. 1469. In order that the price may be considered parties. However, if the price fixed by one of the
certain, it shall be sufficient that it be so with parties is accepted by the other, the sale is
reference to another thing certain, or that the perfected. (1449a
determination thereof be left to the judgment of a
special person or persons. Art. 1474. Where the price cannot be
determined in accordance with the preceding
Should such person or persons be unable or articles, or in any other manner, the contract is
unwilling to fix it, the contract shall be inefficacious, inefficacious. However, if the thing or any part
unless the parties subsequently agree upon the thereof has been delivered to and appropriated
price. by the buyer he must pay a reasonable price
therefor. What is a reasonable price is a
If the third person or persons acted in bad faith or question of fact dependent on the
by mistake, the courts may fix the price. circumstances of each particular case. (n)

I. PRICE
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller or
General Principles in the agreement as to price
the buyer, the party not in fault may have such
remedies against the party in fault as are allowed the
Price – sum certain in money or its equivalent
seller or the buyer, as the case may be. (1447a)

Boston Bank of the Philippines (Formerly Bank

Art. 1470. Gross inadequacy of price does not affect
of Commerce) vs Manalo, G.R. No. 158149,
a contract of sale, except as it may indicate a defect
February 9, 2006
in the consent, or that the parties really intended a
donation or some other act or contract. (n)
FACTS: Boston Bank, now petitioner, filed the
instant petition for review on certiorari assailing
Art. 1471. If the price is simulated, the sale is void,
the CA rulings. It maintains that, as held by the CA,
but the act may be shown to have been in reality a
the records do not reflect any schedule of
donation, or some other act or contract. (n)
payment of the 80% balance of the purchase price,

or P278,448.00. Petitioner insists that unless the
Art. 1472. The price of securities, grain, liquids, and
parties had agreed on the manner of payment of
other things shall also be considered certain, when
the principal amount, including the other terms
the price fixed is that which the thing sold would
and conditions of the contract, there would be no
have on a definite day, or in a particular exchange or
existing contract of sale or contract to sell.47
market, or when an amount is fixed above or below
the price on such day, or in such exchange or
WON: Petitioner, as seller, forged a perfect
market, provided said amount be certain. (1448)
contract to sell over a real property to
respondents, as buyer.

HELD: We agree with petitioner’s contention that,
for a perfected contract of sale or contract to sell
to exist in law, there must be an agreement of the
parties, not only on the price of the property sold,
but also on the manner the price is to be paid by
the vendee.

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subject matter he obligates himself to

A definite agreement as to the price is an essential deliver.
element of a binding agreement to sell personal
or real property because it seriously affects the Price is false- the contract is valid but
rights and obligations of the parties. Price is an subject to reformation to indicate the real
essential element in the formation of a binding price upon which the minds of the parties
and enforceable contract of sale. The fixing of the have met.
price can never be left to the decision of one of
the contracting parties. But a price fixed by one of Cases:
the contracting parties, if accepted by the other, 1. Effect if price is simulated
gives rise to a perfected sale.57 Cruzado vs Bustos, 34 Phil 17

It is not enough for the parties to agree on the FACTS: Counsel for the plaintiff Santiago
price of the property. The parties must also agree Cruzado filed a written complaint on
on the manner of payment of the price of the October 8, 1910, amended on September
property to give rise to a binding and enforceable 25, 1913, in which he alleged that plaintiff
contract of sale or contract to sell. This is so was the owner of certain rural property
because the agreement as to the manner of situated in the barrio of Dolores, formerly
payment goes into the price, such that a San Isidro, of the municipality of Bacolor,
disagreement on the manner of payment is Pampanga, containing an area of 65
tantamount to a failure to agree on the price.58 balitas and bounded as set forth in the
complaint; that Estafania Bustos, during
In a contract to sell property by installments, it is her lifetime, and now the administrator of
not enough that the parties agree on the price as her estate, together with the other
well as the amount of downpayment. The parties defendant, Manuel Escaler, had, since the
must, likewise, agree on the manner of payment of year 1906 up to the present, been
the balance of the purchase price and on the other detaining the said parcel of land, and had
terms and conditions relative to the sale. Even if refused to deliver the possession thereof
the buyer makes a downpayment or portion to plaintiff and to recognize his ownership
thereof, such payment cannot be considered as of the same, notwithstanding the
sufficient proof of the perfection of any purchase repeated demands made upon them; that
and sale between the parties. by such detention, the plaintiff had
suffered losses and damages to the
We agree with the contention of the petitioner amount of P3,500. He therefore asked for
that, as held by the CA, there is no showing, in the judgment declaring plaintiff to be the
records, of the schedule of payment of the balance owner of the said parcel of land and
of the purchase price on the property amounting ordering defendants to return it to
to P278,448.00 plaintiff and to pay the latter P3,500 for
losses and damages, and the costs.
A. Requisites:
a) The price must be real (1471) WON: The deed of sale of 65 balitas of
land situated in the municipality of
Price is real- when at the perfection of the Bacolor, Pampanga, executed by
sale, there is legal intention on the part of Estefania Bustos, with the assistance of
the buyer to pay the price and the legal her husband Bernardino Dizon, in favor of
expectation on the part of the seller to Agapito Geronimo Cruzado, for the sum
receive such price as the value of the of P2,200, was simulated.

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Doles vs Angeles, G.R. No. 149353, June 26,

HELD: The simulation of the said sale was 2006
effected by making a pretended contract
which bore the appearance of truth, when FACTS: On April 1, 1997, Ma. Aura Tina
really and truly there was no contract, Angeles (respondent) filed with the RTC a
because the contracting parties did not in complaint for Specific Performance with
fact intend to execute one, but only to Damages against Jocelyn B. Doles (petitioner),
formulate a sale in such a manner that, for docketed as Civil Case No. 97-82716.
the particular purposes sought by Bustos Respondent alleged that petitioner was
and Cruzado, it would appear to have indebted to the former in the concept of a
been celebrated solely that Cruzado personal loan amounting to P405,430.00
might hold his office of procurador on the representing the principal amount and
strength of the security afforded by the interest; that on October 5, 1996, by virtue of
value of the land feignedly sold. a "Deed of Absolute Sale", petitioner, as seller,
ceded to respondent, as buyer, a parcel of
This action is of course improper, not only land, as well as the improvements thereon,
because the sale was simulated, but also with an area of 42 square meters, covered by
because it was not consummated. The Transfer Certificate of Title No. 382532,4 and
price of the land was not paid nor did the located at a subdivision project known as
vendee take possession of the property Camella Townhomes Sorrente in Bacoor,
from the 7th of September, 1875, when Cavite, in order to satisfy her personal loan
the said sale was feigned, until the time of with respondent; that this property was
his death; nor did any of his successors, mortgaged to National Home Mortgage
nor the plaintiff himself until the date of Finance Corporation (NHMFC) to secure
his claim, enter into possession of the petitioner’s loan in the sum of P337,050.00
land. with that entity.

That the contract of purchase and sale, as WON: The contract of sale on the parcel of
consensual, is perfected by consent as to land was executed for a cause.
the price and the thing and is
consummated by the reciprocal delivery HELD: Since the sale is predicated on that
of the one and the other, the full loan, then the sale is void for lack of
ownership of the thing sold being consideration.
conveyed to the vendee, from which
moment the rights of action derived from In view of these anomalies, the Court cannot
this right may be exercised. entertain the possibility that respondent
agreed to assume the balance of the
It is, then, of the utmost importance to mortgage loan which petitioner allegedly
examine whether in the said sale the owed to the NHMFC, especially since the
purchase price was paid and whether the record is bereft of any factual finding that
vendee took possession of the land petitioner was, in the first place, endowed with
supposed to have been sold. any ownership rights to validly mortgage and
convey the property. As the complainant who
initiated the case, respondent bears the
2. Effect if there is no consideration burden of proving the basis of her complaint.
Having failed to discharge such burden, the
Court has no choice but to declare the sale

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void for lack of cause. And since the sale is SC: The Joint Venture Agreement clearly
void, the Court finds it unnecessary to dwell states that the consideration for the sale
on the issue of whether duress or intimidation was the expectation of profits from the
had been foisted upon petitioner upon the subdivision project. Its first stipulation
execution of the sale. states that petitioners did not actually
receive payment for the parcel of land
b) In money or its equivalent (1458) sold to respondent. Consideration, more
Torres vs CA, 320 SCRA 428 properly denominated as cause, can take
different forms, such as the prestation or
Facts: promise of a thing or service by another.
Petitioners and respondent entered into a In this case, the cause of the contract of
joint venture agreement for the sale consisted not in the stated peso value
development of a parcel land located at of the land, but in the expectation of
Lapu-Lapu City island of Mactan into a profits from the subdivision project, for
subdivision. Pursuant to the contract, which the land was intended to be used.
petitioners executed a deed of sale As explained by the trial court, "the land
covering the said parcel of land in favor of was in effect given to the partnership as
the respondent, who then had it [petitioner's] participation therein. . . .
registered in his name. Thereafter, There was therefore a consideration for
respondent mortgaged the property in the sale, the [petitioners] acting in the
the bank, and according to the joint expectation that, should the venture
agreement, the money obtained come into fruition, they [would] get sixty
amounting to P40,000.00 was to percent of the net profits."

be used for the development of the The expectations of profits from the
subdivision. However, the project did not subdivision projects is a valid form of
push through, and the land was consideration.
subsequently foreclosed by the bank.
Because of this, petitioners filed a civil It is sufficient if it can be determined by
case before the Regional Trial Court of the stipulations of the contract made by
Cebu City, which was later dismissed by the parties thereto/ by reference to.
the trial court. On appeal, the Court of
Appeals affirmed the decision of the trial
court. The appellate court held that the
petitioner and respondent had formed a
partnership for the development of the
subdivision. Thus, they must bear the loss
suffered by the partnership in the same
proportion as their share in the profits
stipulated in the contract. Aggrieved by
the decision, petitioner filed the instant
petition contending that the Court of
Appeals erred in concluding that the
transaction between the petitioners and
respondent was that of a joint
venture/partnership.

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c) Certain or Ascertainable (determinable) fixing the net value at P4,428,194.44. Of

1. How determined this amount 4/173 part represented the
i. By third person plaintiffs’s share on his P20,000 of the
nominal capital. In Exhibit J which was
Art. 1469. In order that the price may be
executed on November 22, 1910, the
considered certain, it shall be sufficient
plaintiff acknowledged to have received
that it be so with reference to another
from the defendant that amount.
thing certain, or that the determination
thereof be left to the judgment of a
Subsequently to the execution of Exhibit J,
special person or persons.
demand was made by the plaintiff upon
the defendant for his share of the profits
Should such person or persons be
from June 30, 1909, to November 22, 1910.
unable or unwilling to fix it, the contract
This demand was refused and thereupon
shall be inefficacious, unless the parties
this action was instituted to recover said
subsequently agree upon the price.
profits. Upon the evidence submitted at
xxxxx
the hearing, the court below held:
Where such third person or persons are
prevented from fixing the price or terms
(1) That the agreement of May 3, 1910, was
by fault of the seller or the buyer, the
by its terms a contract to sell in the future
party not in fault may have such
and did not pass title and (2) that the sale
remedies against the party in fault as are
of plaintiff’s interest did not include the
allowed the seller or the buyer, as the
profits in question. Judgment was
case may be. (1447a)
rendered accordingly, with interest and
cost. The defendant appealed.
Barreto vs Sta. Marina, 26 Phil 200
SC: It was the appraisers who were
(***CAVEAT EMPTOR: PLS READ THE FULL appointed to ascertain and fix the total net
TEXT. CASE DOCTRINE RELATED TO SALES value of the factory for the purpose of
NOT CLEARLY ESTABLISHED IN THE determining the true present value of the
CASE……) interest.

FACTS: The La Insular cigar and cigarette - The appraiser was the one who
factory is a joint account association with a determined the total net value of the
nominal capital of P865,000, the plaintiff’s shares of the company and thereafter that
share being P20,000, or 4/173 of the whole. of Bareto’s share.
On March 14, 1910, the plaintiff’s attorneys
wrote the defendant’s local representative ii. By the courts
a letter offering to sell to the defendant
plaintiff’s participation in the factory. The Art 1469. x x x If the third person or
result of the correspondence between the persons acted in bad faith or by
parties and their representatives was that mistake, the courts may fix the price. x
Exhibit G was duly executed on May 3, xx
1910. In accordance with the terms of this
exhibit a committee of appraisers was
appointed to ascertain and fix the actual
value of La Insular. The committee
rendered its report on November 14, 1910,

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iii. By reference to a definite day, etc inventory to be drawn up. In this inventory
the value of each individual piece of
Art. 1472. The price of securities, grain, furniture will be fixed at 10 per cent below
liquids, and other things shall also be the price shown in the partnership
considered certain, when the price inventory. The machinery and cost of
fixed is that which the thing sold would installing the same will also be fixed at 10
have on a definite day, or in a per cent below its invoice price. The value
particular exchange or market, or of the tobacco, both in leaf and in process
when an amount is fixed above or of manufacture, boxes, labels, wrappers,
below the price on such day, or in such cigars, cigarettes, and paper mouthpieces
exchange or market, provided said for cigarettes will be fixed at the invoice
amount be certain. (1448) price. The value of tobacco made up into
cigars will be fixed in accordance with the
price list of the partnership, less 20 per
iv. By reference to invoices cent discount. The cigars will be
inventoried at the prices in the same list,
McCulough vs Aenile & Co., 3 Phil 285 less a discount of 35 per cent. The P20,000
mentioned as the value of the trade-mark
FACTS: For the purpose of carrying into will, however, remain unchanged.
effect the said contract of sale entered
into with the other party hereto, said In December, 1901, the plaintiff, with
Francisco Gonzalez y de la Fuente and others, organized a company, to which
Don Antonio la Puente y Arce, in the the plaintiff sold all the tobacco bought by
name and on behalf of the mercantile him from the defendant. The purchaser,
partnership denominated R. Aenlle & Co., the new company, on examining these
by virtue of the powers conferred upon two lots, rejected them because the
them and in compliance with the tobacco was not of the quality indicated
instructions given them by Don Matias in the inventory. Thereupon the plaintiff,
Saenz de Vizmanos y Lecaros, the claiming that the tobacco in these two lots
manager of the said partnership, solemnly was worthless, brought this action against
declare that they sell, absolutely and in fee the defendant to recover what he paid.
simple, to E. C. McCullough, the tobacco
and cigarette factory known as "La Maria WON: There was a perfected contract of
Cristina," located at No. 36 Calle Echague, sale entered into by the parties on August
Plaza de Goiti, Santa Cruz district, this city, 27,1901.
said sale including the trade-mark "La
Maria Cristina," which was been duly HELD: The document of August 27 was a
registered, the stock of tobacco in leaf completed contract of sale. The articles
and manufacture, machinery, labels, which were the subject of the sale were
wrappers, furniture, fixtures, and definitely and finally agreed upon. The
everything else belonging to the said appellee agreed to buy, among other
factory, as shown in the inventory to be things, all of the leaf tobacco in the
drawn up for the purpose of making factory. This was sufficient description of
formal delivery of the said property. the thing sold. The price for each
article was fixed. It is true that the price of
This sum is subject to modification, in this tobacco, for example, was not stated
accordance with the result shown by the in dollars and cents in the contract. But by

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its terms the appellee agreed to pay gave judgment for the plaintiff to recover
therefor the amount named in the of the defendant the sum of P14,194.42,
invoices then in existence. The price could with costs. From this judgment the
be made certain by a mere reference to defendant appealed.
those invoices. By the instrument of
August 27 the contract was perfected and WON: The petitioner is allowed to recover
thereafter each party could compel the the value of the improvements.
other to fulfill it. By its terms the appellee
was bound to take all the leaf tobacco HELD: In the case before us the deed of
then belonging to the factory and to pay conveyance purports to transfer to the
therefor the prices named in the invoices. defendant only such interests in certain
This obligation was absolute and did not properties as had come to the conveyors
depend at all upon the quality of the by inheritance. Nothing is said concerning
tobacco or its value. The appellee did not, the rights in the hacienda which the
in this contract, reserve the right to reject plaintiff had acquired by lease or
the tobacco if it were not of a specific concerning the things that he had placed
crop. He did not buy tobacco of a thereon by way of improvement or had
particular kind, class, or quality. He acquired by purchase. The verbal contract
bought all the tobacco which the which the plaintiff has established in this
appellant owned and agreed to pay for it case is therefore clearly independent of
what the defendant had paid for it. The the main contract of conveyance, and
plaintiff testified that this was the express evidence of such verbal contract is
agreement. admissible under the doctrine above
stated. The rule that a preliminary or
v. By application of known facts contemporaneous oral agreement is not
admissible to vary a written contract
2. Effect of indeterminability appears to have more particular reference
− contract is inefficacious to the obligation expressed in the written
Case: agreement, and the rule had never been
1. Sale of improvements introduced in interpreted as being applicable to matters
hacienda of consideration or inducement. In the
Robles vs Lizaragga Hermanos, 50 Phil case before us the written contract is
389 complete in itself; the oral agreement is
also complete in itself, and it is a collateral
FACTS: This action was instituted in the to the written contract, notwithstanding
Court of First Instance of Occidental the fact that it deals with related matters.
Negros by Zacarias Robles against
Lizarraga Hermanos, a mercantile A contract for the sale of goods, chattels
partnership organized under the laws of or things in action, at a price of not less
the Philippine Islands, for the purpose of than P100, shall be unenforceable unless
recovering compensation for the contract, or some note or
improvements made by the plaintiff upon memorandum thereof shall be in writing
the hacienda "Nahalinan" and the value of and subscribed by the party charged, or
implements and farming equipment by his agent; and it is insisted that the
supplied to the hacienda by the plaintiff, court erred in admitting proof of a verbal
as well as damages for breach of contract. contract over the objection of the
Upon hearing the cause the trial court defendant's attorney. But it will be noted

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that the same subsection contains a defendant acquired the fixed

qualification, which is stated in these improvements when it acquired the land,
words, "unless the buyer accept and but the question is whether the defendant
receive part of such goods and chattels." is obligated to indemnify the plaintiff for
In the case before us the trial court found his outlay in making the improvements. It
that the personal property, consisting of was upon the consideration of the
farming implements and other movables defendant's promise so to indemnify the
placed on the farm by the plaintiff, have plaintiff that the latter agreed to surrender
been utilized by the defendant in the the lease nearly two no doubt as to the
cultivation of the hacienda, and that the validity of the promise made under these
defendant is benefiting by those things. circumstances to the plaintiff.

We are of the opinion that the stipulation 3. Effect of inadequacy of price (1470)
with respect to the appraisal of the
Art. 1470. Gross inadequacy of price does
property did not create a suspensive
not affect a contract of sale, except as it
condition. The true sense of the contract
may indicate a defect in the consent, or
evidently was that the defendant would
that the parties really intended a donation
take over the movables and the
or some other act or contract. (n)
improvements at an appraised valuation,
and the defendant obligated itself to
− It does not affect the contract, but may
promote the appraisal in good faith. As
show vice of consent (1470). Refer to
the defendant partially frustrated the
inadequacy of cause in general, Art.
appraisal, it violated a term of the contract
1355.
and made itself liable for the true value of
− It does not affect the contract but may
the things contracted about, as such value
show vice of consent.
may be established in the usual course of
− The offended party may invoke Art. 19
proof. Furthermore, it must occur to any
of the NCC (Abuse of Right Principle)
one, as the trial judge pointed out, that an
unjust enrichment of the defendant would
Askay vs Cosalan, 45 Phil 79
result from allowing it to appropriate the
movables without compensating the
Facts: Askay obtained a title to the Mineral
plaintiff thereof.
Claim which he allegedly sold to Cosalan.
It was alleged that there is inadequacy of
The fourth assignment of error is
the consideration for transfer which,
concerned with the improvements.
according to the deed of conveyance, and
Attention is here directed to the fact that
to the oral testimony, consisted of
the improvements placed on the hacienda
P107.00 in cash, a bill fold, one sheet, one
by the plaintiff became a part of the realty
cow and two carabaos.
and as such passed to the defendant by
Issue: WON the sale is valid.
virtue of the transfer effected by the three
owner in the deed of conveyance (Exhibit
Held: YES. The fact that the bargain is a
B.). It is therefore insisted that, the
hard one, coupled with mere inadequacy
defendant having thus acquired the
of price when both parties are in a
improvements, the plaintiff should not be
position to form an independent
permitted to recover their value again
judgment concerning the transaction, is
from the defendant. This criticism misses
not sufficient ground for the cancellation
the point. There can be no doubt that the
of a contract.

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4. Effect of failure of consideration

Aguilar vs Rubiato, G.R. No. 14823, Dec Sps. Buenaventura vs CA, G.R. No. 126376,
9, 1919 Nov 20, 2003

Facts: Facts:
Rubiato was the owner of parcels of land Sps Leonardo Joaquin & Feliciano Landrito are
and was desirous of obtaining a loan. He the parents of petitioners. Petitioners assail
thereafter signed a power of attorney in the sale of several lands by their parents to
favor of a certain Vila to secure a loan and their other siblings (see p. 265 for complete list
to execute any writing for the mortgage of sales made) for being void ab initio based
of land. Vila pursuant to the power of on the ff grounds:
attorney then sold the land to Aguilar, 1. no actual valid consideration
with the right of repurchase within one 2. properties are more than 3x more
year and Rubiato was to remain in valuable than the measly purchase
possession of the land as lessee. One year price (purchase price was grossly
expired and Aguilar filed a case to inadequate)
consolidate ownership over the lands. 3. deeds of sale do not reflect & express
the true intent of the parties
Issue & Ratio: 4. deliberate conspiracy designed to
Whether the contract was of sale or loan. unjustly deprive the rest of the
- LOAN compulsory heirs of their legitime.
In addition to the evidence, there is one Defense of the respondents:
very cogent reason which impels us to the 1. no cause of action, requisite standing
conclusion that Rubiato is only & interest
responsible to the plaintiff for a loan. It is 2. sales were w/sufficient considerations
— that the inadequacy of the price which & made by their parents voluntarily in
Vila obtained for the eight parcels of land good faith & w/full knowledge of the
belonging to Rubiato is so great that the consequences
minds revolts at it. 3. certificates of title were issued
Xxx The members of this court after most w/factual & legal basis.
particular and cautious consideration, Trial court dismissed the case WRT Gavino
having in view all the facts and all the Joaquin & Lea Asis. Ruled in favor of the
naturals tendencies of mankind, consider respondents & dismissed the complaint.
that Rubiato is only responsible to the 1. The rightt of the compulsory heirs to a
plaintiff for the loan of P800. legitime is contingent & it only
commences from the moment of the
death of the decedent (CC Art. 777).
The value of the property left at the
death of the testator is the basis for
determining the legitime (Art. 908).
Plaintiffs cannot claim an impairment
of their legitime since their parents are
still alive.
2. Deeds of Sale were executed for
valuable consideration.

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CA affirmed Trial Court decision. In addition to & valid upon the meeting of the
the grounds stated by the trial court, CA also minds as to the price regardless of the
mentioned that: manner of payment or breach of
1. While still alive, parents are free to such. It’s still valid even if the real
dispose of their properties provided price is not stated in the contract,
such is not done in fraud of creditors. making it subject to reformation. But
2. Petitioners are not parties in interest if the price is simulated, there is no
since they’re not parties to the deeds meeting of the minds, thus the
of sale nor are they creditors of their contract is void (CC Art. 1471).
parents.
Act of payment of the price does not
Issues & Ratio: determine the validity of a contract of
1. WON petitioners have a legal interest sale. Failure to pay the consideration
over the properties subject of the is different from lack of consideration.
Deeds of Sale. – NO. The former results in a rt to demand
fulfillment or cancellation of the
The complaint betrays their motive contract while the latter prevents the
for filing the case. They are interested existence of a valid contract.
in obtaining the properties by
hereditary succession but they have Petitioners failed to show that the
failed to show any legal right to these prices in the deeds of sale were
properties. simulated. They don’t even know the
financial capacity of their siblings to
Real party-in-interest is one who is buy these lots. Respondents’ minds
either benefited or injured by the met as to the purchase price w/c was
judgment of the party entitled to the stated in the deeds of sale & the
avails of the suit. This includes parties buyer siblings have paid the price to
to the agreement or are bound either their parents.
principally/subsidiarily. Parties must
have a present substantial interest & 3. WON the Deeds of Sale are void for
not merely expectancy/future gross inadequacy of the price. – NO.
contingent subordinate or
consequential interest. CC Art. 1355: Except in cases specified
by law, lesion/ INADEQUACY OF
In this case, the petitioners only have CAUSE shall not invalidate a contract,
an inchoate rt w/c vests only upon the unless there has been fraud, mistake
death of their parents. Besides, sale of or undue influence.
the lots to their siblings does not
affect the value of their parents’ CC Art. 1470: Gross inadequacy of
estate since the lots are replaced with price doesn’t affect a contract of sale,
cash of equivalent value. except as may indicate a defect in the
consent or that the parties really
2. WON the deeds of sale are void for intended a donation or some other
lack of consideration. – NO. act or contract.

A contract of sale is not a real contract Petitioners failed to prove any

but a consensual contract. It’s binding instance in the aforementioned

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provisions that would invalidate the property. When SAMD recommended to the
deeds of sale. There is no management of the PNB that petitioner be
requirement that the price be equal allowed to repurchase the property at 1.5M,
to the exact value of the property on the management rejected and suggested that
sale. It only matters that all the property be purchased at 2.7M which was
respondents believed that they later reduced to 1.9M. But petitioner refused.
received the commutative value of Petitioner now filed a case for delivery of title,
what they gave. annulment of mortgage and specific
performance with damages. It was its
Vales vs. Villa: Courts cannot be contention that it already accepted the offer
guardians of people who are not of SAMD to sell the property at 1.5M, hence,
legally incompetent. Courts operate PNB could no longer unilaterally withdraw its
not because a person has been offer to sell the property. Its acceptance of the
defeated/overcome by another, but offer resulted in a perfected contract of sale.
because he has been defeated or Respondent contended that the parties never
overcome ILEGALLY. There should be graduated for the negotiation stage – all that
a violation of the law, commission of transpires was an exchange of proposal and
what the law knows as an actionable counter-proposals and nothing more. There
wrong, before the courts are was still no agreement as to the amount and
authorized to lay hold of the situation the manner of payment. The account made by
& remedy it. SAMD cannot be classified as counter-offer
because it was merely recital of facts of the
B. EARNEST MONEY obligations of petitioners.
o It is considered part of the price, unless
the contract is otherwise WON the P800,000 deposited is an earnest
o It is proof of perfection of the contract money.

Case: -NO. The P800,000 could not be considered

Manila Metal Container Corporation vs as an earnest money because an earnest
PNB, G.R. No. 166862, Dec. 20, 2006 money forms part of the purchase price. In this
case, it did not. The P800,000 was merely a
Petitioner was the owner of a parcel of land deposit that was accepted by PNB on the
and to be able to secure a loan from PNB, condition that the purchase price is subject to
petitioner executed a real party mortgage the approval of the PNB Board.
over the land. For its failure to pay, PNB
foreclose the mortgaged and sold at public Serrano vs Caguiat, G.R. No. 139173, Feb.
auction for which PNB was the winning bidder, 28, 2007
with a one year period of redemption by the
petitioner. Petitioner requested that there be Facts: Facts: Caguiat offered to buy the lot
an extension of time to redeem the property owned by spouses Serrano. Respondent gave
and it allowed to repurchase the property on P100K as partial payment, in turn, petitioners
installment. Meanwhile, the Special Assets gave a receipt with a statement that
Management Department had prepared a respondent promised to pay the balance of
statement of accountof the petitioner’s the purchase price. Respondents were leaving
obligation to which amounted to 1.5M. for abroad and sought to cancel the
petitioner thereafter remitted thte amount of transaction. Petitioners contend that there is
800,000 as deposit to repurchase the no perfected contract as there was no clear

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agreement between the parties as to the Cases:

amount of consideration. 1. Verbal agreement of sale

Issue and ratio: Caoili vs CA, 314 SCRA 345

It is true that Article 1482 of the Civil Code
provides that “Whenever earnest money is FACTS: Caoili was a lessee in the property
given in a contract of sale, it shall be of respondent. Respondent borrowed
considered as part of the price and proof of money from Caoili in the amount of Php
the perfection of the contract.” However, 30,000 which they stipulated would form
this article speaks of earnest money given in part of their rentals. When rentals was paid
a contract of sale. In this case, the earnest off, they entered into a “not formal or
money was given in a contract to sell. The written contract” on the sale of the
earnest money forms part of the property. They executed a "Receipt"
consideration only if the sale is denominated as an "Addendum to
consummated upon full payment of the Agreement dated August 8, 1990". It was
purchase price. Now, since the earnest stated they received from petitioners the
money was given in a contract to sell, Article sum of P140,000.00, in addition to the
1482, which speaks of a contract of sale, does partial payment of P60,000.00, the
not apply. "balance payable when the good title in the
name of herein vendor is delivered to the
As previously discussed, the suspensive spouses." Yet respondent refused to
condition (payment of the balance by execute document. Respondent says that
respondent) did not take place. Clearly, the Php 140,000 was for improvements
respondent cannot compel petitioners to and the Php 60,000 served as rental on the
transfer ownership of the property to him. period they haven’t paying their rentals
(amounts were claimed as partial payments
ARTICLES 1475-1488 by Caoili. RTC and CA both decided in
favor of Caoili yet CA reduced the amount
I. RULES IN ORDINARY SALES awarded.

A. Form Held:
a) General Rule (1483) • (Not made in writing) The absence of a
formal deed of sale does not render
Article 1483. Subject to the provisions of the the agreement null and void or
Statute of Frauds and of any other applicable without any effect. The provision of
statute, a contract of sale may be made in Article 1358 of the Civil Code on the
writing, or by word of mouth, or partly in necessity of a public document is only
writing and partly by word of mouth, or may for convenience, not for validity or
be inferred from the conduct of the parties. enforceability. It does not mean that
(n) no contract has been perfected so
long as the essential requisites of
consent of the contracting parties,
Note: Written agreement is not essential -sale
object, and cause of the obligation
is consensual contract.
concur. Under the agreement, private
respondent was obligated to deliver a
good title to petitioners and this
condition is the operative act which

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would give rise to the corresponding technical description of the property. Can I
obligation of petitioners to pay the now refuse to deliver physical possession of
balance of the purchase price. Since it the property because the sale was invalid for
is not disputed that private respondent lack of technical description?
has not delivered a good title,
petitioners have by law the right to - The court said no. Absence does not
either refuse to proceed with the affect the validity of the contract for as
agreement or to waive that condition long as parties have determined the
pursuant to Article 1545 of the Civil object of the contract. Have we
Code. determined? Yes! Kabalo nata unsa imo
gibaligya ug ako gi palit. absence of
• The Addendum being notarized is a technical description does not affect the
prima facie evidence of the facts stated validity of the contract. It might give you
therein. problem later on the transferring of title
but does not affect validity.
From 2013-2014 transcript:
So a widow entered into a contract of lease Narania vs CA, G.R. No. 160132, April 17,
with Caoili, eventually they agreed that the 2009
property is the house and lot. So what was the
evidence of the agreement? Just a piece of • To be valid, a contract of sale need not
paper where she acknowledged the payment contain a technical description of the
of a certain amount for the sale of the land. subject property. Contracts of sale of
Nang hambog pajud ning widow na she real property have no prescribed form
would pay the balance once she can get a for their validity; they follow the general
clean title in her name. Apparently, wala pa jud rule on contracts that they may be
na settle ang estate sa iya bana. She promised entered into in whatever form, provided
to show the clean title on or before a certain all the essential requisites for their
date. If I cannot do that I will return the validity are present. The failure of the
amount you paid times two. And so the period parties to specify with absolute clarity
arrived and she was not able to present a the object of a contract by including its
clean title to the Caoili spouses. So Caoili technical description is of no moment.
demanded the return of their money times 2. What is important is that there is, in fact,
She said there is no document, there is no sale. an object that is determinate or at least
determinable, as subject of the contract
Court said a sale is a consensual contract, form of sale. The deed of sale clearly
is not necessary for the validity of the contract. identifies the subject properties by
Here, even if there is no formal deed executed indicating their respective lot numbers,
by the seller, it was still established that there lot areas, and the certificate of title
was a contract of sale agreed between both covering them.
parties.
• One who alleges any defect, or the lack
2. Effect of Lack of Technical Description in the of consent to a contract by reason of
contract fraud or undue influence, must establish
I sell to you a parcel of land, you sad okay, you by full, clear and convincing evidence,
went to the location and you were satisfied such specific acts that vitiated the
and so we drew the contract of sale. Problem party’s consent. Petitioners adduced no
is in the deed of sale executed, there is no proof that Roque had lost control of his

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mental faculties at the time of the sale. was no harm in trying to ask for payment on terms
Undue influence is not to be inferred because in previous transactions, the same had
from age, sickness, or debility of body, been allowed. It was the understanding, however,
if sufficient intelligence remains. that should the term payment be disapproved,
then the price shall be paid in cash.
• The Deed of Sale which states “receipt
of which in full I hereby acknowledge to Two or three days later, petitioner learned that its
my entire satisfaction” is an offer to pay on terms had been frozen. Alfonso Lim
acknowledgment receipt in itself. went to BPI on July 18, 1988 and tendered the full
Moreover, the presumption that a payment of P33,056,000.00 to Albano. The
contract has sufficient consideration payment was refused because Albano stated that
cannot be overthrown by a mere the authority to sell that particular piece of
assertion that it has no consideration. property in Pasig had been withdrawn from his
unit. The same check was tendered to BPI Vice-
• Heirs are bound by contracts entered President Nelson Bona who also refused to receive
into by their predecessors-in-interest. payment.
Having been sold already to Belardo,
the two properties no longer formed An action for specific performance with damages
part of Roque’s estate which petitioners was thereupon filed on August 25, 1988 by
could have inherited. petitioner against BPI. In the course of the trial, BPI
informed the trial court that it had sold the
3. Unsigned and unnotarized deed of sale property under litigation to NBS on July 14, 1989.
Limketkai Sons Milling, Inc. vs CA, 250 SCRA
523 Upon elevation of the case to the Court of
Appeals, the decision of the trial court was
On June 23, 1988, Pedro Revilla, Jr., a licensed real reversed and the complaint dismissed on 12
estatebroker was given formal authority by BPI to August 1994. It was held that no contract of sale
sell the lot for P1,000.00 per square meter. The was perfected because there was no concurrence
owners of the Philippine Remnants concurred this of the three requisites enumerated in Article 1318
arrangement. Broker Revilla contacted Alfonso Lim of the Civil Code.
of petitioner company who agreed to buy the
land. On its decision in Dec. 1, 1995, the Supreme Court
reversed and set aside the questioned judgment
On July 9, 1988, Revilla formally informed BPI that of the Court of Appeals, and reinstated the 10 June
he had procured a buyer, herein petitioner. 1991 judgment of Branch 151 of the RTC of The
National Capital Judicial Region stationed in Pasig,
On July 11, 1988, petitioner's officials, Alfonso Lim Metro Manila except for the award of
and Albino Limketkai, went to BPI to confirm the P10,000,000.00 damages, which was deleted.
sale. Vice-President Merlin Albano and Asst. Vice-
President Aromin entertained them. The parties On March 26, 1996, Motion for Reconsideration
agreed that the lot would be sold at P1,000.00 was granted. Petitioner’s opposition to the MR was
persquare meter to be paid in cash. The authority denied. The SC sets aside Dec. 1, 1995 decision
to sell was on a first come, first served and non- and affirmed in toto the decision of CA.
exclusive basis; there is no dispute over petitioner's
being the first comer and the buyer to be first Hence, this Motion for Reconsideration by
served. Alfonso Lim then asked if it was possible to Petitioner.
pay on terms. The bank officials stated that there

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Issue: WON a contract of sale of the subject respondent BPI offered to sell the disputed
parcel of land existed between the petitioner and property for P1,000/sq. m., petitioner's acceptance
respondent BPI. of the offer is conditioned upon or qualified by its
16
proposed terms to which respondent BPI must
SC: No. A re-evaluation of the attendant facts and first agree with.
the evidence on record, specifically petitioner's
Exhibits "A" to "I", yields the negative. On the subject of consent as an essential element
of contracts, Article 1319 of the Civil Code has this
These exhibits, either scrutinized singly or to say:
collectively, do not reveal a perfection of the Art. 1319. Consent is manifested by the meeting
purported contract of sale. Article 1458 of the Civil of the offer and the acceptance upon the thing
Code defines a contract of sale as follows: and the cause which are to constitute the
Art. 1458. By the contract of sale one of the contract. The offer must be certain and the
contracting parties obligates himself to transfer acceptance absolute. A qualified acceptance
the ownership of and to deliver a determinate constitutes a counter-offer.
thing, and the other to pay therefor a price xxx xxx xxx
certain in money or its equivalent. The acceptance of an offer must therefor be
unqualified and absolute. In other words, it must
A contract of sale may be absolute or be identical in all respects with that of the offer
conditional. so as to produce consent or meeting of the
minds. This was not the case herein considering
Article 1475 of the same code specifically provides that petitioner's acceptance of the offer was
when a contract of sale is deemed perfected, to qualified, which amounts to a rejection of the
wit: original offer. And contrary to petitioner's
assertion that its offer was accepted by
Art. 1475. The contract of sale is perfected at respondent BPI, there was no showing that
the moment there is meeting of minds upon petitioner complied with the terms and
the thing which is the object of the contract and conditions explicitly laid down by respondent
18
upon the price. BPI for prospective buyers. Neither was the
petitioner able to prove that its offer to buy the
From that moment, the parties may reciprocally subject property was formally approved by the
demand performance, subject to the provisions of beneficial owner of the property and the Trust
the law governing the form of contracts. Committee of the Bank; an essential
requirement for the acceptance of the offer
The Court in Toyota Shaw, Inc. v. Court of which was clearly specified in Exhibits F and H.
Appeals 14 had already ruled that a definite Even more telling is petitioner's unexplained
agreement on the manner of payment of the price failure to reduce in writing the alleged
is an essential element in the formation of a acceptance of its offer to buy the property at
binding and enforceable contract of sale. P1,000/sq. m.
Petitioner's exhibits did not establish any definitive
agreement or meeting of the minds between the The Court also finds as unconvincing petitioner's
concerned parties as regards the price or term of representation under Exhibits "E", "G", and "I" that
payment. Instead, what merely appears therefrom its proposal to buy the subject property for
is respondent BPI's repeated rejection of the P1,000/sq. m. has been accepted by respondent
petitioner's proposal to buy the property at BPI, considering that none of the said Exhibits
15
P1,000/sq. m. In addition, even on the contained the signature of any responsible official
assumption that Exhibit "E" reflects that of respondent bank.

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It is therefore evident from the foregoing that • The parties may reciprocally demand
petitioner's documentary evidence floundered in performance, subject to the
establishing its claim of a perfected contract of provisions of law governing the form
sale. of contracts

Moreover, petitioner's case failed to hurdle the Requirements for perfection:

strict requirements of the Statute of Frauds. a. When parties are face to face – when
an offer is accepted without
Corrolarily, as the petitioner's exhibits failed to conditions nor qualifications
establish the perfection of the contract of sale, oral b. Thru correspondence or telegram –
testimony cannot take their place without violating when the offeror has knowledge of
21
the parol evidence rule. It was therefore irregular the acceptance
for the trial court to have admitted in evidence c. When sale is subject to a suspensive
testimony to prove the existence of a contract of condition – from the moment the
sale of a real property between the parties despite condition is fulfilled
the persistent objection made by private
respondents' counsels as early as the first Note: Mere perfection of the contract
scheduled hearing. does not necessarily transfer ownership.

b) Statute of Frauds applies only in cases for: Cases:

ü Specific performance, and Coronel vs CA, G.R. No. 103577, Oct 7, 1996
ü For damages based on breach of
contract The Coronels sold their inherited house and
lot to Ramona Patricia Alcaraz, with the
Where the contract of sale has already conditions that they will effect the transfer of
been consummated, its enforcement the title from their deceased father to their
cannot be barred by the Statute of Frauds, names upon receipt of the down payment,
which applies on executory agreement. and after the transfer they will execute a Deed
of Sale in favor of Alcaraz. The conditions were
c) When Form is essential embodied in a document labeled “Receipt of
• Under the Statute of Frauds Down Payment.” Alcaraz paid, and the title
was transferred in the Coronels’ name.
Realty- a sale of real property orally is However, the Coronels sold the property to
valid. The buyer may compel the Catalina Mabanag, rescinded the contract with
seller to execute a formal deed of sale Alcaraz, and eventually executed a Deed of
to be enforceable. Sale in favor of Mabanag. In the complaint for
specific performance filed against them, the
Goods and chattels at a price of not Coronels contended that theirs was merely an
less than P 500. executory contract to sell, hence there was no
perfected contract of sale.
• Sale of land through an Agent (1874)
– authority shall be in writing. HELD: The parties had agreed to a
conditional contract of sale, consummation of
B. Perfection which is subject only to the successful transfer
a) General Rules of the certificate of title from the name of the
• At the moment there is a meeting of petitioner’s father to their names.
the minds (consensual)

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Since the condition contemplated by the

Article 1481. In the contract of sale of
parties which is the issuance of a certificate of
goods by description or by sample, the
title in petitioner’s names was fulfilled on
contract may be rescinded if the bulk of the
February 6, 1985, the respective obligations of
goods delivered do not correspond with
the parties under the contract of sale became
the description or the sample, and if the
mutually demandable.
contract be by sample as well as
description, it is not sufficient that the bulk
Manila Mining Corp vs Tan, G.R. No.
of goods correspond with the sample if
171702, Feb. 12, 2009
they do not also correspond with the
description.
MMC ordered and received various electrical
materials from Miguel Tan, and upon failure to
pay the full amount despite several demands, b) Place of Perfection
Tan filed a collection suit. MMC contended − where there was meeting of the minds
that the absence of stamp marks on the − in case of acceptance through letter or
original invoices and purchase orders negated telegram, in the place where the offer
the receipt of said documents by MMC’s was made.
representatives, a requisite for payment.
Having not received them thereby having no C. Expenses
consent, their contract could not have been a) of execution and registration of the sale
perfected. − borne by the seller
b) of putting the goods in a deliverable state
HELD: The purchase orders constituted − borne by the seller
accepted offers when Tan supplied the
electrical materials to MMC. Hence, petitioner II. RULE IN SPECIAL SALES
cannot evade its obligation to pay by claiming
lack of consent to the perfected contracts of A. Sales at Auction (1476)
sale. The invoices furnished the details of the a) Rules
transactions. − Sales of separate lots are separate
contracts of sale
Note: the purchase orders constituted − Perfected when the auctioneer
accepted offers when Tan supplied electrical announces its perfection by the fall of
materials to MMC. the hammer, or in other customary
manner
i. Right or Examination − Before the fall of the hammer:
− The buyer has the right to a • The bidder may retract his bid
reasonable opportunity for • The auctioneer may withdraw the
examination before acceptance goods from the sale
(1584) except when a carrier EXCEPTION: If the auction has been
delivers “C.O.D.” announced to be without reserve
ii. Sale by Description or by Sample − Limitations of the seller:
• The seller himself cannot bid
• He cannot employ or induce any
person to bid on his behalf
EXCEPTION: If right to bid has been
expressly reserved

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− Limitations of the auctioneer (if he is not Considering that the auction sale has
the seller); been perfected, a supplemental sale
• The auctioneer cannot bid with higher consideration at the
• He cannot employ or induce to bid instance of only one party (herein
on behalf of the seller petitioner) could no longer be validly
• He cannot knowingly take any bid executed)
from the seller or any person
employed by him Before the hammer falls: The bidder
may retract his bid. The reason behind
Judgment Creditor will have a writ to garnish this is that every bidder is merely an
or attach the property of the debtor and offer and therefore, before it is
sheriff sells it in a public sale accepted, it may be withdrawn o The
auctioneer may also withdraw the
Judgment debtor has the right to redeem the goods from the sale EXCEPT if the
property within 1 year auction has been announced to be
WITHOUT RESERVE.
Note: The owner of the property offered for
sale at auction has the right to prescribe the From 2013-2014 Transcript:
manner, condition and terms of sale and Where during the execution sale, the
where these are reasonable and are made highest bid was for more than 100k. So
known to the buyer, they are binding upon bidding was closed and the judgment
them. creditor won. 30 min after, the lawyer
went to the sheriff and changed the bid
Why can’t the seller participate in the to 1M to cover the entire judgment
bidding? credit. So the sheriff prepared the
A: He cannot bid because in doing such he can supplemental papers then asked the
manipulate the biddings of other participants judgment debtor to sign the new
document kay good news daw the
Note: it is the seller who will set the terms and creditor is paying the entire debt so I
condition of the sale. If the seller will bid in the don’t need to levy anything anymore
auction without reserving such right and from you to satisfy the debt. Judgment
informing the public, the sales will be debtor said no way. Was he justified in
considered as fraudulent. doing so?
− Yes, because once the bidding
Will such fraud affect the perfection of the closed, you cannot change the
contract? terms of the contract of sale. This
A: Yes, the contract will be VOID with NO force was changed after the bidding
and effect was closed.
− Considering the auction sale had
b) Cases already been perfected, the
1. Validity of Supplemental Minutes on supplemental sale of a higher
Sheriff’s Sale consideration of only one party
should no longer be validly
Dizon vs Dizon, G.R. No. 156529, executed. This means that if both
Sept 5, 2007 consents, then no problem.
− What would be the reason that
the judgment debtor refused?

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because of the right of because he was the highest bidder.

redemption and if sold at a lower Is he correct?
price, then it would be easier for • The court said no. He is bound by
him to redeem after a year. the terms and condition of terms of
the seller. The owner of the
2. Auction Sale where the Seller Reserved property of the auction has the
the Right to Reject Any and All Bids right to prescribe the manner,
conditions, and terms of the sale
Can the seller bid as a general rule as and where this is reasonable and
a matter of right? made known to the buyer, they are
A: No, he can only bid if the right is binding upon him and he cannot
expressly reserved. acquire title in a position to them
and against the consent of the
What if he did not reserve the right owner.
but participated in the bid through a • This provision does not apply to
dummy? execution sale and foreclosure sales
A: Highest bidder will consider the sale because these are not voluntary
as fraudulent. It will be voidable (vitiated sales. In these sales, the seller, who
consent) because the price here was is the creditor, can participate in the
rigged. bid. The seller in this case of sales
are not the owner, they are
If the seller cannot participate in the creditors so the above rule does
auction sale unless he expressly not apply to execution and
reserves the right, can he reject any of foreclosure sales.
all bids as a matter of right?
A: Yes, unless the auction is to be B. Sales by Sample and/or Description (1481)
announced without reserved, then the • If it is sale by sample, the bulk of the
seller may reject any bids BEFORE the goods must correspond to the sample.
fall of the hammer. • If it is sale by description, the thing
delivered must correspond to the
Leoquinco vs Postal Savings Bank, 47 description.
Phil 772 • If it is sale by sample and description, then
the bulk must not only correspond to the
• Postal announced an auction sale sample but also must correspond to
for a land. Here comes Leo to make description.
a bid. In the advertisement, postal
expressly reserves its right to reject I order from you a certain table, an aka specs
any and all bids. Redundant na kay 8ft ka taas. Naa na sa ato contract. Then
kayo kay it is a right granted pag deliver nimo, di diay ma igo sa ako office
automatically to the seller but still so I cannot use it. Can I refuse to accept the
announced. Leo made a bid and table?
claimed to be the highest bidder A: No, because this is sale by description and
but was rejected by the BOD of the what you delivered is exactly according to the
bank and he was given a notice of description in our contract. This is what
the rejection but he insisted that a happened in Pacific Commercial vs Ermita.
deed of sale be made in his name

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Case: C. Sale of Personalty payable by installments

Sale of Refrigerating Machine as Described in (Recto Law)
the Contract
Pacific Commercial Co., vs Ermita Market & a) Alternative remedies in case of non-
Cold Stores, 56 Phil 617 payment (1484)

Plaintiff contracted to sell to defendant an Article 1484. In a contract of sale of personal

automatic refrigerating machine as per property, the price of which is payable in
description stated in the sales contract. The installments, the vendor may exercise any of
machine was delivered and by mutual the following remedies:
agreement the vendor installed the machine. (1) Exact fulfillment of the obligation,
The machine did not give the results expected should the vendee fail to pay;
from it, and the defendant refused to pay the (2) Cancel the sale, should the vendee's
balance of its purchase price and the cost of failure to pay cover two or more
the installation of the machine. Thereupon installments;
plaintiff brought this action. (3) Foreclose the chattel mortgage on the
thing sold, if one has been constituted,
Held: The fact that the defendant could not should the vendee's failure to pay cover
use the machine satisfactorily in the three cold two or more installments. In this case, he
stores divisions cannot be attributed to shall have no further action against the
plaintiff's fault; the machine was strictly in purchaser to recover any unpaid balance
accordance with the written contract between of the price. Any agreement to the
the parties, and the defendant can hardly contrary shall be void. (1454-A-a)
honestly say that there was any deception by
the plaintiff.
b) Cases
1. Promissory Note with Chattel Mortgage

Macondray & Co. vs de Santos, 61 Phil 370

Granting that there was a contract between
the parties for the sale of personal property
payable in installments, which does not clearly
appear in the record before this court, the
complaint does not allege nor does it appear
in the record that there was a failure to pay
two or more installments. On the contrary the
promissory note, copied in the complaint, was
executed January 11, 1934, and, according to
the complaint, on or about January 21,
1934,the automobile, while in the possession
of the defendant, was wrecked and by reason
of the failure of the defendant to replace said
automobile or to pay the value thereof the
plaintiff foreclosed the mortgage on what
remained of the wrecked automobile and
brought this suit to recover the balance due
on the promissory note executed in its favor.

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In order to apply the provisions of article invoked. In the present case, only one
1454-A of the Civil Code it must appear that installment was unpaid.
there was a contract for the sale of personal
property payable in installments and that 3. Sale of Truck on installment where
there has been a failure to pay two or more foreclosure was not pursued
installments.
Dela Cruz vs Asian Consumer & Intl
2. Sale of car on straight term Finance Corp, G.R. No. L-94828, Sept. 18,
1992
Levy Hermanos vs Gervacio, 69 Phil 52 Facts:
In Macondray & Co. vs. De Santos (33 OG On 22 September 1982, the spouses Romulo
2170), it was held that “in order to apply the de la Cruz and Delia de la Cruz, and one Daniel
provisions of article 1454-A of the Civil Code Fajardo, petitioners herein, purchased on
it must appear that there was a contract for installment basis one (1) unit Hino truck from
the sale of personal property payable in Benter Motor Sales Corporation (BENTER for
installments and that there has been a failure brevity). To secure payment, they executed in
to pay two or more installments.” The favor of BENTER a chattel mortgage over the
contract, in the present case, while a sale of vehicle 1 and a promissory note for
personal property, is not, however, one on P282,360.00 payable in thirty (30) monthly
installments, but on straight term, in which the installments of P9,412.00. 2 On the same date,
balance, after payment of the initial sum, BENTER assigned its rights and interest over
should be paid in its totality at the time the vehicle in favor of private respondent
specified in the promissory note. Asian Consumer and Industrial Finance
Corporation (ASIAN for brevity). 3 Although
The transaction is not, therefore, the one petitioners initially paid some installments
contemplated in Act 4122 and accordingly the they subsequently defaulted on more than
mortgagee is not bound by the prohibition two (2) installments. Thereafter,
therein contained as to its right to the notwithstanding the demand letter of ASIAN,
recovery of the unpaid balance. 4 petitioners failed to settle their obligation.

Theoretically, there is no difference between On 26 September 1984, by virtue of a petition

paying the price in two installments and for extrajudicial foreclosure of chattel
paying the same partly in cash and partly in mortgage, the sheriff attempted to repossess
one installment, in so far as the size of each the vehicle but was unsuccessful because of
partial payment is concerned; but in actual the refusal of the son of petitioner, Rolando de
practice the difference exists, for, according to la Cruz to surrender the same. Hence, the
the regular course of business, in contracts return of the sheriff that the service was not
providing for payment of the price in two satisfied. LLpr
installments, there is generally a provision for On 10 October 1984, petitioner Romulo de la
initial payment. Cruz brought the vehicle to the office of
ASIAN and left it there where it was
A cash payment cannot be considered as a inventoried and inspected. 5
payment by installment, and even if it can be
so considered, still the law does not apply, for On 27 November 1984, ASIAN filed an
it requires non-payment of two or more ordinary action with the court a quo for
installments in order that its provisions may be collection of the balance of P196,152.99 of the

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purchase price, plus liquidated damages and fact that no auction sale of the vehicle was
attorney's fees. ever conducted. "Under the law, the delivery
of possession of the mortgaged property to
Petitioners take exception. They nevertheless the mortgagee, the herein appellee, can only
insist that he should not later be allowed to operate to extinguish appellant's liability if the
change course midway in the process, appellee had actually caused the foreclosure
abandon the foreclosure and shift to other sale of the mortgaged property when it
remedies such as collection of the balance, recovered possession thereof. Consequently,
especially after having recovered the in the case before Us, there being no actual
mortgaged chattel from them and while foreclosure of the mortgaged property, ASIAN
retaining possession thereof. is correct in resorting to an ordinary action for
HELD: collection of the unpaid balance of the
purchase price.
The instant case is covered by the so-called
"Recto Law", now Art. 1484 of the New Civil Magna Financial Services Group, Inc vs
Code, which provides: "In a contract of sale of Colarina, G.R. No. 15863, Dec 9, 2005
personal property the price of which is “Undoubtedly the principal object of the
payable in installments, the vendor may above amendment (referring to Act 4122
exercise any of the following remedies: (1) amending Art. 1454, Civil Code of 1889) was
Exact fulfillment of the obligation, should the to remedy the abuses committed in
vendee fail to pay; (2) Cancel the sale, should connection with the foreclosure of chattel
the vendee's failure to pay cover two or more mortgages. This amendment prevents
installments; (3) Foreclose the chattel mortgagees from seizing the mortgaged
mortgage on the thing sold, if one has been property, buying it at foreclosure sale for a low
constituted, should the vendee's failure to pay price and then bringing the suit against the
cover two or more installments. In this case, he mortgagor for a deficiency judgment. The
shall have no further action against the almost invariable result of this procedure was
purchaser to recover any unpaid balance of that the mortgagor found himself minus the
the price. Any agreement to the contrary shall property and still owing practically the full
be void." In this jurisdiction, the three (3) amount of his original indebtedness.”
remedies provided for in the "Recto Law" are
alternative and not cumulative; the exercise of In its Memorandum before us, petitioner
one would preclude the other remedies. resolutely declared that it has opted for the
Consequently, should the vendee-mortgagor remedy provided under Article 1484(3) of the
default in the payment of two or more of the Civil Code, that is, to foreclose the chattel
agreed installments, the vendor-mortgagee mortgage.
has the option to avail of any of these three
(3) remedies: either to exact fulfillment of the It is, however, unmistakable from the
obligation, to cancel the sale, or to foreclose Complaint that petitioner preferred to avail
the mortgage on the purchased chattel, if one itself of the first and third remedies under
was constituted. (Pacific Commercial Co. vs. Article 1484, at the same time suing for
De la Rama) replevin. For this reason, the Court of Appeals
justifiably set aside the decision of the RTC.
It is thus clear that while ASIAN eventually Perusing the Complaint, the petitioner, under
succeeded in taking possession of the its prayer number 1, sought for the payment
mortgaged vehicle, it did not pursue the of the unpaid amortizations which is a remedy
foreclosure of the mortgage as shown by the that is provided under Article 1484(1) of the

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Civil Code, allowing an unpaid vendee to exact the employee. Subsequently the company has
fulfillment of the obligation. At the same time, ceased operation and the employee was laid
petitioner prayed that Colarina be ordered to off. It took the company 2 years to institute
surrender possession of the vehicle so that it proceedings.
may ultimately be sold at public auction, which
remedy is contained under Article 1484(3). Sellers desirous of making conditional sales of
Such a scheme is not only irregular but is a their goods, but who do not wish openly to
flagrant circumvention of the prohibition of make a bargain in that form, for one reason or
the law. By praying for the foreclosure of the another, have frequently resorted to the
chattel, Magna Financial Services Group, Inc. device of making contracts in the form of
renounced whatever claim it may have under leases either with options to the buyer to
the promissory note. purchase for a small consideration at the end
of term, provided the so-called rent has been
Article 1484, paragraph 3, provides that if the duly paid, or with stipulations that if the rent
vendor has availed himself of the right to throughout the term is paid, title shall
foreclose the chattel mortgage, “he shall have thereupon vest in the lessee. It is obvious that
no further action against the purchaser to such transactions are leases only in name. The
recover any unpaid balance of the purchase so-called rent must necessarily be regarded as
price. Any agreement to the contrary shall be payment of the price in installments since the
void.” In other words, in all proceedings for the due payment of the agreed amount results, by
foreclosure of chattel mortgages executed on the terms of the bargain, in the transfer of title
chattels which have been sold on the to the lessee.
installment plan, the mortgagee is limited to
the property included in the mortgage. The so-called monthly rentals are in truth
form monthly amortization on the price of the
D. Leases of Personalty with Option to Buy car. The contract being one of sale on
− Recto Law applies to leases of personalty installment, the Court of Appeals correctly
with option to buy. But here, you do not applied to it the following provisions of the
have a chattel mortgage. So what happens Civil Code:
here is that the purported lessor recovers
the property from the lessee for failure to Art. 1484. In a contract of sale of personal
pay the unpaid rental. property, the price of which is payable in
− The Court has been consistent that installments, the vendor may exercise any of
arrangements like this are sale of personal the following remedies:
properties through installments. (1) Exact fulfillment of the obligation,
should the vendee fail to pay;
Cases: (2) Cancel the sale, should the vendee's
failure to pay cover two or more
Elisco Tool Mfg Corp. vs CA, 307 SCRA 731 installments;
Rolando Lantan was employed at the Elisco (3) Foreclose the chattel mortgage on
Tool Manufacturing Corporation as head of its the thing sold, if one has been
cash department. On January 9, 1980, he constituted, should the vendee's failure
entered into an agreement with the company, to pay cover two or more installments. In
called lease with option to buy car within 5 this case, he shall have no further action
years. That owner ship shall retain with the against the purchaser to recover any
company until full payment and all necessary unpaid balance of the price. Any
expenses for maintenance shall be borne by agreement to the contrary shall be void.

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The remedies provided for in Art. 1484 are SC: Yes they are. Evidently the contract above
alternative, not cumulative. The exercise of is in reality an option to purchase the
one bars the exercise of the others. limitation equipment.
applies to contracts purporting to be leases of
personal property with option to buy by virtue The Recto Law
of Art. 1485. The condition that the lessor has Art. 1484. In a contract of sale of personal
deprived the lessee of possession or property the price of which is payable in
enjoyment of the thing for the purpose of installments, the vendor may exercise any of
applying Art. 1485 was fulfilled in this case by the following
the filing by petitioner of the complaint for 3.) Foreclose the chattel mortgage on the
replevin to recover possession of movable thing sold, if one has been constituted,
property. By virtue of the writ of seizure should the vendee’s failure to pay cover
issued by the trial court, the deputy sheriff two or more installments. In this case he
seized the vehicle on August 6, 1986 and shall have no further action against the
thereby deprived private respondents of its purchaser to recover any unpaid balance of
use. The car was not returned to private the price. Any agreement contrary shall be
respondent until April 16, 1989, after two (2) void.
years and eight (8) months, upon issuance by Art. 1485. The preceding article shall be
the Court of Appeals of a writ of execution. applied to contract purporting to be lesses of
personal property with the option to buy,
The employee having found to have paid when the lessor deprived the lessee of the
more than the value of the thing P60,000 possession or enjoyment of the thing.
should be considered as payment of the full
purchase price. It further petitioner to pay Therefore, Giraffe is not liable to pay for the
private respondents the amount of P431.94 as remaining term since the machineries has
excess payment, as well as rentals at the rate been foreclosed.
of P1,000 a month for depriving private
respondents of the use of their car. PCI LEASING- GIRAFFE lease agreement is in
reality a lease with an option to purchase the
PCI Leasing and Finance, Inc. vs Giraffe-X equipment. This has been made manifest by
Imaging, Inc., G.R. No. 142618, July 12, the actions of the petitioner itself, foremost of
2007 which is the declarations made in its demand
Giraffe entered into an agreement with PCI letter to the respondent. There could be no
leasing over 2 machines worth P8,000,000. other explanation than that if the respondent
Giraffe agreed to pay P116,878.21 monthly paid the balance, then it could keep the
and P181,362 for the other machine. It has equipment for its own; if not, then it should
also remitted the amount of P3,120,000 as return them. This is clearly an option to
goodwill. A year into the life of the lease purchase given to the respondent. Being so,
agreement, respondent defaulted in paying Article 1485 of the Civil Code should apply.
the monthly rentals. PCI Sued Giraffe for
possession of the machineries and for E. Sale of Real Property on Installments (Maceda
payment of the remaining term. Law RA6552, Realty Installment Buyer
Protection Act)
Issue: Whether the underlying lease
agreement are covered between 1484 and a) Applicability
1485 of the New Civil Code? − Real estate bought on installment

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of the purchase price annotated in the

Transactions covered: sale or financing of real certificate of title covering the property.
estate on installment payments, including
Note: Effect of Stipulation Contrary to above
residential condominium apartments but:
provisions is void.
• industrial lots
• commercial building
i. In case of default in payment
• sales to tenants under RA 3844
− Pay without additional interest the
unpaid installments due within the
b) Rules when the buyer has paid at least two
grace period earned by him which is
years of installments
hereby fixed at the rate of one month
grace period for ever year of installment
1. Rights of buyer
payments made.
Section 3 of R.A. No. 6552 provided for the
rights of the buyer in case of default in the
Note: at this point, the seller may opt to
payment of succeeding installments, where he
rescind the contract of sale
has already paid at least two (2) years of
installments, thus:
Limitation
"(a) To pay, without additional interest, the
unpaid installments due within the total If the buyer has paid less than 2 years:
grace period earned by him, which is hereby − He is entitled to a grace period of not
fixed at the rate of one month grace period for less than 60 days from the date the
every one year of installment payments made; installment became due.
xxx o If he fails to pay within the grace
period, the seller again may opt
(b) If the contract is cancelled, the seller shall
to rescind the contract again
refund to the buyer the cash surrender value
(after 30 days from B’ receipt)
of the payments on the property equivalent to
with the same requisites:
fifty per cent of the total payments made;
§ Notarial notice of recission or
provided, that the actual cancellation of the
Notarial demand for
contract shall take place after thirty days
recission; and
from receipt by the buyer of the notice of
§ Full payment of the CSV (50%
cancellation or the demand for rescission of
of all the amount paid by the
the contract by a notarial act and upon full
buyer)
payment of the cash surrender value to the
buyer."
Gatchalian Realty Inc. vs Angeles, G.R. No.
Section 5. Under Section 3 and 4, the buyer 202358, Nov. 27, 2013
shall have the right to sell his rights or assign
the same to another person or to reinstate the FACTS:
contract by updating the account during the Angeles purchased a house and lot under a
grace period and before actual cancellation of Contract to Sell from Gatchalian payable for a
the contract. The deed of sale or assignment period of ten years.
shall be done by notarial act.
Section 6. The buyer shall have the right to After 48 monthly installment payments,
pay in advance any installment or the full Angeles failed to satisfy her monthly
installments with Gatchalian.
unpaid balance of the purchase price any time
without interest and to have such full payment

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Several demands were made by Gatchalian

but the same were continually disregarded by 3) In the absence of a valid cancellation of the
Angeles. Finally, Gatchalian served Angeles Contract to Sell between Gatchalian and
with a Notice of Notarial Rescission thru Angeles, the contract remains valid and
registered mail. existing. Thus the complaint for unlawful
detainer would be a violation of the mandate
Consequently, Angeles was furnished by of RA 6552.
Gatchalian a demand letter demanding her to
pay the outstanding reasonable rentals for her ii. In case of cancellation of sales
use and occupation of the house and lot to − The seller shall refund to the buyer the cash
date and to vacate the same. She was surrender value which consists of:
informed in said letter that the 50% refundable o 50% of the total payments made
amount that she is entitled to has already o Additional 5% every year but not
been deducted with the reasonable value for exceeding 90% of the payments
the use of the properties. made, after 5 years’ worth of
installment
ISSUES:
1) Whether there is a valid cancellation of the When Cancellation Takes Effect
Contract to Sell. − Actual cancellation shall take place after
30 days from buyer’s receipt of the notice
2) Whether Angeles is entitled to the benefit of cancellation or demand for recission
of Maceda Law or RA 6552. of the contract by a notarial act and upon
full payment of the cash surrender value
HELD:
1) NO. A valid and effective cancellation under Cancellation = Notarial notice + full payment
RA 6552 must comply with the mandatory of CSV
twin requirements of a notarized notice of
cancellation and a refund of the cash Pagtalunan vs de Manzano, G.R. No. 147695,
surrender value. Sept. 13, 2007
(Patricio), petitioner’s stepfather and
Although there was a notarial rescission sent predecessor-in-interest, entered into a
thru registered mail but it was not Contract to Sell with respondent, wife of
accompanied by the refund of the cash Patricio’s former mechanic, Teodoro Manzano,
surrender value equivalent to 50% of the total whereby the former agreed to sell, and the
payments made. latter to buy, a house and lot which formed half
of a parcel of land. The consideration of
For failure to refund the cash surrender value P17,800 was agreed to be paid in the following
to the defaulting buyer Angeles, Gatchalian manner: P1,500 as downpayment upon
cannot deduct the same for the amount of the execution of the Contract to Sell, and the
rentals due to Gatchalian as there was nothing balance to be paid in equal monthly
in the contract to apply compensation under installments of P150 on or before the last day
Art. 1279 of the New Civil Code. of each month until fully paid.

2) Angeles is entitled to receive the cash It was also stipulated in the contract that
surrender value equivalent to 50% of the total respondent could immediately occupy the
payments made as provided for by Section 3 house and lot; that in case of default in the
(b) of RA 6552. payment of any of the installments for 90 days

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after its due date, the contract would be However, the cancellation of the contract by
automatically rescinded without need of the seller must be in accordance with Sec. 3.
judicial declaration, and that all payments
made and all improvements done on the Firstly, the demand letter made by the
premises by respondent would be considered petitioner to vacate the premises does not
as rentals for the use and occupation of the constitute notice of cancellation. Second
property or payment for damages suffered, petitioner cannot insist on compliance with the
and respondent was obliged to peacefully requirement by assuming that the cash
vacate the premises and deliver the possession surrender value payable to the buyer had been
thereof to the vendor. applied to rentals of the property after
respondent failed to pay the installments due.
Petitioner claimed that respondent paid only Therefore, a deed of absolute sale shall be
P12,950. She allegedly stopped paying after made after payment of purchase price.
December 1979 due to personal problems with
the petitioner. Petitioner asserted that when
respondent ceased paying her installments, her F. P.D. No. 957
status of buyer was automatically transformed a) Important Provisions
to that of a lessee. Therefore, she continued to Section 4. Registration of Projects The
possess the property by mere tolerance of registered owner of a parcel of land who
Patricio. wishes to convert the same into a
Issue: Whether the respondent has the right to subdivision project shall submit his
occupy the premises? subdivision plan to the Authority which shall
act upon and approve the same, upon a
SC: Yes, according to Republic Act No. 6552 -- finding that the plan complies with the
"The Realty Installment Buyer Protection Act," Subdivision Standards' and Regulations
or more popularly known as the Maceda Law enforceable at the time the plan is
(b) If the contract is cancelled, the seller shall submitted. The same procedure shall be
refund to the buyer the cash surrender value followed in the case of a plan for a
of the payments on the property equivalent condominium project except that, in
to fifty percent of the total payments made addition, said Authority shall act upon and
and, after five years of installments, an approve the plan with respect to the
additional five percent every year but not to building or buildings included in the
exceed ninety percent of the total payments condominium project in accordance with
made: Provided, That the actual cancellation the National Building Code (R.A. No. 6541).
of the contract shall take place after thirty
The subdivision plan, as so approved, shall
days from receipt by the buyer of the notice
then be submitted to the Director of Lands
of cancellation or the demand for rescission
for approval in accordance with the
of the contract by a notarial act and upon
procedure prescribed in Section 44 of the
full payment of the cash surrender value to
Land Registration Act (Act No. 496, as
the buyer.
amended by R.A. No. 440): Provided, that it
case of complex subdivision plans, court
The Court agrees with petitioner that the
approval shall no longer be required. The
cancellation of the Contract to Sell may be
condominium plan as likewise so approved,
done outside the court particularly when the
shall be submitted to the Register of Deeds
buyer agrees to such cancellation.
of the province or city in which the property
lies and the same shall be acted upon
subject to the conditions and in accordance

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with the procedure prescribed in Section 4 be, with all the amendments thereof and
of the Condominium Act (R.A. No. 4726). existing by-laws or instruments
corresponding thereto.
The owner or the real estate dealer
interested in the sale of lots or units, (d) A title to the property which is free from
respectively, in such subdivision project or all liens and encumbrances: Provided,
condominium project shall register the however, that in case any subdivision lot or
project with the Authority by filing therewith condominium unit is mortgaged, it is
a sworn registration statement containing sufficient if the instrument of mortgage
the following information: contains a stipulation that the mortgagee
shall release the mortgage on any
(a) Name of the owner;
subdivision lot or condominium unit as soon
(b) The location of the owner's principal as the full purchase price for the same is
business office, and if the owner is a non- paid by the buyer.
resident Filipino, the name and address of
The person filing the registration statement
his agent or representative in the Philippines
shall pay the registration fees prescribed
is authorized to receive notice;
therefor by the Authority.
(c) The names and addresses of all the
Thereupon, the Authority shall immediately
directors and officers of the business firm, if
cause to be published a notice of the filing
the owner be a corporation, association,
of the registration statement at the expense
trust, or other entity, and of all the partners,
of the applicant-owner or dealer, in two
if it be a partnership;
newspapers general circulation, one
(d) The general character of the business published in English and another in Pilipino,
actually transacted or to be transacted by once a week for two consecutive weeks,
the owner; and reciting that a registration statement for the
(e) A statement of the capitalization of the sale of subdivision lots or condominium
owner, including the authorized and units has been filed in the National Housing
outstanding amounts of its capital stock and Authority; that the aforesaid registration
the proportion thereof which is paid-up. statement, as well as the papers attached
thereto, are open to inspection during
The following documents shall be attached business hours by interested parties, under
to the registration statement: such regulations as the Authority may
(a) A copy of the subdivision plan or impose; and that copies thereof shall be
condominium plan as approved in furnished to any party upon payment of the
accordance with the first and second proper fees.
paragraphs of this section. The subdivision project of the condominium
(b) A copy of any circular, prospectus, project shall be deemed registered upon
brochure, advertisement, letter, or completion of the above publication
communication to be used for the public requirement. The fact of such registration
offering of the subdivision lots or shall be evidenced by a registration
condominium units; certificate to be issued to the applicant-
owner or dealer.
(c) In case of a business firm, a balance sheet
showing the amount and general character Section 5. License to sell. Such owner or
of its assets and liabilities and a copy of its dealer to whom has been issued a
articles of incorporation or articles of registration certificate shall not, however, be
partnership or association, as the case may authorized to sell any subdivision lot or

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condominium unit in the registered project installment for the lot or unit directly to the
unless he shall have first obtained a license mortgagee who shall apply the payments to
to sell the project within two weeks from the the corresponding mortgage indebtedness
registration of such project. secured by the particular lot or unit being
paid for, with a view to enabling said buyer
The Authority, upon proper application
to obtain title over the lot or unit promptly
therefor, shall issue to such owner or dealer
after full payment thereto;
of a registered project a license to sell the
project if, after an examination of the Section 23. Non-Forfeiture of Payments.
registration statement filed by said owner or No installment payment made by a buyer in
dealer and all the pertinent documents a subdivision or condominium project for
attached thereto, he is convinced that the the lot or unit he contracted to buy shall be
owner or dealer is of good repute, that his forfeited in favor of the owner or developer
business is financially stable, and that the when the buyer, after due notice to the
proposed sale of the subdivision lots or owner or developer, desists from further
condominium units to the public would not payment due to the failure of the owner or
be fraudulent. developer to develop the subdivision or
condominium project according to the
Section 7. Exempt transactions. A license to
approved plans and within the time limit for
sell and performance bond shall not be
complying with the same. Such buyer may,
required in any of the following
at his option, be reimbursed the total
transactions:
amount paid including amortization
(a) Sale of a subdivision lot resulting from interests but excluding delinquency
the partition of land among co-owners and interests, with interest thereon at the legal
co-heirs. rate.
(b) Sale or transfer of a subdivision lot by the Section 24. Failure to pay installments. The
original purchaser thereof and any rights of the buyer in the event of this failure
subsequent sale of the same lot. to pay the installments due for reasons
(c) Sale of a subdivision lot or a other than the failure of the owner or
condominium unit by or for the account of developer to develop the project shall be
a mortgagee in the ordinary course of governed by Republic Act No. 6552.
business when necessary to liquidate a bona Where the transaction or contract was
fide debt. entered into prior to the effectivity of
Section 18. Mortgages. No mortgage on Republic Act No. 6552 on August 26, 1972,
any unit or lot shall be made by the owner the defaulting buyer shall be entitled to the
or developer without prior written approval corresponding refund based on the
of the Authority. Such approval shall not be installments paid after the effectivity of the
granted unless it is shown that the proceeds law in the absence of any provision in the
of the mortgage loan shall be used for the contract to the contrary.
development of the condominium or Section 25. Issuance of Title. The owner or
subdivision project and effective measures developer shall deliver the title of the lot or
have been provided to ensure such unit to the buyer upon full payment of the
utilization. The loan value of each lot or unit lot or unit. No fee, except those required for
covered by the mortgage shall be the registration of the deed of sale in the
determined and the buyer thereof, if any, Registry of Deeds, shall be collected for the
shall be notified before the release of the issuance of such title. In the event a
loan. The buyer may, at his option, pay his mortgage over the lot or unit is outstanding

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at the time of the issuance of the title to the may, at his option, pay his installment for
buyer, the owner or developer shall redeem the lot or unit directly to the mortgagee
the mortgage or the corresponding portion who shall apply the payments to the
thereof within six months from such corresponding mortgage indebtedness
issuance in order that the title over any fully secured by the particular lot or unit
paid lot or unit may be secured and being paid for, with a view to enabling
delivered to the buyer in accordance said buyer to obtain title over the lot or
herewith unit promptly after full payment thereof.

Since TSE did not obtain prior approval

b) Cases:
from the NHA the mortgage is void as
regarding to the property to the
Far East Bank and Trust Co. vs Marquez,
respondent as he has no standing to
G.R. No. 147964, Jan 20, 2004
question the validity of the other property.
Far East Bank & Trust Co vs. Marquez
Marquez entered into a contract to sell
2.) Respondent has a higher right over the
with TSE involving a 52.5 sqm lot and a
property. Petitioner cannot be considered
three storey townhouse for P800,000. Later
as a buyer in good faith. He should have
respondent was able to pay a total of
considered that it was a town house that
P600,000. TSE then mortgaged the whole
was already in progress. The conversion of
property to Far East Bank. TSE was unable
status from mortgagee to buyer will not
to pay and the property was foreclosed
lessen the importance of such knowledge.
and sold in favor of Far East Bank.

Tamayo vs Huang, G.R. No. 164136, Jan.

Issue:
25, 2006
1.) Whether or not the mortgage contract
Respondents Huang registered owners of
violated Section 18 of PD.957, hence void
four parcels of land located in Barangay
insofar as third persons are concerned.
Matina, Davao City executed a contract of
2.) Who has a higher right the new buyer
"Indenture" with EAP Development
or the respondent?
Corporation (EAP) under which EAP
undertook to manage and develop said
SC:
parcels of land into a first class subdivision
1.) Yes, it violated Sec. 18. as provides as
and sell the lots therein in, Doña Luisa
follows:
Village (the subdivision).
Section 18. Mortgages - No mortgage
on any unit or lot shall be made by the
Carlos R. Tamayo (petitioner) entered into
owner or developer without prior written
a contract to sell with respondents through
approval of the authority. Such approval
EAP for a certain lot. Under the contract,
shall not be granted unless it is shown
petitioner was to pay upon execution
that the proceeds of the mortgage loan
P35,749.60 and the balance, including
shall be used for the development of the
interest at the rate of 14% per annum, in 60
condominium or subdivision project and
monthly installments of P4,791.40, without
effective measures have been provided
necessity of demand; and if petitioner
to ensure such utilization. The loan value
failed to pay the installments, respondents
of each lot or unit covered by the
were given the right to demand interest
mortgage shall be determined and the
thereon at the rate of 14% per annum, to
buyer thereof, if any, shall be notified
be computed on the same day of the
before the release of the loan. The buyer

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month the installments became due. Later petitioner’s right to maintain his option to
on the development of the subdivision was await the completion of the development
put to stop by EAP, in effect petitioner of and introduction of improvements in the
stopped paying the monthly amortization. subdivision and thereafter, upon full
The respondents sent the petitioner a payment of the purchase price, without
demand letter, but after the reply of the interest, compel respondents to execute a
petitioner with an explanation of stop deed of absolute sale, but since the
payment the respondent was unheard of.. property was sold to a buyer in good faith.
After 5 years the development was soon in The respondents should refund the
progress and petitioner offered to pay the petitioner for the value of the property
full purchase price which was already when it was sold.
rejected by the respondent. Later on the
property was sold by the respondent to Cantemprate vs CRS Realty Development
another person. Corporation, G.R. No. 171399, May 8, 2009

Issue: Petitioners bought on an installment basis

1.) Did the petitioner have any legal basis subdivision lots from respondent CRS Realty and
for stop payment? had paid in full the agreed purchase prices; but
2.) Is the contract to sell between the notwithstanding the full payment and despite
parties rescinded? demands, respondents failed and refused to deliver
the corresponding certificates of title to petitioners.
SC: They alleged that respondent Casal was the owner
1.) Yes. According Section 23 of PD 957 of a parcel of land situated in General Mariano
requires only due notice to the owner or Alvarez, Cavite known as the CRS Farm Estate while
developer for stopping further payments respondent Salvador was the president of
by reason of the latter’s failure to develop respondent CRS Realty, the developer of CRS Farm
the subdivision according to the approved Estate. Petitioners averred that respondents failed
plans and within the time limit. to deliver the titles to their respective properties.
Casal averred that despite his willingness to deliver
Therefore, the buyer had the right to stop them, petitioners refused to accept the certificates
payment due to the failure of the of title with notice of lis pendens covering the
developer to comply with the contract. He subdivision lots. Respondent Salvador alleged that
only needed to give due notice to the the failure by respondent Casal to comply with his
owner(Huangs) or Developer to give it obligation under the first agreement to deliver to
effect. CRS or the buyers the certificates of title was caused
by the annotation of the notice of lis pendens on
2.) Yes. Respondents sent no notarized the certificate of title covering the subdivision
notice or any notice of cancellation at all. In property.
fact, it was only after petitioner filed on July
24, 1997 the complaint before the HLURB HLURB Arbiter Ma. Perpetua Y. Aquino declared
that respondents offered to reimburse that the regular courts and not the HLURB had
petitioner of the total amount he had jurisdiction over petitioners’ complaint, thus, the
already paid. complaint for quieting of title could not be given
due course. The Heirs of Laudiza and Ligon were
The contract not having been cancelled in dropped as parties on the ground of lack of cause
accordance with law, it has remained valid of action. However, she found respondents CRS
and subsisting. It was, therefore, within Realty, Casal and Salvador liable on their obligation

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to deliver the certificates of title of the subdivision

lots to petitioners who had paid in full the purchase Article 1491. The following persons cannot acquire by
price of the properties. She also found as fraudulent purchase, even at a public or judicial auction, either in
and consequently nullified the subsequent transfer person or through the mediation of another:
of a portion of the subdivision to respondents Ang (1) The guardian, the property of the person or
and Cuason. persons who may be under his guardianship;
Issue: WON the absence of a license to sell has (2) Agents, the property whose administration or
rendered the sales void. sale may have been intrusted to them, unless
the consent of the principal has been given;
SC: The only requisite for a contract of sale or (3) Executors and administrators, the property of
contract to sell to exist in law is the meeting of the estate under administration;
minds upon the thing which is the object of the (4) Public officers and employees, the property of
contract and the price, including the manner the the State or of any subdivision thereof, or of
price is to be paid by the vendee. The absence of any government-owned or controlled
the license to sell does not affect the validity of the corporation, or institution, the administration
already perfected contract of sale between of which has been intrusted to them; this
petitioners and respondent CRS Realty. provision shall apply to judges and government
experts who, in any manner whatsoever, take
CHAPTER 2 part in the sale;
CAPACITY TO BUY OR SELL (5) Justices, judges, prosecuting attorneys, clerks
of superior and inferior courts, and other

officers and employees connected with the
ARTICLES 1489-1492 administration of justice, the property and
rights in litigation or levied upon an execution
Article 1489. All persons who are authorized in this before the court within whose jurisdiction or
Code to obligate themselves, may enter into a territory they exercise their respective
contract of sale, saving the modifications contained in functions; this prohibition includes the act of
the following articles. acquiring by assignment and shall apply to
lawyers, with respect to the property and rights
Where necessaries are those sold and delivered to a which may be the object of any litigation in
minor or other person without capacity to act, he which they may take part by virtue of their
must pay a reasonable price therefor. Necessaries are profession;
those referred to in article 290. (1457a) (6) Any others specially disqualified by law. (1459a)

Article 1490. The husband and the wife cannot sell Article 1492. The prohibitions in the two preceding
property to each other, except: articles are applicable to sales in legal redemption,
(1) When a separation of property was agreed compromises and renunciations. (n)
upon in the marriage settlements; or
(2) When there has been a judicial separation of
property under article 191. (1458a)

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I. PARTIES AND THEIR CONSENT

Facts: There was a contract entered into
A. Capacity in General (1489) between Uy Siu Pin and Casimira and Blas,
Art. 1489. All persons who are authorized in this which the latter agreed to deliver the
Code to obligate themselves, may enter into a mortgaged land and to enjoy the same with
contract of sale, saving the modifications its improvements to the during the period of
contained in the following articles. 15 years on condition that Uy Siu Pin would
pay El Hogar Filipino the unpaid balance of
Where necessaries are sold and delivered to a the indebtedness of casimira and Blas,
minor or other person without capacity to act, together with all other expenses including
he must pay a reasonable price therefor. realty taxes.
Necessaries are those referred to in article
290. When the mortgage debtors, Casimira and
Blas, failed to redeem the land within the
Note: A person who has both juridical capacity statutory period, a final deed of sale was
and capacity to act is said to have full civil issued in favor of the mortgagee, El Hogar
capacity. It is understood that he is of legal Filipino. The latter sold the land to Uy Siu Pin
age and suffers no restriction on his capacity and in turn sold the land to his wife Chua
to act, such person may enter into any Hue.
contract including sale.
Issues: Is the sale valid between Uy Siu Pin
What if the seller is incapacitated to sell? and Chua Hue?
Does that affect the validity of the contract?
We know that the contract is defective but Held: SC said No. The sale from Uy Siu Pin to
is it valid? his wife Chua Hue is null and void not only
− Valid. But it may affect the performance because the former had no right to dispose
because you cannot compel the seller to of the land in controversy but because the
comply; you cannot compel an sale comes within the prohibition of Article
incapacitated person to comply 1458 of the Civil Code.

B. Special Disqualifications Note: The case did not extensively explicate

a. Between spouses the reason why the sale between spouses are
− They cannot purchase property from each prohibited. However, Art 1490 provides that
other because it’s like taking money from “the husband and wife cannot sell property
one pocket and putting it in another to each other, except: (1) when a separation
pocket. of property was agreed upon in the marriage
settlements; or (2) when there has been a
Who can assail the transaction as void? judicial separation of property under Article
− The heirs of either spouses who are 191.
prejudiced, prior creditors and the State
when it comes to taxable transactions Rationale behind the prohibition: (a) to
prevent the stronger spouse from exploiting
Cases: the weaker spouse; (b) prevent donations
1. Effect of sale of land to one’s own spouse disguised as sales; (c) protect third persons,
specially creditors, against fraud through the
Uy Siu Pin vs Cantollas, G.R. No. 46850, transfer of the properties of one spouse to
June 20, 1940 the other to evade payment of obligations.

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partnership, a basic policy in civil law. It was

2. Transfer in common law relationship also designed to prevent the exercise of
undue influence by one spouse over the
Ching vs Goyanko, G.R. No. 165879, Nov other, as well as to protect the institution of
10, 2006 marriage, which is the cornerstone of family
law. The prohibitions apply to a couple living
FACTS: Respondents claim that their parents as husband and wife without benefit of
(Goyanko and Epifania) acquired a 661 marriage, otherwise, “the condition of those
square meter property but they (the parents) who incurred guild would turn out to be
were Chinese citizens at the time, the better that those in legal union.”
property was registered in the name of their
aunt, Sulpicia Ventura. Sulpicia executed a b. By a spouse without consent of the other
deed of sale over the property in favor of spouse
reespondent’s father Goyanko that in turn − Such transaction is void
executed a deed of sale over the same
property in favor of his common-law-wife- c. Persons in trust relations
herein petitioner Maria B. Ching. It was only
after Goyanko’s death that they discovered Cases:
the transfer of the said property to Ching. 1. Sale to agent: exception to prohibition against
Respondents thus filed with the RTC of Cebu sale by principal in favor of his agent
City a complaint for recovery of the property
and the nullification of the deed of sale. Pelayo vs Perez, G.R. No. 141323, June 8,
2005
ISSUE: Whether or not the sale of the
property by Goyanko to Ching is valid. FACTS: David Pelayo, by a Deed of Absolute
Sale, conveyed to Melki Perez two parcels of
HELD: agricultural land. Loreza, wife of David
The conveyance of Goyanko in favor of his Pelayo,k and another one whose signature is
common-law-wife-herein petitioner, was illegible witnessed the execution of the deed.
null and void. Article 1409 of the Civil Code Loreza, however, signed only the third page.
states inter alia that contracts whose cause, Perez asked Loreza to sign on the first and
object, or purpose is contrary to law, morals, second pages of the deed but refused, hence,
good customs, public order, or public policy he instituted the instant complaint for specific
are void and inexistent from the very performance against the spouses. Petitioners,
beginning. Article 1352 also provides that: in adopting the trial court’s narration of
“Contracts without cause, or with unlawful antecedent facts in their petition, admitted
cause, produce no effect whatsoever. The that they authorized respondent to represent
cause is unlawful if it is contrary to law, them in negotiations with the “squatters”
morals, good customs. Public order, or public occupying the disputed property and, in
policy.” Additionally, the law emphatically consideration of respondent’s services, they
prohibits the spouses from selling property executed the subject deed of sale. Defendant
to each other subject to certain exceptions. Pelayo claimed that the deed was without his
Similarly, donations between spouses during wife’s consent, hence, it is null and void.
marriage are prohibited. And this is so
because if transfers or conveyances between ISSUE: Whether or not the deed of sale was
spouses were allowed during marriage, that null and void.
would destroy the system of conjugal

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HELD: Petitioner Lorenza, by affixing her their consent to the sale of the subject
signature to the Deed of Sale on the space property in favor of respondent, thereby
provided for witnesses, is deemed to have making the transaction an exception to the
given her implied consent to the contract of general rule that agents are prohibited from
sale. Sale is a consensual contract that is purchasing the property of their principals.
perfected by mere consent, which may either
be express or implied. A wife’s consent to the Can real estate brokers acquire property
husband’s disposition of conjugal property from their developers?
does not always have to be explicit or set forth − Yes. They are not agents but rather,
in any particular document, so long as it is intermediaries.
shown by acts of the wife that such consent or
approval was indeed given. In the present 2. Sale to guardians
case, although it appears on the face of the
deed of sale that Lorenza signed only as an Philippine Trust Co vs Roldan, 99 Phil 392
instrumental witness, circumstances leading to
the execution of said document point to the FACTS: Parcels located in Guiguinto, Bulacan,
fact that Lorenza was fully aware of the sale of were part of the properties inherited by
their conjugal property and consented to the Mariano L. Bernardo from his father, Marcelo
sale. Bernardo, deceased. In view of his minority,
guardianship proceedings were instituted,
Under Article 173, in relation to Article 166, wherein Socorro Roldan was appointed his
both of the New Civil Code, when the deed in guardian. She was the surviving spouse of
question was executed, the lack of marital Marcelo Bernardo, and the stepmother of said
consent to the disposition of conjugal Mariano L. Bernardo.
property does not make the contract void ab
initio but merely voidable. It has been held On July 27, 1947, Socorro Roldan filed in said
that the contract is valid until the court annuls guardianship proceedings (Special
the same and only upon an action brought by Proceeding 2485, Manila), a motion asking for
the wife whose consent was not obtained. In authority to sell as guardian the 17 parcels for
the present case, despite respondent’s the sum of P14,700 to Dr. Fidel C. Ramos, the
repeated demands for Lorenza to affix her purpose of the sale being allegedly to invest
signature on all the pages of the deed of sale, the money in a residential house, which the
showing respondent’s insistence on enforcing minor desired to have on Tindalo Street,
said contract, Lorenza still did not fle a case for Manila. The motion was granted.
annulment of the deed of sale. Thus, if the
transaction was indeed entered into without Socorro Roldan, as guardian, executed the
Lorenza’s consent, we find it quite puzzling proper deed of sale in favor of her brother-in-
why for more than three and a half years, law Dr. Fidel C. Ramos. Dr. Fidel C. Ramos
Lorenza did nothing to seek the nullification of executed in favor of Socorro Roldan,
the assailed contract. personally, a deed of conveyance covering the
same seventeen parcels, for the sum of
With regards to petitioner’s asservation that P15,000.
the deed of sale is invalid under Article 1491
(2) of the New Civil Code, we find such The Philippine Trust Company replaced
argument unmeritorious. Petitioners, by Socorro Roldan as guardian, on August 10,
signing the Deed of Sale in favor of 1948. And this litigation, started two months
respondent, are also deemed to have given later, seeks to undo what the previous

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guardian had done. The step-mother in effect, be fully paid and that failure to pay any
sold to herself, the properties of her ward, monthly installment within 90 days from due
contends the plaintiff, and the sale should be date, the contract shall be deemed
annulled because it violates Article 1459 of the automatically cancelled. Maharlika failed to
Civil Code prohibiting the guardian from pay the installments for several months. This
purchasing "either in person or through the resulted to a public bidding of this particular
mediation of another" the property of her property. Petitioner submitted a letter-
ward. proposal that reads: “I bid to match the
highest bidder.” The bidding committee
ISSUE: Whether or not the sale was valid. rejected petitioner’s bid and accepted the
private respondent Luz Tagle’s bid. After
HELD: As Guardianship is a trust of the highest approval and confirmation of the sale, the
order, the trustee cannot be allowed to have GSIS executed a Deed of Conditional Sale in
any inducement to neglect his ward's interest; favor of Tagles. Luz Tagle is the wife of
and whenever the guardian acquires the Edilberto Tagle. Edilberto Tagle was the Chief,
ward's property through an intermediary, he Retirment Division, GSIS, from 1970 to 1978.
violates the provision of Article 1459 of the He worked for the GSIS since 1952.
Civil Code and such transaction and
subsequent ones emanating therefrom shall ISSUE: Whether or not the sale is valid.
be annulled.
HELD: In providing the prohibitions under
Even without proof that she had connived with Article 1491, the Code tends to prevent fraud,
Dr. Ramos. Remembering the general or more precisely, tends not give occasion for
doctrine that guardianship is a trust of the fraud, which is what can and must be done.
highest order, and the trustee cannot be
allowed to have any inducement to neglect his The point is that he is a public officer and his
ward's interest and in line with the court's wife acts for and in his name in any transaction
suspicion whenever the guardian acquires the with the GSIS. If he is allowed to participate in
ward's property 1 we have no hesitation to the public bidding of properties foreclosed or
declare that in this case, in the eyes of the law, confiscated by the GSIS, there will always be
Socorro Roldan took by purchase her ward's the suspicion among other bidders and the
parcels thru Dr. Ramos, and that Article 1459 general public that the insider official had
of the Civil Code applies. access to information and connection with his
fellow GSIS official as to allow him to
3. Sale to Public Officers eventually acquire the property. It is precisely
the need to forestall such suspicions and to
Maharlika Broadcasting Corp vs Tagle, 142 restore confidence in the public service that
SCRA 553 the Civil Code now declares such transactions
to be void from the beginning and not merely
FACTS: The GSIS was the registered owner of voidable.
a parcel of land that was sold to petitioner
Maharlika Publishing Corporation together It is precisely the need to forestall such
with the building thereon as well as the suspicions and to restore confidence in the
printing machinery and equipment therein. public service that the Civil Code now declares
Among the conditions of the sale are that such transactions to be void ab initio and not
petitioner shall pay to the GSIS monthly merely voidable.
installments until the total purchase price shall

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4. Sale or transfer to attorney A thing is said to be in litigation only if there is

some contest or litigation over it in court, but
Gurrea vs Suplico, G.R. No. 144320, April 26, also from the moment that it becomes subject
2006 to the judicial action of the judge. In the
present case, there is no proof to show that at
FACTS: Adelina Gurrea continued to be the the time the deed of Transfer of Rights and
owner of the lot (TCT No. 58253) until her Interest was executed, the probate court
death. Thereafter, a special proceeding was issued an order granting the Motion for
instituted to settle her estate. Under her will, Termination of Proceeding and Discharge of
the San Juan lot was bequeathed to Pilar and the Executor and Bond. Since the judge has
Luis Gurrea, while 700,000 pesetas, ¼ of the yet to act on the above-mentioned motion, if
lot in Baguio and 1-hectare piece of land in follows that the subject property which is the
Negros Occidental were given to Ricardo subject matter of the deed of Transfer of
Gurrea. Ricardo Gurrea, represented by and Rights and Interest, is still the object of
through his counsel Atty. Enrique Suplico filed litigation.
an Opposition in Special Proceeding No. 7185. Having been established that the subject
In consideration of said representation, property was still the object of litigation at the
Ricardo Gurrea agreed to pay Atty. Suplico “a time the subject deed of Transfer of Rights
contigent fee of twenty (20%) of whatever is and Interest was executed, the assignment of
due me, either real or personal property.” rights and interest over the subject property in
Later on, Ricardo withdrew his Opposition. favor of respondent is null and void for being
The properties adjudicated to Ricardo based violative of the provisions of Article 1491 of
on the project of partition were the Baguio lot, the Civil Code which expressly prohibits
San Juan lot, and a parcel of land in Negros lawyers from acquiring property or rights
Occidental. As payment of his attorney’s fees, which may be the object of any litigation in
Ricarod Gurrea offered the San Juan lot to which they may take party by virtue of their
Atty. Suplico who was hesitant to accept as the profession.
property was occupied by squatters. However,
in order not to antagonize his client, Atty. Is mere demand for the delivery of the
Suplico agreed to Ricardo’s proposal with the property during the pendency of the case
further understanding that he will receive an allowed?
additional commission of 5% if he sells the − Yes, because such demand is not the
Baguio property. Thereafter, Atty. Suplico transfer of ownership, hence, not a
registered the deed of Transfer of Rights and prohibited transaction under Art 1491
Interest and obtained the title to the San Juan
property under his name. Can a thing in a litigation be mortgaged in
favor of the lawyer to secure payment of his
ISSUE: Whether or not the subject property is attorney’s fee?
still the object of litigation; If affirmative, − No. Prohibition under Art 1491 also
whether or not the sale is void for being extends to mortgages, not just absolute
violative of the provisions of Article 1491 (5) of conveyances, executed during the
the Civil Code. pendency of the case before the
termination of the proceeding
HELD: The sale to Atty. Suplico is null and
void. Note: Fornilda case is not found in the syllabus
but Judge Adviento made mention of this, so
yeah

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client. From the time of the execution of the

Fornilda vs. RTC 4th Judicial Region, Pasig, mortgage in his favor, Respondent Amonoy
G.R. No. 72306, October 6, 1988 had already asserted a title adverse to his
clients’ interest at a time when the relationship
FACTS: The Controvereted Parcels were part of lawyer and client had not yet been severed.
of the estate of the late Julio Catolos subject The fact that the properties were first
of intestate estate proceedings, wherein mortgaged and only subsequently acquired in
Respodent Amonoy acted as ocusel for some an auction sale long after the termination of
of the heirs from 1859 until 1968 by his own the intestate proceedings will not remove it
admission; that these properties were from the scope of the prohibition.
adjudicated to Alfonso Fornildsa and
Asuncion Pasamba in the Project of Partition C. Incapacity to Sell
approved by the court on January 12, 1965. a. Homesteaders
Eight days thereafter, and while he was still − Homesteaders under CA 141 are prohibited
intervening in the case as counsel, these to sell within a five-year period. But in one
properties were mortgaged by petitoners’ case, the grantee can actually sell such
predecessor-in-interest to Respondent property prior to the issuance of the patent
Amonoy to secure payment of the latter’s during the 5-year period from the issuance
attorney’s fees in the amount of P27,600.00. of the patent.
Since the mortgage indebtedness was not
paid, Respondent Amonoy instituted an action Cases:
for judicial foreclosure of mortgage on
January 21, 1970. The mortgage was 1. Sale of portions of a parcel of land (1) prior to
subsequently ordered foreclosed and auction issuance, and (2) within 5 years from issuance
sale followed where respondent Amonoy was of free patent
the sole bidder.
For, while the Project of Partition was Manalapat vs CA, G.R. No. 125585, June 8,
approved on January 12, 1965, it was not until 2005
August 6, 1969 that the estate was declared
closed and terminated. FACTS: The controversy involves Lot No. 2204
that had been originally in the possession of
ISSUE: Whether or not the mortgage Jose Alvarez, Eduardo’s grandfather, until his
constituted on the Controverted Parcels in demise in 1916. It remained unregistered until
favor of Respondent Amonoy comes within October 8, 1976 when OCT No. P-153 was
the scope of the prohibition in Article 1491 of issued in the name of Eduardo pursuant to a
the Civil Code. free patent issued in Eduardo’s name that was
entered in the Registry of Deed. Before the
HELD: The transaction falls squarely within the subject lot was titled, Eduardo sold 533 sq.m.
prohibition against any acquisition by a lawyer of the land to Ricardo on December 19, 1954.
of properties belonging to parties they The sale is evidence by a deed of sale entitled
represent which are still in suit. At the time the “Kasulatan ng Bilihang Tuluyan ng Lupang
mortgage was executed, therefore, the Walang Titulo” which was signed by Eduardo
relationship of lawyer and client still existed, himself as vendor and his wife Engracia
the very relation of trust and confidence Ancieto with a certain Santiago Enriquez
sought to be protected by the prohibition, signing as witness. The Kasulatan was
when a lawyer occupies a vantage position to registered with the Register of Deeds. On
press upon or dictatge terms to an harassed March 18, 1981, another Deed of Sale

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conveyed another portion of the subject lot as and not merely encumbered, within the
right of way was executed by Eduardo in favor prohibited period.
of Ricardo. The deed was notarized. Leon
Banaag, as attorney-in-fact of his father-in- The sale of the 533 sq.m. was executed 22
law (Eduardo) mortgage with the Rural Bank years before the issuance of the patent in
for P100,000.00 with the subject lot as 1976. Where the sale or transfer took place
collateral. Banaag deposited the owner’s before the filing of the free patent application,
duplicate certificate of OCT No. P-153 with whether by the vendor or the vendee, the
the bank. Ricardo and Eduardo died. prohibition should not be applied. In such
situation, neither the prohibition not the
The Cruzes, upon learning their right to the rationale therefor which is to keep in the
subject lot immediately tried to confront family of the patentee that portion of the
petitioners mortgage and obtain the public land which the government has
surrender of the OCT. Having failed to gratuitously given him, by shielding him from
physically obtain the title from petitioners, the the temptation to dispose of his landholdings,
Cruzes went to RBSP which had custody of the could be relevant. Precisely, he had disposed
owner’s duplicate certificate of the OCT. They of his rights to the lot even before the
were able to secure a clearance to borrow the government could give the title to him.
title and was able to have the Register of
Deeds cancel the OCT and issue two separate 2. Effect of verbal sale within 5-year prohibitory
titles in the name of Ricardo andEduardo. period

ISSUE: Whether or not the sale of the land is Manzano vs Ocampo, G.R. No. L-46850,
prohibited or not. June 20, 1940

HELD: Free patent application implies the Victoriano Manzano, now deceased, was
recognition of the public dominion character granted a homestead patent on June 25, 1934,
of the land and, hence, the five year and the land was registered in his name on
prohibition imposed by the Public land Act July 25, 1934 under Original Certificate of Title
against alienation or encumbrance of the land No. 4590. On January 4, 1938, he and
covered by a free patent or homestead should respondent Rufino Ocampo agreed on the
have been considered. sale of said homestead for the amount of
P1,900.00, P1,100.00 of which was paid by
The deed of sale covering the 50 sq.m. right of Ocampo to Manzano on the same day, and
way executed on March 18, 1981 is obviously for the balance, he executed a promissory
covered by proscription, the free patent note. Knowing, however, that any sale of the
having been issued on October 8, 1979. homestead at that time was prohibited and
However, petitioners may recover the portion void, the parties likewise agreed that the deed
sold since the prohibition was imposed in of sale was to be made only after the lapse of
favor of the free patent holder. Under the five years from the date of Manzano's patent.
Public Land Act, the prohibition to alienate is And to protect the buyer Ocampo's rights in
predicated on the fundamental policy of the the agreed sale, Manzano executed in his
State to preserve and keep in the family of the favor a "Mortgage of Improvements" over the
homesteader that portion of public land which homestead to secure the amount of P1,100.00
the State has gratuitously given to him, and already received as down payment on the
recovery is allowed even where the land price.
acquired under the Public Land Act was sold

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It is clear that a perfected contract of sale had 1) Those based on public trust –
already been entered into by the parties within i. Public officers, employees, government
the period of prohibition. There was nothing experts (1491, par. 4), – void
"futuristic" in this agreement, except that, ii. Judges, Justices, Prosecutors, Clerks of
being fully aware of the prohibition, Court, lawyers (1491, par. 5) – void
Manzano's title has not ripened into absolute (1409, No. 7)
ownership.
2) Those based on private trust -
This execution of the formal deed after the i. Guardians (1491, par. 1) – voidable
expiration of the prohibitory period did not ii. Agents (1491, par. 2) – voidable
and could not legalize a contract that was void iii. Executors and administrators (1491, par.
from its inception. Nor was this formal deed of 3) – voidable
sale "a totally distinct transaction from the
promissory note and the deed of mortgagee CHAPTER 3
for it was executed only in compliance and EFFECTS OF THE CONTRACT WHEN THE THING
fulfillment of the vendor's previous promise, SOLD HAS BEEN LOST
under the perfected sale to execute in favor of

his vendee the formal act of conveyance after
the lapse of the period of inhibition of five ARTICLES 1493-1494
years from the date of the homestead patent.
Article 1493. If at the time the contract of sale is
Sale in question is illegal and void for having perfected, the thing which is the object of the
been made within five years from the date of contract has been entirely lost, the contract shall be
Manzano's patent, in violation of section 118 without any effect.
of the Public Land Law. Being void from its
inception, the approval thereof by the But if the thing should have been lost in part only,
Undersecretary of Agriculture and Natural the vendee may choose between withdrawing from
Resources after the lapse of five years from the contract and demanding the remaining part,
Manzano's patent did not legalize the sale. paying its price in proportion to the total sum
The result is that the homestead in question agreed upon. (1460a)
must be returned to Manzano's heirs, who are,
in turn, bound to restore to Ocampo the, sum Article 1494. Where the parties purport a sale of
of P3,000.00 received by Manzano as the price specific goods, and the goods without the
thereof. knowledge of the seller have perished in part or
have wholly or in a material part so deteriorated in
D. When an Incompetent Buys quality as to be substantially changed in character,
− He must pay a reasonable price for necessaries the buyer may at his option treat the sale:
delivered to him. The resulting sale is valid. The (1) As avoided; or
above rule seems to be founded on quasi- (2) As valid in all of the existing goods or in so
contract much thereof as have not deteriorate, and
as binding the buyer to pay the agreed
E. Effect of forbidden sales price for the goods in which the ownership
a. Between husband and wife under the will pass, if the sale was divisible.
community regime, the sale is void.
Note: Strangers cannot assail the transfer.
Thing entirely lost – Where the thing is entirely lost at
b. Between persons in trust relations, as regards: the time of perfection, the contract is inexistent and
void because there is no object.

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Note: In both cases, it is the buyer who bears the risk.

Thing partially lost – If the subject matter is only
partially lost, the vendee may elect between (1) Under our civil code, we follow the principle of res
withdrawing from the contract and (2) demanding the perit domino (CL) but with regards to ownership, it is
remaining part, paying its proportionate price. transferred from the moment of delivery (RL).

When is a thing considered lost? a. At the time of perfection

− A thing is lost when it perishes or goes out of
commerce or disappears in such a way that its 1. Total Loss (1493) – the contract if
existence is unknown or it cannot be recovered. inoperative at the time of the perfection of
(Art.1189) the contract; void because no subject
matter
I. DISTINCTION
2. Partial Loss (1494) – option is with the
1493 1494 buyer whether or not to proceed with the
Applies to a sale of Applies only to sales of contract
specific thing goods, that is, the object
of the sale consists of a 3. Deterioration (1494) – if substantial
mass of “specific goods” deterioration, it is equivalent to total loss
which means “goods
identified and agreed b. At the perfection and before delivery (Risk of
upon at the time a Loss)
contract of sale is made”
Both articles have the same essence providing two 1. By the fault of one party (1480, 1538)
alternative remedies to the buyer in case of If the obligation consist of the delivery of a
deterioration or partial loss of the object prior to the determinate thing, the seller shall bear the
sale loss if he was in:
a. Delay
Second option or
b. Assumes the loss
alternative is applicable
c. Promises the same thing to two or
only if the objects of the
more persons
sale are divisible. If they
are divisible, the only
2. By fortuitous event (1480, 1504, 1538) – a
option is avoidance of the
problem arises in this case.
sale

Two Theories:
A. Effect of Loss of the Thing Sold

ROMAN LAW – from the moment of perfection of the Article 1262. An obligation which consists in
contract of sale, the risk is borne by the buyer but the the delivery of a determinate thing shall be
ownership is transferred to the buyer only upon extinguished if it should be lost or destroyed
delivery. without the fault of the debtor, and before he
has incurred in delay.
COMMON LAW – follows the principle res perit
domino – the owner bears the risk of loss, but
ownership is transferred upon perfection of the
contract.

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First Theory: covered under this Policy." The policies also

provide for the following conditions:
Paras and Padilla: Based in that article, it would 1. Warranted that the Company shall not be
be the buyer who bears the risk of loss. So in liable for any unpaid account in respect of the
case of fortuitous event, the seller is released merchandise sold and delivered by the Insured
from his obligation but the buyer is still which are outstanding at the date of loss for a
obliged to pay the price. (this is consistent with period in excess of six (6) months from the date
oblicon) of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
Judge Adviento: Maybe this is a unilateral 2. Warranted that the Insured shall submit to
contract; this would be unfair to the buyer. the Company within twelve (12) days after the
Paying the money without ever acquiring close of every calendar month all amount
ownership over the property. shown in their books of accounts as unpaid and
thus become receivable item from their
Second Theory: customers and dealers.

Tolentino: If it is due to FE, the obligation of Gaisano is a customer and dealer of the products
the seller is extinguished, likewise, the of IMC and LSPI. On February 25, 1991, the
obligation of the buyer should also be Gaisano Superstore Complex in Cagayan de Oro
extinguished. City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire
Sale is a bilateral contract, if the seller cannot were stocks of ready-made clothing materials sold
perform then it is unjust to require the buyer and delivered by IMC and LSPI.
to perform.
Insurance of America filed a complaint for
c. After delivery damages against Gaisano. It alleges that IMC and
− Buyer bears the loss (res perit domino) LSPI were paid for their claims and that the unpaid
accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was
B. Case: P2,119,205.00 while with LSPI it was P535,613.00.
Gaisano Cagayan, Inc. vs Insurance Company of
North America, G.R. No. 147839, June 8, 2006 The RTC rendered its decision dismissing
Insurance's complaint. It held that the fire was
Facts: purely accidental; that the cause of the fire was not
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately attributable to the negligence of the petitioner.
obtained from respondent fire insurance policies Also, it said that IMC and LSPI retained ownership
with book debt endorsements. The insurance of the delivered goods and must bear the loss.
policies provide for coverage on "book debts in
connection with ready-made clothing materials The CA rendered its decision and set aside the
which have been sold or delivered to various decision of the RTC. It ordered Gaisano to pay
customers and dealers of the Insured anywhere in Insurance the P 2 million and the P 500,000 the
the Philippines." latter paid to IMC and Levi Strauss.

The policies defined book debts as the "unpaid Hence this petition.
account still appearing in the Book of Account of
the Insured 45 days after the time of the loss Issue: WON IMC bears the risk of loss because it
expressly reserved ownership of the goods by

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stipulating in the sales invoices that "[i]t is further expectancy, coupled with an existing interest in
agreed that merely for purpose of securing the that out of which the expectancy arises.
payment of the purchase price the above
described merchandise remains the property of Anyone has an insurable interest in property who
the vendor until the purchase price thereof is fully derives a benefit from its existence or would suffer
paid." loss from its destruction. Indeed, a vendor or seller
retains an insurable interest in the property sold so
Held: The present case clearly falls under long as he has any interest therein, in other words,
paragraph (1), Article 1504 of the Civil Code: so long as he would suffer by its destruction, as
ART. 1504. Unless otherwise agreed, the goods where he has a vendor's lien. In this case, the
remain at the seller's risk until the ownership insurable interest of IMC and LSPI pertain to the
therein is transferred to the buyer, but when the unpaid accounts appearing in their Books of
ownership therein is transferred to the buyer the Account 45 days after the time of the loss covered
goods are at the buyer's risk whether actual by the policies.
delivery has been made or not, except that:
(1) Where delivery of the goods has been
made to the buyer or to a bailee for the buyer,
in pursuance of the contract and the
ownership in the goods has been retained by
the seller merely to secure performance by the
buyer of his obligations under the contract,
the goods are at the buyer's risk from the time
of such delivery

Thus, when the seller retains ownership only to

insure that the buyer will pay its debt, the risk of
loss is borne by the buyer. Petitioner bears the risk
of loss of the goods delivered.

IMC and LSPI had an insurable interest until full

payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of
who bears the risk of loss, in property insurance,
one's interest is not determined by concept of title,
but whether insured has substantial economic
interest in the property.

Section 13 of our Insurance Code defines insurable

interest as "every interest in property, whether real
or personal, or any relation thereto, or liability in
respect thereof, of such nature that a
contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the
same Code, an insurable interest in property may
consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an

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