CASES ON LAW OF SALES

CONCEPT OF CONTRACT OF SALE

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent. A contract of sale may be absolute or conditional. (1445a)

Villamil vs. Sps. Erguiza

RULING: Parties entered into a contract to sell. A contract to sell is defined as a bilateral
contract whereby the prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the
purchase price and/or compliance with the other obligations stated in the contract to sell. Given its
contingent nature, the failure of the prospective buyer to make full payment and/or abide by his
commitments stated in the contract to sell prevents the obligation of the prospective seller to execute
the corresponding deed of sale to effect the transfer of ownership to the buyer from arising. A
contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if
the suspensive condition does not take place, the parties would stand as if the conditional obligation
had never existed. In a contract to sell, the fulfillment of the suspensive condition will not
automatically transfer ownership to the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey title to the prospective buyer by entering
into a contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of
the suspensive condition renders the sale absolute and the previous delivery of the property has the
effect of automatically transferring the seller's ownership or title to the property to the buyer. 34

An examination of the agreement would reveal that the parties entered into a contract to sell the
subject property. First, petitioner and her siblings who were then co-owners merely promised to
sell the subject property, thus, signifying their intention to reserve ownership. Second, the
execution of a deed of absolute sale was made dependent upon the proper court's approval of
the sale of the shares of the minor owners. Third, the agreement between the parties was not
embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication
that the parties did not intend immediate transfer of ownership. Fourth, petitioner retained
possession of the certificate of title of the lot. This is an additional indication that the agreement
did not transfer to private respondents, either by actual or constructive delivery, ownership of
the property. Finally, respondent Juanito admitted during trial that they have not finalized the
sale in 1972 because there were minor owners such that when they constructed their house
thereon, they sought the permission of petitioner.

LAWFULNESS OF OBJECT AND RIGHTS TO TRANSFER OWNERSHIP

Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered. (n)

Cahayag Vs Commercial Credit Corp

RULING: Case law also provides that the fact that the seller is not the owner of the subject
matter of the sale at the time of perfection does not make the sale void.77
Hence, the lesson: for title to pass to the buyer, the seller must be the owner of the thing sold at
the consummation stage or at the time of delivery of the item sold. The seller need not be the
owner at the perfection stage of the contract, whether it is of a contract to sell or a contract of
sale. Ownership is not a requirement for a valid contract of sale; it is a requirement for a valid
transfer of ownership'.

Consequently, it was not correct for the CA to consider the contract of sale void. The CA
erroneously considered lack of ownership on the part of the seller as having an effect on the
validity of the sale. The sale was very much valid when the Deed of Absolute Sale between the
parties was executed on 10 December 1983, even though title to the property had earlier been
consolidated in favor of respondent CCC as early as 10 November 1983. The fact that Dulos
Realty was no longer the owner of the property in question at the time of the sale did not affect
the validity of the contract.

On the contrary, lack of title goes into the performance of a contract of sale. It is therefore
crucial to determine in this case if the seller was the owner at the time of delivery of the object of
the sale. For this purpose, it should be noted that execution of a public instrument evidencing a
sale translates to delivery.78 It transfers ownership of the item sold to the buyer.79

In this case, the delivery coincided with the perfection of the contract -The Deed of Absolute
Sale covering the real property in favor of petitioner Baldoza was executed on 10 December
1983. As already mentioned, Dulos Realty was no longer the owner of the property on that date.
Accordingly, it could not have validly transferred ownership of the real property it had sold to
petitioner.

OBJECT OF SALE (Art 1460-1465)

Article 1460. A thing is determinate when it is particularly designated or physical segregated
from all others of the same class.

Heirs of San Juan Andres vs Rodriguez

RULING: There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of
345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area
of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid
lot." Since the lot subsequently sold to respondent is said to adjoin the "previously paid lot" on
three sides thereof, the subject lot is capable of being determined without the need of any new
contract. The fact that the exact area of these adjoining residential lots is subject to the result of
a survey does not detract from the fact that they are determinate or determinable. As the Court
of Appeals explained: 15

Concomitantly, the object of the sale is certain and determinate. Under Article 1460
of the New Civil Code, a thing sold is determinate if at the time the contract is
entered into, the thing is capable of being determinate without necessity of a new or
further agreement between the parties. Here, this definition finds realization.

Appellee's Exhibit "A" (page 4, Records) affirmingly shows that the original 345 sq.
m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining
portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the
north. The northern boundary is a 12 meter road. Conclusively, therefore, this is the
only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot
initially purchased by Rodriguez. It is quite defined, determinate and certain. Withal,
 this is the same portion adjunctively occupied and possessed by Rodriguez since
September 29, 1964, unperturbed by anyone for over twenty (20) years until appellee
instituted this suit.

Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of
the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer
ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil
Code provides:

The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. . . .

CONTRACT OF SALE VS AGENCY TO SELL

Article 1466. In construing a contract containing provisions characteristic of both the contract of
sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be
considered. (n)

Lim vs. CA
RULING: Rosa Lim's signature indeed appears on the upper portion of the receipt immediately
below the description of the items taken: We find that this fact does not have the effect of
altering the terms of the transaction from a contract of agency to sell on commission basis to a
contract of sale. Neither does it indicate absence or vitiation of consent thereto on the part of
Rosa Lim which would make the contract void or voidable. The moment she affixed her
signature thereon, petitioner became bound by all the terms stipulated in the receipt. She, thus,
opened herself to all the legal obligations that may arise from their breach. This is clear from
Article 1356 of the New Civil Code which provides:

Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. . . .

However, there are some provisions of the law which require certain formalities for particular
contracts. The first is when the form is required for the validity of the contract; the second is
when it is required to make the contract effective as against third parties such as those
mentioned in Articles 1357 and 1358; and the third is when the form is required for the purpose
of proving the existence of the contract, such as those provided in the Statute of Frauds in
article 1403. 13 A contract of agency to sell on commission basis does not belong to any of these
three categories, hence it is valid and enforceable in whatever form it may be entered into.

Furthermore, there is only one type of legal instrument where the law strictly prescribes the
location of the signature of the parties thereto. This is in the case of notarial wills found in Article
805 of the Civil Code, to wit:

Every will, other than a holographic will, must be subscribed at the end thereof by the
testator himself . . . .

The testator or the person requested by him to write his name and the instrumental
witnesses of the will, shall also sign, as aforesaid, each and every page thereof, except
the last, on the left margin. . . .
In the case before us, the parties did not execute a notarial will but a simple contract of agency
to sell on commission basis, thus making the position of petitioner's signature thereto
immaterial.

CONTRACT OF SALE AND CONTRACT FOR PIECE OF WORK

Article 1467. A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market, whether the
same is on hand at the time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order, and not for the general
market, it is a contract for a piece of work. (n)

Del Monte vs. Aragones

RULING: The authorities petitioner cited in fact show that the nature of the "Supply
Agreement" between Aragones and MEGA-WAFF was one for a piece of work.

Contrary to petitioner’s claim that "save for the shape, there was no consideration of any special
needs or requirements of DMPI taken into account in the design or manufacture of the concrete
paving blocks," the "Supply Agreement" is replete with specifications, terms or conditions
showing that it was one for a piece of work.

As reflected in the highlighted and underscored above-quoted provisions of the "Supply

Agreement," as well as other evidence on record, the machines Aragones was obliged to
fabricate were those for casting the concrete blocks specified by Garcia. Aragones did not have
those kind of machines in his usual business, hence, the special order.

While initially Garcia specified that the machines to be fabricated should be for hexagon shaped
blocks, he later asked Aragones to instead fabricate machines for casting S shaped blocks.

In accordance with the "Supply Agreement," Garcia furnished the cement and aggregates for
the fabrication of the blocks and Aragones fabricated three (3) machines for S shaped blocks
which were delivered at the casting site on different dates. And the "entire plant/casting
machines and . . . . accessories" were, as dictated under the "Supply Agreement," devoted by
Aragones "for [MEGA-WAFF]’s exclusive use.

There can be no gainsaying that the specifications/conditions in the " Supply Agreement" and
the admitted subsequent directive of Garcia for Aragones to fabricate machines for casting S
shaped, instead of hexagon shaped blocks, show that the concrete blocks were "manufactured
specifically for, and upon the special order" of Garcia.

That Garcia supplied the cement and aggregates and that the entire made-to-order casting
machines and accessories used in the manufacture of those unusual shaped blocks were
agreed upon to be devoted only "for the exclusive use" of MEGA-WAFF should belie petitioner’s
contention that the concrete blocks were mass-produced and catered to the general market in
the ordinary course of Aragones’ business.

Under Art. 1467 then of the Civil Code which provides:

ART. 1467. A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market, whether the
same is on hand at the time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order, and not for the general
market, it is a contract for a piece of work. (Emphasis and underscoring supplied),

the "Supply Agreement" was decidedly a contract for a piece of work.

Following Art. 1729 of the Civil Code which provides:

ART. 1729. Those who put their labor upon or furnish materials for a piece of work undertaken
by the contractor have an action against the owner up to the amount owing from the latter to the
contractor at the time the claim is made. x x x

Aragones having specially fabricated three casting machines and furnished some materials for
the production of the concrete blocks specially ordered and specified by MEGA-WAFF which
were to be and indeed they were for the exclusive use of MEGA-WAFF, he has a cause of
action upon petitioner up to the amount it owed MEGA-WAFF at the time Aragones made his
claim to petitioner.

As Velasco v. CA explains the intention of Art. 1729 is to protect the laborers and materialmen
from being taken advantage of by unscrupulous contractors and from possible connivance
between owners and contractors. Thus, a constructive vinculum or contractual privity is created
by this provision, by way of exception to the principle underlying Article 1311 between the
owner, on the one hand, and those who furnish labor and/or materials, on the other.

In fine, a constructive vinculum or contractual privity was created between petitioner and
Aragones.

Respecting petitioner’s disclaimer of liability for damages and its claim for moral damages,
attorney’s fees and expenses of litigation, the trial court’s disposition thereof, to wit:

. . . since the evidence on record shows that [Aragones] was compelled to litigate this matter if
only to collect a just and demandable obligation, the refusal of [DMPI and MEGA-WAFF] to pay
their obligation upon demand could not be justified by law, thus both… should be condemned to
pay exemplary damages in the amount of ₱20,000.00 each and attorney’s fees in the amount of
₱10,000.00 each including… costs of this suit" (underscoring supplied), merits this Court’s
approval.

Why should not petitioner be liable for damages. Aragones’ request, based on a provision of
law, to petitioner for it to pay directly to him his account receivable from MEGA-WAFF/Garcia
out of petitioner’s account payable to MEGA-WAFF was made before petitioner’s obligation to it
was due. Yet petitioner settled such obligation to MEGA-WAFF on or about April 6, 1989 when it
released to it its check-payment. For petitioner to harp on its undertaking under
its "Agreement" with MEGA-WAFF to pay its full obligation thereunder within 30 days from
complete installation of the pavement by MEGA-WAFF unless a court injunction could be
produced by Aragones is too shallow, under the facts and circumstances surrounding the case,
to merit consideration.
Petitioner’s referral for comment of Garcia, by letter of April 27, 1989, on Aragones’ April 6,
1989 reiterative letter for the withholding of the release of so much amount to MEGA-WAFF
even after it (petitioner) had already released on or about April 6, 1989 its check-full payment to
MEGA-WAFF reflects a futile attempt to cover-up the apparent "connivance" between it and
contractor MEGA-WAFF to the prejudice of Aragones, leaving him no option but to litigate.

As for the assailed citation by the appellate court of Act No. 3959 (which requires a person or
firm owning any work of any kind executed by contract to put up a bond guaranteeing the
payment of the laborers) as additional justification to hold petitioner liable to Aragones, indeed,
said Act had been repealed in 1974 by P.D. No. 442 (The Labor Code of the Philippines).

CONTRACT OF SALE AND BARTER

Article 1468. If the consideration of the contract consists partly in money, and partly in another
thing, the transaction shall be characterized by the manifest intention of the parties. If such
intention does not clearly appear, it shall be considered a barter if the value of the thing given as
a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a
sale. (1446a)

Delpher Trades Corp. v IAC

RULING: After incorporation, one becomes a stockholder of a corporation by subscription or by
purchasing stock directly from the corporation or from individual owners thereof (Salmon, Dexter
& Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in
exchange for their properties, the Pachecos acquired 2,500 original unissued no par value
shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became
stockholders of the corporation by subscription "The essence of the stock subscription is an
agreement to take and pay for original unissued shares of a corporation, formed or to be
formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial
Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no
par value shares in exchange for their properties.

A no-par value share does not purport to represent any stated proportionate
interest in the capital stock measured by value, but only an aliquot part of the
whole number of such shares of the issuing corporation. The holder of no-par
shares may see from the certificate itself that he is only an aliquot sharer in the
assets of the corporation. But this character of proportionate interest is not
hidden beneath a false appearance of a given sum in money, as in the case of
par value shares. The capital stock of a corporation issuing only no-par value
shares is not set forth by a stated amount of money, but instead is expressed to
be divided into a stated number of shares, such as, 1,000 shares. This indicates
that a shareholder of 100 such shares is an aliquot sharer in the assets of the
corporation, no matter what value they may have, to the extent of 100/1,000 or
1/10. Thus, by removing the par value of shares, the attention of persons
interested in the financial condition of a corporation is focused upon the value of
assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence
on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107).

Moreover, there was no attempt to state the true or current market value of the real estate. Land
valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a
square meter.
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos
have control of the corporation. Their equity capital is 55% as against 45% of the other
stockholders, who also belong to the same family group.

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they
really did was to invest their properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of
their properties and at the same time save on inheritance taxes.

The records do not point to anything wrong or objectionable about this "estate planning" scheme
resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot
be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing
Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).

The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation
cannot be considered a contract of sale. There was no transfer of actual ownership interests by
the Pachecos to a third party. The Pacheco family merely changed their ownership from one
form to another. The ownership remained in the same hands. Hence, the private respondent
has no basis for its claim of a light of first refusal under the lease contract

PRICE (Art 1469 to 1474)

Article 1469. In order that the price may be considered certain, it shall be sufficient that it be so
with reference to another thing certain, or that the determination thereof be left to the judgment
of a special person or persons.

Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious,
unless the parties subsequently agree upon the price.

If the third person or persons acted in bad faith or by mistake, the courts may fix the price.

Where such third person or persons are prevented from fixing the price or terms by fault of the
seller or the buyer, the party not in fault may have such remedies against the party in fault as
are allowed the seller or the buyer, as the case may be. (1447a

Boston Bank vs. Manalo

RULING: Under Article 1469 of the New Civil Code, the price of the property sold may be
considered certain if it be so with reference to another thing certain. It is sufficient if it can be
determined by the stipulations of the contract made by the parties thereto 85 or by reference to an
agreement incorporated in the contract of sale or contract to sell or if it is capable of being
ascertained with certainty in said contract;86 or if the contract contains express or implied
provisions by which it may be rendered certain; 87 or if it provides some method or criterion by
which it can be definitely ascertained.88 As this Court held in Villaraza v. Court of Appeals,89 the
price is considered certain if, by its terms, the contract furnishes a basis or measure for
ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no
direct or implied reference to the manner and schedule of payment of the balance of the
purchase price of the lots covered by the deeds of conditional sale executed by XEI and that of
the other lot buyers90 as basis for or mode of determination of the schedule of the payment by
the respondents of the ₱278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light
Company91 is not applicable in this case because the basic price fixed in the contract was ₱9.45
per long ton, but it was stipulated that the price was subject to modification "in proportion to
variations in calories and ash content, and not otherwise." In this case, the parties did not fix in
their letters-agreement, any method or mode of determining the terms of payment of the
balance of the purchase price of the property amounting to ₱278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the
downpayment and of the purchase price of the property amounting to ₱278,448.00 despite
notice to them of the resumption by XEI of its selling operations. The respondents enjoyed
possession of the property without paying a centavo. On the other hand, XEI and OBM failed
and refused to transmit a contract of conditional sale to the Respondents. The respondents
could have at least consigned the balance of the downpayment after notice of the resumption of
the selling operations of XEI and filed an action to compel XEI or OBM to transmit to them the
said contract; however, they failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected
contract to sell the two lots; hence, respondents have no cause of action for specific
performance against petitioner. Republic Act No. 6552 applies only to a perfected contract to
sell and not to a contract with no binding and enforceable effect.

GROSS INADEQUACY OF PRICE

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

Golden Apple vs. Sierra Grande

RULING: We declare the contracts invalid. We find that there were badges of fraud showing that the
contracts were simulated and fraudulent.

First, one of the vendees, Rosvibon, was incorporated only on July 8, 1985 (Exhibit "17-A"). Thus, at
the time the Contract to Sell was executed, Rosvibon Realty Corporation had no legal personality to
purchase the property.

Second, the deeds of absolute sale were executed irregularly. The notarial acknowledgment did not
indicate the residence certificates of the vendees which were in fact obtained subsequent to the date
of notarization. This is an anomaly which shows that the deeds of sale were ante-dated to beat the
resolution revoking the vendor's authority to sell.

Third, there was no sufficient consideration paid for the property involved and, worse, was attended
with fraudulent conflict of interest because the vendor, Bernardino Villanueva, was a stockholder of
the buyer corporations.35

This then refutes the whole discussion of petitioners as to the misuse or misappreciation of the
applicable laws by the CA in arriving at its judgment. Again, an examination of the CA’s Decision
shows that the phrase did not refer to any particular provision of a law, hence, the general and
ordinary meaning of the phrase prevails. In the same manner, this Court, in numerous
cases36 concerning various subjects, has used the same phrase in its rulings referring to the said
phrase's general and ordinary meaning.

Petitioners also contend that whether or not one of the vendee corporations is not yet in existence at
the time the Contract to Sell was executed cannot be directly questioned by any party to a suit as the
existence of a corporation may only be attacked by the Government through the Solicitor General in
a quo warranto proceeding called for the purpose and not by a collateral attack whereby the
corporate existence is questioned in some incidental proceedings not provided by law for the
express purpose of attacking the corporate existence.

That particular line of argument is an over-stretch. It is undisputed that petitioner Rosvibon had no
legal personality at the time of the execution of the Contract to Sell.

EFFECT WHERE PRICE IS SIMULATED

Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been in
reality a donation, or some other act or contract. (n

Clemente vs. CA
RULING: The Deeds of Absolute Sale between petitioner and the late Adela Shotwell are null
and void for lack of consent and consideration.

While the Deeds of Absolute Sale appear to be valid on their face, the courts are not completely
precluded to consider evidence aliunde in determining the real intent of the parties. This is
especially true when the validity of the contracts was put in issue by one of the parties in his
pleadings.42 Here, private respondents assail the validity of the Deeds of Absolute Sale by
alleging that they were simulated and lacked consideration.

A. Simulated contract

The Civil Code defines a contract as a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service. 43 Article
1318 provides that there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract; and

(3) Cause of the obligation which is established.

All these elements must be present to constitute a valid contract; the absence of one renders
the contract void. As one of the essential elements, consent when wanting makes the contract
non-existent. Consent is manifested by the meeting of the offer and the acceptance of the thing
and the cause, which are to constitute the contract. 44 A contract of sale is perfected at the
moment there is a meeting of the minds upon the thing that is the object of the contract, and
upon the price.45

Here, there was no valid contract of sale between petitioner and Adela because their consent
was absent. The contract of sale was a mere simulation.
Simulation takes place when the parties do not really want the contract they have executed to
produce the legal effects expressed by its wordings.46 Article 1345 of the Civil Code provides
that the simulation of a contract may either be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement. The case of Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta 47 is
instructive on the matter of absolute simulation of contracts, viz:

In absolute simulation, there is a colorable contract but it has no substance as the parties have
no intention to be bound by it. The main characteristic of an absolute simulation is that the
apparent contract is not really desired or intended to produce legal effect or in any way alter the
juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void,
and the parties may recover from each other what they may have given under the
contract...48 (Emphasis supplied)

In short, in absolute simulation there appears to be a valid contract but there is actually none
because the element of consent is lacking. 49 This is so because the parties do not actually
intend to be bound by the terms of the contract.

In determining the true nature of a contract, the primary test is the intention of the parties. If the
words of a contract appear to contravene the evident intention of the parties, the latter shall
prevail. Such intention is determined not only from the express terms of their agreement, but
also from the contemporaneous and subsequent acts of the parties. 50 This is especially true in a
claim of absolute simulation where a colorable contract is executed.

In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts considered
the totality of the prior, contemporaneous and subsequent acts of the parties. The following
circumstances led the RTC and the CA to conclude that the Deeds of Absolute Sale are
simulated, and that the transfers were never intended to affect the juridical relation of the
parties:

a) There was no indication that Adela intended to alienate her properties in favor of
petitioner. In fact, the letter of Adela to Dennis dated April 18, 198951 reveals that she
has reserved the ownership of the Properties in favor of Dennis.

b) Adela continued exercising acts of dominion and control over the properties, even
after the execution of the Deeds of Absolute Sale, and though she lived abroad for a
time. In Adela’s letter dated August 25, 1989 52 to a certain Candy, she advised the latter
to stay in the big house. Also, in petitioner’s letter to her cousin Dennis dated July 3,
1989,53 she admitted that Adela continued to be in charge of the Properties; that she has
no "say" when it comes to the Properties; that she does not intend to claim exclusive
ownership of Lot 35-B; and that she is aware that the ownership and control of the
Properties are intended to be consolidated in Dennis.

c) The SPA executed on the same day as the Deeds of Absolute Sale appointing
petitioner as administratrix of Adela’s properties, including the Properties, is repugnant to
petitioner’s claim that the ownership of the same had been transferred to her.

d) The previous sales of the Properties to Dennis and Carlos, Jr. were simulated. This
history, coupled with Adela’s treatment of petitioner, and the surrounding circumstances
 of the sales, strongly show that Adela only granted petitioner the same favor she had
granted to Dennis and Carlos Jr.

FIXING OF PRICE BY ONE OF THE CONTRACTING PARTIES, NOT ALLOWED

Article 1473. The fixing of the price can never be left to the discretion of one of the contracting
parties. However, if the price fixed by one of the parties is accepted by the other, the sale is
perfected. (1449a)

GSIS vs. CA
RULING: Quite clearly, therefore, the purchase price mutually agreed upon by the parties was
P19,740.00. The spouses Leuterio did not give their consent for petitioner to make a unilateral
upward adjustment of this purchase price depending on the final cost of construction of the
subject house and lot. It is illegal for petitioner to claim this prerogative, for Article 1473 of the
Civil Code provides that "the fixing of the price can never be left to the discretion of one of the
contracting parties . . . ."cralaw virtua1aw library

We also reject petitioner’s contention that the spouses Leuterio are bound by the
recommendation of the ad hoc committee as this was set aside by then President Ferdinand E.
Marcos. The rejection was communicated by then Presidential Assistant Jacobo Clave to
petitioner in a Memorandum dated May 30, 1973. Petitioner moved for its reconsideration but
the motion was denied by the former President thru Presidential Assistant Joaquin Venus, in a
letter dated December 18, 1990. hanrobles virtual lawlibrary

Next, petitioner would impress on us the need to adjust the purchase price of the spouses’
house and lot in view of the change in the final cost of construction. If petitioner failed to factor
this increase in the cost of construction in the purchase price of the subject house and lot, it has
nobody to blame but itself and it alone should suffer the loss. To be sure, given the expertise of
its technical people, it has no reason to be shortsighted. In any event, our law on contract does
not excuse a party from specifically performing his obligation on the ground that he made a bad
business judgment.

NATURE OF THE CONTRACT AND ITS PERFECTION

Article 1475. The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law governing the form
of contracts. (1450a)

Ace Foods vs. Micro Pacific

RULING: In this case, the Court concurs with the CA that the parties have agreed to a contract
of sale and not to a contract to sell as adjudged by the RTC. Bearing in mind its consensual
nature, a contract of sale had been perfected at the precise moment ACE Foods, as evinced by
its act of sending MTCL the Purchase Order, accepted the latter’s proposal to sell the subject
products in consideration of the purchase price of ₱646,464.00. From that point in time, the
reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products
to ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor within
thirty (30) days from delivery – already arose and consequently may be demanded. Article 1475
of the Civil Code makes this clear:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions
of the law governing the form of contracts.

At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of
ownership of the subject products as reflected in the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the transaction from a contract of sale into a contract to
sell. Records are bereft of any showing that the said stipulation novated the contract of sale
between the parties which, to repeat, already existed at the precise moment ACE Foods
accepted MTCL’s proposal. To be sure, novation, in its broad concept, may either be extinctive
or modificatory. It is extinctive when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. In either case,
however, novation is never presumed, and the animus novandi, whether totally or partially, must
appear by express agreement of the parties, or by their acts that are too clear and unequivocal
to be mistaken.38

In the present case, it has not been shown that the title reservation stipulation appearing in the
Invoice Receipt had been included or had subsequently modified or superseded the original
agreement of the parties. The fact that the Invoice Receipt was signed by a representative of
ACE Foods does not, by and of itself, prove animus novandi since: (a) it was not shown that the
signatory was authorized by ACE Foods (the actual party to the transaction) to novate the
original agreement; (b) the signature only proves that the Invoice Receipt was received by a
representative of ACE Foods to show the fact of delivery; and (c) as matter of judicial notice,
invoices are generally issued at the consummation stage of the contract and not its perfection,
and have been even treated as documents which are not actionable per se, although they may
prove sufficient delivery. 39 Thus, absent any clear indication that the title reservation stipulation
was actually agreed upon, the Court must deem the same to be a mere unilateral imposition on
the part of MTCL which has no effect on the nature of the parties’ original agreement as a
contract of sale. Perforce, the obligations arising thereto, among others, ACE Foods’s
obligation to pay the purchase price as well as to accept the delivery of the goods,40 remain
enforceable and subsisting

Far East Bank vs. PDIC

RULING: We rule in the affirmative, as there was a perfected contract of sale over the disputed
fixed assets.

It is well-established that a contract undergoes various stages that include its negotiation or
preparation, its perfection, and finally, its consummation.

Simply put, a contract of sale is perfected upon the meeting of the minds of the parties on the
essential elements of the contract, i.e., consent, object certain, and the consideration of the
contract.

Based on the above well-established principles, the Court rules that the essential elements of a
contract of sale are present in the MOA as confirmed by the FEBTC's bid and the provisions of
the MOA and the PA. This conclusion becomes more apparent upon a closer review of the
developments in the various stages of the parties' contract of sale, as discussed below.
The negotiation stage of the contract of sale

As mentioned above, the FEBTC submitted its bid 72 to the Central Bank in response to the
latter's invitation to submit a formal proposal for the purchase of the assets of the PBC.

Thus viewed, the parties clearly had a meeting of minds on the essential elements of the
contract, perfecting therefore their contract of sale. This meeting was embodied in their MOA
which contained the absolute acceptance of the offer and the essential elements of the contract
of sale.

SALE BY AUCTION
Article 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate
contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the
hammer, or in other customary manner. Until such announcement is made, any bidder may
retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has
been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf
of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person
to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at
such sale on behalf of the seller or knowingly to take any bid from the seller or any person
employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. (n)

Dizon vs. Dizon

RULING: Article 1476, paragraph 2 of the Civil Code provides:

Article 1476. In the case of a sale by auction:

xxx

(2) A sale by auction is perfected when the auctioneer announces its perfection by the
fall of the hammer, or in other customary manner. Until such announcement is made,
any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale
unless the auction has been announced to be without reserve.

During the public auction conducted on April 3, 1997 which ended at 10:25 a.m., the sheriff
declared petitioner the highest bidder. Considering that the auction sale had already been
perfected, a supplemental sale with higher consideration at the instance of only one party
(herein petitioner) could no longer be validly executed.

We therefore rule that in denying respondent’s motion to quash the "Supplemental Minutes on
Sheriff’s Sale," and declaring the supplemental sale valid, the trial court gravely abused its
discretion
EXCEPTION TO THE RULE OF ART 1477
Article 1478. The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price. (n)

Agustin vs. De Vera

RULING: The instant Petition is meritorious. The CA erred in finding that the Contract to
Purchase and Sale is a mere contract to sell; it is a contract of sale

In the instant case, the Court finds that all the aforesaid elements are present in the instant
case. By entering into the agreement entitled "Contract to Purchase and Sale," both parties had
arrived at a meeting of the minds that the seller, i.e., Gregorio, transferred the ownership and
possession of the subject property to the buyer, i.e., Hipolito, with the latter obliged to pay a
price certain in money, i.e., P30,000.00.

It must be stressed that upon the execution of the Contract to Purchase and Sale,
Gregorio ceded the possession of the subject property to petitioner Hipolito. It is not
disputed that petitioner Hipolito immediately took possession of the subject property,
had constructed thereon their residential house, and paid the real estate taxes upon the
subject property.

Transfer of Ownership through Delivery

In connection with the fact that Hipolito gained possession over the subject property upon the
execution of the Contract to Purchase and Sale, Article 1477 of the Civil Code states that the
ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof. Further, under Article 1478, the parties may stipulate that
ownership in the thing shall not pass to the purchaser until he has fully paid the price.

In accordance with Articles 1477 and 1478 of the Civil Code, the general rule states that
ownership of property passes on to the buyer ipso jure when its possession is transferred in the
latter's favor if no reservation to the contrary has been made. 17In the absence of stipulation to
the contrary, the ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof.18

Applying the foregoing to the instant case, striking is the fact that actual and physical delivery of
the subject property was made to Hipolito immediately upon the execution of the Contract to
Purchase and Sale without any express or implied stipulation by Gregorio reserving ownership
of the subject property.

Gregorio did not make any express or implied reservation whatsoever withholding
ownership of the subject property from Hipolito. If Gregorio really intended that the transfer
of ownership over the subject property was dependent on the fulfilment of other conditions, then
he would have expressed words to that effect in the Contract to Purchase and Sale. Nor would
he have willingly transferred the physical possession of the subject property to Hipolito. With
possession being the natural consequence and effect of ownership, it would be unnatural for a
property owner to just let go and cede possession of the property, without even a whimper,
under an agreement selling the said property and, at the same time, allege the retention of
ownership over the property.

In fact, aside from the delivery of the subject property to Hipolito, the intention of the parties to
cede ownership of the subject property to Hipolito is further buttressed by the fact that after the
delivery of the subject property to Hipolito, the obligation of paying real estate taxes was
immediately assumed by Hipolito. The fact that Hipolito had already assumed the obligation of
paying real property taxes on the subject property has not been disputed by Romana.

EXCEPTION TO THE RULE OF ART 1477

Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price. (1451a)

PNOC vs. Keppel

RULING: The absence of a consideration supporting the option contract, however, does not
invalidate an offer to buy (or to sell). An option unsupported by a separate consideration
stands as an unaccepted offer to buy (or to sell) which, when properly accepted, ripens
into a contract to sell. This is the rule established by the Court en banc as early as 1958
in Atkins v. Cua Hian Tek,96 and upheld in 1972 in Sanchez v. Rigos.97

Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of the Civil
Code, which are quoted below:

Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised.

Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price. [emphases supplied]

The Court en banc declared that there is no distinction between these two provisions because
the scenario contemplated in the second paragraph of Article 1479 is the same as that in the
last clause of Article 1324.98 Instead of finding a conflict, Sanchez v. Rigos harmonised the two
provisions, consistent with the established rules of statutory construction.99

Thus, when an offer is supported by a separate consideration, a valid option contract exists, i.e.,
there is a contracted offer100 which the offeror cannot withdraw from without incurring liability in
damages.

On the other hand, when the offer is not supported by a separate consideration, the offer stands
but, in the absence of a binding contract, the offeror may withdraw it any time. 101 In either case,
once the acceptance of the offer is duly communicated before the withdrawal of the offer, a
bilateral contract to buy and sell is generated which, in accordance with the first paragraph of
Article 1479 of the Civil Code, becomes reciprocally demandable.102
Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v.
AGPC,103 which declared that

a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a

consideration... In other words, an accepted unilateral promise can only have a binding
effect if supported by a consideration, which means that the option can still be withdrawn,
even if accepted, if the same is not supported by any consideration.104 [emphasis supplied]

The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of the Civil
Code is distinct from Article 1324 of the Civil Code and is a provision that specifically governs
options to buy (or to sell).105 As mentioned, Sanchez v. Rigos found no conflict between these
two provisions and accordingly abandoned the Southwestern Sugar doctrine.

Unfortunately, without expressly overturning or abandoning the Sanchez ruling, subsequent

cases reverted back to the Southwestern Sugar doctrine.106 In 2009, Eulogio v.
Apeles107 referred to Southwestern Sugar v. AGPC as the controlling doctrine108 and, due to the
lack of a separate consideration, refused to recognize the option to buy as an offer that would
have resulted in a sale given its timely acceptance by the offeree. In 2010, Tuazon v. Del
Rosario-Suarez109 referred to Sanchez v. Rigos but erroneously cited as part of its ratio
decidendi that portion of the Southwestern Sugar doctrine that Sanchez had expressly
abandoned.110

Given that the issue raised in the present case involves the application of Article 1324 and 1479
of the Civil Code, it becomes imperative for the Court [en banc] to clarify and declare here which
between Sanchez and Southwestern Sugar is the controlling doctrine.

The Constitution itself declares that "no doctrine or principle of law laid down by the court in a
decision rendered en banc or in division may be modified or reversed except by the court
sitting en banc."111 Sanchez v. Rigos was an en banc decision which was affirmed in 1994
in Asuncion v. CA,112 also an en banc decision, while the decisions citing the Southwestern
Sugar doctrine are all division cases.113 Based on the constitutional rule (as well as the inherent
logic in reconciling Civil Code provisions), there should be no doubt that Sanchez v.
Rigos remains as the controlling doctrine.

Accordingly, when an option to buy or to sell is not supported by a consideration separate from
the purchase price, the option constitutes as an offer to buy or to sell, which may be withdrawn
by the offeror at any time prior to the communication of the offeree’s acceptance. When the offer
is duly accepted, a mutual promise to buy and to sell under the first paragraph of Article 1479 of
the Civil Code ensues and the parties’ respective obligations become reciprocally demandable.

Applied to the present case, we find that the offer to buy the land was timely accepted by
Keppel.

As early as 1994, Keppel expressed its desire to exercise its option to buy the land. Instead of
rejecting outright Keppel’s acceptance, PNOC referred the matter to the Office of the
Government Corporate Counsel (OGCC). In its Opinion No. 160, series of 1994, the OGCC
opined that Keppel "did not yet have the right to purchase the Bauan lands." 114 On account of
the OGCC opinion, the PNOC did not agree with Keppel’s attempt to buy the
land;115 nonetheless, the PNOC made no categorical withdrawal of the offer to sell provided
under the Agreement.
By 2000, Keppel had met the required Filipino equity proportion and duly communicated its
acceptance of the offer to buy to PNOC. 116 Keppel met with the board of directors and officials of
PNOC who interposed no objection to the sale. 117 It was only when the amount of purchase
price was raised that the conflict between the parties arose, 118 with PNOC backtracking in its
position and questioning the validity of the option.119

Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land stood,
not having been withdrawn by PNOC. The offer having been duly accepted, a contract to
sell the land ensued which Keppel can rightfully demand PNOC to comply with

SALE BY SAMPLE OR SALE BY DESCRIPTION

Article 1481. In the contract of sale of goods by description or by sample, the contract may be
rescinded if the bulk of the goods delivered do not correspond with the description or the
sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of
goods correspond with the sample if they do not also correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the
sample. (n)

Mendoza vs. David

RULING: The Court agrees with the MTC that the transaction in this case was a "made to order"
agreement. There is nothing in the records which would show that the intent of the parties was for a
sale by sample or description. Whether a sale is by sample or description depends upon the facts
disclosing the intention of the parties. Other than Mendoza’s bare allegations that the transaction
was a sale by sample or description, Mendoza failed to produce evidence to substantiate her claim.

The sale of furniture in this case is not a sale by sample. The term sale by sample does not include
an agreement to manufacture goods to correspond with the pattern. 27 In this case, the three sets of
furniture were manufactured according to the specifications provided by the buyer. Mendoza did not
order the exact replica of the furniture displayed in David’s shop but made her own specifications on
the measurement, material and quality of the furniture she ordered.

Neither is the transaction a sale by description. Mendoza did not rely on any description made by
David when she ordered the furniture. Mendoza inspected the furniture displayed in David’s furniture
shop and made her own specifications on the three sets of furniture she ordered.

EARNEST MONEY
Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as
part of the price and as proof of the perfection of the contract. (1454a

Racelis vs. Javier

RULING: Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a perfected
contract of sale.95 However, earnest money may also be given in a contract to sell.

In a contract to sell, earnest money is generally intended to compensate the seller for the
opportunity cost of not looking for any other buyers. It is a show of commitment on the part of
the party who intimates his or her willingness to go through with the sale after a specified period
or upon compliance with the conditions stated in the contract to sell.
Opportunity cost is defined as "the cost of the foregone alternative." 96 In a potential sale, the
seller reserves the property for a potential buyer and foregoes the alternative of searching for
other offers. This Court in Philippine National Bank v. Court of Appeals97 construed earnest
money given in a contract to sell as "consideration for [seller's] promise to reserve the subject
property for [the buyer]."98 The seller, "in excluding all other prospective buyers from bidding for
the subject property ... [has given] up what may have been more lucrative offers or better
deals."99

Earnest money, therefore, is paid for the seller's benefit. It is part of the purchase price while at
the same time proof of commitment by the potential buyer. Absent proof of a clear agreement to
the contrary, it is intended to be forfeited if the sale does not happen without the seller's fault.
The potential buyer bears the burden of proving that the earnest money was intended other than
as part of the purchase price and to be forfeited if the sale does not occur without the fault of the
seller. Respondents were unable to discharge this burden.

There is no unjust enrichment on the part of the seller should the initial payment be deemed
forfeited. After all, the owner could have found other offers or a better deal. The earnest money
given by respondents is the cost of holding this search in abeyance.

This Court notes that respondents were even unable to meet their own promise to pay the full
amount of the earnest money. Of the P100,000.00 that respondents committed to pay, only
P78,000.00 was received in irregular tranches. To rule that the partial earnest money should
even be returned is both inequitable and would have dire repercussions as a precedent.

Optima vs. Security

RULING: The Court grants the Petition. The trial and appellate courts erred materially in
deciding the case; they overlooked important facts that should change the complexion and
outcome of the case.

It cannot be denied that there were negotiations between the parties conducted after the
respondent’s December 9, 2004 letter-offer and prior to the February 4, 2005 letter. These
negotiations culminated in a meeting between Eleazar and Young whereby the latter declined to
enter into an agreement and accept cash payment then being tendered by the former. Instead,
Young informed Eleazar during said meeting that she still had to confer with her sister and
petitioner’s board of directors; in turn, Eleazar told Young that respondent shall await the
necessary approval.

Thus, the trial and appellate courts failed to appreciate that respondent’s offer to purchase the
subject property was never accepted by the petitioner at any instance, even after negotiations
were held between them. Thus, as between them, there is no sale to speak of. "When there is
merely an offer by one party without acceptance of the other, there is no contract." 33 To borrow
a pronouncement in a previously decided case,

The stages of a contract of sale are: (1) negotiation, starting from the time the prospective
contracting parties indicate interest in the contract to the time the contract is perfected; (2)
perfection, which takes place upon the concurrence of the essential elements of the sale; and
(3) consummation, which commences when the parties perform their respective undertakings
under the contract of sale, culminating in the extinguishment of the contract.
In the present case, the parties never got past the negotiation stage. Nothing shows that the
parties had agreed on any final arrangement containing the essential elements of a contract of
sale, namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter
of the contract; and (3) price or consideration of the sale

In a potential sale transaction, the prior payment of earnest money even before the property
owner can agree to sell his property is irregular, and cannot be used to bind the owner to the
obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn cliché,
the carriage cannot be placed before the horse. The property owner-prospective seller may not
be legally obliged to enter into a sale with a prospective buyer through the latter’s employment
of questionable practices which prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the prospective seller’s rights of
ownership over his property, an anomaly which the Court will certainly not condone. An
agreement where the prior free consent of one party thereto is withheld or suppressed will be
struck down, and the Court shall always endeavor to protect a property owner’s rights against
devious practices that put his property in danger of being lost or unduly disposed without his
prior knowledge or consent. As this ponente has held before, "[t]his Court cannot presume the
existence of a sale of land, absent any direct proof of it."3

REMEDIES OF VENDOR IN SALE OF PERSONAL PROPERTY PAYABLE IN

INSTALLMENTS
Article 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void. (1454-A-a

Magna Financial vs. Colarina

RULING: It is, however, unmistakable from the Complaint that petitioner preferred to avail itself
of the first and third remedies under Article 1484, at the same time suing for replevin. For this
reason, the Court of Appeals justifiably set aside the decision of the RTC. Perusing the
Complaint, the petitioner, under its prayer number 1, sought for the payment of the unpaid
amortizations which is a remedy that is provided under Article 1484(1) of the Civil Code,
allowing an unpaid vendee to exact fulfillment of the obligation. At the same time, petitioner
prayed that Colarina be ordered to surrender possession of the vehicle so that it may ultimately
be sold at public auction, which remedy is contained under Article 1484(3). Such a scheme is
not only irregular but is a flagrant circumvention of the prohibition of the law. By praying for the
foreclosure of the chattel, Magna Financial Services Group, Inc. renounced whatever claim it
may have under the promissory note.18

Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose
the chattel mortgage, "he shall have no further action against the purchaser to recover any
unpaid balance of the purchase price. Any agreement to the contrary shall be void." In other
words, in all proceedings for the foreclosure of chattel mortgages executed on chattels which
have been sold on the installment plan, the mortgagee is limited to the property included in the
mortgage.19

Contrary to petitioner’s claim, a contract of chattel mortgage, which is the transaction involved in
the present case, is in the nature of a conditional sale of personal property given as a security
for the payment of a debt, or the performance of some other obligation specified therein, the
condition being that the sale shall be void upon the seller paying to the purchaser a sum of
money or doing some other act named.20 If the condition is performed according to its terms, the
mortgage and sale immediately become void, and the mortgagee is thereby divested of his
title.21 On the other hand, in case of non payment, foreclosure is one of the remedies available
to a mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation
to secure that for which the mortgage was given. Foreclosure may be effected either judicially or
extrajudicially, that is, by ordinary action or by foreclosure under power of sale contained in the
mortgage. It may be effected by the usual methods, including sale of goods at public
auction.22 Extrajudicial foreclosure, as chosen by the petitioner, is attained by causing the
mortgaged property to be seized by the sheriff, as agent of the mortgagee, and have it sold at
public auction in the manner prescribed by Section 14 of Act No. 1508, or the Chattel Mortgage
Law.23 This rule governs extrajudicial foreclosure of chattel mortgage.

In sum, since the petitioner has undeniably elected a remedy of foreclosure under Article
1484(3) of the Civil Code, it is bound by its election and thus may not be allowed to change
what it has opted for nor to ask for more. On this point, the Court of Appeals correctly set aside
the trial court’s decision and instead rendered a judgment of foreclosure as prayed for by the
petitioner

Equitable Bank vs. Palces

RULING: The petition is partly meritorious.

Citing Article 1484 of the Civil Code, specifically paragraph 3 thereof, the CA ruled that
petitioner had already waived its right to recover any unpaid installments when it sought – and
was granted - a writ of replevin in order to regain possession of the subject vehicle. As such,
petitioner is no longer entitled to receive respondent's late partial payments in the aggregate
amount of P103,000.00.

The CA is mistaken on this point.

Article 1484 of the Civil Code, which governs the sale of personal properties in installments,
states in full:

Article 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfilment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void. (Emphases and underscoring supplied)
In this case, there was no vendor-vendee relationship between respondent and petitioner. A
judicious perusal of the records would reveal that respondent never bought the subject vehicle
from petitioner but from a third party, and merely sought financing from petitioner for its full
purchase price. In order to document the loan transaction between petitioner and respondent, a
Promissory Note with Chattel Mortgage29 dated August 18, 2005 was executed wherein, inter
alia, respondent acknowledged her indebtedness to petitioner in the amount of P1,196,100.00
and placed the subject vehicle as a security for the loan. 30 Indubitably, a loan contract with the
accessory chattel mortgage contract - and not a contract of sale of personal property in
installments - was entered into by the parties with respondent standing as the debtor-mortgagor
and petitioner as the creditor-mortgagee. Therefore, the conclusion of the CA that Article 1484
finds application in this case is misplaced, and thus, must be set aside.

LEASE OF PERSONAL PROPERTY WITH OPTION TO BUY

Article 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the possession
or enjoyment of the thing. (1454-A-a)

PCI Leasing and Finance Inc vs Giraffe-x Creative Imaging, Inc

RULING: On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE
lease agreement is in reality a lease with an option to purchase the equipment. This has been
made manifest by the actions of the petitioner itself, foremost of which is the declarations made
in its demand letter to the respondent. There could be no other explanation than that if the
respondent paid the balance, then it could keep the equipment for its own; if not, then it should
return them. This is clearly an option to purchase given to the respondent. Being so, Article
1485 of the Civil Code should apply.

The present case reflects a situation where the financing company can withhold and conceal -
up to the last moment - its intention to sell the property subject of the finance lease, in order that
the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that
the basic "lease agreement" does not contain a "purchase option" clause. The absence,
however, does not necessarily argue against the idea that what the parties are into is not a
straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware
of the practice of vendors of personal property of denominating a contract of sale on installment
as one of lease to prevent the ownership of the object of the sale from passing to the vendee
until and unless the price is fully paid. As this Court noted in Vda. de Jose v. Barrueco: 21

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make
a bargain in that form, for one reason or another, have frequently resorted to the device of
making contracts in the form of leases either with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It
is obvious that such transactions are leases only in name. The so-called rent must necessarily
be regarded as payment of the price in installments since the due payment of the agreed
amount results, by the terms of the bargain, in the transfer of title to the lessee.

As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals, 23 the remedies

provided for in Article 1484 of the Civil Code are alternative, not cumulative. The exercise of one
bars the exercise of the others. This limitation applies to contracts purporting to be leases of
personal property with option to buy by virtue of the same Article 1485. The condition that the
lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of
applying Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for a
sum of money with prayer for replevin to recover possession of the office equipment. 24 By virtue
of the writ of seizure issued by the trial court, the petitioner has effectively deprived respondent
of their use, a situation which, by force of the Recto Law, in turn precludes the former from
maintaining an action for recovery of "accrued rentals" or the recovery of the balance of the
purchase price plus interest. 25

The imperatives of honest dealings given prominence in the Civil Code under the heading:
Human Relations, provide another reason why we must hold the petitioner to its word as
embodied in its demand letter. Else, we would witness a situation where even if the respondent
surrendered the equipment voluntarily, the petitioner can still sue upon its claim. This would be
most unfair for the respondent. We cannot allow the petitioner to renege on its word. Yet more
than that, the very word "or" as used in the letter conveys distinctly its intention not to claim both
the unpaid balance and the equipment. It is not difficult to discern why: if we add up the
amounts paid by the respondent, the residual value of the property recovered, and the amount
claimed by the petitioner as sued upon herein (for a total of ₱21,779,029.47), then it would end
up making an instant killing out of the transaction at the expense of its client, the respondent.
The Recto Law was precisely enacted to prevent this kind of aberration. Moreover, due to
considerations of equity, public policy and justice, we cannot allow this to happen..Not only to
the respondent, but those similarly situated who may fall prey to a similar scheme.

STIPULATION AUTHORIZING THE FORFEITURE OF INSTALLMENTS OR RENTS PAID

Article 1486. In the case referred to in the two preceding articles, a stipulation that the
installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as
the same may not be unconscionable under the circumstances. (n)

Locsin, II vs. Mekeni Food Corp.

RULING: From the evidence on record, it is seen that the Mekeni car plan offered to petitioner
was subject to no other term or condition than that Mekeni shall cover one-half of its value, and
petitioner shall in turn pay the other half through deductions from his monthly salary.Mekeni has
not shown, by documentary evidence or otherwise, that there are other terms and conditions
governing its car plan agreement with petitioner. There is no evidence to suggest that if
petitioner failed to completely cover one-half of the cost of the vehicle, then all the deductions
from his salary going to the cost of the vehicle will be treated as rentals for his use thereof while
working with Mekeni, and shall not be refunded. Indeed, there is no such stipulation or
arrangement between them. Thus, the CA’s reliance on Elisco Tool is without basis, and its
conclusions arrived at in the questioned decision are manifestly mistaken. To repeat what was
said in Elisco Tool –

First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in
question under a car plan for executives of the Elizalde group of companies. Under a typical car
plan, the company advances the purchase price of a car to be paid back by the employee
through monthly deductions from his salary. The company retains ownership of the motor
vehicle until it shall have been fully paid for. However, retention of registration of the car in the
company’s name is only a form of a lien on the vehicle in the event that the employee would
abscond before he has fully paid for it. There are also stipulations in car plan agreements to the
effect that should the employment of the employee concerned be terminated before all
installments are fully paid, the vehicle will be taken by the employer and all installments paid
shall be considered rentals per agreement.25 (Emphasis supplied)

It was made clear in the above pronouncement that installments made on the car plan may be
treated as rentals only when there is an express stipulation in the car plan agreement to such
effect. It was therefore patent error for the appellate court to assume that, even in the absence
of express stipulation, petitioner’s payments on the car plan may be considered as rentals which
need not be returned.

Indeed, the Court cannot allow that payments made on the car plan should be forfeited by
Mekeni and treated simply as rentals for petitioner’s use of the company service vehicle. Nor
may they be retained by it as purported loan payments, as it would have this Court believe. In
the first place, there is precisely no stipulation to such effect in their agreement. Secondly, it
may not be said that the car plan arrangement between the parties was a benefit that the
petitioner enjoyed; on the contrary, it was an absolute necessity in Mekeni’s business
operations, which benefit edit to the fullest extent: without the service vehicle, petitioner would
have been unable to rapidly cover the vast sales territory assigned to him, and sales or
marketing of Mekeni’s products could not have been booked or made fast enough to move
Mekeni’s inventory. Poor sales, inability to market Mekeni’s products, a high rate of product
spoil age resulting from stagnant inventory, and poor monitoring of the sales territory are the
necessary consequences of lack of mobility. Without a service vehicle, petitioner would have
been placed at the mercy of inefficient and unreliable public transportation; his official schedule
would have been dependent on the arrival and departure times of buses or jeeps, not to
mention the availability of seats in them. Clearly, without a service vehicle, Mekeni’s business
could only prosper at a snail’s pace, if not completely paralyzed. Its cost of doing business
would be higher as well. The Court expressed just such a view in the past. Thus –

In the case at bar, the disallowance of the subject car plan benefits would hamper the officials in
the performance of their functions to promote and develop trade which requires mobility in the
performance of official business. Indeed, the car plan benefits are supportive of the
implementation of the objectives and mission of the agency relative to the nature of its operation
and responsive to the exigencies of the service. 26 (Emphasis supplied) Any benefit or privilege
enjoyed by petitioner from using the service vehicle was merely incidental and insignificant,
because for the most part the vehicle was under Mekeni’s control and supervision. Free and
complete disposal is given to the petitioner only after the vehicle’s cost is covered or paid in full.
Until then, the vehicle remains at the beck and call of Mekeni. Given the vast territory petitioner
had to cover to be able to perform his work effectively and generate business for his employer,
the service vehicle was an absolute necessity, or else Mekeni’s business would suffer
adversely. Thus, it is clear that while petitioner was paying for half of the vehicle’s value, Mekeni
was reaping the full benefits from the use thereof.

RELATIVE INCAPACITY OF HUSBAND AND WIFE

Article 1490. The husband and the wife cannot sell property to each other, except: (1) When a
separation of property was agreed upon in the marriage settlements; or (2) When there has
been a judicial separation of property under article 191. (1458a)

Ching vs. Goyanko

RULING: The pertinent provisions of the Civil Code which apply to the present case read:
ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.

ART. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived.

ARTICLE 1490. The husband and wife cannot sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or

(2) When there has been a judicial separation of property under Article 191.
(Underscoring supplied)

The proscription against sale of property between spouses applies even to common law
relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.:11

Anent the second issue, we find that the contract of sale was null and void for being contrary to
morals and public policy. The sale was made by a husband in favor of a concubine after he
had abandoned his family and left the conjugal home where his wife and children lived
and from whence they derived their support. The sale was subversive of the stability of
the family, a basic social institution which public policy cherishes and protects.

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes
is contrary to law, morals, good customs, public order, or public policy
are void and inexistent from the very beginning.

Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no
effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public
order, or public policy."
Additionally, the law emphatically prohibits the spouses from selling property to each
other subject to certain exceptions. Similarly, donations between spouses during
marriage are prohibited. And this is so because if transfers or conveyances between spouses
were allowed during marriage, that would destroy the system of conjugal partnership, a basic
policy in civil law. It was also designed to prevent the exercise of undue influence by one
spouse over the other, as well as to protect the institution of marriage, which is the cornerstone
of family law. The prohibitions apply to a couple living as husband and wife without
benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out
to be better than those in legal union." Those provisions are dictated by public interest and
their criterion must be imposed upon the will of the parties. . . . 12 (Italics in the original; emphasis
and underscoring supplied)

As the conveyance in question was made by Goyangko in favor of his common- law-wife-herein
petitioner, it was null and void.

Petitioner’s argument that a trust relationship was created between Goyanko as trustee and her
as beneficiary as provided in Articles 1448 and 1450 of the Civil Code which read:

ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted
to one party but the price is paid by another for the purpose of having the beneficial interest of
the property. The former is the trustee, while the latter is the beneficiary. However, if the person
to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the
child.

ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the benefit
of another and the conveyance is made to the lender or payor to secure the payment of the
debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for
whom it is paid. The latter may redeem the property and compel a conveyance thereof to him.

does not persuade.

For petitioner’s testimony that it was she who provided the purchase price is uncorroborated.
That she may have been considered the breadwinner of the family and that there was proof that
she earned a living do not conclusively clinch her claim.

For the nullification of the sale is anchored on its illegality per se, it being violative of the above-
cited Articles 1352, 1409 and 1490 of the Civil Code.

INCAPACITY BY REASON OF RELATION TO PROPERTY

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship;

(2) Agents, the property whose administration or sale may have been intrusted to them,
unless the consent of the principal has been given;
 (3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision thereof, or
of any government-owned or controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights
in litigation or levied upon an execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and rights which may be
the object of any litigation in which they may take part by virtue of their profession;

(6) Any others specially disqualified by law. (1459a)

Sabidong vs. Solas

RULING: Article 1491, paragraph 5 of the Civil Code prohibits court officers such as clerks of
court from acquiring property involved in litigation within the jurisdiction or territory of their
courts. Said provision reads:

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:

xxxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights in
litigation or levied upon an execution before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the act of acquiring by assignment
and shall apply to lawyers, with respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their profession.

x x x x (Emphasis supplied.)

The rationale advanced for the prohibition is that public policy disallows the transactions in view
of the fiduciary relationship involved, i.e., the relation of trust and confidence and the peculiar
control exercised by these persons.32 "In so providing, the Code tends to prevent fraud, or more
precisely, tends not to give occasion for fraud, which is what can and must be done." 33

For the prohibition to apply, the sale or assignment of the property must take place during the
pendency of the litigation involving the property. 34 Where the property is acquired after the
termination of the case, no violation of paragraph 5, Article 1491 of the Civil Code attaches. 35

In the case at bar, when respondent purchased Lot 11-A on November 21, 1994, the Decision in
Civil Case No. 14706 which was promulgated on May 31, 1983 had long become final. Be that
as it may, it cannot be said that the property is no longer "in litigation" at that time considering
that it was part of the Hodges Estate then under settlement proceedings (Sp. Proc. No. 1672).
A thing is said to be in litigation not only if there is some contest or litigation over it in court, but
also from the moment that it becomes subject to the judicial action of the judge. 36 A property
forming part of the estate under judicial settlement continues to be subject of litigation until the
probate court issues an order declaring the estate proceedings closed and terminated. The rule
is that as long as the order for the distribution of the estate has not been complied with, the
probate proceedings cannot be deemed closed and terminated.37 The probate court loses
jurisdiction of an estate under administration only after the payment of all the debts and the
remaining estate delivered to the heirs entitled to receive the same. 38 Since there is no evidence
to show that Sp. Proc. No. 1672 in the RTC of Iloilo, Branch 27, had already been closed and
terminated at the time of the execution of the Deed of Sale With Mortgage dated November 21,
1994, Lot 11 is still deemed to be "in litigation" subject to the operation of Article 1491 (5) of the
Civil Code.

This notwithstanding, we hold that the sale of Lot 11 in favor of respondent did not violate the
rule on disqualification to purchase property because Sp. Proc. No. 1672 was then pending
before another court (RTC) and not MTCC where he was Clerk of Court.

Pena vs. Santos

RULING: Article 1491(5) of the Civil Code expressly prohibits lawyers from acquiring property
or rights that may be the object of any litigation in which they may take part by virtue of their
profession. Records show that the judicial action over the subject lots was still in the
appellate proceedings stage when they were conveyed to Jesus and Rosita's counsel,
Atty. Robiso. Clearly then, since the property conveyed to Atty. Robiso by Jesus and Rosita
was still the object of litigation, the deeds of conveyance executed by the latter are deemed
inexistent.

The rationale advanced for the prohibition in Article 1491(5) is that public policy
disallows the transactions in view of the fiduciary relationship involved, i.e., the
relation of trust and confidence and the peculiar control exercised by these persons.
It is founded on public policy because, by virtue of his office, an attorney may easily
take advantage of the credulity and ignorance of his client and unduly enrich himself
at the expense of his client. The principle of estoppel runs counter to this policy and
to apply it in this case will be tantamount to sanctioning a prohibited and void
transaction.

Under Article 1409 of the Code, contracts, which are expressly prohibited or declared
void by law, are considered inexistent and void from the beginning. Hence, Atty. Robiso could
not have transferred a valid title in favor of Peña over the lots awarded to Jesus and
Rosita.

Zalamea vs. De Guzman

RULING: The Court finds no cogent reason to depart from the findings and recommendations of
the IBP

An attorney may be disbarred or suspended for any violation of his oath or of his duties as an
attorney and counselor, which include statutory grounds enumerated in Section 27, 3 Rule 138 of
the Rules of Court.4chanrobleslaw

Under Article 1491 of the Civil Code, lawyers are prohibited to acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of another, their client's
property and rights in litigation, hence:ChanRoblesVirtualawlibrary

ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:ChanRoblesVirtualawlibrary
x x x x

5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights in
litigation or levied upon an execution before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the act of acquiring by assignment
and shall apply to lawyers, with respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their profession.

6. Any others specially disqualified by law.

Indeed, the purchase by a lawyer of his client's property or interest in litigation is a breach of
professional ethics and constitutes malpractice. The persons mentioned in Article 1491 are
prohibited from purchasing said property because of an existing trust relationship. A lawyer is
disqualified from acquiring by purchase the property and rights in litigation because of his
fiduciary relationship with such property and rights, as well as with the client. The very first
Canon of the Code of Professional Responsibility5 provides that "a lawyer shall uphold the
Constitution, obey the laws of the land and promote respect for law and legal process." Canon
17 states that a lawyer owes fidelity to the cause of his client and he shall be mindful of the trust
and confidence reposed in him, while Canon 16 provides that "a lawyer shall hold in trust all
moneys and properties of his client that may come into his possession." Further, Section 3, Rule
138 of the Revised Rules of Court requires every lawyer to take an oath to obey the laws as well
as the legal orders of the duly constituted authorities. And for any violation of this oath, a lawyer
may be suspended or disbarred by the Court. All of these underscore the role of the lawyer as
the vanguard of our legal system. The transgression of any provision of law by a lawyer is a
repulsive and reprehensible act which the Court will never countenance. 6chanrobleslaw

Here, the accusation against De Guzman stemmed from his wife's purchase of the Speaker
Perez property from BDO when Manuel Enrique did not have the means to buy it. The
Zalameas claim that De Guzman, as their counsel, could not acquire the property, either
personally or through his wife, without violating his ethical duties. De Guzman therefore has
breached the same when his wife purchased the subject property.

However, the prohibition which the Zalameas invoke does not apply where the property
purchased was not involved in litigation. De Guzman clearly never acquired any of his client's
properties or interests involved in litigation in which he may take part by virtue of his profession.
There exists not even an iota of proof indicating that said property has ever been involved in any
litigation in which De Guzman took part by virtue of his profession. True, they had previously
sought legal advice from De Guzman but only on how to handle their mother's estate, which
likewise did not involve the contested property. Neither was it shown that De Guzman's law firm
had taken part in any litigation involving the Speaker Perez property.

The prohibition which rests on considerations of public policy and interests is intended to curtail
any undue influence of the lawyer upon his client on account of his fiduciary and confidential
relationship with him. De Guzman could not have possibly exerted such undue influence, as a
lawyer, upon the Zalameas, as his clients. In fact, it was Manuel Enrique who approached the
Spouses De Guzman and asked them if they would be willing to become business partners in
a lechon business. It was also Manuel Enrique who turned to De Guzman for help in order to
reacquire the already foreclosed Speaker Perez property. They had agreed that De Guzman
would simply pay the required downpayment to BDO and EMZEE would pay the remaining
balance in installment. And when EMZEE continued suffering losses, Angel took care of the
monthly amortizations so as not to lose the property.

Clearly, the relationship between the Spouses De Guzman and the Zalamea brothers is actually
one of business partners rather than that of a lawyer and client. Atty. De Guzman's acquisition
of the Speaker Perez property was a valid consequence of a business deal, not by reason of a
lawyer-client relationship, for Which he could not be penalized by the Court. De Guzman and his
wife are very well allowed by law to enter into such a transaction and their conduct in this regard
was not borne out to have been attended by any undue influence, deceit, or misrepresentation.

Heirs of Carlos vs. Linsangan

RULING: After a careful review of the record of the case, the Court finds that respondent
committed acts in violation of his oath as an attorney thereby warranting the Court's exercise of
its disciplinary power.

The record shows and Atty. Linsangan does not deny, that while the cases involving the subject
property were still pending resolution and final determination, Atty. Linsangan entered into a
Contract for Professional Services with Juan wherein his attorney's fees shall be that equivalent
to 50% of the value of the property, or a portion thereof, that may be recovered. It is likewise not
denied by Atty. Linsangan that he apportioned upon himself, and to his wife and children, half of
the property awarded to complainants as heirs of Juan, through a Supplemental Compromise
Agreement. Similarly, such Supplemental Compromise Agreement was entered into by Atty.
Linsangan and the heirs of Juan concurrently with the pendency of several cases before the CA
and this Court44 involving the very same property. What is more, Atty. Linsangan, probably
anticipating that he may be charged of having undue interest over his client's property in
litigation, caused another lawyer to appear but all the while making it absolutely clear to Juan
that the latter's appearance was nevertheless under Atty. Linsangan's "direct control and
supervision."

Plainly, these acts are in direct contravention of Article 1491(5)45 of the Civil Code which forbids
lawyers from acquiring, by purchase or assignment, the property that has been the subject of
litigation in which they have taken part by virtue of their profession. While Canon 10 of the old
Canons of Professional Ethics, which states that "[t]he lawyer should not purchase any interests
in the subject matter of the litigation which he is conducting," is no longer reproduced in the new
Code of Professional Responsibility (CPR), such proscription still applies considering that
Canon 1 of the CPR is clear in requiring that "a lawyer shall uphold the Constitution, obey the
laws of the land and promote respect for law and legal process " and Rule 13 8, Sec. 3 which
requires every lawyer to take an oath to "obey the laws as well as the legal orders of the duly
constituted authorities therein."46 Here, the law transgressed by Atty. Linsangan is Article
1491(5) of the Civil Code, in violation of his lawyer's oath.

While jurisprudence provides an exception to the above proscription, i.e., if the payment of
contingent fee is not made during the pendency of the litigation involving the client's property
but only after the judgment has been rendered in the case handled by the lawyer, 47 such is not
applicable to the instant case. To reiterate, the transfer to Atty. Linsangan was made while the
subject property was still under litigation, or at least concurrently with the pendency of
the certiorari proceedings in the CA and the petitions for review in this Court. 48 As mentioned,
there was nothing in the record which would show that these cases were likewise dismissed
with finality either before the execution of, or by virtue of, the Compromise Agreement and the
Supplemental Compromise Agreement between complainants and Atty. Linsangan.

What is more, Atty. Linsangan, at the guise of merely waiving portions of the subject property in
favor of his wife and children, actually divided his attorney's fee with persons who are not
licensed to practice law in contravention of Rule 9.02,49 Canon 950 of the CPR.

Another misconduct committed by Atty. Linsangan was his act of selling the entire 12,331
square meters property and making it appear that he was specifically authorized to do so by
complainants as well as by the other persons51 to whom portions of the property had been
previously adjudicated. However, a perusal of the supposed Special Power of Attorney attached
to the Deed of Absolute Sale, save for that executed by his wife and children, only authorizes
Atty. Linsangan to represent complainants in the litigation of cases involving Juan's properties.
Nothing in said Special Power of Attorney authorizes Atty. Linsangan to sell the entire property
including complainants' undivided share therein.

Atty. Linsangan's reasoning that he only took it upon himself to sell the property because
complainants were unfamiliar with real estate transactions does not exculpate him from liability.
If indeed that were the case, then it is incumbent upon Atty. Linsangan to make it clear to the
complainants that he was acting in such capacity and not as their lawyer. 52 But even this, Atty.
Linsangan failed to do.

Worse, Atty. Linsangan does not deny having received the downpayment for the property from
Helen. Atty. Linsangan does not also deny failing to give complainants' share for the reason that
he applied said payment as his share in the property. In so doing, Atty. Linsangan determined
all by himself that the downpayment accrues to him and immediately appropriated the same,
without the knowledge and consent of the complainants. Such act constitutes a breach of his
client's trust and a violation of Canon 1653 of the CPR. Indeed, a lawyer is not entitled to
unilaterally appropriate his client's money for himself by the mere fact that the client owes him
attorneys fees.54 The failure of an attorney to return the client's money upon demand gives rise
to the presumption that he has misappropriated it for his own use to the prejudice and violation
of the general morality, as well as of professional ethics; it also impairs public confidence in the
legal profession and deserves punishment. In short, a lawyer's unjustified withholding of money
belonging to his client, as in this case, warrants the imposition of disciplinary action.55

Pointedly, the relationship of attorney and client has consistently been treated as one of special
trust and confidence.1âwphi1 An attorney must therefore exercise utmost good faith and
fairness in all his relationship with his client. Measured against this standard, respondent's act
clearly fell short and had, in fact, placed his personal interest above that of his clients.
Considering the foregoing violations of his lawyer's oath, Article 1491 (5) of the Civil Code, Rule
9.02, Canon 9, and Canon 16 of the CPR, the Court deems it appropriate to impose upon
respondent the penalty of six (6) months suspension from the practice of law.56
PROHIBITION EXTENDS TO SALES IN LEGAL REDEMPTION, ETC .
Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal
redemption, compromises and renunciations. (n)

In Re Maquera, B.M 793

RULING: On the basis of the Decision of the Superior Court of Guam, the IBP concluded that
although the said court found Maquera liable for misconduct, "there is no evidence to establish
that [Maquera] committed a breach of ethics in the Philippines." 26 However, the IBP still resolved
to suspend him indefinitely for his failure to pay his annual dues as a member of the IBP since
1977, which failure is, in turn, a ground for removal of the name of the delinquent member from
the Roll of Attorneys under Section 10, Rule 139-A of the Revised Rules of Court.27

The power of the Court to disbar or suspend a lawyer for acts or omissions committed in a
foreign jurisdiction is found in Section 27, Rule 138 of the Revised Rules of Court, as amended
by Supreme Court Resolution dated February 13, 1992, which states:

Section 27. Disbarment or suspension of attorneys by Supreme Court, grounds therefor.—A

member of the bar may be disbarred or suspended from his office as attorney by the Supreme
Court for any deceit, malpractice, or other gross misconduct in such office, grossly
immoral conduct, or by reason of his conviction of a crime involving moral turpitude, or for any
violation of the oath which he is required to take before admission to practice, or for a
willful disobedience appearing as attorney for a party to a case without authority to do so. The
practice of soliciting cases at law for the purpose of gain, either personally or through paid
agents or brokers, constitutes malpractice.

The disbarment or suspension of a member of the Philippine Bar by a competent

court or other disciplinatory agency in a foreign jurisdiction where he has also
been admitted as an attorney is a ground for his disbarment or suspension if the
basis of such action includes any of the acts hereinabove enumerated.

The judgment, resolution or order of the foreign court or disciplinary agency shall
be prima facie evidence of the ground for disbarment or suspension (Emphasis
supplied).

The Court must therefore determine whether Maquera's acts, namely: acquiring by
assignment Castro's right of redemption over the property subject of the civil case where
Maquera appeared as counsel for him; exercising the right of redemption; and,
subsequently selling the property for a huge profit, violate Philippine law or the standards
of ethical behavior for members of the Philippine Bar and thus constitute grounds for his
suspension or disbarment in this jurisdiction.

The Superior Court of Guam found that Maquera acquired his client's property by exercising the
right of redemption previously assigned to him by the client in payment of his legal services.
Such transaction falls squarely under Article 1492 in relation to Article 1491, paragraph 5 of the
Civil Code of the Philippines. Paragraph 5 of Article 1491 28 prohibits the lawyer's acquisition by
assignment of the client's property which is the subject of the litigation handled by the lawyer.
Under Article 1492,29 the prohibition extends to sales in legal redemption.
The prohibition ordained in paragraph 5 of Article 1491 and Article 1492 is founded on public
policy because, by virtue of his office, an attorney may easily take advantage of the credulity
and ignorance of his client30 and unduly enrich himself at the expense of his client.

The case of In re: Ruste31 illustrates the significance of the aforementioned prohibition. In that
case, the attorney acquired his clients' property subject of a case where he was acting as
counsel pursuant to a deed of sale executed by his clients in his favor. He contended that the
sale was made at the instance of his clients because they had no money to pay him for his
services. The Court ruled that the lawyer's acquisition of the property of his clients under the
circumstances obtaining therein rendered him liable for malpractice. The Court held:

…Whether the deed of sale in question was executed at the instance of the spouses
driven by financial necessity, as contended by the respondent, or at the latter's behest,
as contended by the complainant, is of no moment. In either case an attorney occupies a
vantage position to press upon or dictate his terms to a harassed client, in breach of the
"rule so amply protective of the confidential relations, which must necessarily exist
between attorney and client, and of the rights of both".32

The Superior Court of Guam also hinted that Maquera's acquisition of Castro's right of
redemption, his subsequent exercise of said right, and his act of selling the redeemed property
for huge profits were tainted with deceit and bad faith when it concluded that Maquera charged
Castro an exorbitant fee for his legal services. The court held that since the assignment of the
right of redemption to Maquera was in payment for his legal services, and since the property
redeemed by him had a market value of US$248,220.00 as of December 21, 1987 (the date
when the right of redemption was assigned to him), he is liable for misconduct for accepting
payment for his legal services way beyond his actual fees which amounted only to
US$45,000.00.

Maquera's acts in Guam which resulted in his two (2)-year suspension from the practice of law
in that jurisdiction are also valid grounds for his suspension from the practice of law in the
Philippines. Such acts are violative of a lawyer's sworn duty to act with fidelity toward his clients.
They are also violative of the Code of Professional Responsibility, specifically, Canon 17 which
states that "[a] lawyer owes fidelity to the cause of his client and shall be mindful the trust and
confidence reposed in him;" and Rule 1.01 which prohibits lawyers from engaging in unlawful,
dishonest, immoral or deceitful conduct. The requirement of good moral character is not only a
condition precedent to admission to the Philippine Bar but is also a continuing requirement to
maintain one's good's standing in the legal profession.33

It bears stressing that the Guam Superior Court's judgment ordering Maquera's suspension
from the practice of law in Guam does not automatically result in his suspension or disbarment
in the Philippines. Under Section 27,34 Rule 138 of the Revised Rules of Court, the acts which
led to his suspension in Guam are mere grounds for disbarment or suspension in this
jurisdiction, at that only if the basis of the foreign court's action includes any of the grounds for
disbarment or suspension in this jurisdiction.35 Likewise, the judgment of the Superior Court of
Guam only constitutes prima facie evidence of Maquera's unethical acts as a lawyer.36 More
fundamentally, due process demands that he be given the opportunity to defend himself and to
present testimonial and documentary evidence on the matter in an investigation to be conducted
in accordance with Rule 139-B of the Revised Rules of Court. Said rule mandates that a
respondent lawyer must in all cases be notified of the charges against him. It is only after
reasonable notice and failure on the part of the respondent lawyer to appear during the
scheduled investigation that an investigation may be conducted ex parte.37

The Court notes that Maquera has not yet been able to adduce evidence on his behalf
regarding the charges of unethical behavior in Guam against him, as it is not certain that he did
receive the Notice of Hearing earlier sent by the IBP's Commission on Bar Discipline. Thus,
there is a need to ascertain Maquera's current and correct address in Guam in order that
another notice, this time specifically informing him of the charges against him and requiring him
to explain why he should not be suspended or disbarred on those grounds (through
this Resolution), may be sent to him.

Nevertheless, the Court agrees with the IBP that Maquera should be suspended from the
practice of law for non-payment of his IBP membership dues from 1977 up to the
present.38 Under Section 10, Rule 139-A of the Revised Rules of Court, non-payment of
membership dues for six (6) months shall warrant suspension of membership in the IBP, and
default in such payment for one year shall be ground for removal of the name of the delinquent
member from the Roll of Attorneys.39

PRINCIPAL OBLIGATIONS OF VENDOR.

Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant
the thing which is the object of the sale. (1461a)

Goodyear Philippines vs. Sy

RULING: By the Vendor to the Vendee

In a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing
that is the object of the sale.21 Moreover, the implied warranties are as follows: first, the vendor
has a right to sell the thing at the time that its ownership is to pass to the vendee, as a result of
which the latter shall from then on have and enjoy the legal and peaceful possession of the
thing;22 and, second, the thing shall be free from any charge or encumbrance not declared or
known to the vendee.23

Upon the execution of the Deed of Sale, petitioner did transfer ownership of and deliver the
vehicle to Respondent Sy.24 No other owner or possessor of the vehicle had been alleged, and
the ownership and possession rights of petitioner over it had never been contested. The Deed
of Sale executed on September 12, 1996 showed that petitioner was the absolute owner.
Therefore, at the time that ownership passed to Sy, petitioner alone had the right to sell the
vehicle.

In the same manner, when he sold the same truck to Jose L. Lee, 25 Respondent Sy was
exercising his right as absolute owner. Unfortunately, though, from the time Respondent Lee
attempted to register the truck in his name, he could not have or enjoy the legal and peaceful
possession of the vehicle, because it had been impounded by the PNP, which also opposed its
registration.

The impoundment of the vehicle and the failure to register it were clearly acts that were not
deliberately caused by petitioner, but that resulted solely from the failure of the PNP to lift the
latter's own alarm over the vehicle. Pursuant to Republic Act 6975, 26 these matters were purely
administrative and governmental in nature. Petitioner had no authority, much less power, over
the PNP. Hence, the former did not breach its obligation as a vendor to Respondent Sy; neither
did it violate his right for which he could maintain an action for the recovery of damages. Without
this crucial allegation of a breach or violation, no cause of action exists.27

A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold.
As such, a warranty has a natural tendency to induce the vendee - - relying on that affirmation
or promise - - to purchase the thing.28 The vendor impliedly warrants that that which is being
sold is free from any charge or encumbrance not declared or known to the vendee. The decisive
test is whether the vendor assumes to assert a fact of which the vendee is ignorant

TRADITION OR DELIVERY (REAL OR ACTUAL DELIVERY)

Article 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee. (1462a)

NFF Industrial vs. G&L Associated

RULING: The resolution of the issue at bar necessitates a scrutiny of the concept of "delivery" in
the context of the Law on Sales. 33 Under the Civil Code, the vendor is bound to transfer the
ownership of and deliver, as well as warrant the thing which is the object of the sale. 34 The
ownership of thing sold is considered acquired by the vendee once it is delivered to him in the
following wise:

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.

Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee.

Thus, ownership does not pass by mere stipulation but only by delivery. 35 Manresa explains,
"the delivery of the thing x x x signifies that title has passed from the seller to the
buyer."36 Moreover, according to Tolentino, the purpose of delivery is not only for the enjoyment
of the thing but also a mode of acquiring dominion and determines the transmission of
ownership, the birth of the real right. 37 The delivery under any of the forms provided by Articles
1497 to 1505 of the Civil Code signifies that the transmission of ownership from vendor to
vendee has taken place.38 Here, emphasis is placed on Article 1497 of the Civil Code, which
contemplates what is known as real or actual delivery, when the thing sold is placed in the
control and possession of the vendee.39

In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 40 the concept of "delivery" was
elucidated, to wit:

Delivery has been described as a composite act, a thing in which both parties must join and the
minds of both parties concur. It is an act by which one party parts with the title to and the
possession of the property, and the other acquires the right to and the possession of the same.
In its natural sense, delivery means something in addition to the delivery of property or title; it
means transfer of possession. In the Law on Sales, delivery may be either actual or
constructive, but both forms of delivery contemplate "the absolute giving up of the control and
custody of the property on the part of the vendor, and the assumption of the same by the
vendee."41
Applying the foregoing criteria to the case at bar, We find that there were various occasions of
delivery by petitioner to respondents, and the same was duly acknowledged by respondent
Trinidad.

Based on the foregoing, it is clear that petitioner has actually delivered the bulk bags to
respondent company, albeit the same was not delivered to the person named in the Purchase
Order. In addition, by allowing petitioner’s employee to pass through the guard-on-duty, who
allowed the entry of delivery into the premises ofHi-Cement, which is the designated delivery
site, respondents had effectively abandoned whatever infirmities may have attended the
delivery of the bulk bags. As a matter of fact, if respondents were wary about the manner of
delivery, such issue should have been brought up immediately after the first delivery was made.
Instead, Mr. Trinidad acknowledged receipt of the first batch of the bulk bags and even followed
up the remaining balance of the orders for delivery.

Thus, the RTC correctly held that:

The evidence adduced by the parties clearly proved that Gerardo Trinidad himself, initially
ordered 1,000 pieces of NFF bulk bags at Php380.00 per piece from the plaintiff on or about
July 29, 1999. After testing and checking sample bags, Mr. Trinidad had approved it and even
instructed the Sales Manager of NFF in the person of Richard Bergamo to place and print the
bags with G & L logo as well as control number on all our sides of bags and thereafter agreed to
the quantity of Two Thousand [2,000] pieces as what had been agreed upon during the meeting
with the Union Cement Marketing personnel atthe Cement manufacturing [TSN March 10, 2003,
pp. 25]. Initial delivery of 400 pieces of bulk bags were made on July 31, 1999 and then followed
by another delivery of additional bulk bags on August 5, 1999 while the remaining 600 pieces of
bags were delivered on August6, 1999 to complete the 2,000 pieces ordered by the defendant.
All these deliveries were made to defendant’s designated address at "G & L Associated
Brokerage, Inc., C/O HI CEMENT CORPORATION, NORZAGARAY BULACAN." These
deliveries were made in compliance with Hi-Cement’s standard/regular operating procedure. It
passed thru guard on duty, who allowed the entry of delivery into the premises of Hi-Cement,
which is the designated delivery site and then a representative of the defendant thereat received
the delivered items in behalf of the defendant.43

Respondents’ mere allegations of non-delivery and misdelivery deserve scant consideration. On

the matter of non-delivery, We find it bizarre that respondents failed in demanding the delivery
of the bulk bags despite its urgent need to procure the same, as admitted by respondents’
witnesses. Customarily, failure to deliver the goods could have prompted respondents to follow
up on the orders and ensure that the same is delivered at the earliest opportunity. In fact, if they
had not actually received any quantity of bulk bags, despite their alleged repeated demands,
they could have demanded in writing or resorted to legal action for the enforcement thereof. But
there was dearth of evidence showing the same. On the matter of misdelivery, when the
instruction todeliver the partial five hundred (500) pieces of bulk bags was made by Mr.
Trinidad, the latter did not even mention the name Ramil Ambrosio. The significance of such
condition, therefore, falls flat to the actual delivery made by petitioner at the agreed delivery

Heirs of Extremadura v. Extremadura

RULING: Contrary to the position taken by the CA, the Court finds that Jose satisfactorily
established his equitable title over the subject land entitling him - and now, petitioners as his
successors-in-interest - to the removal of the cloud or doubt thereon, particularly, the claim of
respondents that they are the owners thereof.
Based on jurisprudence, equitable title has been defined as "[a] title derived through a valid
contract or relation, and based on. recognized equitable principles; the right in the party, to
whom it belongs, to have the legal title transferred to him. x x x. In order that a plaintiff may draw
to himself an equitable title, he must show that the one from whom he derives his right had
himself a right to transfer. x x x."25cralawredchanrobleslaw

In this case, Jose's title to the subject land was derived through a contract of sale, as evidenced
by a notarized document denominated as Deed of Absolute Sale 26 dated December 18, 1984,
whereby the previous owner/s, Corazon, the widow of Alfredo, transferred the subject land and
two (2) other adjoining parcels to Jose for and in consideration of P6,000.00, for which Jose
duly paid27 the required capital gains tax. That Corazon had the right to transfer the land by
virtue of her ownership thereof was clearly established during the trial.

While the CA did not express any misgivings on the existence and execution of the deed of sale
in Jose's favor, it nonetheless found that "despite the notarized Deed of Absolute Sale x x x, this
[did] not constitute constructive delivery, as to affect the transfer of ownership from the seller to
the buyer."31chanrobleslaw

The CA is mistaken.

Article 1477 of the Civil Code recognizes that the "ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof." Related to this article
is Article 1497 of the same Code which provides that "[t]he thing sold shall be understood as
delivered, when it is placed in the control and possession of the vendee." 32chanrobleslaw

Article 1498 of the Civil Code lays down the general rule that the execution of a public
instrument "shall be equivalent to the delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot clearly be inferred." However, the
execution of a public instrument gives rise only to a prima facie presumption of delivery, which is
negated by the failure of the vendee to take actual possession of the land sold. A person who
does not have actual possession of the thing sold cannot transfer constructive possession by
the execution and delivery of a public instrument. 33chanrobleslaw

In this case, the prima facie presumption of constructive delivery to Jose was not successfully
negated by proof that the subject land was not actually placed in the latter's control and
possession. Primarily, it should be stressed that "[possession is acquired by the material
occupation of a thing or the exercise of a right, or by the fact that it is subject to the
action of our will, or by the proper acts and legal formalities established for acquiring
such right."34 Jose exercised possession of the subject land through Manuel (and eventually,
his son, Marlon) whom he allowed to stay and care for the land in exchange for the delivery of
the produce thereof. Article 524 of the Civil Code states:ChanRoblesVirtualawlibrary

Art. 524. Possession may be exercised in one's own name or in that of another.

In this relation, case law teaches that "[i]t is not necessary that the owner of a parcel of land
should himself occupy the property as someone in his name may perform the act. In other
words, the owner of real estate has possession, either when he himself is physically in
occupation of the property, or when another person who recognizes his rights as owner is in
such occupancy,"35 as the parties in this case.
Thus, by sheer preponderance of evidence, the Court concludes that Jose - not only through the
execution of the Deed of Absolute Sale in his favor, but also as evinced by his exercise of the
rights and obligations as owner thereof- was able to prove his title over the subject land.
Therefore, the action for quieting of title in Civil Case No. 2005-7552 should prosper to the
benefit of his heirs, herein petitioners

EXECUTION OF PUBLIC INSTRUMENT OR DOCUMENT (SYMBOLIC DELIVERY BY

EXECUTION OF PUBLIC INSTRUMENT)
Article 1498. When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred

Santiago v. Villamor
RULING: The petition lacks merit. Quieting of title is a common law remedy for the removal of
any cloud, doubt or uncertainty affecting title to real property. The plaintiffs must show not only
that there is a cloud or contrary interest over the subject real property, but that they have a valid
title to it. Worth stressing, in civil cases, the plaintiff must establish his cause of action by
preponderance of evidence; otherwise, his suit will not prosper.23

The petitioners anchor their claim over the disputed land on the July 21, 1994 notarized deed of
sale executed in their favor by the spouses Villamor, Sr. who in turn obtained a July 19, 1994
notarized deed of sale from the San Jacinto Bank. On the other hand, the respondents and
respondent John claim title by virtue of their installment payments to the San Jacinto Bank from
November 4, 1991 to June 8, 1994 and their actual possession of the disputed land.

After considering the parties’ evidence and arguments, we agree with the CA that the petitioners
failed to prove that they have any legal or equitable title over the disputed land.

Execution of the deed of sale only a prima facie presumption of delivery.

Article 1477 of the Civil Code recognizes that the "ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof." Related to this article
is Article 1497 which provides that "the thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee."

With respect to incorporeal property, Article 1498 of the Civil Code lays down the general rule:
the execution of a public instrument "shall be equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary does not appear or cannot clearly be
inferred." However, the execution of a public instrument gives rise only to a prima facie
presumption of delivery, which is negated by the failure of the vendee to take actual possession
of the land sold.24 "A person who does not have actual possession of the thing sold cannot
transfer constructive possession by the execution and delivery of a public instrument."25

In this case, no constructive delivery of the land transpired upon the execution of the deed of
sale since it was not the spouses Villamor, Sr. but the respondents who had actual possession
of the land. The presumption of constructive delivery is inapplicable and must yield to the reality
that the petitioners were not placed in possession and control of the land.
The petitioners can hardly claim to be purchasers in good faith.

"A purchaser in good faith is one who buys property without notice that some other person has
a right to or interest in such property and pays its fair price before he has notice of the adverse
claims and interest of another person in the same property." 26 However, where the land sold is in
the possession of a person other than the vendor, the purchaser must be wary and must
investigate the rights of the actual possessor; without such inquiry, the buyer cannot be said to
be in good faith and cannot have any right over the property.27

In this case, the spouses Villamor, Sr. were not in possession of the land.1âwphi1 The
petitioners, as prospective vendees, carried the burden of investigating the rights of the
respondents and respondent John who were then in actual possession of the land. The
petitioners cannot take refuge behind the allegation that, by custom and tradition in San Jacinto,
Masbate, the children use their parents' property, since they offered no proof supporting their
bare allegation. The burden of proving the status of a purchaser in good faith lies upon the party
asserting that status and cannot be discharged by reliance on the legal presumption of good
faith.28 The petitioners failed to discharge this burden.

Lastly, since the specific performance case already settled the respondents and respondent
John's claim over the disputed land, the dispositive portion of the CA decision (dismissing the
complaint without prejudice to the outcome of the specific performance case 29 ) is modified to
reflect this fact; we thus dismiss for lack of merit the complaint for quieting of title and recovery
of possession.

CONTRACT OF SALE OR RETURN AND OF SALE ON TRIAL OR APPROVAL OR

SATISFACTION
Article 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an
option to return the goods instead of paying the price, the ownership passes to the buyer on
delivery, but he may revest the ownership in the seller by returning or tendering the goods within
the time fixed in the contract, or, if no time has been fixed, within a reasonable time. (n)

When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar
terms, the ownership therein passes to the buyer:

(1) When he signifies his approval or acceptance to the seller or does any other act
adopting the transaction;

(2) If he does not signify his approval or acceptance to the seller, but retains the goods
without giving notice of rejection, then if a time has been fixed for the return of the
goods, on the expiration of such time, and, if no time has been fixed, on the expiration of
a reasonable time. What is a reasonable time is a question of fact. (n)

Industrial Textile vs. LPJ Enterprises

RULING: A review of the record instantly reveals that the case at bar falls under the last
exception. As earlier adverted to, respondent has repeatedly admitted its liability for the 53,800
plastic lime bags amounting to P44,654.00 yet the appellate court disregarded this fact and
totally cleared respondent from all responsibility. On this point alone, the decision of the
appellate court may be overturned, or at least modified.
It is beyond dispute that prior to respondent's transaction with petitioner, the bags were already
tested and the results thereof, albeit initially unsuccessful, were nevertheless favorably
considered after due alterations were made. Verily, it is on the basis of such experimental
findings that respondent agreed to use the plastic cement bags and thereafter issued the
purchase orders heretofore mentioned. Significantly, the quantity of bags ordered by respondent
also negates its position that the bags were still under experimentation. Indeed, if it were so, the
bags ordered should have been considerably lesser in number and would normally increase as
the suitability of the plastic bags became more definite. Likewise, it is worthy to note that as of
the date of petitioner's third delivery on March 19, 1971, respondent has received a total of
52,000 bags. By then, it was very probable that the problems alluded to by respondent could no
longer be resolved, thus, only 15,000 bags were actually used and 37,000 bags were already
considered unfit for packing cement. Under such predicament, it was but logical for respondent
to cancel then the fourth purchase order for another 10,000 bags. Surprisingly, respondent still
accepted the same upon delivery on April 17, 1971 and remitted its payments until May 3, 1971.
When petitioner sent letters demanding the full payment of the bags, respondent simply
declared that it did not receive any because it transferred its offices to another place. In the
meantime, the bags remained in the custody of Luzon Cement, respondent's supplier and
virtually a stranger as far as petitioner is concerned. It is for this reason that petitioner may not
be expected to just pull out its bags from Luzon Cement.

Not to be overlooked also is the fact that Panganiban, respondent corporation's president, also
collected due commissions for the four purchase orders issued in favor of petitioner. (p.
79, Rollo).

Finally, the conditions which allegedly govern the transaction according to respondent may not
be considered. The trial court correctly observed that such conditions should have been
distinctly specified in the purchase orders and respondent's failure to do so is fatal to its cause.
We find that Article 1502 of the Civil Code, invoked by both parties herein, has no application at
all to this case. The provision in the Uniform Sales Act and the Uniform Commercial Code from
which Article 1502 was taken, clearly requires an express written agreement to make a sales
contract either a "sale or return" or a "sale on approval". Parol or extrinsic testimony could not
be admitted for the purpose of showing that an invoice or bill of sale that was complete in every
aspect and purporting to embody a sale without condition or restriction constituted a contract of
sale or return. If the purchaser desired to incorporate a stipulation securing to him the right of
return, he should have done so at the time the contract was made. On the other hand, the buyer
cannot accept part and reject the rest of the goods since this falls outside the normal intent of
the parties in the "on approval" situation. (67 Am Jur 2d, pp. 733, 748).

In the light of these principles, We hold that the transaction between respondent and petitioner
constituted an absolute sale. Accordingly, respondent is liable for the plastic bags delivered to it
by petitioner

RISK OF LOSS GENERALLY ATTENDS TITLE

Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual 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;

(3) Where actual delivery has been delayed through the fault of either the buyer or seller the
goods are at the risk of the party in fault. (n)

Gaisano vs. Insurance

RULING: Petitioner's argument that it is not liable because the fire is a fortuitous event under
Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under
Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the
obligation consists in the payment of money, the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule
that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only
holds true when the obligation consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is
pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." If the obligation is
generic in the sense that the object thereof is designated merely by its class or genus without any
particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has incurred in
delay will not have the effect of extinguishing the obligation. 35 This rule is based on the principle that
the genus of a thing can never perish. Genus nunquan perit. 36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the debtor. 37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this
case. What is relevant here is whether it has been established that petitioner has outstanding
accounts with IMC and LSPI.

Union Motor vs. CA

RULING: We rule in favor of the respondent Bernal spouses. Undisputed is the fact that the
respondent Bernal spouses did not come into possession of the subject Cimarron jeepney that
was supposed to be delivered to them by the petitioner. The registration certificate, receipt and
sales invoice that the respondent Bernal spouses signed were explained during the hearing
without any opposition by the petitioner. According to testimonial evidence adduced by the
respondent spouses during the trial of the case, the said documents were signed as a part of
the processing and for the approval of their application to buy the subject motor vehicle. Without
such signed documents, no sale, much less delivery, of the subject jeepney could be made. The
documents were not therefore an acknowledgment by respondent spouses of the physical
acquisition of the subject motor vehicle but merely a requirement of petitioner so that the said
subject motor vehicle would be delivered to them.

We have ruled that the issuance of a sales invoice does not prove transfer of ownership of the
thing sold to the buyer; an invoice is nothing more than a detailed statement of the nature,
quantity and cost of the thing sold and has been considered not a bill of sale. 6
The registration certificate signed by the respondent spouses does not conclusively prove that
constructive delivery was made nor that ownership has been transferred to the respondent
spouses. Like the receipt and the invoice, the signing of the said documents was qualified by
the fact that it was a requirement of petitioner for the sale and financing contract to be approved.
In all forms of delivery, it is necessary that the act of delivery, whether constructive or actual,
should be coupled with the intention of delivering the thing. The act, without the intention, is
insufficient.7 The critical factor in the different modes of effecting delivery which gives legal
effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the
vendee. Without that intention, there is no tradition. 8 Enlightening is Addison v. Felix and
Tioco9 wherein we ruled that:

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is
considered to be delivered when it is placed in the hands and possession of the vendee.
(Civil Code, Art. 1462). It is true that the same article declares that the execution of a
public instrument is equivalent to the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery may produce the effect of tradition, it is
necessary that the vendor shall have had control over the thing sold that, at the moment
of the sale, its material delivery could have been made. It is not enough to confer upon
the purchaser the ownership and the right of possession. The thing sold must be placed
in his control. When there is no impediment whatever to prevent the thing sold passing
into the tenancy of the purchaser by the sole will of the vendor; symbolic delivery
through the execution of a public instrument is sufficient. But if notwithstanding the
execution of the instrument, the purchaser cannot have the enjoyment and material
tenancy of the thing and make use of it himself or through another in his name, because
such tenancy and enjoyment are opposed by the interposition of another will, then fiction
yields to reality the delivery has not been effected. (Italics supplied)

The act of signing the registration certificate was not intended to transfer the ownership of the
subject motor vehicle to respondent Bernal spouses inasmuch as the petitioner still needed the
same for the approval of the financing contract with Jardine-Manila Finance, Inc. The record
shows that the registration certificate was submitted to Jardine-Manila Finance, Inc., which took
possession thereof until Sosmeña requested the latter to hand over the said document to him.
The fact that the registration certificate was still kept by Jardine-Manila Finance, Inc. and its
unhesitating move to give the same to Sosmeña just goes to show that the respondent spouses
still had no complete control over the subject motor vehicle as they did not even possess the
said certificate of registration nor was their consent sought when Jardine-Manila Finance, Inc.
handed over the said document to Sosmeña.

Inasmuch as there was neither physical nor constructive delivery of a determinate thing (in this
case, the subject motor vehicle), the thing sold remained at the seller's risk. 10 The petitioner
should therefore bear the loss of the subject motor vehicle after Sosmeña allegedly stole the
same.

Petitioner's reliance on the Chattel Mortgage Contract executed by the respondent spouses
does not help its assertion that ownership has been transferred to the latter since there was
neither delivery nor transfer of possession of the subject motor vehicle to respondent spouses.
Consequently, the said accessory contract of chattel mortgage has no legal effect whatsoever
inasmuch as the respondent spouses are not the absolute owners thereof, ownership of the
mortgagor being an essential requirement of a valid mortgage contract. The Carlos case11 cited
by the petitioner is not applicable to the case at bar for the reason that in the said case, apart
from the fact that it has a different issue, the buyer took possession of the personal property and
was able to sell the same to a third party. In the instant case, however, the respondent spouses
never acquired possession of the subject motor vehicle. The manifestations of ownership are
control and enjoyment over the thing owned. The respondent spouses never became the actual
owners of the subject motor vehicle in as much as they never had dominion over the same.

The petitioner also disputes the finding of the appellate court that there was no delivery it did not
consider, according to the petitioner, the fact that the circumstance of non-delivery was not
shown and that the respondent spouses never made any demand for the possession of the
vehicle. Contrary to the petitioner's allegation, the respondent spouses presented sufficient
evidence to prove that Sosmeña took delivery and possession of that subject motor vehicle in
his personal capacity as shown by a document12 on which he (Sosmeña) personally
acknowledged receipt of the registration certificate from Jardine-Manila Finance, Inc. Also,
respondent Albiato Bernal testified to the effect that they went several times to the office of the
petitioner to demand the delivery of the subject motor vehicle. The petitioner failed to refute that
testimonial evidence considering that it waived its right to present evidence.

SALE BY A PERSON NOT THE OWNER

Article 1505. Subject to the provisions of this Title, where goods are sold by a person who is not
the owner thereof, and who does not sell them under authority or with the consent of the owner,
the buyer acquires no better title to the goods than the seller had, unless the owner of the goods
is by his conduct precluded from denying the seller's authority to sell. Nothing in this Title,
however, shall affect:

(1) The provisions of any factors' act, recording laws, or any other provision of law enabling the
apparent owner of goods to dispose of them as if he were the true owner thereof;

(2) The validity of any contract of sale under statutory power of sale or under the order of a court
of competent jurisdiction;

(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code
of Commerce and special laws. (n)

Gonzales vs. Pena

RULING: The SC grants the Petition. Indeed, the RTC did not comply with the ruling in Urban
Bank when it refused to restore to petitioner the actual ownership of his club shares on the mere
pretext that these had already been sold by Peña to his successor-in-interest.

As stated in this Court's Decision dated 19 October 2011, the RTC was bound to comply with
this relevant directive: 12

b. If the property levied or garnished has been sold on execution pending appeal and Atty.
Magdaleno Peña is the winning bidder or purchaser, he must fully restore the property to
Urban Bank or respondent bank officers, and if actual restitution of the property is
impossible, then he shall pay the full value of the property at the time of its seizure, with
interest; (Emphasis supplied)

There is no factual dispute that Peña acquired the ACCI shares of petitioner by virtue of a
winning bid in an execution sale that had already been declared by this Court, with finality, as
null and void. In no uncertain terms, we declared that the "concomitant execution pending
appeal is likewise without any effect. x x x. Consequently, all levies, garnishment and
sales executed pending appeal are declared null and void, with the concomitant duty of
restitution x x x." 13

Void transactions do not produce any legal or binding effect, and any contract directly resulting
from that illegality is likewise void and inexistent. 14 Therefore, Peña could not have been a valid
transferee of the property. As a consequence, his successor-in-interest, Vera, could not have
validly acquired those shares. 15 The RTC thus erred in refusing to restore the actual ACCI
shares to petitioner on the basis of their void transfer to Vera.

Neither was the RTC correct in its characterization of the actual restitution of the ACCI shares to
petitioner as "impossible." For the obligation to be considered impossible under Article 1266 of
the Civil Code, its physical or legal impossibility must first be proven. 16

Here, the RTC did not make any finding on whether or not it was physically impossible to effect
the actual restitution of the property. On the other hand, petitioner correctly points out that since
the shares are movable by nature, the same can be transferred back to Gonzalez, Jr. by
recording the transaction in the stock and transfer book of the club. 17

As regards legal impossibility, the RTC appears to have jumped to the conclusion that because
of the perfected sale of the shares to Vera, petitioner can no longer claim actual restitution of
the property.

However, Article 1505 of the Civil Code instructs that "x x x where goods are sold by a person
who is not the owner thereof, and who does not sell them under authority or with the consent of
the owner, the buyer acquires no better title to the goods than the seller had, unless the owner
of the goods is by his conduct precluded from denying the seller's authority to sell. x x x."

The Court itself settled that Peña acquired the properties by virtue of a null and void execution
sale. In effect, his buyers acquired no better title to the goods than he had. Therefore, the RTC
erred in appreciating the existence of legal impossibility in this case on the mere pretext that the
properties had already been transferred to third parties. By virtue of Article 1505, the true
owners of the goods are definitely not legally precluded from claiming the ownership of their
actual properties.

All told, given the encompassing and overarching declaration of this Court nullifying the
acquisition by Peña of the properties of Urban Bank and its directors, and considering that
actual restitution of the movable properties is neither physically nor legally impossible, this Court
finds that the refusal of the RTC to restore the actual shares on the mere pretext that these had
been transferred by Peña to third persons as utterly devoid of basis. Consequently, pursuant to
our final ruling in Urban Bank. petitioner must be restored as owner of the actual ACCl shares,
and not just be paid the full value of the property.

RIGHT OF PERSON TO WHOM DOCUMENT HAS BEEN NEGOTIATED

Article 1513. A person to whom a negotiable document of title has been duly negotiated
acquires thereby:
(1) Such title to the goods as the person negotiating the document to him had or had ability to
convey to a purchaser in good faith for value and also such title to the goods as the person to
whose order the goods were to be delivered by the terms of the document had or had ability to
convey to a purchaser in good faith for value; and
(2) The direct obligation of the bailee issuing the document to hold possession of the goods for
him according to the terms of the document as fully as if such bailee had contracted directly with
him. (n)

PNB vs. Noah’s Ark Sugar Refinery

RULING: The Court considers the Appellate Court's conclusions of fact and law to be correct.

The Trial Judge's argument that the Appellate Court's decision failed to take account of other
"material facts established on the basis of the pleadings, documentary evidence on record,
stipulations and admissions during the proceedings on the application for a writ of preliminary
attachment," is quite transparently specious. For the matters cited by His Honor, as allegedly
not examined by the Court of Appeals, were in fact duly considered by the latter — i.e., that "the
various postdated checks issued by the buyers (RNS Merchandising and St. Therese
Merchandising) in favor of Noah's Ark were dishonored when presented for payment . . (and
hence) the buyers never acquired title to the sugar evidenced by the quedans," 3 and that PNB
"did not follow the procedure stated in Article 2112 of the Civil Code." 4 In its decision, as just
pointed out, the Court of Appeals explicitly ruled that the "validity of the negotiation" of
the quedans to PNB" cannot be impaired by the fact that the negotiation between Noah's Ark
and RNS Merchandising and St. Therese Merchandising was made in breach of faith on the
part of the merchandising firms or by the fact that the owner (Noah's Ark) was deprived of the
possession of the same by fraud, mistake or conversion . . ." 5 It also ruled that
the quedans were negotiable documents and had been duly negotiated to the PNB which
thereby acquired the rights set out in Article 1513 of the Civil Code," 6 viz.:"

(1) Such title to the goods as the person negotiating the documents to him had or
had ability to convey to a purchaser in good faith for value and also such title to
the goods as the person to whose order the goods were to be delivered by the
terms of the document had or had ability to convey to a purchaser in good faith
for value; and

(2) The direct obligation of the bailee issuing the document to hold possession of
the goods for him according to the terms of the document as fully as if such
bailee had contracted directly with him.

The Court of Appeals found correctly that the indications in the pleadings to the contrary
notwithstanding, no substantial triable issue of fact actually existed, and that certain issues
raised in answer, even if taken as established, would not materially change the ultimate findings
relative to the main claim. 7 Its decision is entirely in accord with this Court's rulings regarding
the propriety of summary judgments invoked by the Appellate Tribunal, i.e., Vergara, Sr. v.
Suelto, 8 and Mercado v. Court of Appeals. 9 According to Vergara, for instance, "even if the
answer does tender issues — and therefore a judgment on the pleadings is not proper — a
summary judgment may still be rendered on the plaintiff's motion if he can show to the Court's
satisfaction that "except as to the amount of damages, there is no genuine issue as to any
material fact," 10 that is to say, the issues thus tendered are not genuine, are in other words
sham, fictitious, contrived, set up in bad faith, patently unsubstantial. 11 The determination may
be made by the Court on the basis of the pleadings, and the depositions, admissions and
affidavits that the movant may submit, as well as those which the defendant may present in
turn."12

In any event, the conclusions of fact and law set out in the Appellate Court's decision are
undeniably binding on all the parties to the case, the respondent Regional Trial Judge included.
Having been rendered by a competent court within its jurisdiction, and having become final and
executory, the decision now operates as the immutable law among the parties, the respondent
Trial Judge included; it has become the law of the case and may no longer, in subsequent
proceedings, be altered or modified in any way, much less reversed or set at naught, by the
latter, or any other judge, not even by the Supreme Court; it is an unalterable determination of
the propriety of a summary judgment in the action in question, and upon all the issues therein
raised or which could have been raised relative to the merits of said action.13

The Trial Judge may not evade compliance with the final judgment of the Court of Appeals on
the theory that the latter had acted only on a mere interlocutory order (the order denying PNB's
motion for summary judgment), while he had subsequently adjudged the action for specific
performance on the merits. Quite obvious is that the Court of Appeals had decided that a
summary judgment was proper in said action of specific performance, that this was in truth a
determination of the merits of the suit, that that decision had become final and executory, and
that the decision expressly commanded His Honor to render such a judgment. Under the
circumstances, the latter's duty was clear and inescapable.

It was not within the Trial Judge's competence or discretion to take exception to, much less
overturn, any of the factual or legal conclusions laid down by the Court of Appeals in its verdict.
He was as much bound thereby as the private parties themselves. His only function was to
implement and carry out the Appellate Tribunal's judgment. It was an act of supererogation, of
presumptuousness, on His Honor's part to disregard the Court's clear and categorical
command, and to dispose of the case in a manner diametrically opposed thereto. In doing so,
the Trial Judge committed grave error which must forthwith be corrected.

DELIVERY OF GOODS LESS THAN QUANTITY CONTRACTED

Article 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted
to sell, the buyer may reject them, but if the buyer accepts or retains the goods so delivered,
knowing that the seller is not going to perform the contract in full, he must pay for them at the
contract rate. If, however, the buyer has used or disposed of the goods delivered before he
knows that the seller is not going to perform his contract in full, the buyer shall not be liable for
more than the fair value to him of the goods so received.

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the
buyer may accept the goods included in the contract and reject the rest. If the buyer accepts the
whole of the goods so delivered he must pay for them at the contract rate.

Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a
different description not included in the contract, the buyer may accept the goods which are in
accordance with the contract and reject the rest.

In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the
whole of the goods.
The provisions of this article are subject to any usage of trade, special agreement, or course of
dealing between the parties. (n)

Spouses Lam vs. Kodak

RULING: With both parties opting for rescission of the contract under Article 1191, the Court of
Appeals correctly ordered for restitution.

The contract between the parties is one of sale, where one party obligates himself or herself to
transfer the ownership and deliver a determinate thing, while the other pays a certain price in
money or its equivalent.103 A contract of sale is perfected upon the meeting of minds as to the
object and the price, and the parties may reciprocally demand the performance of their
respective obligations from that point on.104

The Court of Appeals correctly noted that respondent had rescinded the parties’ Letter
Agreement through the letter dated October 14, 1992. 105 It likewise noted petitioners’ rescission
through the letter dated November 18, 1992.106 This rescission from both parties is founded on
Article 1191 of the New Civil Code:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfilment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

Rescission under Article 1191 has the effect of mutual restitution. 107 In Velarde v. Court of
Appeals:108

Rescission abrogates the contract from its inception and requires a mutual restitution of benefits
received. ....

Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each other,
but to abrogate it from the beginning and restore the parties to their relative positions as if no
contract has been made.109 (Emphasis supplied, citations omitted)

The Court of Appeals correctly ruled that both parties must be restored to their original situation
as far as practicable, as if the contract was never entered into. Petitioners must relinquish
possession of the delivered Minilab Equipment unit and accessories, while respondent must
return the amount tendered by petitioners as partial payment for the unit received. Further,
respondent cannot claim that the two (2) monthly installments should be offset against the
amount awarded by the Court of Appeals to petitioners because the effect of rescission under
Article 1191 is to bring the parties back to their original positions before the contract was
entered into. Also in Velarde:
As discussed earlier, the breach committed by petitioners was the nonperformance of a
reciprocal obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this
controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their original situation prior to the inception of
the contract. Accordingly, the initial payment of ₱800,000 and the corresponding mortgage
payments in the amounts of ₱27,225, ₱23,000 and ₱23,925 (totaling ₱874,150.00) advanced
by petitioners should be returned by private respondents, lest the latter unjustly enrich
themselves at the expense of the former.110 (Emphasis supplied)

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially invoked
because the power to resolve is implied in reciprocal obligations. 111 The right to resolve allows
an injured party to minimize the damages he or she may suffer on account of the other party’s
failure to perform what is incumbent upon him or her. 112 When a party fails to comply with his or
her obligation, the other party’s right to resolve the contract is triggered. 113 The resolution
immediately produces legal effects if the non-performing party does not question the
resolution.114 Court intervention only becomes necessary when the party who allegedly failed to
comply with his or her obligation disputes the resolution of the contract. 115 Since both parties in
this case have exercised their right to resolve under Article 1191, there is no need for a judicial
decree before the resolution produces effects.

DELIVERY TO CARRIER ON BEHALF OF BUYER

Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to
send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or
not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the
buyer, except in the cases provided for in article 1503, first, second and third paragraphs, or
unless a contrary intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier
on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the
other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged
in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to
himself, or may hold the seller responsible in damages.

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances
in which the seller knows or ought to know that it is usual to insure, the seller must give such
notice to the buyer as may enable him to insure them during their transit, and, if the seller fails
to do so, the goods shall be deemed to be at his risk during such transit. (n)

David vs. Misamis Occidental II Electric Coop

RULING: This Court is unable to agree with the CA that there was no delivery of the items. On
the contrary, there was delivery and release.

To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:

2. Delivery – Ninety (90) working days upon receipt of your purchase order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the
account of MOELCI II. 13 (Emphasis supplied)

On this score, it is clear that MOELCI agreed that the power transformer would be delivered and
that the freight, handling, insurance, custom duties, and incidental expenses shall be
shouldered by it.

On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable. It
provides:

Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods
to the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer,
except in the cases provided for in Article 1503, first, second and third paragraphs, or unless a
contrary intent appears. (Emphasis supplied)

Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was
deemed to be a delivery to MOELCI. David was authorized to send the power transformer to the
buyer pursuant to their agreement. When David sent the item through the carrier, it amounted to
a delivery to MOELCI.

Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco, 14 it was pointed out that a
specification in a contract relative to the payment of freight can be taken to indicate the intention
of the parties with regard to the place of delivery. So that, if the buyer is to pay the freight, as in
this case, it is reasonable to suppose that the subject of the sale is transferred to the buyer at
the point of shipment. In other words, the title to the goods transfers to the buyer upon shipment
or delivery to the carrier.

Of course, Article 1523 provides a mere presumption and in order to overcome said
presumption, MOELCI should have presented evidence to the contrary. The burden of proof
was shifted to MOELCI, who had to show that the rule under Article 1523 was not applicable. In
this regard, however, MOELCI failed.

There being delivery and release, said fact constitutes partial performance which takes the case
out of the protection of the Statute of Frauds. It is elementary that the partial execution of a
contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as
the essential requisites of consent of the contracting parties, object and cause of the obligation
concur and are clearly established to be present.15

That being said, the Court now comes to David’s prayer that MOELCI be made to pay the total
sum of ₱ 5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the
complaint. Although the Court agrees that MOELCI should pay interest, the stipulated rate is,
however, unconscionable and should be equitably reduced. While there is no question that
parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the
Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest
effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable
may still be reduced to a reasonable and fair level. There is nothing in the said circular which
grants lenders carte blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets. 16 Accordingly, the excessive interest of
24% per annum stipulated in the sales invoice should be reduced to 12% per annum.
Indeed, David was compelled to file an action against MOELCI but this reason alone will not
warrant an award of attorney’s fees. It is settled that the award of attorney's fees is the
exception rather than the rule. Counsel's fees are not awarded every time a party prevails in a
suit because of the policy that no premium should be placed on the right to litigate. Attorney's
fees, as part of damages, are not necessarily equated to the amount paid by a litigant to a
lawyer. In the ordinary sense, attorney's fees represent the reasonable compensation paid to a
lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary
concept, they may be awarded by the court as indemnity for damages to be paid by the losing
party to the prevailing party. Attorney's fees as part of damages are awarded only in the
instances specified in Article 2208 of the Civil Code 17 which demands factual, legal, and
equitable justification. Its basis cannot be left to speculation or conjecture. In this regard, none
was proven.

Moreover, in the absence of stipulation, a winning party may be awarded attorney's fees only in
case plaintiffs action or defendant's stand is so untenable as to amount to gross and evident
bad faith.18 is MOELCI's case cannot be similarly classified.

SALE OF REAL ESTATE MADE FOR A LUMP SUM

Article 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum
for a unit of measure or number, there shall be no increase or decrease of the price, although
there be a greater or less area or number than that stated in the contract.

The same rule shall be applied when two or more immovables as sold for a single price; but if,
besides mentioning the boundaries, which is indispensable in every conveyance of real estate,
its area or number should be designated in the contract, the vendor shall be bound to deliver all
that is included within said boundaries, even when it exceeds the area or number specified in
the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number, unless the contract is rescinded because the
vendee does not accede to the failure to deliver what has been stipulated. (1471)

Cebu Winland vs. Hua

RULING: Under the Civil Code, ownership does not pass by mere stipulation but only by
delivery.22 Manresa explains, "the delivery of the thing . . . signifies that title has passed from the
seller to the buyer."23 According to Tolentino, the purpose of delivery is not only for the
enjoyment of the thing but also a mode of acquiring dominion and determines the transmission
of ownership, the birth of the real right. The delivery under any of the forms provided by Articles
1497 to 1505 of the Civil Code signifies that the transmission of ownership from vendor to
vendee has taken place.24

Article 1497 above contemplates what is known as real or actual delivery, when the thing sold is
placed in the control and possession of the vendee. Article 1498, on the one hand, refers to
symbolic delivery by the execution of a public instrument. It should be noted, however, that
Article 1498 does not say that the execution of the deed provides a conclusive presumption of
the delivery of possession. It confines itself to providing that the execution thereof is equivalent
to delivery, which means that the presumption therein can be rebutted by means of clear and
convincing evidence. Thus, the presumptive delivery by the execution of a public instrument can
be negated by the failure of the vendee to take actual possession of the land sold.25
In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 26 the concept of "delivery"
was explained as follows:

Delivery has been described as a composite act, a thing in which both parties must join
and the minds of both parties concur. It is an act by which one party parts with the title to
and the possession of the property, and the other acquires the right to and the
possession of the same. In its natural sense, delivery means something in addition to the
delivery of property or title; it means transfer of possession. In the Law on Sales, delivery
may be either actual or constructive, but both forms of delivery contemplate
"the absolute giving up of the control and custody of the property on the part of the
vendor, and the assumption of the same by the vendee." (Emphasis supplied)

In light of the foregoing, "delivery" as used in the Law on Sales refers to the concurrent
transfer of two things: (1) possession and (2) ownership. This is the rationale behind the
jurisprudential doctrine that presumptive delivery via execution of a public instrument is negated
by the reality that the vendee actually failed to obtain material possession of the land subject of
the sale.27 In the same vein, if the vendee is placed in actual possession of the property, but by
agreement of the parties ownership of the same is retained by the vendor until the vendee has
fully paid the price, the mere transfer of the possession of the property subject of the sale is not
the "delivery" contemplated in the Law on Sales or as used in Article 1543 of the Civil Code.

In the case at bar, it appears that respondent was already placed in possession of the subject
properties. However, it is crystal clear that the deeds of absolute sale were still to be executed
by the parties upon payment of the last installment. This fact shows that ownership of the said
properties was withheld by petitioner. Following case law, it is evident that the parties did not
intend to immediately transfer ownership of the subject properties until full payment and the
execution of the deeds of absolute sale.28 Consequently, there is no "delivery" to speak of in this
case since what was transferred was possession only and not ownership of the subject
properties.

We, therefore, hold that the transfer of possession of the subject properties on October 10, 1996
to respondent cannot be considered as "delivery" within the purview of Article 1543 of the Civil
Code. It follows that since there has been no transfer of ownership of the subject properties
since the deeds of absolute sale have not yet been executed by the parties, the action filed by
respondent has not prescribed

The next issue is whether the sale in the case at bar is one made with a statement of its area or
at the rate of a certain price for a unit of measure and not for a lump sum. Article 1539 provides
that "If the sale of real estate should be made with a statement of its area, at the rate of a
certain price for a unit of measure or number, the vendor shall be obliged to deliver to the
vendee…all that may have been stated in the contract; but, should this be not possible, the
vendee may choose between a proportional reduction of the price and the rescission of the
contract…." Article 1542, on the one hand, provides that "In the sale of real estate, made for a
lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price, although there be a greater or lesser area or number than
that stated in the contract."

The distinction between Article 1539 and Article 1542 was explained by Manresa29 as follows:
. . . If the sale was made for a price per unit of measure or number, the consideration of the
contract with respect to the vendee, is the number of such units, or, if you wish, the thing
purchased as determined by the stipulated number of units. But if, on the other hand, the sale
was made for a lump sum, the consideration of the contract is the object sold, independently of
its number or measure, the thing as determined by the stipulated boundaries, which has been
called in law a determinate object.

This difference in consideration between the two cases implies a distinct regulation of the
obligation to deliver the object, because, for an acquittance delivery must be made in
accordance with the agreement of the parties, and the performance of the agreement must
show the confirmation, in fact, of the consideration which induces each of the parties to enter
into the contract.

In Rudolf Lietz, Inc. v. Court of Appeals,30 we held:

Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit area. In a
unit price contract, the statement of area of immovable is not conclusive and the price may be
reduced or increased depending on the area actually delivered. If the vendor delivers less than
the area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the
contract or demand for the proportionate reduction of the purchase price if delivery is not
possible. If the vendor delivers more than the area stated in the contract, the vendee has the
option to accept only the amount agreed upon or to accept the whole area, provided he pays for
the additional area at the contract rate.

In some instances, a sale of an immovable may be made for a lump sum and not at a rate per
unit. The parties agree on a stated purchase price for an immovable the area of which may be
declared based on an estimate or where both the area and boundaries are stated.

In the case where the area of the immovable is stated in the contract based on an estimate, the
actual area delivered may not measure up exactly with the area stated in the contract.
According to Article 1542 of the Civil Code, in the sale of real estate, made for a lump sum and
not at the rate of a certain sum for a unit of measure or number, there shall be no increase or
decrease of the price although there be a greater or lesser area or number than that stated in
the contract. However, the discrepancy must not be substantial. A vendee of land, when sold in
gross or with the description "more or less" with reference to its area, does not thereby ipso
facto take all risk of quantity in the land. The use of "more or less" or similar words in
designating quantity covers only a reasonable excess or deficiency.

Where both the area and the boundaries of the immovable are declared, the area covered
within the boundaries of the immovable prevails over the stated area. In cases of conflict
between areas and boundaries, it is the latter which should prevail. What really defines a piece
of ground is not the area, calculated with more or less certainty, mentioned in its description, but
the boundaries therein laid down, as enclosing the land and indicating its limits. In a contract of
sale of land in a mass, it is well established that the specific boundaries stated in the contract
must control over any statement with respect to the area contained within its boundaries. It is
not of vital consequence that a deed or contract of sale of land should disclose the area with
mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision
to enable one to identify it. An error as to the superficial area is immaterial. Thus, the obligation
of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof
that distinguishes the determinate object.
In the case at bar, it is undisputed by the parties that the purchase price of the subject
properties was computed based on the price list prepared by petitioner, or ₱22,378.95 per
square meter. Clearly, the parties agreed on a sale at a rate of a certain price per unit of
measure and not one for a lump sum. Hence, it is Article 1539 and not Article 1542 which is the
applicable law. Accordingly, respondent is entitled to the relief afforded to him under Article
1539, that is, either a proportional reduction of the price or the rescission of the contract, at his
option. Respondent chose the former remedy since he prayed in his Complaint for the refund of
the amount of ₱2,014,105.50 representing the proportional reduction of the price paid to
petitioner.

Arcaina and Banta vs. Ingram

RULING: We now resolve the main issue in this case and hold that Lot No. 3230 was sold for
a lump sum. In sales involving real estate, the parties may choose between two types of pricing
agreement: a unit price contract wherein the purchase price is determined by way of reference
to a stated rate per unit area (e.g, ₱1,000.00 per sq. m.) or a lump sum contract which states
a full purchase price for an immovable the area of which may be declared based on an estimate
or where both the area and boundaries are stated (e.g., ₱1 million for 1,000 sq. m., etc.).41 Here,
the Deed of Sale executed by Banta on March 21, 2005 42 and the Deed of Sale executed by
Arcaina on April 13, 200543 both show that the property was conveyed to Ingram at the
predetermined price of ₱1,860,000.00. There was no indication that it was bought on a per-
square-meter basis. Thus, Article 1542 of the Civil Code governs the sale, viz.:

Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for
a unit of measure or number, there shall be no increase or decrease of the price, although there
be a greater or less area or number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a single price; but if,
besides mentioning the boundaries, which is indispensable in every conveyance of real estate,
its area or number should be designated in the contract, the vendor shall be bound to deliver all
that is included within said boundaries, even when it exceeds the area or number specified in
the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number, unless the contract is rescinded because the
vendee does not accede to the failure to deliver what has been stipulated.

The provision teaches that where both the area and the boundaries of the immovable are
declared in a sale of real estate for a lump sum, the area covered within the boundaries of the
immovable prevails over the stated area.44 The vendor is obliged to deliver all that is included
within the boundaries regardless of whether the actual area is more than what was specified in
the contract of sale; and he/she shall do so without a corresponding increase in the contract
price. This is particularly true when the stated area is qualified to be approximate only, such as
when the words "more or less" were used.45

The deeds of sale in this case provide both the boundaries and the estimated area of the
property. The land is bounded on the North East by Lot No. 3184, on the South East by
seashore, on the South West by Lot No. 3914 and on the North West by a road. 46 It has an area
of more or less 6,200 sq. m. The uniform allegations of petitioners and Ingram, however, reveal
that the actual area within the boundaries of the property amounts to more or less 12,000 sq.
m., with a difference of 5,800 sq. m. from what was stated in the deeds of sale. With Article
1542 in mind, the RTC and the CA ordered petitioners to deliver the excess area to Ingram.
They are mistaken.

In Del Prado v. Spouses Caballero,47 we were confronted with facts analogous to the present
petition. Pending the issuance of the Original Certificate of Title (OCT) in their name, Spouses
Caballero sold a parcel of land to Del Prado. The contract of sale stated both the property's
boundaries and estimated area of more or less 4,000 sq. m. Later, when the OCT was issued,
the technical description of the property appeared to be 14,457 sq. m., more or less. Del Prado
alleged that Spouses Caballero were bound to deliver all that was included in the boundaries of
the land since the sale was made for a lump sum. Although, we agreed with Del Prado that the
sale partakes of the nature of a lump sum contract, we did not apply Article 1542. In holding that
Del Prado is entitled only to the area stated in the contract of sale, we explained:

The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast
and admits of an exception. It held:

"A caveat is in order, however. The use of "more or less" or similar words in designating
quantity covers only a reasonable excess or deficiency. A vendee of land sold in gross or
with the description "more or less" with reference to its area does not thereby ipso facto take all
risk of quantity in the land.

xxx

In the instant case, the deed of sale is not one of a unit price contract. The parties agreed on the
purchase price of ₱40,000.00 for a predetermined area of 4,000 sq m, more or less, bounded
on the North by Lot No. 11903, on the East by Lot No. 11908, on the South by Lot Nos. 11858 &
11912, and on the West by Lot No. 11910. In a contract of sale of land in a mass, the specific
boundaries stated in the contract must control over any other statement, with respect to the area
contained within its boundaries.

Black's Law Dictionary defines the phrase "more or less" to mean:

"About; substantially; or approximately; implying that both parties assume the risk of any
ordinary discrepancy. The words are intended to cover slight or unimportant
inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are ordinarily
to be interpreted as taking care of unsubstantial differences or differences of small
importance compared to the whole number of items transferred."

Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in

quantity. The difference in the area is obviously sizeable and too substantial to be
overlooked. It is not a reasonable excess or deficiency that should be deemed included
in the deed of sale.48 (Emphasis supplied; citations omitted.)

In a lump sum contract, a vendor is generally obligated to deliver all the land covered within the
boundaries, regardless of whether the real area should be greater or smaller than that recited in
the deed.49 However, in case there is conflict between the area actually covered by the
boundaries and the estimated area stated in the contract of sale, he/she shall do so only when
the excess or deficiency between the former and the latter is reasonable.50

Applying Del Prado to the case before us, we find that the difference of 5,800 sq. m. is too
substantial to be considered reasonable. We note that only 6,200 sq. m. was agreed upon
between petitioners and Ingram. Declaring Ingram as the owner of the whole 12,000 sq. m. on
the premise that this is the actual area included in the boundaries would be ordering the delivery
of almost twice the area stated in the deeds of sale. Surely, Article 1542 does not contemplate
such an unfair situation to befall a vendor-that he/she would be compelled to deliver double the
amount that he/she originally sold without a corresponding increase in price. In Asiain v.
Jalandoni,51 we explained that "[a] vendee of a land when it is sold in gross or with the
description 'more or less' does not thereby ipso facto take all risk of quantity in the land. The use
of 'more or less' or similar words in designating quantity covers only a reasonable excess or
deficiency."52 Therefore, we rule that Ingram is entitled only to 6,200 sq. m. of the property.
An area of 5,800 sq. m. more than the area intended to be sold is not a reasonable excess that
can be deemed included in the sale.53

Further, at the time of the sale, Ingram and petitioners did not have knowledge of the actual
area of the land within the boundaries of the property. It is undisputed that before the survey,
the parties relied on the tax declaration covering the lot, which merely stated that it measures
more or less 6,200 sq. m. Thus, when petitioners offered the property for sale and when Ingram
accepted the offer, the object of their consent or meeting of the minds is only a 6,200 sq. m.
property. The deeds of sale merely put into writing what was agreed upon by the parties. In this
regard, we quote with approval the ruling of the MCTC:

In this case, the Deed of Absolute Sale (Exhibit "M") dated April 13, 2005 is clear and
unequivocal as to the area sold being up to only 6,200 square meters.1âwphi1 The agreement
of the parties were clear and unambiguous, hence, the inconsistent and impossible testimonies
of N[e]nette [Archinue] and the Spouses Ingram. No amount of extrinsic aids are required and
no further extraneous sources are necessary in order to ascertain the parties' intent,
determinable as it is, from the document itself. The court is thus convinced that the deed
expresses truly the parties' intent as against the oral testimonies of Nenette, and the Spouses
Ingram

Orozco vs. Lozano

RULING: The contract of sale between Spouses Orozco and Lozano completely transferred the
title of ownership of half of Lot No. 3780. Considering that the object of the deed of sale was half
of Lot No. 3780, there is no encroachment on the part of Lozano because the sale of Lot No.
3780 was a sale of land made for a lump sum under Article 1542 of the Civil Code. Hence,
Lozano owns half of 651 square meters of Lot No. 3780 which is 325.5 square meters assigned
as Lot No. 3780-A. Second, there was a subsequent perfected contract of sale for an additional
portion of 62 square meters of Lot No. 3780-B from Spouses Orozco to Lozano. As evidenced
by the acknowledgment receipt dated 24 April 1981, Spouses Orozco agreed to sell to Lozano
an additional 62 square meters of Lot No. 3780-B. Spouses Orozco's defense of forgery was
not proven with clear and convincing evidence. Following the two valid contracts of sale, Lozano
has title to 387 square meters of Lot No. 3780-A.

The sale of Lot No. 3780 between

Spouses Orozco and Lozano is a
sale of land in a lump sum under
Article 1542 of the Civil Code.

Article 1542 of the Civil Code provides for the sale of land made for a lump sum:
Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for
a unit of measure or number, there shall be no increase or decrease of the price, although there
be a greater or lesser areas or number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a single price; but
if, besides mentioning the boundaries, which is indispensable in every conveyance of
real estate, its area or number should be designated in the contract, the vendor shall be
bound to deliver all that is included within said boundaries, even when it exceeds the
area or number specified in the contract; and, should he not be able to do so, he shall suffer
a reduction in the price, in proportion to what is lacking in the area or number, unless the
contract is rescinded because the vendee does not accede to the failure to deliver what has
been stipulated. (Emphasis supplied)

Article 1542 provides that when a contract of sale concerns the delivery of a determinate object,
particularly real estate, in consideration for a lump sum payment, the vendor has the obligation
to deliver everything within the boundaries even when it exceeds the area or number specified
within the said boundaries. Upon delivery, if the area of the real estate set forth in the contract
does not coincide with the actual area delivered within the boundaries, Article 1542 provides
that there shall be no increase or decrease in the price even if the area be more or less than
that indicated in the contract of sale. Under Article 1542, the determinate object of the contract
of sale and the property to be delivered is the particular portion of the real estate enclosed
within the boundaries mentioned in the contract of sale.

In the said Deed of Sale, Spouses Orozco agreed to sell to Lozano "one-half portion of Lot No.
3780." Lozano, in turn, agreed to pay Spouses Orozco a lump sum of ₱5,000.00 for one-half
portion of Lot No. 3780 which was described in the Deed of Sale with specific boundaries. The
CA is correct in ruling that Article 1542 of the Civil Code applies in the present case. It is clear
that Spouses Orozco were divesting of and ceding to Lozano one-half of Lot No. 3780 for a
lump sum payment of ₱5,000.00. Hence, by virtue of the Deed of Sale, the title of ownership
over half of 651 square meters of Lot No. 3780 or 325.5 square meters was validly transferred
to Lozano. Spouses Orozco cannot invoke the lack of knowledge of the true area of Lot No.
3780 because Spouses Orozco purchased Lot No. 3780 from Spouses Fuentes using the
stated boundaries of Lot No. 3780 as reference without securing the assistance of a geodetic
engineer to measure the exact land area.

In a contract of sale of real estate contained in a land mass under Article 1542, the specific
boundaries stated in the contract must control over any statement with respect to the area
contained in the said boundaries. Where both the area and the boundaries of the immovable are
declared, the area covered within the boundaries prevails over the stated area in the deed of
sale. In case of conflict between the area and boundaries, it is the latter which should prevail.
In Esguerra, this Court held that under Article 1542, what is controlling is the entire land
included within the boundaries, regardless of whether the real area should be greater or smaller
than that recited in the deed of sale.20 Notably, the Deed of Sale validly transferred the title of
ownership over half of Lot No. 3780 or 325.5 square meters from Spouses Orozco to Lozano.

RULES AS TO PREFERENCE OF OWNERSHIP IN CASE OF A DOUBLE SALE

Article 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property. Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of Property. Should there be
no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith. (1473)

Spring Homes Subd. vs. Spouses Tablada

RULING: We find the CA's reasoning to be sound. At any rate, the execution of the January 16,
1996 Deed of Absolute Sale in favor of the respondents effectively rendered the previous
Contract to Sell ineffective and canceled. Furthermore, we find no merit in petitioners'
contention that the first sale to the respondents was void for want of consideration. As the CA
pointed out in its assailed decision:

Other than the [petitioners'] self-serving assertion that the Deeds of Absolute Sale was
executed solely for the purpose of obtaining a Pag-Ibig loan, no other concrete evidence
was tendered to justify the execution of the deed of absolute sale. They failed to overcome
the clear and convincing evidence of the [respondents] that as early as July 5, 1995 the latter
had already paid the total amount of :P.179,500.00, much bigger than the actual purchase price
for the subject land. 51

There is, therefore, no factual or legal basis for the Spouses Lumbres to claim that since the
Spouses Tablada still had an outstanding balance of ₱230,000.00 from the total purchase price,
the sale between Spring Homes and the Spouses Tablada was void, and consequently, they
were authorized to unilaterally cancel such sale, and thereafter execute another one transferring
the subject property in their names. As correctly held by the Court in Spouses Lumbres v.
Spouses Tablada,52 the first Deed of Sale executed in favor of the Spouses Tablada is valid and
with sufficient consideration. Thus, in view of this validity of the sale subject of the first Deed of
Absolute Sale between Spring Homes and the Spouses Tablada, the Court shall now determine
who, as between the two spouses herein, properly acquired ownership over the subject
property. In this regard, Article 1544 of the Civil Code reads:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession, and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith. (Emphasis supplied)

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of a double sale of immovable property.53 Thus, the Court has consistently
ruled that ownership of an immovable property which is the subject of a double sale shall be
transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person who in good faith was first in possession; and (3)
in default thereof, to the person who presents the oldest title, provided there is good faith. 54 The
requirement of the law then is two-fold: acquisition in good faith and registration in good
faith. Good faith must concur with the registration - that is, the registrant must have no
knowledge of the defect or lack of title of his vendor or must not have been aware of facts which
should have put him upon such inquiry and investigation as might be necessary to acquaint him
with the defects in the title of his vendor. If it is shown that a buyer was in bad faith, the alleged
registration they have made amounted to no registration at all. 55

Here, the first buyers of the subject property, the Spouses Tablada, were able to take said
property into possession but failed to register the same because of Spring Homes' unjustified
failure to deliver the owner's copy of the title whereas the second buyers, the Spouses Lumbres,
were able to register the property in their names. But while said the Spouses Lumbres
successfully caused the transfer of the title in their names, the same was done in bad faith. As
correctly observed by the Court in Spouses Lumbres v. Spouses Tablada, 56 the Spouses
Lumbres cannot claim good faith since at the time of the execution of their Compromise
Agreement with Spring Homes, they were indisputably and reasonably informed that the subject
lot was previously sold to the Spouses Tablada. They were also already aware that the Spouses
Tablada had constmcted a house thereon and were in physical possession thereof. They
cannot, therefore, be permitted to freely claim good faith on their part for the simple reason that
the First Deed of Absolute Sale between Spring Homes and the Spouses Tablada was not
annotated at the back of the subject property's title. It is beyond the Court's imagination how
spouses Lumbres can feign ignorance to the first sale when the records clearly reveal that they
even made numerous demands on the Spouses Tablada to pay, albeit erroneously, an alleged
balance of the purchase price.

Indeed, knowledge gained by the first buyer of the second sale cannot defeat the first buyer's
rights except only as provided by law, as in cases where the second buyer first registers in good
faith the second sale ahead of the first. 57 Such knowledge of the first buyer does bar her from
availing of her rights under the law, among them, first her purchase as against the second
buyer. But conversely, knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register the second sale, since such knowledge taints his prior registration
with bad faith. 58

Accordingly, in order for the Spouses Lumbres to obtain priority over the Spouses Tablada, the
law requires a continuing good faith and innocence or lack of knowledge of the first sale that
would enable their contract to ripen into full ownership through prior registration. 59 But from the
very beginning, the Spouses Lumbres had already known of the fact that the subject property
had previously been sold to the Spouses Tablada, by virtue of a valid Deed of Absolute Sale. In
fact, the Spouses Tablada were already in possession of said property and had even
constructed a house thereon. Clearly then, the Spouses Lumbres were in bad faith the moment
they entered into the second Deed of Absolute Sale and thereafter registered the subject
property in their names. For this reason, the Court cannot, therefore, consider them as the true
and valid owners of the disputed property and permit them to retain title thereto.

Domingo vs. Manzano

RULING: The Court denies the Petition.

On petitioners' contention that respondent Aquino may not raise the issue pertaining to Article
1544 for the first time on appeal, this Court holds that – as correctly noted by Aquino - since the
relevance of Article 1544 was tackled only in the RTC's Decision, then it is understandable why
she should refute its applicability only on appeal.
Petitioners' main contention is that while their agreement with the Manzanos was admittedly a
mere contract to sell where title is retained by the latter until full payment of the price, they
nonetheless have a superior right over the subject property, as against Aquino, by virtue of the
applicability of Article 1544 and the fact that Aquino was a buyer in bad faith.

This Court, however, agrees with the CA' s pronouncement that Article 1544 cannot apply to the
present case. The appellate court' s disquisition is succinct; nothing more can be added to what
it has said. Just the same, the treatment and disposition of cases of this nature is quite settled.

This ponente has had the occasion to rule that in a contract to sell, payment of the price is a
positive suspensive condition, failure of which is not a breach of contract warranting rescission
but rather just an event that prevents the prospective buyer from compelling the prospective
seller to convey title. In other words, the non-fulfillment of the condition of full payment renders
the contract to sell ineffective and without force and effect.30

x x x A contract to sell is one where the prospective seller reserves the transfer of title to the
prospective buyer until the happening of an event, such as full payment of the purchase price.
What the seller obliges himself to do is to sell the subject property only when the entire amount
of the purchase price has already been delivered to him. 'In other words, the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer'. x x x31

And it is precisely for the above reason that Article 1544 of the Civil Code cannot apply. Since
failure to pay the price in full in a contract to sell renders the same ineffective and without force
and effect, then there is no sale to speak of. Even petitioners' posture that their annotation of an
adverse claim on TCT No. 160752 is equivalent to registration or claim of ownership necessarily
fails, on account of the fact that there was never a sale in their favor - and without a sale in their
favor, they could not register or claim ownership of the subject property. Thus, as between the
parties to the instant case, there could be no double sale which would justify the application of
Article 1544. Petitioners failed to pay the purchase price in full, while Aquino did, and thereafter
she was able to register her purchase and obtain a new certificate of title in her name. As far as
this Court is concerned, there is only one sale - and that is, the one in Aquino's favor. "Since
there is only one valid sale, the rule on double sales under Article 1544 of the Civil Code does
not apply."32

With regard to the cases cited by petitioners, Abarquez v. Court of Appeals and Filinvest
Development Corporation v. Golden Haven Memorial Park, Inc., suffice it to state that they do
not apply, In Abarquez, while the agreement entered into was a contract to sell, the land subject
of the sale was nonetheless delivered to the buyer, who took possession thereof and even
constructed a house thereon. In the present case, the subject property was never surrendered
to petitioners and they were never in possession thereof. There is a difference in the factual
milieu. On the other hand, the Filinvest case is not one involving Article 1544; and while the
Court therein held that a notice of adverse claim is a "warning to third parties dealing with the
property that someone claims an interest in it or asserts a better right than the registered
owner,"33 this is not true as regards petitioners, As already stated, petitioners' failure to pay the
price in full rendered their contract to sell ineffective and without force and effect, thus nullifying
any claim or better right they may have had
Sabitsana vs. Muertegui
RULING: The Petition must be denied.

It must be remembered that the suit for quieting of title was prompted by petitioners’ August 24,
1998 letter-opposition to respondent’s application for registration. Thus, in order to prevent 30 a
cloud from being cast upon his application for a title, respondent filed Civil Case No. B-1097 to
obtain a declaration of his rights. In this sense, the action is one for declaratory relief, which
properly falls within the jurisdiction of the RTC pursuant to Rule 63 of the Rules.

Article 1544 of the Civil Code does not apply to sales involving unregistered land.

Both the trial court and the CA are, however, wrong in applying Article 1544 of the Civil Code.
Both courts seem to have forgotten that the provision does not apply to sales involving
unregistered land. Suffice it to state that the issue of the buyer’s good or bad faith is relevant
only where the subject of the sale is registered land, and the purchaser is buying the same from
the registered owner whose title to the land is clean. In such case, the purchaser who relies on
the clean title of the registered owner is protected if he is a purchaser in good faith for value. 31

Act No. 3344 applies to sale of unregistered lands.

What applies in this case is Act No. 3344, 32 as amended, which provides for the system of
recording of transactions over unregistered real estate. Act No. 3344 expressly declares that
any registration made shall be without prejudice to a third party with a better right. The question
to be resolved therefore is: who between petitioners and respondent has a better right to the
disputed lot?

Respondent has a better right to the lot.

The sale to respondent Juanito was executed on September 2, 1981 via an unnotarized deed of
sale, while the sale to petitioners was made via a notarized document only on October 17, 1991,
or ten years thereafter. Thus, Juanito who was the first buyer has a better right to the lot, while
the subsequent sale to petitioners is null and void, because when it was made, the seller Garcia
was no longer the owner of the lot. Nemo dat quod non habet.

The fact that the sale to Juanito was not notarized does not alter anything, since the sale
between him and Garcia remains valid nonetheless. Notarization, or the requirement of a public
document under the Civil Code,33 is only for convenience, and not for validity or
enforceability.34 And because it remained valid as between Juanito and Garcia, the latter no
longer had the right to sell the lot to petitioners, for his ownership thereof had ceased.

Nor can petitioners’ registration of their purchase have any effect on Juanito’s rights. The mere
registration of a sale in one’s favor does not give him any right over the land if the vendor was
no longer the owner of the land, having previously sold the same to another even if the earlier
sale was unrecorded.35 Neither could it validate the purchase thereof by petitioners, which is null
and void. Registration does not vest title; it is merely the evidence of such title. Our land
registration laws do not give the holder any better title than what he actually has. 36

Specifically, we held in Radiowealth Finance Co. v. Palileo37 that:

Under Act No. 3344, registration of instruments affecting unregistered lands is ‘without prejudice
to a third party with a better right.’ The aforequoted phrase has been held by this Court to mean
that the mere registration of a sale in one’s favor does not give him any right over the land if the
vendor was not anymore the owner of the land having previously sold the same to somebody
else even if the earlier sale was unrecorded.

Petitioners’ defense of prescription, laches and estoppel are unavailing since their claim is
based on a null and void deed of sale. The fact that the Muerteguis failed to interpose any
objection to the sale in petitioners’ favor does not change anything, nor could it give rise to a
right in their favor; their purchase remains void and ineffective as far as the Muerteguis are
concerned.

Rosaroso vs. Soria

RULING: Meridian is Not a Buyer in Good Faith

Respondents Meridian and Lucila argue that, granting that the First Sale was valid, the
properties belong to them as they acquired these in good faith and had them first recorded in
the Registry of Property, as they were unaware of the First Sale.34

Again, the Court is not persuaded.

The fact that Meridian had them first registered will not help its cause. In case of double sale,
Article 1544 of the Civil Code provides:

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in possession; and, in the absence thereof; to the person who presents the oldest title,
provided there is good faith.

Otherwise stated, ownership of an immovable property which is the subject of a double sale
shall be transferred: (1) to the person acquiring it who in good faith first recorded it in the
Registry of Property; (2) in default thereof, to the person who in good faith was first in
possession; and (3) in default thereof, to the person who presents the oldest title, provided there
is good faith. The requirement of the law then is two-fold: acquisition in good faith and
registration in good faith. Good faith must concur with the registration. If it would be shown that
a buyer was in bad faith, the alleged registration they have made amounted to no registration at
all.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of a double sale of immovable property. When the thing sold twice is an
immovable, the one who acquires it and first records it in the Registry of Property, both made in
good faith, shall be deemed the owner. Verily, the act of registration must be coupled with good
faith— that is, the registrant must have no knowledge of the defect or lack of title of his vendor
or must not have been aware of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his
vendor.)35 [Emphases and underlining supplied]

When a piece of land is in the actual possession of persons other than the seller, the buyer
must be wary and should investigate the rights of those in possession. Without making such
inquiry, one cannot claim that he is a buyer in good faith. When a man proposes to buy or deal
with realty, his duty is to read the public manuscript, that is, to look and see who is there upon it
and what his rights are. A want of caution and diligence, which an honest man of ordinary
prudence is accustomed to exercise in making purchases, is in contemplation of law, a want of
good faith. The buyer who has failed to know or discover that the land sold to him is in adverse
possession of another is a buyer in bad faith. 36 In the case of Spouses Sarmiento v. Court of
Appeals,37 it was written:

Verily, every person dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him to go behind the certificate
to determine the condition of the property. Thus, the general rule is that a purchaser may be
considered a purchaser in good faith when he has examined the latest certificate of title. An
exception to this rule is when there exist important facts that would create suspicion in an
otherwise reasonable man to go beyond the present title and to investigate those that preceded
it. Thus, it has been said that a person who deliberately ignores a significant fact which would
create suspicion in an otherwise reasonable man is not an innocent purchaser for value. A
purchaser cannot close his eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that there was no defect in the title of
the vendor. As we have held:

The failure of appellees to take the ordinary precautions which a prudent man would have taken
under the circumstances, specially in buying a piece of land in the actual, visible and public
possession of another person, other than the vendor, constitutes gross negligence amounting to
bad faith.

In this connection, it has been held that where, as in this case, the land sold is in the possession
of a person other than the vendor, the purchaser is required to go beyond the certificate of title
to make inquiries concerning the rights of the actual possessor. Failure to do so would make
him a purchaser in bad faith. (Citations omitted).

One who purchases real property which is in the actual possession of another should, at least
make some inquiry concerning the right of those in possession. The actual possession by other
than the vendor should, at least put the purchaser upon inquiry. He can scarely, in the absence
of such inquiry, be regarded as a bona fide purchaser as against such possessors. (Emphases
supplied)

Prescinding from the foregoing, the fact that private respondent RRC did not investigate the
Sarmiento spouses' claim over the subject land despite its knowledge that Pedro Ogsiner, as
their overseer, was in actual possession thereof means that it was not an innocent purchaser for
value upon said land. Article 524 of the Civil Code directs that possession may be exercised in
one's name or in that of another. In herein case, Pedro Ogsiner had informed RRC that he was
occupying the subject land on behalf of the Sarmiento spouses. Being a corporation engaged in
the business of buying and selling real estate, it was gross negligence on its part to merely rely
on Mr. Puzon's assurance that the occupants of the property were mere squatters considering
the invaluable information it acquired from Pedro Ogsiner and considering further that it had the
means and the opportunity to investigate for itself the accuracy of such information. [Emphases
supplied]

In another case, it was held that if a vendee in a double sale registers the sale after he has
acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and
does not confer upon him any right. If the registration is done in bad faith, it is as if there is no
registration at all, and the buyer who has first taken possession of the property in good faith
shall be preferred.38

In the case at bench, the fact that the subject properties were already in the possession of
persons other than Luis was never disputed. Sanchez, representative and witness for Meridian,
even testified as follows:

x x x; that she together with the two agents, defendant Laila Solutan and Corazon Lua, the
president of Meridian Realty Corporation, went immediately to site of the lots; that the agents
brought with them the three titles of the lots and Laila Solutan brought with her a special power
of attorney executed by Luis B. Rosaroso in her favor but she went instead directly to Luis
Rosaroso to be sure; that the lots were pointed to them and she saw that there were houses on
it but she did not have any interest of the houses because her interest was on the lots; that Luis
Rosaroso said that the houses belonged to him; that he owns the property and that he will sell
the same because he is very sickly and he wanted to buy medicines; that she requested
someone to check the records of the lots in the Register of Deeds; that one of the titles was
mortgaged and she told them to redeem the mortgage because the corporation will buy the
property; that the registered owner of the lots was Luis Rosaroso; that in more or less three
months, the encumbrance was cancelled and she told the prospective sellers to prepare the
deed of sale; that there were no encumbrances or liens in the title; that when the deed of
absolute sale was prepared it was signed by the vendor Luis Rosaroso in their house in Opra x
x x.39 (Underscoring supplied)

From the above testimony, it is clear that Meridian, through its agent, knew that the subject
properties were in possession of persons other than the seller. Instead of investigating the rights
and interests of the persons occupying the said lots, however, it chose to just believe that Luis
still owned them. Simply, Meridian Realty failed to exercise the due diligence required by law of
purchasers in acquiring a piece of land in the possession of person or persons other than the
seller.

In this regard, great weight is accorded to the findings of fact of the RTC. Basic is the rule that
the trial court is in a better position to examine real evidence as well as to observe the
demeanor of witnesses who testify in the case

Roman Catholic Church vs. Pante

RULING: The rule on double sales

The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that called
for the application of the rules in Article 1544 of the Civil Code:

Article 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith. [Emphasis ours.]

As neither Pante nor the spouses Rubi registered the sale in their favor, the question now is
who, between the two, was first in possession of the property in good faith.1âwphi1

Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual
physical delivery and constructive delivery.23 Under either mode of delivery, the facts show that
Pante was the first to acquire possession of the lot.

Actual delivery of a thing sold occurs when it is placed under the control and possession of the
vendee.24 Pante claimed that he had been using the lot as a passageway, with the Church’s
permission, since 1963. After purchasing the lot in 1992, he continued using it as a passageway
until he was prevented by the spouses Rubi’s concrete fence over the lot in 1994. Pante’s use
of the lot as a passageway after the 1992 sale in his favor was a clear assertion of his right of
ownership that preceded the spouses Rubi’s claim of ownership.

Pante also stated that he had placed electric connections and water pipes on the lot, even
before he purchased it in 1992, and the existence of these connections and pipes was known to
the spouses Rubi.25 Thus, any assertion of possession over the lot by the spouses Rubi (e.g.,
the construction of a concrete fence) would be considered as made in bad faith because works
had already existed on the lot indicating possession by another. "[A] buyer of real property in the
possession of persons other than the seller must be wary and should investigate the rights of
those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good
faith and cannot have any right over the property."26

Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states
that:

Article 1498. When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.

Under this provision, the sale in favor of Pante would have to be upheld since the contract
executed between the Church and Pante was duly notarized, converting the deed into a public
instrument.27 In Navera v. Court of Appeals,28 the Court ruled that:

[A]fter the sale of a realty by means of a public instrument, the vendor, who resells it to another,
does not transmit anything to the second vendee, and if the latter, by virtue of this second sale,
takes material possession of the thing, he does it as mere detainer, and it would be unjust to
protect this detention against the rights of the thing lawfully acquired by the first vendee.

Thus, under either mode of delivery, Pante acquired prior possession of the lot.
Beatingo vs. Gasis
RULING: We find petitioner’s arguments bereft of merit.

Nevertheless, in our desire to put an end to the present controversy, we have carefully perused
the records of this case and reached the conclusion that the decision dated December 29, 2005
of the RTC is in perfect harmony with law and jurisprudence.25

The present controversy is a clear case of double sale, where the seller sold one property to
different buyers, first to petitioner and later to respondent. In determining who has a better right,
the guidelines set forth in Article 1544 of the Civil Code apply. Article 1544 states:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.

Admittedly, the two sales were not registered with the Registry of Property. Since there was no
inscription, the next question is who, between petitioner and respondent, first took possession of
the subject property in good faith. As aptly held by the trial court, it was respondent who took
possession of the subject property and, therefore, has a better right.

Petitioner insists that, upon the execution of the public instrument (the notarized deed of sale),
she already acquired possession thereof, and thus, considering that the execution thereof took
place ahead of the actual possession by respondent of the subject property, she has a better
right.

We do not agree.

Indeed, the execution of a public instrument shall be equivalent to the delivery of the thing that
is the object of the contract. However, the Court has held that the execution of a public
instrument gives rise only to a prima facie presumption of delivery. It is deemed negated by the
failure of the vendee to take actual possession of the land sold.26

In this case, though the sale was evidenced by a notarized deed of sale, petitioner admitted that
she refused to make full payment on the subject property and take actual possession thereof
because of the presence of tenants on the subject property. Clearly, petitioner had not taken
possession of the subject property or exercised acts of dominion over it despite her assertion
that she was the lawful owner thereof.27

Respondent, on the other hand, showed that she purchased the subject property without
knowledge that it had been earlier sold by Flora to petitioner. She had reason to believe that
there was no defect in her title since the owner’s duplicate copy of the OCT was delivered to her
by the seller upon full payment of the purchase price. She then took possession of the subject
property and exercised acts of ownership by collecting rentals from the tenants who were
occupying it.

Hence, the RTC is correct in declaring that respondent has a better right to the subject property

Augustin vs. De Vera

RULING: The instant Petition is meritorious. The CA erred in finding that the Contract to
Purchase and Sale is a mere contract to sell; it is a contract of sale.

Even if the rule on double sales is applied to the instant case, the result remains the same.
Hipolito and Imelda would still have a better right of ownership over the subject property.

According to Article 1544 of the Civil Code, if the same thing should have been sold to different
vendees, in the case of immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.42
Applying the foregoing in the instant case, it is indisputable that Romana was a buyer in bad
faith. Hence, Hipolito and Imelda have the better right of ownership over the subject property.

In the instant case, it is not disputed that on August 22, 2007, Hipolito and Imelda caused the
annotation on TCT No. 36897 of an adverse claim indicating the fact that they had entered into
a sale contract with Gregorio. This annotation was made prior to the execution of the Deed of
Absolute Sale between Gregorio and Romana on September 3, 2007. Confirmed by Romana's
own witness, Rafael M. de Vera, Romana transacted with Gregorio over the subject
property even with the prior annotation of Hipolito's adverse claim on the TCT and with full
knowledge that there was a prior sale transaction between Gregorio and Hipolito.43 In fact,
Romana herself testified that prior to purchasing the subject property from Gregorio, she knew
that Hipolito and Imelda were already in possession of the subject property and that the latter
have built their houses therein.44

Hence, with Romana indubitably being a buyer in bad faith, Hipolito and Imelda have a better
right of ownership over Romana.

Odrada vs. Lazaro

RULING: The petition is partly meritorious.
After a careful perusal of the records, the Court finds that the courts a quo correctly ruled in
favor of Aseniero and adjudging him to be the lawful owner of the motor vehicle.

Thus, the courts a quo correctly ruled that the evidence on record tilted in favor of Aseniero's
claim of ownership. Between Odrada and Aseniero, it was the latter who was able to prove a
clear and consistent transmission of ownership from Transmix as the original owner of the motor
vehicle. Odrada failed to establish that Basa had validly acquired the motor vehicle from
Transmix. On the other hand, Aseniero had sufficiently shown that Transmix had only sold the
motor vehicle to him. Consequently, even if Odrada may have acquired possession over the
property, Aseniero may still recover the same as he was unlawfully deprived of its
possession.25

Ownership belongs to the first possessor in good faith

Even assuming that respondents failed to overcome the presumption of regularity accorded to
the Deed of Sale between Basa and Transmix, ownership over the Range Rover would still rest
with Aseniero. Such scenario would amount to a double sale and the rules on double sale would
apply.

The rule on double sale is provided in Article 1544 of the Civil Code. It reads:

ARTICLE 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith. (Emphasis and underscoring supplied)

It is readily apparent that the rules concerning double sale of movable properties differ from that
of immovable properties. In double sale of immovable sale, the law provides for a three-pronged
approach in determining ownership, to wit: (1) to the person acquiring it who in good faith first
recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was
first in possession; and (3) in default thereof, to the person who presents the oldest title,
provided there is good faith.26 On the other hand, in case of double sale of a movable property,
ownership is simply transferred to the first who may have taken possession thereof in good
faith. Since the present case involves a sale of a motor vehicle, its ownership should then
belong to the first possessor in good faith.

The Deed of Sale between Basa and Transmix was executed on September 4, 2003. On the
other hand, the Deed of Sale between Transmix and Aseniero was executed on November 5,
2003. While the Deed of Sale between Basa and Transmix bore an earlier date, there is no
evidence to sufficiently establish when Basa had actually possessed the Range Rover. It must
be remembered that Basa never appeared in court to testify on the circumstances of the
purchase of the motor vehicle and when he acquired possession thereto. The execution of the
deed of sale alone did not transfer the ownership of the motor vehicle from Transmix to Basa
because ownership over movable property is transferred by delivery and not merely by
contract.27

In contrast, without any direct testimonial or documentary evidence to establish when Basa
actually acquired possession of the property, the closest piece of evidence which could
somehow indicate that Basa already possessed the motor vehicle would be the Deed of Sale
between Basa and Odrada. Even if it were to be presumed that Basa had possession of the
Range Rover at the time it was sold to Odrada, it would still be after Aseniero had actual
possession of the Range Rover. Further, there is no evidence to show that Aseniero was aware
of the September 4, 2003 Deed of Sale between Basa and Transmix. As such, it is clear that it
was Aseniero who first possessed the Range Rover in good faith.

Consequently, ownership over the motor vehicle rightfully belongs to Aseniero as the first
possessor in good faith. Since Basa did not acquire ownership over the Range Rover, he did
not transmit any rights when he sold the same to Odrada. This is in keeping with the principle
that one cannot give what one does not have — nemo dat quod non habet.28

As the lawful owner of the Range Rover, Aseniero cannot be faulted in reporting the said motor
vehicle as stolen after he was unjustly deprived of its possession. It is but a reaction from an
owner who has been divested of possession of his property. Aseniero acted well within his
rights in initiating the posting of a Flash Report with the PNP in order to recover the Range
Rover taken from him.

German vs. Santuyo

RULING: For Article 1544 to apply, the following requisites must concur:

. . . This provision connotes that the following circumstances must concur:

(a) The two (or more) sales transactions in the issue must pertain to exactly the same
subject matter, and must be valid sales transactions.

(b) The two (or more) buyers at odds over the rightful ownership of the subject matter
must each represent conflicting interests; and

(c) The two (or more) buyers at odds over the rightful ownership of the subject matter
must each have bought from the very same seller. 30 (Emphasis in the original)

The rule on double sales applies when the same thing is sold to multiple buyers by one seller,
but not to sales of the same thing by multiple sellers.31

Contrary to the finding of the Court of Appeals, there was a double sale. The Bautista Spouses
sold the same property: first, to the Mariano Spouses in 1986; and second, to the respondents
Santuyo Spouses in 1991. Neither of the parties contest the existence of these two (2)
transactions. The lower courts made no findings that put into doubt the respective validities of
the sales. Clearly, there are conflicting interests in the ownership, because if title over the
property had already been transferred to the Mariano Spouses, then no right could be passed
on to respondents Santuyo Spouses in the second sale.
Pursuant to Article 1544, ownership of immovable property subject of a double sale is
transferred to the buyer who first registers it in the Registry of Property in good faith.
Undisputedly, the respondents Santuyo Spouses were the ones who were able to register the
property in their names with the Registry of Deeds for Naga City under Transfer Certificate of
Title No. 22931.

Nonetheless, the Regional Trial Court was correct in finding that respondents Santuyo Spouses
were not in good faith when they registered the property.

Generally, persons dealing with registered land may safely rely on the correctness of the
certificate of title, without having to go beyond it to determine the property's condition.32

However, when circumstances are present that should prompt a potential buyer to be on guard,
it is expected that they inquire first into the status of the land. One such circumstance is when
there are occupants or tenants on the property, or when the seller is not in possession of it. In
Spouses Vallido v. Spouses Pono: 33

Moreover, although it is a recognized principle that a person dealing on a registered land need
not go beyond its certificate of title, it is also a firmly settled rule that where there a re
circumstances which would put a party on guard and prompt him to investigate or inspect the
property being sold to him, such as the presence of occupants/tenants thereon, it is expected
from the purchaser of a valued piece of land to inquire first into the status or nature of
possession of the occupants. As in the common practice in the real estate industry, an ocular
inspection of the premises involved is a safeguard that a cautious and prudent purchaser
usually takes. Should he find out that the land he intends to buy is occupied by anybody else
other than the seller who, as in this case, is not in actual possession, it would then be incumbent
upon the purchaser to verify the extent of the occupant's possessory rights. The failure of a
prospective buyer to take such precautionary steps would mean negligence on his part and
would preclude him from claiming or invoking the rights of a "purchaser in good faith. " It has
been held that " the registration of a later sale must be done in good faith to entitle the registrant
to priority in ownership over the vendee in an earlier sale."34 (Citations omitted )

Here, as pointed out by the Regional Trial Court, petitioners had continuously possessed the
land even prior to the 1986 sales:

At the time of the sale between Jose Mariano and spouses German, the latter were already in
possession of t h e land way back in 1985 and after the sale in 1986, with the permission of the
spouses Mariano, plaintiffs German renovated their residential house therein which was
completed in 1987. Since then they have been in actual physical possession of the land and
residing therein. The plaintiffs ' possession thereof was known to the defendants Santuyo even
before the execution of the deed of sale in their favor on December 27, 1991. The claim of
defendants Santuyo cannot prevail upon the plaintiffs Germans who first acquired and
possessed the property from spouses Mariano after the latter has bought the land from the
Bautistas.

This court is not convinced by what defendant Editha has declared that before she bought the
land from the Bautistas , she had not yet seen the land but she knows that it is located inside
Mariano Subdivision; that in 1986, she does not know where it is located. That even in 1990
when she was already employed by the Mariano spouses at the Sto. Niño Memorial park, she
did not visit the land. And that before the land was sold to her in 1991, she did not investigate or
determine what was the physical condition of the land[.]35

Respondent Santuyo Spouses' claim that it is enough that the title is in the name of the seller is
unavailing. To buy real property while having only a general idea of where it is and without
knowing the actual condition and identity of the metes and bounds of the land to be bought, is
negligent and careless. Failure to take such ordinary precautionary steps, which could not have
been difficult to undertake for respondents Santuyo Spouses, as they were situated near where
the property is located, precludes their defense of good faith in the purchase.

Likewise, the involvement and cooperation of respondent Helen Mariano in the 1991 sale casts
doubt on respondents Santuyo Spouses' good faith. According to the Regional Trial Court:

WARRANTY IN CASE OF EVICTION

Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the
sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the
thing purchased.

The vendor shall answer for the eviction even though nothing has been said in the contract on
the subject.

The contracting parties, however, may increase, diminish, or suppress this legal obligation of
the vendor. (1475a)

Pilipinas Makro vs. Coco Charcoal

RULING: In addressing the issues of the present case, the following provisions of the deeds of sale
between Makro and respondents are pertinent:

Section 2. General Investigation and Relocation

Upon the execution of this Deed, the BUYER shall undertake at its own expense a general
investigation and relocation of their lots which shall be conducted by a surveyor mutually acceptable
to both parties. Should there be any discrepancy between the actual areas of the lots as resurveyed
and the areas as indicated in their Transfer Certificates of Title, the Purchase Price shall be adjusted
correspondingly at the rate of PESOS: EIGHT THOUSAND FIVE HUNDRED (Php8,500.000) per
square meter. In the event that the actual area of a lot is found to be in excess of the area specified
in the Titles, the Purchase Price shall be increased on the basis of the rate specified herein.
Conversely, in the event that the actual area of a lot is found to be less than the area specified in the
Titles, the BUYER shall deduct a portion of the Purchase Price corresponding to the deficiency in the
area on the basis of the rate specified herein. In any case of discrepancy, be it more or less than the
actual area of the Property as specified in the Titles, the SELLER agrees to make the necessary
correction of the title covering the lots before the same is transferred to the BUYER. 16

Section 4. Representations and Warranties

The SELLER hereby represents and warrants to the BUYER that:

1. The Property is and shall continue to be free and clear of all easements, liens and encumbrances
of any nature whatsoever, and is, and shall continue to be, not subject to any claim set-off or
defense which will prevent the BUYER from obtaining full and absolute ownership and possession
over the Property or from developing or using it as a site for its store building.
17

Pursuant to Section 2 of the deeds of sale, Makro engaged the services of a surveyor which found
that the DPWH project had encroached upon the properties purchased. After demands for a refund
had failed, it opted to file the necessary judicial action for redress.

The courts a quo agree that the DPWH project encroached upon the properties Makro had
purchased from respondents. Nevertheless, the CA opined that Makro was not entitled to a refund
1âwphi1

because it had actual knowledge of the ongoing road widening project. The appellate court likened
Section 4(i) of the deeds of sale as a warranty against eviction, which necessitates that the buyer be
in good faith for it to be enforced.

A warranty is a collateral undertaking in a sale of either real or personal property, express or implied;
that if the property sold does not possess certain incidents or qualities, the purchaser may either
consider the sale void or claim damages for breach of warranty. Thus, a warranty may either be
18

express or implied.

An express warranty pertains to any affirmation of fact or any promise by the seller relating to the
thing, the natural tendency of which is to induce the buyer to purchase the same. It includes all
19

warranties derived from the language of the contract, so long as the language is express-it may take
the form of an affirmation, a promise or a representation. On the other hand, an implied warranty is
20

one which the law derives by application or inference from the nature of transaction or the relative
situation or circumstances of the parties, irrespective of any intention of the seller to create it. In
21

other words, an express warranty is different from an implied warranty in that the former is found
within the very language of the contract while the latter is by operation of law.

Thus, the CA erred in treating Section 4(i) of the deeds of sale as akin to an implied warranty against
eviction. First, the deeds of sale categorically state that the sellers assure that the properties sold
were free from any encumbrances which may prevent Makro from fully and absolutely possessing
the properties in question. Second, in order for the implied warranty against eviction to be
enforceable, the following requisites must concur: (a) there must be a final judgment; (b) the
purchaser has been deprived of the whole or part of the thing sold; (c) said deprivation was by virtue
of a prior right to the sale made by the vendor; and (d) the vendor has been summoned and made
co-defendant in the suit for eviction at the instance of the vendee. Evidently, there was no final
22

judgment and no opportunity for the vendors to have been summoned precisely because no judicial
action was instituted.

Further, even if Section 4(i) of the deeds of sale was to be deemed similar to an implied warranty
against eviction, the CA erred in concluding that Makro acted in bad faith. It is true that the warranty
against eviction cannot be enforced if the buyer knew of the risks or danger of eviction and still
assumed its consequences. The CA highlights that Makro was aware of the encroachments even
23

before the sale because the ongoing road widening project was visible enough to inform the buyer of
the diminution of the land area of the property purchased.

The Court disagrees.

It is undisputed that Makro's legal counsel conducted an ocular inspection on the properties in
question before the execution of the deeds of sale and that there were noticeable works and
constructions going on near them. Nonetheless, these are insufficient to charge Makro with actual
knowledge that the DPWH project had encroached upon respondents' properties. The dimensions of
the properties in relation to the DPWH project could have not been accurately ascertained through
the naked eye. A mere ocular inspection could not have possibly determined the exact extent of the
encroachment. It is for this reason that only upon a relocation survey performed by a geodetic
engineer, was it discovered that 131 square meters and 130 square meters of the lots purchased
from Coco Charcoal and Lim, respectively, had been adversely affected by the DPWH project.

To reiterate, the fact of encroachment is settled as even the CA found that the DPWH project had
disturbed a portion of the properties Makro had purchased. The only reason the appellate court
denied Makro recompense was because of its purported actual knowledge of the intrusion which is
not reason enough to deny Makro a refund of the proportionate amount pursuant to Section 2 of the
deeds of sale.

Nevertheless, the RTC errs in ordering respondents to pay ₱l,500,00.00 each to Makro. Under
Section 2 of the deeds of sale, the purchase price shall be adjusted in case of increase or decrease
in the land area at the rate of ₱8,500.00 per square meter. In the case at bar, 131 square meters
and 130 square meters of the properties of Coco Charcoal and Lim, respectively, were encroached
upon by the DPWH project. Applying the formula set under the deeds of sale, Makro should be
entitled to receive ₱l,113,500.00 from Coco Charcoal and ₱l,105,000.00 from Lim. It is noteworthy
that Makro's complaint against respondents also prayed for the same amounts. The RTC awarded
₱l,500,00.00 without sufficient factual basis or justifiable reasons.

WARRANTY AGAINST HIDDEN DEFECTS OF OR ENCUMBRANCES UPON THE THING

SOLD
Article 1561. The vendor shall be responsible for warranty against the hidden defects which the
thing sold may have, should they render it unfit for the use for which it is intended, or should
they diminish its fitness for such use to such an extent that, had the vendee been aware thereof,
he would not have acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those which are not
visible if the vendee is an expert who, by reason of his trade or profession, should have known
them. (1484a)

Phil. Steel Coating Corp vs. Quinones

RULING: The nonpayment of the unpaid purchase price was just (fied, since a breach of
warranty was proven.

Petitioner takes issue with the nonpayment by Quiñones to PhilSteel of a balance of

P448,041.50, an amount that he has duly admitted. It is the nonpayment of the unpaid balance
of the purchase price, of the primer-coated G.I. sheets that is at the center of the present
controversy.

Quiñones, through counsel, sought damages against petitioner for breach of implied warranty
arising from hidden defects under Article 1561 of the Civil Code, which provides:

The vendor shall be responsible for warranty against the hidden detects which the thing sold
may have, should they render it unfit for the use for which it is intended, or should they diminish
its fitness for such use to such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor shall not be
answerable to patent defects or those which may be visible, or for those which are not visible if
the vendee is an expert who, by reason of his trade or profession, should have known them.

In seeking a remedy from the trial court, Quiñones opted not to pay the balance of the purchase
price, in line with a proportionate reduction of the price under Article 1567 Civil Code, which
states:

In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with
damages in either case.

Petitioner reasons that since the action of respondent is based on an implied warranty, the
action has already prescribed under Article 1571 of the Civil Code. According to petitioner,
Quiñones can no longer put up the defense of hidden defects in the product sold as a basis for
evading payment of the balance.

We agree with petitioner that the nonpayment of the balance cannot be premised on a mere
allegation of nonexisting warranties. This Court has consistently ruled that whenever a breach of
warranty is not proven, buyers who refuse to pay the purchase price or even the unpaid balance
of the goods they ordered - must be held liable therefor.

However, we uphold the finding of both the CA and the RTC that petitioner's breach of warranty
was proven by respondent.

Since what was proven was express warranty, the remedy for implied warranties under Article
1567 of the Civil Code does not apply to the instant case. Instead, following the ruling of this
Court in Harrison Motors Corporation v. Navarro, Article 1599 of the Civil Code applies when an
express warranty is breached.

Where there is a breach of warranty by the seller, the buyer may, at his election:

(1) Accept or keep the goods and set up against the seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for damages for the
breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for damages for the
breach of warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the goods have already
been received, return them or offer to return them to the seller and recover the price or any
part thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone of these ways, no other
remedy can thereafter be granted, without prejudice to the provisions of the second
paragraph of article 1191.
Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of
the breach of warranty when he accepted the goods without protest, or if he fails to notify
the seller within a reasonable time of the election to rescind, or if he fails to return or to offer
to return the goods to the seller in substantially as good condition as they were in at the time
 the ownership was transferred to the buyer. But if deterioration or injury of the goods is due
to the breach or warranty, such deterioration or injury shall not prevent the buyer from
returning or offering to return the goods to the seller and rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be
liable for the price upon returning or offering to return the goods. If the price or any part
thereof has already been paid, the seller shall be liable to repay so much thereof as has
been paid, concurrently with the return of the goods, or immediately after an offer to return
the goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to
accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to
hold the goods as bailee for the seller, but subject to a lien to secure the payment of any
portion nf the price which has been paid, and with the remedies for the enforcement of such
lien allowed to an unpaid seller by article 1526.
(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference between
the value of the goods at the time of delivery to the buyer and the value they would have
had if they had answered to the warranty.
Quiñones has opted for a reduction in price or nonpayment of the unpaid balance of the
purchase price. Applying Article 1599 (1), this Court grants this remedy.

The above provisions define the remedy of recoupment in the diminution or extinction of price in
case of a seller's breach of warranty. According to the provision, recoupment refers to the
reduction or extinction of the price of the same item, unit, transaction or contract upon which a
plaintiff's claim is founded.32

In the case at bar, Quiñones refused to pay the unpaid balance of the purchase price of the
primer-coated G.I. sheets PhilSteel had delivered to him. He took this action after complaints
piled up from his customers regarding the blistering and peeling-off of the paints applied to the
bus bodies they had purchased from his Amianan Motors. The unpaid balance of the purchase
price covers the same G.I. sheets. Further, both the CA and the RTC concurred in their finding
that the seller's breach of express warranty had been established. Therefore, this Court finds
that respondent has legitimately defended his claim for reduction in price and is no longer liable
for the unpaid balance of the purchase price of P448,041.50.

Spouses Batalla vs. Prudential Bank

RULING: The petition is without merit.

Even assuming that the car delivered to Spouses Batalla had a defective car door, they still do
not have any grounds for rescinding the contract of sale.

Article 1561 of the Civil Code provides for an implied warranty against hidden defects in that the
vendor shall be responsible for any hidden defects which render the thing sold unfit for the use
for which it is intended, or should they diminish its fitness for such use to such an extent that,
had the vendee been aware thereof, he would not have acquired it or would have given a lower
price. In an implied warranty against hidden defects, vendors cannot raise the defense of
ignorance as they are responsible to the vendee for any hidden defects even if they were not
aware of its existence.
In order for the implied warranty against hidden defects to be applicable, the following
conditions must be met:

a. Defect is Important or Serious

i. The thing sold is unfit for the use which it is intended

ii. Diminishes its fitness for such use or to such an extent that the buyer would not have
acquired it had he been aware thereof

b. Defect is Hidden

c. Defect Exists at the time of the sale

d. Buyer gives Notice of the defect to the seller within reasonable time

In case of a breach of an implied warranty against hidden defects, the buyer may either elect
between withdrawing from the contract and demanding a proportionate reduction of the price,
with damages in either case. Here, Spouses Batalla opted to withdraw from the contract of sale
after their demand for a replacement car was not granted.

As can be seen, the redhibitory action pursued by Spouses Batalla was without basis. For
one, it was not sufficiently proven that the defects of the car door were important or
serious. The hidden defect contemplated under Article 1561 of the Civil Code is an imperfection
or defect of such nature as to engender a certain degree of importance and not merely one of
little consequence. Spouses Batalla failed to prove that such defect had severely diminished the
roadworthiness of the motor vehicle. In fact, they admitted that they had no problem as to the
road worthiness of the car.

In addition, it cannot be ascertained whether the defects existed at the time of the sale. As
previously mentioned, a remote control door mechanism was immediately installed after the car
was delivered to Spouses Batalla. The modification made to the motor vehicle raises the
possibility that the defect could have been caused or had occurred after the installation of the
remote control door system. As the party alleging hidden defects, Spouses Batalla had the
burden to prove the same. Unfortunately, they failed to do so considering that they did not
present as witnesses, the persons who had actually examined the car door and found it
defective. Their testimony could have shed light on the origin of the said defect and whether it
was of such extent that the motor vehicle was unfit for its intended use or its fitness had been
greatly diminished. Thus, other than Spouses Batalla's own testimony claiming that the car
doors were defective, no other evidence was presented to establish the severity of the said
defects and whether they had persisted at the time of the sale.

Loan agreement independent of the contract of sale

Other than rescission of the contract of sale, Spouses Batalla also sought for the rescission of
the car loan agreement and promissory note with Prudential. They believed that they had
ground to rescind the car loan agreement and promissory note they executed with Prudential.
Spouses Batalla surmised that the object of these documents was the delivery of a brand new
car without hidden defects, and because of the alleged defects of the vehicle, there was no valid
object for the contract.
A contract of loan is one where one of the parties delivers money or other consumable thing
upon the condition that the same amount of the same kind and quality shall be paid. It is
perfected upon delivery of the object of the contract. On the other hand, a contract of sale is a
special contract whereby the seller obligates himself to deliver a determinate thing and to
transfer its ownership to the buyer. The same is perfected by mere consent of the parties.

Thus, it is readily apparent that a contract of loan is distinct and separate from a contract of
sale. In a loan, the object certain is the money or consumable thing borrowed by the obligor,
while in a sale the object is a determinate thing to be sold to the vendee for a consideration. In
addition, a loan agreement is perfected only upon the delivery of the object i.e., money or
another consumable thing, while a contract of sale is perfected by mere consent of the parties.

Under this premise, it is not hard to see the absurdity in the position of Spouses Batalla that
they could rescind the car loan agreement and promissory note with Prudential on the ground of
alleged defects of the car delivered to them by Honda. The transactions of Spouses Batalla with
Prudential and Honda are distinct and separate from each other. From the time Spouses Batalla
accepted the loan proceeds from Prudential, the loan agreement had been perfected. As such,
they were bound to comply with their obligations under the loan agreement regardless of the
outcome of the contract of sale with Honda. Even assuming that the car that Spouses Batalla
received was not brand new or had hidden defects, they could not renege on their obligation of
paying Prudential the loan amount.

Spouses Batalla erroneously relies on Supercars Management & Development Corporation v.

Flores as basis to rescind the loan agreement with Prudential on account of the perceived
defects of the car delivered to them. In the said case, only the contract of sale with the car
dealer was rescinded on account of breach of contract for delivering a defective vehicle. While
therein lendee-bank was originally impleaded for rescission of contract, the trial court dropped it
as party-defendant because the breach of contract pertained to the contract of sale and not to
the car loan agreement. In the same vein, Spouses Batalla's recourse in case of defects in the
motor vehicle delivered to them was limited against Honda and does not extend to Prudential as
it merely lent the money to purchase the car.

RIGHT OF VENDEE TO SUSPEND PAYMENT OF PRICE

Article 1590. Should the vendee be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory
action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor
has caused the disturbance or danger to cease, unless the latter gives security for the return of
the price in a proper case, or it has been stipulated that, notwithstanding any such contingency,
the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the
suspension of the payment of the price. (1502a)

Central Bank of the Phils. vs. Bichara

RULING: We disagree with the appellate court.

By law, "[t]he vendee is bound to accept the delivery and to pay the price of the thing sold at the
time and place stipulated in the contract." In the case at bench, petitioner's obligation to pay
arose as soon as the deed of sale was registered and a clean title was issued. However,
petitioner justifies non-payment on respondents' breach of several stipulations in the contract.
We have examined these alleged violations vis-à-vis the pertinent provisions of the deed of
sale, keeping in mind that only a substantial breach of the terms and conditions thereof will
warrant rescission. Whether a breach is substantial is largely determined by the attendant
circumstances.

Petitioner contends that it was entitled to retain the purchase price due to respondents' failure to
pay the capital gains and documentary stamp taxes and other transfer fees. We have read and
examined the contract of sale and we have found nothing therein to show that payment of the
said taxes and fees to be conditions precedent to petitioner's duty to pay. The stipulation is a
standard clause in most contracts of sale and is nothing more than a specification of the party
who shall bear such fees and taxes.

Petitioner likewise insists that its delay in paying the purchase price was justified since a
squatters occupied the premises, contravening the stipulation that the respondent vendors shall
convey the properties free from liens and encumbrances. Again, we cannot support petitioner's
view. The squatter's illegal occupation cannot be deemed a lien or encumbrance. By the
express terms of Article 1590 of the Civil Code, a mere act of trespass will not authorize the
suspension of payment of the price. Be that as it may, the usurpation became moot and
academic when the squatters left of their own violation in 1988 following a storm.

So far, what emerges as clear is that petitioner's obligation to pay was not subject to the
foregoing "conditions," only its demandability is suspended until the opportune time. That
arrived upon the registration of the deed of sale and issuance of a clean title in favor of the
petitioner. Relative thereto, the notice of adverse claim and lis pendens became moot
issues 33 because they were cancelled less than a year after their inscription.

We now consider petitioner's final argument, to wit, that it was not obliged to pay until
respondents compact the lots to street level with escombro free from waste material. Taking into
account the facts of the case, we find that particular argument of petitioner to be well-taken. The
use to which the parcels of land was to be devoted was no secret between the parties. The
consolidated estate, which incorporated the lots sold by respondents to petitioner, was intended
as the site of petitioner's regional office to serve the Bicol region. The project had its peculiar
requirements, not the least of which was that since a substantial edifice was to be built on the
property, the site had to be made suitable for the purpose. Thus, petitioner specified that the lots
be filled up in the manner specified in paragraph 4 of the contract. The importance thereof could
not have been lost on respondents.

Evidently then, respondents were guilty of non-performance of said stipulation. The deed of sale
expressly stipulated that the vendors were to undertake, at their expense, the filling up of the
lots with escombro free from waste material compacted to the street level. This was to be
accomplished upon the signing of the contract and insofar as petitioner was concerned,
respondents obligation was demandable at once. Other than his testimony, Alfonso Bichara
offered no proof tending to show that he had complied in the manner agreed upon. Although he
did state that he saw no need to comply with the stipulation because the parcels of land were
already level with the street, 34 it was still not shown that the same were in a condition suitable
for the construction of petitioner's regional office. We find it hard to believe that the deed of sale
would have specified the nature, quantity and quality of the filling material were it not to prepare
the lots for the construction. Where the terms of a contract are clear they should be fulfilled
according to the literal tenor of their stipulation. 35 If indeed it were true that the lots were already
at street level, petitioner would not have incurred the additional cost of P45,000.00 for having
them filled up by the BGV Corporation.
On the other hand, respondent argue that as proof of petitioner's bad faith, the latter could have
undertake the filling up of the lots as early as 1989, when it would have cost only about
P9,000.00. The trial court concurred with this view. But we disagree. Petitioner was under no
duty to have done, at the least cost to the latter, what was clearly respondents obligation from
the very beginning. If petitioner was forced to have the subject parcels of land filled up by
another party, and subsequently bill respondents, the former was entitled to do so by
right. 39 Respondents are not in a position to question the resulting expense. Had they
performed their obligation under the contract of sale at the proper time, the expense would
surely have been even less than the P9,00000 estimate in 1989.

In this context, the appellate court erred in decreeing the rescission, otherwise called resolution,
of the subject deed of sale. Respondents should not be allowed to rescind the contract where
they themselves did not perform their essential obligation thereunder. It should be emphasized
that a contract of sale involves reciprocity between the parties. Since respondents were in bad
faith, they may not seek the rescission of the agreement they themselves
breached. Consequently, the decision rendered by the trial court should be reinstated as being
just and proper under the premises.

RULE WHERE AUTOMATIC RESCISSION OF SALE OF IMMOVABLE PROPERTY

STIPULATED
Article 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him either judicially or by a notarial act. After
the demand, the court may not grant him a new term. (1504a)

Olivarez Realty vs. Castlillo

RULING: Castillo is entitled to cancel the contract of conditional sale.

Since Olivarez Realty Corporation illegally withheld payments of the purchase price, Castillo is
entitled to cancel his contract with petitioner corporation. However, we properly characterize the
parties’ contract as a contract to sell, not a contract of conditional sale.

In both contracts to sell and contracts of conditional sale, title to the property remains with the
seller until the buyer fully pays the purchase price. Both contracts are subject to the positive
suspensive condition of the buyer’s full payment of the purchase price.

In a contract of conditional sale, the buyer automatically acquires title to the property upon full
payment of the purchase price. This transfer of title is "by operation of law without any further
act having to be performed by the seller. In a contract to sell, transfer of title to the prospective
buyer is not automatic. The prospective seller [must] convey title to the property [through] a
deed of conditional sale.

The distinction is important to determine the applicable laws and remedies in case a party does
not fulfill his or her obligations under the contract. In contracts of conditional sale, our laws
on sales under the Civil Code of the Philippines apply . On the other hand, contracts to sell
are not governed by our law on sales but by the Civil Code provisions on conditional obligations.
Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal obligations does not
apply to contracts to sell. As this court explained in Ong v. Court of Appeals, failure to fully pay
the purchase price in contracts to sell is not the breach of contract under Article 1191. Failure to
fully pay the purchase price is "merely an event which prevents the [seller’s] obligation to
convey title from acquiring binding force." This is because "there can be no rescission of an
obligation that is still nonexistent, the suspensive condition not having [happened].

In this case, Castillo reserved his title to the property and undertook to execute a deed of
absolute sale upon Olivarez Realty Corporation’s full payment of the purchase price. Since
Castillo still has to execute a deed of absolute sale to Olivarez Realty Corporation upon full
payment of the purchase price, the transfer of title is not automatic. The contract in this case is a
contract to sell.

As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines
does not apply. The contract to sell is instead cancelled, and the parties shall stand as if
the obligation to sell never existed.

Olivarez Realty Corporation shall return the possession of the property to Castillo. Any
improvement that Olivarez Realty Corporation may have introduced on the property shall be
forfeited in favor of Castillo per paragraph I of the deed of conditional sale:

I. Immediately upon signing this Contract, [Olivarez Realty Corporation] shall be entitled to
occupy, possess and develop the subject property. In case this Contract is cancelled, any
improvement introduced by [Olivarez Realty Corporation] on the property shall be forfeited in
favor of [Castillo.]

As for prospective sellers, this court generally orders the reimbursement of the installments paid
for the property when setting aside contracts to sell. This is true especially if the property’s
possession has not been delivered to the prospective buyer prior to the transfer of title.

In this case, however, Castillo delivered the possession of the property to Olivarez Realty
Corporation prior to the transfer of title. We cannot order the reimbursement of the installments
paid.

In Gomez v. Court of Appeals, the City of Manila and Luisa Gomez entered into a contract to sell
over a parcel of land. The city delivered the property’s possession to Gomez. She fully paid the
purchase price for the property but violated the terms of the contract to sell by renting out the
property to other persons. This court set aside the contract to sell for her violation of the terms
of the contract to sell. It ordered the installments paid forfeited in favor of the City of Manila "as
reasonable compensation for [Gomez’s] use of the [property] for eight years.

In this case, Olivarez Realty Corporation failed to fully pay the purchase price for the property. It
only paid ₱2,500,000.00 out of the ₱19,080,490.00 agreed purchase price. Worse, petitioner
corporation has been in possession of Castillo’s property for 14 years since May 5, 2000 and
has not paid for its use of the property.

Similar to the ruling in Gomez, we order the ₱2,500,000.00 forfeited in favor of Castillo as
reasonable compensation for Olivarez Realty Corporation’s use of the property.
Beltran vs. Spouses Cangayda
RULING: The Petition is meritorious. The agreement between the parties is an oral contract of
sale. As a consequence, ownership of the disputed property passed to petitioners upon its
delivery

Jurisprudence defines the distinctions between a contract of sale and a contract to sell to be as
follows:

In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass
until the full payment of the price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded; whereas in a
contract to sell, title is retained by the vendor until the full payment of the price, x x
x.33 (Emphasis supplied)

Based on the foregoing distinctions, the Court finds, and so holds, that the oral agreement
entered into by the parties constitutes a contract of sale and not a contract to sell.

A contract of sale is consensual in nature, and is perfected upon the concurrence of its essential
requisites,34 thus:

The essential requisites of a contract under Article 1318 of the New Civil Code are: (1)
consent of the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is established. Thus, contracts, other than
real contracts are perfected by mere consent which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the contract. Once
perfected, they bind other contracting parties and the obligations arising therefrom have the
force of law between the parties and should be complied with in good faith. The parties are
bound not only to the fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.

Being a consensual contract, sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price. From that moment,
the parties may reciprocally demand performance, subject to the provisions of the law governing
the form of contracts. A perfected contract of sale imposes reciprocal obligations on the parties
whereby the vendor obligates himself to transfer the ownership of and to deliver a determinate
thing to the buyer who, in turn, is obligated to pay a price certain in money or its equivalent.
Failure of either party to comply with his obligation entitles the other to rescission as the power
to rescind is implied in reciprocal obligations.35 (Emphasis supplied)

Contrary to the CA's findings, neither respondent Loreta's testimony nor clause 6 of the
Amicable Settlement supports the conclusion that the parties' agreement is not a contract of
sale, but only a contract to sell — the reason being that it is not evident from said testimony and
clause 6 that there was an express agreement to reserve ownership despite delivery of the
disputed property.

A plain reading of respondent Loreta's testimony shows that the parties' oral agreement
constitutes a meeting of the minds as to the sale of the disputed property and its purchase price.
Respondent Loreta's statements do not in any way suggest that the parties intended to enter
into a contract of sale at a later time. Such statements only pertain to the time at which
petitioners expected, or at least hoped, to acquire the sufficient means to pay the purchase
price agreed upon. For emphasis, the Court reproduces the relevant statements relied upon by
the CA:

Our [oral] agreement with [petitioner Antonio] that about 300 square meters lot (sic) that they will
pay P35,000.00 to us but [petitioner Antonio] told us that they will pay the amount of
P35,000.00 when [their] house will be sold, then they will pay us.36 (Emphasis supplied)

Clause 6 of the Amicable Settlement merely states respondent Apolonio, Jr.'s commitment to
formalize and reduce the oral agreement of the parties into a public instrument upon payment of
petitioners' outstanding balance. It bears emphasizing that a formal document is not necessary
for the sale transaction to acquire binding effect. 37 Hence, the subsequent execution of a formal
deed of sale does not negate the perfection of the parties' oral contract of sale which had
already taken place upon the meeting of the parties' minds as to the subject of the transaction
and its purchase price.

In a contract of sale, ownership of a thing sold shall pass to the buyer upon actual or
constructive delivery thereof in the absence of any stipulation to the contrary. 38 Reference to
Articles 1477 and 1478 of the Civil Code is in order:

Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.

Article 1478. The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price.

In accordance with the cited provisions, ownership of the disputed property passed to
petitioners when its possession was transferred in their favor, as no reservation to the contrary
had been made.

Considering that respondents' Complaint is anchored upon their alleged ownership of the
disputed property, their prayer to recover possession thereof as a consequence of such alleged
ownership cannot prosper.

Slight delay is not sufficient to justify rescission

Article 1191 of the Civil Code 39 lays down the remedies that the injured party may resort to in
case of breach of a reciprocal obligation — fulfillment of the obligation or rescission thereof, with
damages in either case.

Thus, in a contract of sale, the vendor's failure to pay the price agreed
upon generally constitutes breach, and extends to the vendor the right to demand the contract's
fulfillment or rescission.40

It is important to stress, however, that the right of rescission granted to the injured party under
Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity
between them.41 Stated otherwise, rescission may not be resorted to in the absence of breach
of faith.
In this connection, Article 1592 extends to the vendee in a sale of immovable property the right
to effect payment even after expiration of the period agreed upon, as long as no demand for
rescission has been made upon him by the vendor. The provision states:

Article 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him either judicially or by a notarial act. After
the demand, the court may not grant him a new term.

A reading of Article 1592 in conjunction with Article 1191 thus suggests that in the absence of
any stipulation to the contrary, the vendor's failure to pay within the period agreed upon
shall not constitute a breach of faith, so long as payment is made before the vendor demands
for rescission, either judicially, or by notarial act.

Hence, in Taguba v. Peralta,42 (Taguba) the Court held that slight delay in the payment of the
purchase price does not serve as a sufficient ground for the rescission of a sale of real
property:

Despite the denomination of the deed as a "Deed of Conditional Sale" a reading of the
conditions x x x therein set forth reveals the contrary. Nowhere in the said contract in question
could we find a proviso or stipulation to the effect that title to the property sold is reserved in the
vendor until full payment of the purchase price. There is also no stipulation giving the vendor
(petitioner Taguba) the right to unilaterally rescind the contract the moment the vendee (private
respondent de Leon) fails to pay within a fixed period x x x.

Considering, therefore, the nature of the transaction between petitioner Taguba and private
respondent, which We affirm and sustain to be a contract of sale, absolute in nature the
applicable provision is Article 1592 of the New Civil Code x x x.

x x x x

In the case at bar, it is undisputed that petitioner Taguba never notified private respondent by
notarial act that he was rescinding the contract, and neither had he filed a suit in court to rescind
the sale.

Finally, it has been ruled that "where time is not of the essence of the agreement, a slight
delay on the part of one party in the performance of his obligation is not a sufficient
ground for the rescission of the agreement". Considering that in the instant case, private
respondent had already actually paid the sum of P12,500.00 of the total stipulated
purchase price of P18,000.00 and had tendered payment of the balance of P5,500.00
within the grace period of six months from December 31, 1972, equity and justice
mandate that she be given additional period within which to complete payment of the
purchase price.43 (Emphasis supplied)

The Court applied the foregoing principles in the subsequent case of Dignos v. Court of
Appeals,44 (Dignos) where it resolved to grant respondent therein an additional period within
which to settle his outstanding balance of P4,000.00, considering that he "was delayed in
payment only for one month."45 It is worth noting that in Dignos, the Court granted the vendee
an additional period to pay the balance, despite the fact that no grace period had been
stipulated upon by the parties therein, as in Taguba.

Here, petitioners acknowledge that they failed to settle the purchase price of the disputed
property in full within the deadline set by the Amicable Settlement. Nevertheless, the Court does
not lose sight of the fact that petitioners have already paid more than three-fourths of the
purchase price agreed upon. Further, petitioners have constituted their family home on the
disputed property in good faith, and have lived thereon for 17 years without protest.

In addition, respondents do not dispute that petitioners offered to settle their outstanding
balance of P5,310.00 "two (2) days after the deadline [set by the Amicable Settlement] and a
few times thereafter,"46 which offers respondents refused to accept. 47 Respondents also do not
claim to have made a demand for rescission at any time before petitioners made such offers to
pay, either through judicial or extra-judicial means, such as through a notarial act.

Thus, pursuant to Article 1592, and consistent with the Court's rulings
in Taguba and Dignos, the Court deems it proper to grant petitioners a period of 30 days from
notice of this Decision to settle their outstanding balance

PD 957 This Decree shall be known as THE SUBDIVISION AND

CONDOMINIUM BUYERS' PROTECTIVE DECREE.

 PD 957 is passed to closely supervise and regulate real estate practitioners, owners,
and developers in the Philippines. It is initiated and signed by the late president on July
12, 1976 in Manila.
 The primary purpose of this law is to protect buyers’ welfare from all types of real estate
misrepresentations
 It aims to control and prevent “reneged on representations and obligations,” “swindling
and fraudulent manipulations,” and “failure to deliver.”
 It consists of rules and regulations on buying and selling a house or condominium,
from the point of sale to turnover of unit to property title of ownership. It also states the
other laws governing the after-sale rights of buyers and developer’s obligations.
 It specifies details pertaining to policies in dealing with real estate practitioners such as
developer, dealer, broker, and salesman or agent.
 It empowers the National Housing Authority (NHA) to have “exclusive jurisdiction to
regulate real estate trade and business.” At present, Housing and Land Use Regulatory
Board (HLURB) is now the key government agency to implement this law.

 It enumerates the process and procedures of registration, as well as the sanctions and
penalties for any unauthorized transactions made by real estate practitioners
Diego vs. Diego
It is settled jurisprudence, to the point of being elementary, that an agreement which stipulates that
the seller shall execute a deed of sale only upon or after tl1ll payment of the purchase price is
a contract to sell, not a contract of sale.

RULING: The Court finds merit in the Petition

The contract entered into by Nicolas and Rodolfo was a contract to sell.

a) The stipulation to execute a deed of sale upon full payment of the purchase price is a
unique and distinguishing characteristic of a contract to sell. It also shows that the
vendor reserved title to the property until full payment.

There is no dispute that in 1993, Rodolfo agreed to buy Nicolas’s share in the Diego Building for
the price of ₱500,000.00. There is also no dispute that of the total purchase price, Rodolfo paid,
and Nicolas received, ₱250,000.00. Significantly, it is also not disputed that the parties agreed
that the remaining amount of ₱250,000.00 would be paid after Nicolas shall have executed a
deed of sale.

This stipulation, i.e., to execute a deed of absolute sale upon full payment of the purchase price,
is a unique and distinguishing characteristic of a contract to sell. In Reyes v. Tuparan,15 this
Court ruled that a stipulation in the contract, "[w]here the vendor promises to execute a deed
of absolute sale upon the completion by the vendee of the payment of the
price," indicates that the parties entered into a contract to sell. According to this Court, this
particular provision is tantamount to a reservation of ownership on the part of the vendor.
Explicitly stated, the Court ruled that the agreement to execute a deed of sale upon full payment
of the purchase price "shows that the vendors reserved title to the subject property until
full payment of the purchase price

In Tan v. Benolirao,17 this Court, speaking through Justice Brion, ruled that the parties entered
into a contract to sell as revealed by the following stipulation:

d) That in case, BUYER has complied with the terms and conditions of this contract, then the
SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale; 18

The Court further held that "[j]urisprudence has established that where the seller promises
to execute a deed of absolute sale upon the completion by the buyer of the payment of
the price, the contract is only a contract to sell."19

b) The acknowledgement receipt signed by Nicolas as well as the contemporaneous acts

of the parties show that they agreed on a contract to sell, not of sale. The absence of a
formal deed of conveyance is indicative of a contract to sell.

In San Lorenzo Development Corporation v. Court of Appeals,20 the facts show that spouses
Miguel and Pacita Lu (Lu) sold a certain parcel of land to Pablo Babasanta (Pablo). After
several payments, Pablo wrote Lu demanding "the execution of a final deed of sale in his favor
so that he could effect full payment of the purchase price." 21 To prove his allegation that there
was a perfected contract of sale between him and Lu, Pablo presented a receipt signed by Lu
acknowledging receipt of ₱50,000.00 as partial payment.22
However, when the case reached this Court, it was ruled that the transaction entered into by
Pablo and Lu was only a contract to sell, not a contract of sale. The Court held thus:

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos
(₱50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta.
Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the
property until full payment of the price which is a distinguishing feature of a contract to sell, the
subsequent acts of the parties convince us that the Spouses Lu never intended to transfer
ownership to Babasanta except upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his
repeated requests for the execution of the final deed of sale in his favor so that he could effect
full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself
recognized that ownership of the property would not be transferred to him until such
time as he shall have effected full payment of the price. Moreover, had the sellers
intended to transfer title, they could have easily executed the document of sale in its
required form simultaneously with their acceptance of the partial payment, but they did
not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
perfected contract to sell.23

In the instant case, records show that Nicolas signed a mere receipt 24 acknowledging partial
payment of ₱250,000.00 from Rodolfo. It states:

July 8, 1993

Received the amount of [₱250,000.00] for 1 share of Diego Building as partial payment for
Nicolas Diego.

(signed)
Nicolas Diego25

As we ruled in San Lorenzo Development Corporation v. Court of Appeals,26 the parties could
have executed a document of sale upon receipt of the partial payment but they did not. This is
thus an indication that Nicolas did not intend to immediately transfer title over his share but only
upon full payment of the purchase price. Having thus reserved title over the property, the
contract entered into by Nicolas is a contract to sell. In addition, Eduardo admitted that he and
Rodolfo repeatedly asked Nicolas to sign the deed of sale 27 but the latter refused because he
was not yet paid the full amount. As we have ruled in San Lorenzo Development Corporation v.
Court of Appeals,28 the fact that Eduardo and Rodolfo asked Nicolas to execute a deed of sale
is a clear recognition on their part that the ownership over the property still remains with Nicolas.
In fine, the totality of the parties’ acts convinces us that Nicolas never intended to transfer the
ownership over his share in the Diego Building until the full payment of the purchase price.
Without doubt, the transaction agreed upon by the parties was a contract to sell, not of sale.

This ponente has had occasion to rule that "[a] contract to sell is one where the prospective
seller reserves the transfer of title to the prospective buyer until the happening of an event, such
as full payment of the purchase price. What the seller obliges himself to do is to sell the subject
property only when the entire amount of the purchase price has already been delivered to him.
‘In other words, the full payment of the purchase price partakes of a suspensive condition, the
nonfulfillment of which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the prospective buyer.’ It does
not, by itself, transfer ownership to the buyer."43

The contract to sell is terminated or cancelled.

Having established that the transaction was a contract to sell, what happens now to the parties’
agreement?

The remedy of rescission is not available in contracts to sell.44 As explained in Spouses Santos
v. Court of Appeals:45

In view of our finding in the present case that the agreement between the parties is a contract to
sell, it follows that the appellate court erred when it decreed that a judicial rescission of said
agreement was necessary. This is because there was no rescission to speak of in the first
place. As we earlier pointed out, in a contract to sell, title remains with the vendor and does not
pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the
payment of the purchase price is a positive suspensive condition. Failure to pay the price
agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation
of the vendor to convey title from acquiring an obligatory force. This is entirely different from the
situation in a contract of sale, where non-payment of the price is a negative resolutory condition.
The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the
thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a
contract to sell, however, the vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If the vendor should eject the
vendee for failure to meet the condition precedent, he is enforcing the contract and not
rescinding it. When the petitioners in the instant case repossessed the disputed house and lot
for failure of private respondents to pay the purchase price in full, they were merely enforcing
the contract and not rescinding it. As petitioners correctly point out, the Court of Appeals erred
when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles
1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as
a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to sales of immovable property.
Neither provision is applicable in the present case.46

Similarly, we held in Chua v. Court of Appeals47 that "Article 1592 of the Civil Code permits the
buyer to pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by notarial act. However, Article 1592 does
not apply to a contract to sell where the seller reserves the ownership until full payment of the
price,"48 as in this case.

Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the purchase
price, the contract to sell was deemed terminated or cancelled. 49 As we have held in Chua v.
Court of Appeals,50 "[s]ince the agreement x x x is a mere contract to sell, the full payment of the
purchase price partakes of a suspensive condition. The non-fulfillment of the condition
prevents the obligation to sell from arising and ownership is retained by the seller
without further remedies by the buyer." Similarly, we held in Reyes v. Tuparan51 that
"petitioner’s obligation to sell the subject properties becomes demandable only upon the
happening of the positive suspensive condition, which is the respondent’s full payment of the
purchase price. Without respondent’s full payment, there can be no breach of contract to
speak of because petitioner has no obligation yet to turn over the title. Respondent’s
failure to pay in full the purchase price in full is not the breach of contract contemplated under
Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from
being bound to convey title to respondent." Otherwise stated, Rodolfo has no right to compel
Nicolas to transfer ownership to him because he failed to pay in full the purchase price.
Correlatively, Nicolas has no obligation to transfer his ownership over his share in the Diego
Building to Rodolfo.52

Thus, it was erroneous for the CA to rule that Nicolas should have filed a case to fix the period
for Rodolfo’s payment of the balance of the purchase price. It was not Nicolas’s obligation to
compel Rodolfo to pay the balance; it was Rodolfo’s duty to remit it.

It would appear that after Nicolas refused to sign the deed as there was yet no full payment,
Rodolfo and Eduardo hired the services of the Daroya Accounting Office "for the purpose of
estimating the amount to which [Nicolas] still owes [Rodolfo] as a consequence of the
unconsummated verbal agreement regarding the former’s share in the co-ownership of [Diego
Building] in favor of the latter." 53 According to the accountant’s report, after Nicolas revoked his
agreement with Rodolfo due to non-payment, the downpayment of ₱250,000.00 was considered
a loan of Nicolas from Rodolfo. 54 The accountant opined that the ₱250,000.00 should earn
interest at 18%.55 Nicolas however objected as regards the imposition of interest as it was not
previously agreed upon. Notably, the contents of the accountant’s report were not disputed or
rebutted by the respondents. In fact, it was stated therein that "[a]ll the bases and assumptions
made particularly in the fixing of the applicable rate of interest have been discussed with
[Eduardo]."56

We find it irrelevant and immaterial that Nicolas described the termination or cancellation of his
agreement with Rodolfo as one of rescission. Being a layman, he is understandably not adept in
legal terms and their implications. Besides, this Court should not be held captive or bound by
the conclusion reached by the parties. The proper characterization of an action should be based
on what the law says it to be, not by what a party believed it to be. "A contract is what the law
defines it to be x x x and not what the contracting parties call it."57

On the other hand, the respondents’ additional submission – that Nicolas cheated them by
"vanishing and hibernating" in the USA after receiving Rodolfo’s ₱250,000.00 downpayment,
only to come back later and claim that the amount he received was a mere loan – cannot be
believed. How the respondents could have been cheated or disadvantaged by Nicolas’s leaving
is beyond comprehension. If there was anybody who benefited from Nicolas’s perceived
"hibernation", it was the respondents, for they certainly had free rein over Nicolas’s interest in
the Diego Building. Rodolfo put off payment of the balance of the price, yet, with the aid of
Eduardo, collected and appropriated for himself the rents which belonged to Nicolas

Tamayo vs. Huang

RULING: It is not disputed that EAP, acting as the Attorney-in-Fact and Manager of
respondents, totally abandoned the development of the subdivision in 1983, 25 thus prompting
respondents to continue development thereof on May 22, 1985 26 and to even file a complaint to
rescind its contract of "Indenture" with EAP which the RTC Davao granted.

Paragraph 8 of the contract between petitioner and respondents through EAP provides:
Eight. – SUBDIVISION IMPROVEMENTS: - To insure the beauty of the subdivision in line with
the modern trend of urban development, EAP Development Corporation hereby obligates itself
to provide the subdivision with:

(a) Concrete Paved road or asphalt when price of cement becomes prohibitive

(b) Concrete curbs and gutters

(c) Underground drainage system

(d) Water distribution system

(e) Electrical lighting system

(f) 24 hour Security Guard Service

x x x x (Underscoring supplied)

The subdivision and condominium buyers’ protective decree directs every owner and developer
of real property to provide the necessary facilities, improvements, infrastructures and other
forms of development, failure to carry out which is sufficient cause for the buyer to suspend
payment, and any sums of money already paid shall not be forfeited.

Sections 20 and 23 of P.D. 957 of the same decree further direct as follows:

Sec. 20. Time of Completion. - Every owner or developer shall construct and provide the
facilities, improvements, infrastructures and other forms of development, including water supply
and lighting facilities, which are offered and indicated in the approved subdivision or
condominium plans, brochures, prospectus, printed matters, letters or in any form of
advertisement, within one year from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as may be fixed by the Authority.
(Underscoring supplied)

Sec. 23. Non-Forfeiture of Payments. – No installment payment made by a buyer in a

subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in
favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to develop
the subdivision or condominium project according to the approved plans and within the time limit
for complying with the same. Such buyer may, at his option, be reimbursed the total amount
paid including amortization interest but excluding delinquency interests, with interest thereon at
the legal rate. (Underscoring supplied)

In case the developer of a subdivision or condominium fails in its obligation under Section 20,
Section 23 gives the buyer the option to demand reimbursement of the total amount paid, or to
wait for further development of the subdivision,27 and when the buyer opts for the latter
alternative, he may suspend payment of installments until such time that the owner or developer
had fulfilled its obligation to him.28
From petitioner’s earlier-mentioned letter of December 24, 1986, he made clear his intention not
to seek reimbursement of the total amount he had already paid but to comply with his obligation
to pay the balance in full upon completion of the development of the subdivision.

xxxx

Please be informed that I int[en]tionally stopped paying my monthly installment because I could
not see any development in your subdivision, like concrete road, electrical facilities, drainage
and water among others as stipulated in our contract. Under existing laws, I understand I can
suspend my payment pending your completion of the subdivision facilities as agreed in our
contract. I’ll only resume payment if you complete the development of the subdivision.

x x x x (Underscoring supplied)

The claim-advice of petitioner notwithstanding, respondents were mum about it. Such silence
suggests an admission of the veracity and validity of petitioner’s claim.29

Respondents nevertheless claim that the contract was "deemed rescinded" five years after its
execution on April 30, 1981. Respondents’ demand for payment of the unpaid balance
sometime between the period of April 30, 1986 to December 24, 1986 betrays such claim,
however. In any event, it puts them in estoppel.

As for respondents’ position that before petitioner could lawfully withhold his monthly payments,
he needed to secure previous clearance from the HLURB following Section 23 of Rule VI of the
Rules implementing the subdivision and condominium buyers’ protective decree, law and
jurisprudence are not on their side.

Section 23 of PD 957 -- the law upon which the Implementing Rule cited was based --
requires only due notice to the owner or developer for stopping further payments by reason of
the latter’s failure to develop the subdivision according to the approved plans and within the time
limit. x x x

To be valid, an administrative rule or regulation must conform, not contradict, the provisions of
the enabling law. An implementing rule or regulation cannot modify, expand, or subtract from
the law it is intended to implement. Any rule that is not consistent with the statute itself is null
and void. x x x

Section 23 of Rule VI of the Implementing Rules cannot rise higher than Section 23 of PD 957,
which is the source of its authority. For that matter, PD 957 would have expressly required the
written approval of the HLURB before any stoppage of amortization payments if it so intended,
in the same manner that the decree specifically mandates written consent or approval by the
NHA (now the HLURB) in Section 18.

xxxx

Apropos, to require clearance from the HLURB before stopping payment would not be in
keeping with the intent of the law to protect innocent buyers of lots or homes from scheming
subdivision developers. To give full effect to such intent, it would be fitting to treat the right to
stop payment to be immediately effective upon giving due notice to the owner or developer or
upon filing a complaint before the HLURB against the erring developer. Such course of action
would be without prejudice to the subsequent determination of its propriety and consequences,
should the suspension of payment subsequently be found improper.30 (Italics supplied)

Section 4 of the realty installment act directs as follows in case a buyer defaults in the payment
of succeeding installments where he has paid less than two years of installments, as in
petitioner’s case:

SECTION 4. In case where less than two years of installments were paid, the seller shall give
the buyer a grace period of not less than sixty days from the date the installment became due.

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

As noted earlier, petitioner, by letter of December 24, 1986, informed respondents that he
desisted from further paying monthly installments and that he would resume payment if the
development of the subdivision had been completed. Yet respondents sent no notarized notice
or any notice of cancellation at all. In fact, it was only after petitioner filed on July 24, 1997 the
complaint before the HLURB that respondents offered to reimburse petitioner of the total
amount he had already paid.

The contract not having been cancelled in accordance with law, it has remained valid and
subsisting. It was, therefore, within petitioner’s right to maintain his option to await the
completion of the development of and introduction of improvements in the subdivision and
thereafter, upon full payment of the purchase price, without interest, compel respondents to
execute a deed of absolute sale.

The decision of the OP, however, which passed upon the sale of the lot to Abijar whom it found
to be a buyer in good faith and for value – basis of its ruling that petitioner can no longer
exercise above-said right, which decision was deemed affirmed too by the appellate court, does
not lie. For, the subsequent sale was brought to light by respondents only while their appeal was
pending before the OP, and as correctly argued by petitioner, Abijar was not a party to the case.
Parenthetically, the records of the case do not bear whether the deed of absolute sale in favor
of Abijar was in fact registered, and TCT No. T-74582 in the name of respondents was indeed
cancelled and TCT No. T-292279 in the name of Abijar was issued in its stead. As petitioner
points out, what was appended to the records of the OP was a plain uncertified photocopy of
TCT No. T-292279.

The decision of the OP which was deemed affirmed by the appellate court ordering a full refund
of the installment payments of petitioner in the amount of P59,706.00 and the release to
petitioner of the amount of P270,537.00 he had consigned does not lie too, for under the law,
petitioner is entitled to the lot he contracted to purchase after payment of the outstanding
balance which he was ready and willing to do.31

If the sale of the lot to Abijar is eventually declared valid, respondents should refund petitioner
its actual value as resold to Abijar, to bear 12% interest per annum computed from the date of
such sale until fully paid or deliver a substitute lot at the option of petitioner. So this Court
instructs in Active Realty and Development Corporation v. Daroya:32
 In the case at bar, respondent offered to pay for her outstanding balance of the contract price
but respondent refused to accept it. Neither did petitioner adduce proof that the respondent's
offer to pay was made after the effectivity date stated in its notice of cancellation. Moreover,
there was no formal notice of cancellation or court action to rescind the contract. Given the
circumstances, we find it illegal and iniquitous that petitioner, without complying with the
mandatory legal requirements for canceling the contract, forfeited both respondent's land and
hard-earned money after she has paid for, not just the contract price, but more than the
consideration stated in the contract to sell.

Thus, for failure to cancel the contract in accordance with the procedure provided by law, we
hold that the contract to sell between the parties remains valid and subsisting. Following Section
3(a) of R.A. No. 6552, respondent has the right to offer to pay for the balance of the purchase
price, without interest, which she did in this case. Ordinarily, petitioner would have had no other
recourse but to accept payment. However, respondent can no longer exercise this right as the
subject lot was already sold by the petitioner to another buyer which lot, as admitted by the
petitioner, was valued at P1,700.00 per square meter. As respondent lost her chance to pay for
the balance of the P875,000.00 lot, it is only just and equitable that the petitioner be ordered
to refund to respondent the actual value of the lot resold, i.e., P875,000.00, with 12% interest
per annum computed from August 26, 1991 until fully paid or to deliver a substitute lot at the
option of the respondent. (Italics in the original; underscoring supplied)

This Court, not being a trier of facts, thus resolves to remand the case to the HLURB for a
proper determination of the respective rights of the parties vis a vis the alleged sale of the lot to
Abijar in accordance with the foregoing discussions.

MACEDA LAW VS. RECTO LAW

Difference between the Recto Law and the Maceda Law
The fundamental difference between the two pieces of legislation is how they are put into
practice. Civil Code articles 1484 to 1486 regulate the sale of personal property via
installment . Real estate purchases on an installment basis are covered under the Maceda
Law or Republic Act No. 6552 . Residential properties are specifically addressed under this
legislation, which is also known as the Realty Installment Buyer Act.

To be eligible for the Maceda Law's benefits, a buyer of real estate must meet specific
requirements. There is just a 60-day grace period for those who've paid less than two
years' worth of payments. If the buyer has an unpaid balance or unpaid installments, the
seller has the right to give the buyer notice of cancellation of the contract, which the buyer
may cancel thirty days after receiving it. Once every five years, a buyer who has paid off
more than two years' worth of payments may request a grace period of one month for each
year that has been paid. If the contract is terminated, the buyer may be entitled to half of
the payments paid, plus an extra 5% for each subsequent year, up to a maximum of 50%.

The Recto Law, on the other hand, offers the following three options to cancel a contract
instead of a cumulative choice:
 Demand payment
 Cancel the sale
 Foreclose the mortgage

To be eligible for any of the remedies, the buyer must have missed two or more payments.
Recto Law or the Installment Sales Law
The Recto Law protects those who acquire personal property on installment rather than
real property. Legislation known as the Installment Sales Law was enacted in 1933 by
Senator Claro M. Recto, dubbed the "Great Academician" for his accomplishments in
academia. Its primary function is to guard against seller misuse in cases that a buyer is
unable to make additional payments on a property.

In the Philippines, it was enacted on December 9th, 1933, by the National Assembly.
Section 1454-A was included in the Civil Code of 1889 (Código Civil) to update a specific
section of the code.

Although it was originally designed for those who wanted to acquire personal property in
installments, it was employed in a specific circumstance when a lease agreement had no
clear option to buy. Rather than just renting out the personal property, the agreement
stated that it would be purchased following the alleged completion of the contractual
obligations.

Who is covered by the Recto Law?

Both the buyer and seller of personal property are affected by this rule. As the lessor and
the lessee, the parties may also be referred to in certain instances. Personal property
mortgages may also be governed by this law, as can some transactions between a
mortgagor and the mortgagee.

This does not apply, however, to direct purchases in which a down payment has been
made and an agreed-upon payment schedule has been established.

In the event that the Recto Law is violated, the seller may face the same repercussions as
the buyer. In order for the seller to exercise the other remedies, they would have to choose
one. This means the seller cannot attempt to collect any further payments if a buyer
previously returned their personal item to them. If the seller goes to court for more than one
reason, it will be seen as a waste of time. The buyer would be forced to incur extra costs
that are most likely to be reimbursed by a seller who made a mistake.

Maceda Law or the Realty Installment Buyer Act

If you are an investor in real estate or a buyer of real estate who pays for it in installments,
you are protected under the Maceda Law or the Realty Installment Buyer Act of the
Philippines. Buyers who fail to make payments on such transactions are likewise covered
by this section, which details their rights. Ex-senator Ernesto Maceda drafted the
legislation, which was approved by the Legislature on August 26, 1972.

Buyers of real estate on installment payments protection

Section 2 of RA 6552 says that the protection of purchasers of real estate on installment
plans against onerous and oppressive conditions is to be designated a national policy.

A buyer's right to protection exists for two distinct groups of eligible individuals. RA 6552
defines a qualified buyer as one who has paid at least two years of installments in all
transactions or contracts involving the sale or financing of real estate on installments.
Condominiums, apartments, and homes are among the assets included, although industrial
lands, commercial buildings, and sales of properties to current tenants are not.
In contrast, under Section 4, a qualifying buyer is someone who has acquired any of the
above-mentioned properties but has made payments totaling less than two years' worth of
principal and interest alone.

Cash surrender value

Buyers who fail on their installment payments are allowed, under RA 6552 Section 3, to pay
the delinquent installments or the cash surrender value due within the whole grace period
they have earned free of extra interest. The overall grace time has been set at a grace
period of one month for every year of installment payments paid. Only once per five years
of the contract and its renewals may the buyer use for this entitlement.

If the contract is terminated, the seller is required to reimburse the buyer for the cash
surrender value of the payments made on the property, which is equal to half of the entire
amount paid. After five years of payments, an extra 5% per year will be added, but not to
exceed 90% of the total payments paid.

This implies that consumers are entitled to refunds and grace periods as long as they have
paid for at least two years under Section 3 of RA 6552.

Buyers' and developers' rights under Section 4

Section 4 of RA 6552, in contrast to Section 3, deals with situations in which the buyer has
paid less than two years' worth of payments. The buyer is entitled to a grace period of at
least 60 days in this situation. It's based on the date when the payment was due.

However, the project developer is authorized to terminate the contract if the buyer fails to
pay any outstanding payments after a grace period of 30 days has expired. However, the
project developer must first inform the buyer of the cancellation or the demand for
rescission of the contract. The cancellation or rescinding of a contract may only take effect
30 days after the notification or demand has been given by a notary public.

Is the Maceda Law applicable if I pay using bank financing?

Choosing a bank-issued mortgage implies that the real estate developer's balance has
already been paid in full by the bank via the loan. By taking out the loan, you have
effectively paid the whole purchase price. Monthly payments to the bank will no longer be
for the remaining purchase price but for the loan itself, interest accrued on the principal
loan, and any fees that may have been incurred or will be imposed in the future.

RA 6552 or the Maceda Law would no longer apply since you are no longer paying in
installments because the purchase price of the property has been paid in whole. Hence,
you are solely responsible for the loan amount now that the purchase price has been
completely paid.

Spouses Sebastian vs. BPI

The protection of Republic Act No. 6552 (Realty Installment Buyer Protection Act) does not cover a
loan extended by the employer to enable its employee to finance the purchase of a house and lot.
The law protects only a buyer acquiring the property by installment, not a borrower whose rights are
governed by the terms of the loan from the employer.

RULING: The petition for review has no merit.

The petitioners could not raise the applicability of Republic Act No. 6552, or the strict
construction of the loan agreement for being a contract of adhesion as issues for the first time
either in their motion for reconsideration or in their petition filed in this Court. To allow them to
do so would violate the adverse parties’ right to fairness and due process. As the Court held in
S.C. Megaworld Construction and Development Corporation v. Parada:26

It is well-settled that no question will be entertained on appeal unless it has been raised in the
proceedings below. Points of law, theories, issues and arguments not brought to the attention of
the lower court, administrative agency or quasi-judicial body need not be considered by the
viewing court, as they cannot be raised for the first time at that late stage. Basic considerations
of fairness and due process impel this rule. Any issue raised for the first time on appeal is
barred by estoppel.

The procedural misstep of the petitioners notwithstanding, the Court finds no substantial basis
to reverse the judgments of the lower courts.

Republic Act No. 6552 was enacted to protect buyers of real estate on installment payments
against onerous and oppressive conditions.27 The protections accorded to the buyers were
embodied in Sections 3, 4 and 5 of the law, to wit:

Section 3. In all transactions or contracts, involving the sale or financing of real estateon
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-Eight
hundred forty-four as amended byRepublic Act Sixty-three hundred eighty-nine, where the
buyer has paid atleast two years of installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at that rate of one month grace period for
every one year of installment payments made; provided, That this right shall be
exercised by the Buyer only once in every five years of the life of the contract and its
extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty percent of the total payments
made, and, after five years of installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made; Provided, That the actual
cancellation or the demand for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the
total number of installment payments made.

SECTION 4. In case where less than two years of installments were paid, the seller shall give
the buyers a grace period of not less than sixty days from the date the installment become due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
SECTION 5. Under Section 3 and 4,the buyer shall have the right to sell his rights or assign the
same to another person or to reinstate the contract by updating the account during the grace
period and before actual cancellation of the contract. The deed of sale or assignment shall be
done by notarial act.

Having paid monthly amortizations for two years and four months, the petitioners now insist that
they were entitled to the grace period within which to settle the unpaid amortizations without
interest provided under Section 3, supra.28 Otherwise, the foreclosure of the mortgaged property
should be deemed premature inasmuch as their obligation was not yet due and demandable.29

The petitioners’ insistence would have been correct if the monthly amortizations being paid to
BPI Family arose from a sale or financing of real estate. In their case, however, the monthly
amortizations represented the installment payments of a housing loan that BPI Family had
extended to them as an employee’s benefit. The monthly amortizations they were liable for was
derived from a loan transaction, not a sale transaction, thereby giving rise to a lender-borrower
relationship between BPI Family and the petitioners. It bears emphasizing that Republic Act No.
6552 aimed to protect buyers of real estate on installment payments, not borrowers or
mortgagors who obtained a housing loan to pay the costs of their purchase of real estate and
used the real estate as security for their loan. The "financing of real estate in installment
payments" referred to in Section 3, supra, should be construed only as a mode of payment vis-
à-vis the seller of the real estate, and excluded the concept of bank financing that was a type of
loan. Accordingly, Sections 3, 4 and 5, supra, must be read as to grant certain rights only to
defaulting buyers of real estate on installment, which rights are properly demandable only
against the seller of real estate.

Thus, in Luzon Brokerage Co., Inc. v.Maritime Building Co., Inc.,30 the Court held:

Congress in enacting in September 1972 Republic Act 6552 (the Maceda law), has by law
which is its proper and exclusive province (and not that of this Court which is not supposed to
legislate judicially) has taken care of Justice Barredo’s concern over "the unhappy and helpless
plight of thousands upon thousands of subdivision buyers" of residential lots.

The Act even in residential properties recognizes and reaffirms the vendor's right to cancel the
contractto sell upon breach and non-payment of the stipulated installments but requires a grace
period after at least two years of regular installment payments (of one month for every one year
of installment payments made, but to be exercise by the buyer only once in every five years of
the life of the contract) with a refund of certain percentages of payments made on account of the
cancelled contract (starting with fifty percent with gradually increasing percentages after five
years of installments). In case of industrial and commercial properties, as in the case at bar, the
Act recognizes and reaffirms the Vendor's right unqualifiedly to cancel the sale upon the buyer's
default.

The petitioners purchased the real estate from PHILVILLE Realty, 31 not from BPI Family.
Without the buyer-seller relationship between them and BPI Family, the provisions of Republic
Act No. 6552 were inapplicable and could not be invoked by them against BPI Family.

Apart from relying on the grace period provided in Republic Act No. 6552 to assert the
prematurity of the foreclosure of the mortgage, 32 the petitioners argue that the foreclosure of the
mortgage was null and void because BPI Family’s acceptance of their late payments estopped it
from invoking sanctions against them.33 They further argue that the printed conditions appearing
at the back of BPI Family’s official receipt, 34 which the CA cited to affirm the validity of the
foreclosure, partook of a contract of adhesion that must be strictly construed against BPI Family
as the party who prepared the same.35

The petitioners’ arguments do not persuade. To reiterate, their reliance on Republic Act No.
6552 was misplaced because its provisions could not extend to a situation bereft of any seller-
buyer relationship. Hence, they could not escape the consequences of the maturity of their
obligation by invoking the grace period provided in Section 3, supra.

Orbe vs. Filinvest

When Republic Act No. 6552 or the Maceda Law speaks of paying "at least two years of
installments" in order for the benefits under its Section 3[1] to become available, it refers to the
buyer's payment of two (2) years' worth of the stipulated fractional, periodic payments due to the
seller. When the buyer's payments fall short of the equivalent of two (2) years' worth of
installments, the benefits that the buyer may avail of are limited to those under Section 4.
[2]
Should the buyer still fail to make payments within Section 4's grace period, the seller may
cancel the contract. Any such cancellation is ineffectual, however, unless it is made through a
valid notarial act.

RULING: The Petition for Review on Certiorari is GRANTED.

The Court of Appeals correctly held that petitioner was not entitled to benefits under Section 3 of
Republic Act No. 6552 as she had failed to pay two (2) years' worth of installments pursuant to
the terms of her original agreement with respondent. It also correctly held that with the shortage
in petitioner's payment, what applies is Section 4, instead of Section 3. This means that
respondent could cancel the contract since petitioner failed to pay within the 60-day grace
period.

The Court of Appeals, however, failed to realize that the notice of cancellation made by
respondent was an invalid notarial act. Failing to satisfy all of Section 4's requisites for a valid
cancellation, respondent's cancellation was ineffectual. The contract between petitioner and
respondent should then be deemed valid and subsisting.[45] Considering however, that
respondent has since sold the lot to another person, an equitable ruling is proper. Therefore,
this Court rules in a manner consistent with how it resolved Olympia Housing v. Panasiatic
Travel,[46] Pagtalunan v. Vda. de Manzano,[47] Active Realty and Development v. Daroya,
[48]
Associated Marine Officers and Seamen's Union of the Philippines PTGWO-ITF v. Decena,
[49]
and Gatchalian Realty v. Angeles.[50]
Republic Act No. 6552, the Realty Installment Buyer Act or more popularly referred to as the
Maceda Law, named after its author, the late Sen. Ernesto Maceda, was adopted with the
purpose of "protect[ing] buyers of real estate on installment payments against onerous and
oppressive conditions."[51] It "delineat[es] the rights and remedies of . . . buyers and protect[s]
them from one-sided and pernicious contract stipulations":[52]

Its declared public policy is to protect buyers of real estate on installment basis against onerous
and oppressive conditions. The law seeks to address the acute housing shortage problem in our
country that has prompted thousands of middle and lower class buyers of houses, lots and
condominium units to enter into all sorts of contracts with private housing developers involving
installment schemes. Lot buyers, mostly low income earners eager to acquire a lot upon which
to build their homes, readily affix their signatures on these contracts, without an opportunity to
question the onerous provisions therein as the contract is offered to them on a "take it or leave
it" basis. Most of these contracts of adhesion, drawn exclusively by the developers, entrap
innocent buyers by requiring cash deposits for reservation agreements which often times
include, in fine print, onerous default clauses where all the installment payments made will be
forfeited upon failure to pay any installment due even if the buyers had made payments for
several years. Real estate developers thus enjoy an unnecessary advantage over lot buyers
who[m] they often exploit with iniquitous results. They get to forfeit all the installment payments
of defaulting buyers and resell the same lot to another buyer with the same exigent conditions.
To help especially the low income lot buyers, the legislature enacted R.A. No. 6552 delineating
the rights and remedies of lot buyers and protect[ing] them from one-sided and pernicious
contract stipulations.[53]

Having been adopted with the explicit objective of protecting buyers against what it recognizes
to be disadvantageous and onerous conditions, the Maceda Law's provisions must be liberally
construed in favor of buyers. Within the bounds of reason, fairness, and justice, doubts in its
interpretation must be resolved in a manner that will afford buyers the fullest extent of its
benefits.

Laws should never be so interpreted as to produce results that are absurd or unreasonable.
[58]
Sustaining petitioner's contention that spe falls within Section 3's protection just because she
has been paying for more than two (2) years goes beyond a justified, liberal construction of the
Maceda Law. It facilitates arbitrariness, as intermittent payments of fluctuating amounts would
become permissible, so long as they stretch for two (2) years. Worse, it condones an absurdity.
It sets a precedent that would endorse minimal, token payments that extend for two (2) years. A
buyer could, then, literally pay loose change for two (2) years and still come under Section 3's
protection.

Reckoning payment of "at least two years of installments" on the basis of the regular, factional
payments due from the buyer was demonstrated in Marina Properties Corp. v. Court of Appeals.
[59]
There, the monthly amortization of P67,024.22 was considered in determining the validity of
the cancellation of the contract by the seller:

We likewise uphold the finding that MARINA's cancellation of the Contract To Buy and To Sell
was clearly illegal. Prior to MARINA's unilateral act of rescission, H.L. CARLOS had already
paid P1,810,330.70, or more than 50% of the contract price of P3,614,000.00. Moreover, the
sum H.L. CARLOS had disbursed amounted to more than the total of 24 installments, i.e., two
years' worth of installments computed at a monthly installment rate of P67,024.22, inclusive of
the downpayment.[60]

In Jestra Development and Management Corporation v. Pacifico,[61] where down payment was
itself payable in portions, this Court reckoned the monthly installment payment for the down
payment amounting to P121,666.66, rather than the monthly amortization. This Court justified
this by referencing Section 3's injunction that "[d]own payments, deposits or options on the
contract shall be included in the computation of the total number of installment payments
made":

The total purchase price of the property is P2,500,000. As provided in the Reservation
Application, the 30% down payment on the purchase price or P750,000 was to be paid in six
monthly installments of P121,666.66. Under the Contract to Sell, the 70% balance of
P1,750,000.00 on the purchase price was to be paid in 10 years through monthly installments of
P34,983, which was later increased to P39,468 in accordance with the agreement to restructure
the same.

While, under the above-quoted Section 3 of R.A. No. 6552, the down payment is included in
computing the total number of installment payments made, the proper divisor is neither P34,983
nor P39,468, but P121,666.66, the monthly installment on the down payment.

The P750,000 down payment was to be paid in six monthly installments. If the down payment of
P750,000 is to be deducted from the total payment of P846,600, the remainder is only P96,600.
Since respondent was able to pay the down payment in full eleven (11) months after the last
monthly installment was due, and the sum of P76,600 representing penalty for delay of payment
is deducted from the remaining P96,600, only a balance of P20,000 remains.

As respondent failed to pay at least two years of installments, he is not, under above-quoted
Section 3 of R.A. No. 6552, entitled to a refund of the cash surrender value of his payments. [62]
Jestra was wrong to use the installment payments on the down payment as divisor. It is an error
to reckon the payment of two (2) years' worth of installments on the apportionment of the down
payment because, even in cases where the down payment is broken down into smaller, more
affordable portions, payments for it still do not embody the ratable apportionment of the contract
price throughout the entire duration of the contract term. Rather than the partial payments for
the down payment, it is the partition of the contract price into monthly amortizations that
manifests the ratable apportionment across a complete contract term that is the essence of
sales on installment. The correct standard is that which was used in Marina, not in Jestra.

Marina also correctly demonstrated how Section 3's injunction that "[d]own payments, deposits
or options on the contract shall be included in the computation of the total number of installment
payments made" should operate. In Marina, the total amount of P1,810,330.70 paid by the
buyer was inclusive of payments for down payment worth P1,034,200.00 and cash deposit
worth P50,000.00. In concluding that the buyer in Marina had paid more than two (2) years' or
24 months' worth of installments, what this Court considered was the total amount of
P1,810,330.70 and not merely the payments on amortizations.

Following Marina, this Court reckons petitioner's satisfaction of the requisite two (2) years' or 24
months' worth of installments using as divisor the monthly amortizations due from petitioner.
However, this Court notes that the mon1hly amortizations due from petitioner were stipulated to
escalate on a yearly basis. In keeping with the need to construe the Maceda Law in a manner
favorable to the buyer, this Court uses as basis the monthly amortizations set for the first
year, i.e., P27,936.84. With this as the divisor, it shall appear that petitioner has only paid
21.786 months' worth of installments. This falls short of the requisite two (2) years' or 24
months' worth of installments.

To be effective, sellers' cancellations under the Maceda Law must strictly comply with the
requirements of Sections 3 and 4. This Court clarifies here that with respect to notices of
cancellation or demands for rescission by notarial act, an acknowledgement is imperative.
Moreover, when these are made through representatives of juridical persons selling real
property, the authority of these representatives must be duly demonstrated. For corporations,
the representative's authority must have either been granted by a board resolution or existing in
the seller's articles of incorporation or by-laws.

With the Maceda Law's avowed purpose of extending benefits to disadvantaged buyers and
liberating them from onerous and oppressive conditions, it necessarily follows that the Maceda
Law's permission for sellers to cancel contracts becomes available only when its conditions are
heedfully satisfied. No liberal construction of the Maceda Law can be made in favor of the seller
and at the same time burdening the buyer

There being no valid cancellation, the purchase agreement between petitioner and respondent
"remains valid and subsisting."[86] However, respondent has already sold the lot purchased by
petitioner to a certain Ruel Ymana.[87]
Considering that it did not validly cancel its contract with petitioner and has also sold the lot to
another person, it is proper that respondent be ordered to refund petitioner. This refund shall not
be the full, actual value of the lot resold, as was ordered in Active and Gatchalian, lest petitioner
be unjustly enriched. Rather, it shall only be the amount actually paid by petitioner to
respondent, i.e., P608,648.20. In view of Nacar v. Gallery Frames, this amount shall be subject
to legal interest at the rate of twelve percent (12%) per annum reckoned from the filing of
petitioner's Complaint[100] until June 30, 2013; and six percent (6%) per annum from July 1, 2013
until fully paid

Royal Plain view vs. Mejia

RULING: The instant petition is PARTLY GRANTED. This Court agrees with the CA that the
April 11, 2007 Deed of Conditional Sale executed between the parties is a contract to sell.
Pertinent portion of the agreement indicative that it is a contract to sell reads:

That for and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00) Philippine
currency, receipt of which is hereby acknowledged from the VENDEE, the VENDOR does
hereby SELL, CEDE, TRANSFER and CONVEY unto the said VENDEE, its heirs[,] successors,
executors and assigns, the above-mentioned property subject to the terms and conditions
herein set forth:
x x x x

e. And upon full payment of the agreed consideration the Vendor shall execute the deed of
absolute sale in favor of the Vendee.52

As worded, the Deed of Conditional Sale dated April 11, 2007 (which substitutes the earlier
Deed of Conditional Sale dated March 23, 2005 except that there was already a down payment
made) provides that upon full payment of the agreed consideration, the vendor shall execute the
deed of absolute sale in favor of the vendee. 53 This stipulation evinces the intention of the
parties for the vendor (respondent) to reserve ownership of the land and the same is not to pass
until the remaining balance (payable in 40 monthly installments) has been fully paid by the
vendee (petitioners). As fortified by this Court in the case of Diego v. Diego:54

It is settled jurisprudence, to the point of being elementary, that an agreement which stipulates
that the seller shall execute a deed of sale only upon or after full payment of the purchase price
is a contract to sell, not a contract of sale. In Reyes v. Tuparan, this Court declared in
categorical terms that where the vendor promises to execute a deed of absolute sale upon the
completion by the vendee of the payment of the price, the contract is only a contract to sell. The
aforecited stipulation shows that the vendors reserved title to the subject property until full
payment of the purchase price.

However, contrary to the findings of the CA, the protection55 provided under R.A. No. 6552
(Maceda Law) is not applicable. Notwithstanding the parties' stipulation for installment
payments, wherein the payment of the price is more than one, the parties' contract to sell does
not automatically fall under the coverage of the Maceda Law. R.A. No. 6552 provides exclusions
for its application. Thus:

Section 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments. (Underscoring supplied)
It is clear that the buyer's protection under R.A. No. 6552 only applies to contracts of sale of real
estate on installment payments, including residential condominium apartments,
but excluding industrial lots, commercial buildings and sales to tenants. A purchase by a
company involved in the real estate business, just like the petitioners in this case, of a six-
hectare lot can hardly be considered as residential. This is the same interpretation conveyed in
the case of Spouses Garcia v. Court of Appeals,56 when this Court held that the subject lands,
comprising five parcels and aggregating 69,028 square meters, do not comprise residential real
estate within the contemplation of the Maceda Law. Moreso in this case where it was shown
that petitioner Corporation is already engaged in the selling of the portions of the said lots to
individual buyers.

But this is not to say that sellers in a contract to sell of industrial and commercial lots are
precluded to cancel the contract when buyers defaulted in one installment. The old case
of Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.57 made it clear that R.A. No. 6552 or
the Maceda Law expressly recognizes the vendor's right of cancellation of sale on installments
of industrial and commercial properties with full retention of previous payments. In the said
case, the Supreme Court En Bane held:

The enactment on September 14, 1972 by Congress of Republic Act No. 6552 entitled "An Act
to Provide Protection to Buyer[s] of Real Estate on Installment Payments" which inter
alia compels the seller of real estate on installments (but excluding industrial lots, commercial
buildings among others from the Act's coverage) to grant one month's grace period for every
one year of installments made before the contract to sell may be cancelled for non-payment of
the installments due forecloses any overturning of this Court's long-established
jurisprudence. Republic Act 6552 recognizes in conditional sales of all kinds of real estate
(industrial and commercial as well as residential) the non-applicability of Article 1592 (1504)
Civil Code to such contracts to sell on installments and the right of the seller to cancel the
contract (in accordance with the established doctrine of this Court) upon non-payment "which is
simply an event that prevents the obligation of the vendor to convey title from acquiring binding
force." (Manuel v. Rodriguez, 109 Phil. 1, 10, per Reyes, J.B.L.). The Act in modifying the terms
and application of Art. 1592 Civil Code reaffirms the vendor's right to cancel unqualifiedly in the
case of industrial lots and commercial buildings (as in the case at bar) and requires a grace
period in other cases, particularly residential lots, with a refund of certain percentages of
payments made on account of the cancelled contract.58 (Underscoring supplied)

In other words, whether the property is residential, commercial or industrial, Maceda Law does
not make any distinction insofar as the availability of the remedy of cancellation by the seller in
case of nonpayment of installments is concerned. The only distinction lies on the added
protection given by the law to residential buyers, which is not enjoyed by commercial and
industrial lot buyers. Indeed, the Maceda Law addressed the predicament of thousands upon
thousands of residential property buyers who, in the words of this Court, are hounded to suffer
the loss of their life earnings only because of an oversight or difficulty in paying one or two
installments.59 This is not the case for industrial or commercial lot buyers, who, the law
perceives to have deep pockets. To quote the verbatim pronouncement of this Court:

The Act even in residential properties recognizes and reaffirms the vendor's right to cancel the
contract to sell upon breach and [nonpayment] of the stipulated installments but requires a
grace period after at least two years of regular installment payments (of one month for every
one year of installment payments made, but to be exercise[d] by the buyer only once in every
five years of the life of the contract) with a refund of certain percentages of payments made on
account of the cancelled contract (starting with fifty percent with gradually increasing
percentages after five years of installments). In case of industrial and commercial properties, as
in the case at bar, the Act recognizes and reaffirms the Vendor's right unqualifiedly to cancel the
sale upon the buyer's default.60
It is clear by the said provision that in case of industrial and commercial properties, the seller
can unqualifiedly cancel the sale upon the buyer's default.

A careful reading of the notarized "Rescission of Deed of Conditional Sale" executed by

respondent Nestor reveals that he availed of the remedy of rescission apparently because
petitioners defaulted in the payment of their monthly installment in the amount of
P150,000.00.61 Obviously, respondent Nestor used the word "rescission" in a loose sense. To
say that a contract to sell is rescissible is quite misplaced. Jurisprudence abounds with rulings
that the remedies of rescission, under Articles 119162 and 159263 of the Civil Code, are not
available in contracts to sell. This Court succinctly explains:

The respondent court did not err when it did not apply Articles 1191 and 1592 of the Civil Code
on rescission to the case at bar. The contract between the parties is not an absolute
conveyance of real property but a contract to sell. In a contract to sell real property on
installments, the full payment of the purchase price is a positive suspensive condition, the failure
of which is not considered a breach, casual or serious, but simply an event which prevented the
obligation of the vendor to convey title from acquiring any obligatory force. The transfer of
ownership and title would occur after full payment of the purchase price.64

The breach contemplated in Article 1191 of the Civil Code is the obligor's failure to comply with
an obligation already extant, not a failure of a condition to render binding that obligation. 65 Article
1592, on the other hand, speaks of nonpayment of the purchase price as a resolutory
condition.66 It permits the buyer to pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by notarial
act. However, Article 1592 does not apply to a contract to sell where the seller reserves the
ownership until full payment of the price.67

This only lends credence to the rule that rescission in its technical sense is not proper in a
contract to sell. Such that failure to pay the price agreed upon is not a mere breach, casual or
serious, rather, nonpayment is a condition that prevents the obligation from acquiring an
obligatory force.68 This is entirely different from the situation in a contract of sale, where
nonpayment of the price is a negative resolutory condition. The effects in law are not identical.
In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it,
unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor
remains the owner for as long as the vendee has not complied fully with the condition of paying
the purchase price.69 Strictly speaking, in a contract to sell, there can be no rescission or
resolution of an obligation that is still non-existent due to the non-happening of the suspensive
condition.70
Considering the foregoing, as well as the pronouncement by this Court in the Luzon
Brokerage case, it follows then that respondent Nestor's act of rescinding the Deed of
Conditional Sale, or, more correctly, canceling it, is theoretically valid and the parties shall stand
as if the obligation to sell never existed. 71 The reason is not that respondent Nestor has the
power to rescind such contract, but because their obligation thereunder did not arise. 72

However, while we recognize the seller's right to unqualifiedly cancel the contract to sell (of
industrial or commercial properties) upon the buyer's default, as pronounced in the earlier cited
case of Luzon Brokerage,73 such cancellation must be made with notice to the other party who
failed to perform his end part of the bargain. This gives the opportunity to the other party to
question the cancellation made on account of error, abuse or any other grounds. Such that this
time, the burden of instituting an action is shifted from the injured party to the defaulter.

Indeed, the act of a party in treating a contract as cancelled or resolved on account of

infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. 74 Thus, in the old case
of University of the Philippines v. De Los Angeles,75 the Court, through Justice Jose B.L. Reyes,
underscored the necessity of judicial validation of unilateral rescission, to wit:

In other words, the party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not require that the
contracting party who believes itself injured must first file suit and wait for a judgment before
taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's
breach will have to passively sit and watch its damages accumulate during the pendency of the
suit until the final judgment of rescission is rendered when the law itself requires that he should
exercise due diligence to minimize its own damages.

In the same manner that in unilateral cancellation of contracts to sell, notice to the other party is
important. If the other party perceives that the cancellation of the contract is not proper, he/she
is free to question and raise his/her objection to the court. It is the court who will settle once and
for all if the cancellation is warranted. Thus:

[I]n every case where the extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in
this sense that judicial action will be necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation, unless attack thereon should become
barred by acquiescence, estoppel or prescription.76

Guided by the foregoing pronouncements, respondent Nestor's action in canceling (through a

notarized Rescission of Conditional Sale) the contract to sell is unjustified.

First. There was no showing that respondent Nestor made a demand (judicially or
extrajudicially) to pay the remaining balance at the moment petitioners failed to pay the monthly
installment due for December 2009. Technically speaking, petitioners have not incurred in
delay, and thus, were not yet in default. Under Article 1169 of the Civil Code, one incurs in delay
or is in default from the time the obligor demands the fulfillment of the obligation from the
obligee.77 The circumstances upon which demand is no longer necessary do not obtain in the
instant case. Nowhere from the contract between the parties did they stipulate on waiver of
demand.
Second. It appearing that payment was still not made, there is no showing that respondent
Nestor sent a notice to petitioners informing them that he is already canceling the contract to
sell or, at the very least, his intent to cancel the said contact. Then again, notice will now give
petitioners the opportunity either to agree with the cancellation or question it before the courts.

Considering that the Deed of Conditional Sale was not validly cancelled, it follows then that the
same subsists and remains effective.

In the given case, the contract price involved is P8,000,000.00 and the petitioners already paid
the substantial amount of P3,567,500.00 as found by the CA. 78 This is almost half of the
purchase price. Thus, for equitable consideration, this Court will give leeway to petitioners to
pay the balance of the unpaid purchase price within a reasonable period of time. In the case
of Reyes v. Tuparan,79 the Court was likewise confronted with the situation where there has
already been payment of a substantial amount and thus, it deemed it right and just to allow the
respondent therein to settle, within a reasonable period of time, the balance of the unpaid
purchase price.

In a normal setting, this Court would have entrusted to the trial court the determination of the
proper amount to be paid and the period within which to pay. However, by doing so, this Court
will merely prolong the proceedings and delay the relief that the parties are duly entitled to. As
such, this Court finds it proper to set the date wherein petitioners should tender the amount due.
Therefore, petitioners are given a period of 60 days from finality of this Decision 80 to settle the
amount of P4,432,500.00 representing the unpaid balance of the P8,000,000.00 contract price,
less the payments already made. Damages in the form of interest pursuant to Article 2209 of the
Civil Code, viz.:

If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six
percent per annum.

is not warranted. Article 2209 governs transactions involving the payment of indemnity in the
concept of damages arising from delay in the discharge of obligations consisting of the payment
of a sum of money.81 There was no showing that petitioners incurred in delay. As discussed,
records show that respondent Nestor never made a demand for petitioners to pay.

Neither are petitioners entitled to damages. In the case of Reyes v. Tuparan,82 this Court denied
petitioner's prayer for moral, temperate, liquidated or compensatory damages, and exemplary
damages for the reason that the case involves a contract to sell, wherein full payment of the
purchase price is a positive suspensive condition, the non-fulfillment of which is not a breach of
contract, but merely an event that prevents the seller from conveying title to the
purchaser.83 Since there was no breach of contract in this case, there can be no damages to
speak of.

Petitioners, however, are not entirely fault-free. It is undisputed that petitioners were remiss in
their obligation to pay the remaining balance as of December 2009. Because of petitioners'
failure to fully pay the purchase price, respondent Nestor is under no obligation, and may not be
compelled, to convey title to petitioners and receive the full purchase price. 84 Hence, their prayer
for specific performance (to deliver the title to them) cannot be granted.
The remedy of refund prayed for by petitioners is also not proper. Since the Deed of Conditional
Sale remains valid and subsisting, the amount paid by petitioners cannot be returned as this
option is not part of the parties' stipulation under the said Deed.

The prayer of petitioners for this Court to honor their gentlemen's agreement of dividing the
subject lots between them, since they could no longer pay the balance, cannot likewise be
granted. Apart from the fact that said gentlemen's agreement was not sufficiently established by
clear and competent evidence, the amount paid is still not sufficient to cover the portion of the
lot being prayed for. Besides, mere inability to pay is not a justifiable reason to renege on one's
contractual obligation.

Vive Eagle Land vs. NHMFC

RULING: The court rule in favor of the respondent

In the first place, it has not escaped the Court's attention that the argument was raised for the
first time before the Court, not in Vive's Petition for Review on Certiorari, but only in its Motion
for Reconsideration. It is a rudimentary principle of law that matters neither alleged in the
pleadings nor raised during the proceedings below cannot be ventilated for the first time on
appeal before the Supreme Court. It would be offensive to the basic rules of fair play and justice
to allow Vive to raise an issue that was not brought up before the trial court and appellate court.
While it is true that litigation is not a game of technicalities, it is equally true that elementary
considerations of due process require that a party be duly apprised of a claim against him
before judgment may be rendered.61

But even if We make an exception and give due course to the belated assertion, Vive's
argument still would not alter the outcome of the case. Contrary to Vive's claims, the Maceda
Law does not apply to the instant contract to sell.

In Active Realty Development Corporation v. Daroya,62 the Court unequivocally pronounced that
the declared policy of the Maceda Law is to protect the innocent, low-income buyers of real
estate who are eager to acquire property upon which to build their homes from the exploitative
and onerous installment schemes of private housing developers who get to forfeit all payments
upon default by the buyer and resell the same property under the same exigent conditions. We
elucidated in the following wise:cralawred

The contract to sell in the case at bar is governed by Republic Act No. 6552 — "The Realty
Installment Buyer Protection Act," or more popularly known as the Maceda Law — which came
into effect in September 1972. Its declared public policy is to protect buyers of real estate on
installment basis against onerous and oppressive conditions. The law seeks to address the
acute housing shortage problem in our country that has prompted thousands of middle- and
lower-class buyers of houses, lots and condominium units to enter into all sorts of contracts with
private housing developers involving installment schemes. Lot buyers, mostly low-income
earners eager to acquire a lot upon which to build their homes, readily affix their signatures on
these contracts, without an opportunity to question the onerous provisions therein as the
contract is offered to them on a "take it or leave it" basis. Most of these contracts of adhesion,
drawn exclusively by the developers, entrap innocent buyers by requiring cash deposits for
reservation agreements which oftentimes include, in fine print, onerous default clauses where all
the installment payments made will be forfeited upon failure to pay any installment due even if
the buyers' had made payments for several years. Real estate developers thus enjoy an
unnecessary advantage over lot buyers who they often exploit with iniquitous results. They get
to forfeit all the installment payments of defaulting buyers and resell the same lot to another
buyer with the same exigent conditions. To help especially the low-income lot buyers, the
legislature enacted R.A. No. 6552 delineating the rights and remedies of lot buyers and protect
them from one-sided and pernicious contract stipulations.63

Seen in the foregoing light, the Court, in Spouses Garcia v. Court of Appeals, refused to apply
the Maceda Law to the contract to sell between buyers, the Spouses Garcia, and seller,
Emerlita Dela Cruz, covering five (5) parcels of land in Cavite. There, the spouses refused to
pay the last installment claiming to have discovered an infirmity on the subject lots.
Consequently, Dela Cruz rescinded their contract and sold the property to another buyer. When
the spouses questioned Dela Cruz' rescission, the Court ruled that their contract was clear in
the sense that Dela Cruz had the right to cancel the contract upon the failure of the spouses to
pay the purchase price on the stipulated dates. In particular, We held that while the Maceda
Law applies to contracts of sale of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to
tenants, the subject lands, comprising five (5) parcels and aggregating 69,028 square meters,
do not comprise residential real estate within the contemplation of the Maceda Law.64

By the same token, the Court, in Spouses Dela Cruz v. Court of Appeals, ruled that the Maceda
Law does not govern the contract to sell entered into by sellers, the Spouses Dela Cruz and
buyers, the Spouses Aguila, of a house located in Town and Country Executive Village,
Antipolo, Rizal, because it is not a contract involving a subdivision owner or developer but only
between two couples, i.e., the original house-owners and the subsequent buyers of the house
and lot.65

Guided by the foregoing precepts, the Court cannot apply the provisions of the Maceda Law to
the present case. The contract to sell herein is between Vive, a corporation engaged in the
realty business, and NHMFC, a government corporation mandated to increase the availability of
loans for Filipinos who seek to acquire their own homes by operating a secondary market for
home mortgages.66 As such, it is rather obvious that the contract before Us is not the kind of
onerous contract of adhesion under the Maceda Law drawn up by private real estate developers
designed to entrap innocent low-income earners by requiring installment payments for several
years only to be forfeited by the former upon failure to make a single payment. In fact, Vive, the
buyer of the subject property, has been insisting that it was an essential consideration of the
contract for Vive to be able to use the property as collateral for a loan to develop the same into
a residential subdivision. It cannot be denied, therefore, that Vive is not the "innocent, low-
income buyer" that the Maceda Law was enacted to protect. Neither is NHMFC the "real estate
developer" that said law intends to regulate in order to prevent the enjoyment of any
unnecessary exploitation. To repeat, the Maceda law was enacted to remedy the plight of low
and middle-income lot buyers, save them from the exacting default clauses in real estate sales,
and assure them of a home they can call their own.67

In a last-ditch effort to protect its interests, Vive similarly raised for the first time in its Motion for
Reconsideration that even assuming that the rescission effected by NHMFC was valid, the
lower courts should have ordered mutual restitution and that the parties surrender that which
they received and to place each other in their original position. Referring to its efforts in
cleansing the title of the property from adverse claims, Vive added that NHMFC should not be
permitted to benefit therefrom especially when it conveniently sold the property to Cavacon only
after the legal issues affecting it had been resolved. The Court remains unconvinced. For one,
there is no proof of NHMFC's bad faith in allegedly waiting for the resolution of the legal issues
before it decided to sell the property to Cavacon. As NHMFC asserted, Vive did not present any
evidence to show when it became aware of the said resolution. For another, We go back to the
provisions of the contract itself, the pertinent portions of which state:cralawred

WHEREAS, pursuant to the disposition policies under Board Resolution No. 2391, dated June
23, 1994, VENDOR was authorized to sell and convey whatever rights, interests, and
participation it has on "as is where is basis" the property of ALYANSA NG MGA MAKA
MARALITANG ASOSASYON AT KAPATIRANG ORGANISASYON, INC. (AMAKO), X X X.

WHEREAS, VENDEE has full knowledge of the nature and extent of the VENDOR's rights,
interests, and participation over the foreclosed property subject of this contract
including pending litigation involving claims of alleged tenants to the property.

xxxx

Section 5: EFFECTS OF DEFAULT

Upon the occurrence of an event of default, NHMFC shall have the right to:cralawred

xxxx

5.2 VENDOR shall then be at liberty to dispose of the same as if this Deed of Sale of Rights,
Interest and participation over Foreclosed Assets has never been made, and in the event of
such annulment, the sums of money paid shall be considered and treated as rentals for the
occupancy and use of the property and VENDEE waives all rights to ask or demand the
return hereof. VENDEE further agrees to peacefully and quickly vacate the property. All
permanent I fixed improvements found in the premises shall belong to the VENDOR without
liability on the part of VENDOR to reimburse VENDEE of the cost of said improvements;

xxxx

Section 9. EJECTMENT

VENDEE at his own expense assumes responsibility of ejecting squatters and/or

occupants of the property, if any.68

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control. A court's purpose in examining a contract is to interpret the intent of the
contracting parties, as objectively manifested by them. Where the written terms of the contract
are not ambiguous and can only be read one way, the court will interpret the contract as a
matter of law.69 The contract to sell executed by the parties herein could not be any clearer. In a
language too clear to be mistaken, Vive entered into the agreement fully aware of the nature
and condition of the subject property and expressly assumed responsibility over the pending
legal issues affecting the same. It also deliberately waived all its rights to demand for the return
of any and all amounts it had paid NHMFC prior to its commission of an event of default. As
such, and as We have declared above, Vive cannot now be permitted to put the blame on
NHMFC or the issues affecting the property for its failure to adhere to the clear provisions of the
contract.

Stripped of all complexities, the simple fact remains that Vive failed to comply with its obligation
to pay the stipulated amounts for the purchase of the property subject of the agreement. This
comprises as an event of default which, under the contract, produces the following
effects:cralawred

Section 5: EFFECTS OF DEFAULT

Upon the occurrence of an event of default, NHMFC shall have the right to:cralawred

5.1 Declare the contract annulled I cancelled. VENDEE shall forfeit and waive whatever
rights he might have acquired over the property.
5.2 VENDOR shall then be at liberty to dispose of the same as if this Deed of Sale of
Rights, Interest and participation over Foreclosed Assets has never been made, and
in the event of such annulment, the sums of money paid shall be considered and
treated as rentals for the occupancy and use of the property and VENDEE waives all
rights to ask or demand the return hereof. VENDEE further agrees to peacefully and
quickly vacate the property. All permanent I fixed improvements found in the premises shall
belong to the VENDOR without liability on the part of VENDOR to reimburse VENDEE of
the cost of said improvements; x x x.70

Indubitably, by the clear and express provisions of the agreement, the default on the part of Vive
unequivocally gave NHMFC the right to: (1) annul and cancel the contract; (2) dispose of the
property as if the contract was never executed; and (3) treat the sums of money paid by Vive as
rentals for the latter's use and occupancy thereof. As a matter of fact, Vive even consciously
and categorically waived any and all rights to demand for the return of the sums of money it paid
to NHMFC. It is for this reason that the Court cannot give credence to Vive's argument that the
subsequent sale between NHMFC and Cavacon was entered into in bad faith. As far as
NHMFC was concerned, it was merely acting in accordance with the provisions of the contract
to sell, having every right to dispose of the property as if the sale of the same to Vive was never
executed. As the Court similarly held in Spouses Garcia v. Court of Appeals,71 Dela Cruz, the
seller of the property, was within her rights to sell the subject lands to another buyer as a result
of the Spouses Garcia's failure to pay the balance of the purchase price on the stipulated date
of their contract to sell.

All told, the Court finds no cogent reason to reverse the conclusions reached by the appellate
court. At the risk of being repetitive, Vive consistently failed to pay the balance of the purchase
price on the date and in the manner prescribed by the contract to sell. Unfortunately for Vive,
moreover, this failure could not be justified by its contentions that ownership was already
transferred to it in the absolute sense, that it was granted a moratorium or that the issues
inherent in the subject property suspended all subsequent payments. The provisions of the
contract are clear. To begin with, the agreement executed by the parties is a contract to sell as
shown by the fact that NHMFC expressly reserved its title to the subject property. As such,
Vive's non-payment constituted an event of default that granted NHMFC the right to cancel their
contract. The argument that Vive was granted a moratorium on the collection period hardly
persuades in the absence of proof that NHMFC 's board of directors approved the same or that
NHMFC authorized its officers to grant the suspension on its behalf.
At the end of the day, there is no denying that Vive was well aware of the complications
surrounding the property. Yet, despite knowledge of the pending issues, Vive still endeavored to
acquire the lots and even assumed all responsibility for the resolution thereof. It cannot,
therefore, take refuge on this condition of the property as an excuse for its breach of contract.
Thus, in view of Vive's failure to comply with its obligations under the agreement, We rule that
NHMFC validly cancelled the same. That the cancellation was not executed in compliance with
the Maceda Law is of little relevance for said law is inapplicable to the present contract.
Ultimately, as a legal consequence of Vive's default, and by the express authority of the
agreement, NHMFC cannot be faulted for selling the property to Cavacon. The subsequent
transaction entered into between NHMFC and Cavacon is, therefore, valid.

Spouses Francisco vs. Battung

RULING: This Court finds the instant petition unmeritorious

In the present case, the nature of the Deed was incidentally passed upon in the action for
unlawful detainer to determine the rights of petitioners and respondent relative to the ownership
of the subject land so as to determine who is entitled to possession thereto. Then again, such
determination of ownership based on the Deed is provisional, thus, not a conclusive
adjudication on the merits of the case. Thus, the CA was not precluded to revisit the issue on
the nature of the Deed and make its ascertainment based on the facts and evidence on record.

The CA appropriately revived the issue on the true nature of the Deed, considering that the
determination of the same was necessary for the complete and just resolution of the case.

With respect to the second issue, petitioners argue that they were the ones who filed the partial
appeal of the RTC Decision with the CA assailing only the correct amount of the balance of the
purchase price, the correct interest rate, and the correct interest period. They asserted that the
matter concerning the nature of the Deed as a contract of sale was not an assigned error and as
such, the CA should not have considered it.50

Section 8, Rule 51, of the Rules of Court provides that as a general rule, only matters assigned
as errors in the appeal may be resolved. As an exception thereto, the CA may review errors that
are not assigned but are closely related to or dependent on an assigned error and is given
discretion if it finds that the consideration of such is necessary for a complete and just resolution
of the case.51

Applying the foregoing to this case, the determination of the nature of the Deed was indeed
necessary for the complete and just resolution of the case. After all, establishing the true nature
of the Deed would set forth the contractual rights and obligations of petitioners and respondent.
It would clarify who is legally vested with the ownership of the subject land. Consequently, the
CA cannot be faulted for re-examining the contractual relations of petitioners and respondent
based on the Deed.

At this juncture, it is imperative for the Court to finally conclude the true nature of the Deed.
Based on the provisions of the Deed, the CA is correct in ruling that the Deed is a contract to
sell and not a contract of sale.

In Diego v. Diego,52 the Court held that an agreement stipulating that the execution of the deed
of sale shall be contingent on the full payment of the purchase price is a contract to sell, thus:
It is settled jurisprudence, to the point of being elementary, that an agreement which stipulates
that the seller shall execute a deed of sale only upon or after full payment of the purchase price
is a contract to sell, not a contract of sale. In Reyes v. Tuparan, this Court declared in
categorical terms that "[w]here the vendor promises to execute a deed of absolute sale upon the
completion by the vendee of the payment of the price, the contract is only a contract to sell. The
aforecited stipulation shows that the vendors reserved title to the subject property until full
payment of the purchase price."

In this case, it is not disputed as in fact both parties agreed that the deed of sale shall only be
executed upon payment of the remaining balance of the purchase price. Thus, pursuant to the
above stated jurisprudence, we similarly declare that the transaction entered into by the parties
is a contract to sell.53 (Citation omitted)

Clause 2(b) of the Deed readily reveals that respondent shall only execute the Deed and
transfer the title over the subject land in favor of petitioners upon full payment of the purchase
price:

b. That the Deed of absolute sale of the above-described lot shall only be executed in favor of
the vendee upon the full payment of the full (sic) amount of the purchase price in the amount of
P346,400.00 and after which the title shall be transferred in the name of the vendee.54

Resultantly, given that the ownership over the subject land was retained by respondent until full
payment by "petitioners of the purchase price," the Deed is a contract to sell.

Petitioners cannot avail of the rights of the buyer under Section 3 of RA No. 6552 because they
did not diligently and consistently satisfy the legal requirement of paying at least two (2) years of
installments.

Regarding the third issue, petitioners assert that granting that the Deed was a contract to sell
and given that the subject land is a residential lot and that respondent received in open court the
sum of P107,560.00 in consideration of the Deed, RA No. 6552 would apply. Thus, they claim
that before the Deed was cancelled, the following requirements under Section 3 thereof should
have been complied with: (1) receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by notarial act and (2) full payment of the cash surrender value to the
buyer. They point out that these requisites were not satisfied in this case.55

RA No. 6552 expressly grants the buyer, who must have paid at least two (2) years of
installments, the following rights:

Section 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-
nine, where the buyer has paid at least two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for
every one year of installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its
 extensions, if any. (b) If the contract is canceled, the seller shall refund to the buyer the
cash surrender value of the payments on the property equivalent to fifty per cent of the
total payments made, and, after five years of installments, an additional five per cent
every year but not to exceed ninety per cent of the total payments made: Provided, That
the actual cancellation of the contract shall take place after thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the
total number of installment payments made. (Emphasis supplied)

In Orbe v. Filinvest Land, Inc.,56 the Court emphasized that "at least two years of installments"
means the "equivalent of the totality of payments diligently or consistently made throughout a
period of two (2) years,"

When Section 3 speaks of paying "at least two years of installments," it refers to the equivalent
of the totality of payments diligently or consistently made throughout a period of two (2) years.
Accordingly, where installments are to be paid on a monthly basis, paying "at least two years of
installments" pertains to the aggregate value of 24 monthly installments. As explained
in Gatchalian Realty v. Angeles:

It should be noted that Section 3 of R.A. 6552 and paragraph six of Contract Nos. 2271 and
2272, speak of "two years of installments." The basis for computation of the term refers to the
installments that correspond to the number of months of payments, and not to the number of
months that the contract is in effect as well as any grace period that has been given. Both the
law and the contracts thus prevent any buyer who has not been diligent in paying his monthly
installments was unduly claiming the rights provided in Section 3 of R.A. 6552. (Emphasis
supplied)

The phrase "at least two years of installments" refers to value and time. It does not only
refer to the period when the buyer has been making payments, with total disregard for
the value that the buyer has actually conveyed. It refers to the proportionate value of the
installments made, as well as payments having been made for at least two (2) years.

Laws should never be so interpreted as to produce results that are absurd or unreasonable.
Sustaining petitioner's contention that was falls within Section 3's protection just because she
has been paying for more than two (2) years goes beyond a justified, liberal construction of the
Maceda Law. It facilitates arbitrariness, as intermittent payments of fluctuating amounts would
become permissible, so long as they stretch for two (2) years. Worse, it condones an absurdity.
It sets a precedent that would endorse minimal, token payments that extend for two (2) years. A
buyer could, then, literally pay loose change for two (2) years and still come under Section 3's
protection.57 (Citation omitted)

In this case, petitioners did not diligently and consistently pay at least two (2) years of monthly
installments. As pointed by the CA, instead of paying P5,000.00 monthly effective March 30,
1997, they merely paid small amounts, i.e., P300.00, P500.00, P700.00, P1,000.00, P1,500.00,
P2,000.00, or P2,500.00, from time to time, thus:

In fact, there is evidence showing that [petitioners] were unable to pay the amount due within
the period fixed in the Deed. Instead of paying P5,000.00 monthly effective March 30, 1997 until
the amount of P173,000.00, representing one-half (1/2) of the purchase price, is paid, they
failed to complete it and only paid small amounts, i.e., P300, P500, P700, P1,000.00,
P1,500.00, P2,000.00, or P2,500.00, from time-to-time. [Celia] also admitted, on cross-
examination, that she failed to complete the payment of P173,000.00 corresponding to the other
half of the purchase price that fell due on December 30, 1999.58

Clearly, petitioners are unjustifiably claiming their rights under Section 3 of R.A. No. 6552. They
failed to faithfully comply with the requirement of paying their monthly installments for two (2)
years and yet they have the audacity to invoke Section 3. Treating the receipt by respondent in
open court of the sum of P107,560.00 in consideration of the Deed as substantial compliance by
petitioners of the provisions of Section 3 would be unfair and defiant of the purpose of RA No.
6552. It would tolerate arbitrariness on the part of the buyer when satisfying his monetary
obligations to the seller.

There could no longer be a performance of the Deed upon petitioners' failure to pay the
purchase price of the subject land in accordance with the terms of the Deed.

REMEDIES OF BUYER FOR BREACH OF WARRANTY BY SELLER

Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:

(1) Accept or keep the goods and set up against the seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against the seller for damages for the
breach of warranty;

(3) Refuse to accept the goods, and maintain an action against the seller for damages for
the breach of warranty;

(4) Rescind the contract of sale and refuse to receive the goods or if the goods have already
been received, return them or offer to return them to the seller and recover the price or
any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways, no
other remedy can thereafter be granted, without prejudice to the provisions of the
second paragraph of article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the sale if he
knew of the breach of warranty when he accepted the goods without protest, or if he fails
to notify the seller within a reasonable time of the election to rescind, or if he fails to
return or to offer to return the goods to the seller in substantially as good condition as
they were in at the time the ownership was transferred to the buyer. But if deterioration
or injury of the goods is due to the breach or warranty, such deterioration or injury shall
not prevent the buyer from returning or offering to return the goods to the seller and
rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be
liable for the price upon returning or offering to return the goods. If the price or any part
 thereof has already been paid, the seller shall be liable to repay so much thereof as has
been paid, concurrently with the return of the goods, or immediately after an offer to
return the goods in exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to
accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to
hold the goods as bailee for the seller, but subject to a lien to secure the payment of any
portion of the price which has been paid, and with the remedies for the enforcement of
such lien allowed to an unpaid seller by article 1526.

(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to the buyer and the value they
would have had if they had answered to the warranty. (n)

Philippine Steel vs. Quinones

RULING: The instant Petition is DENIED

The nonpayment of the unpaid purchase price was justified, since a breach of warranty
was proven.

Petitioner takes issue with the nonpayment by Quinones to PhilSteel of a balance of

₱448,041.50, an amount that he has duly admitted. 27 It is the nonpayment of the unpaid
balance of the purchase price, of the primer-coated G.I. sheets that is at the center of the
present controversy.

Quinones, through counsel, sought damages against petitioner for breach of implied warranty
arising from hidden defects under Article 156 l of the Civil Code, which provides:

The vendor shall be responsible for warranty against the hidden defects which the thing sold
may have, should they render it unfit for the use for which it is intended, or should they diminish
its fitness for such use to such an extent that, had the vendee been aware thereof he would not
have acquired it or would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or for those which are not visible if
the vendee is an expert who, by reason of his trade or profession, should have known them.

In seeking a remedy from the trial court, Quinones opted not to pay the balance of the purchase
price, in line with a proportionate reduction of the price under Article 1567 Civil Code, which
states:

In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with
damages in either case.

Petitioner reasons that since the action of respondent is based on an implied warranty, the
action has already prescribed under Article 1571 28 of the Civil Code. According to petitioner,
Quinones can no longer put up the defense of hidden defects in the product sold as a basis for
evading payment of the balance. 29
We agree with petitioner that the nonpayment of the balance cannot be premised on a mere
allegation of nonexisting warranties. This Court has consistently ruled that whenever a breach of
warranty is not proven, buyers who refuse to pay the purchase price - or even the unpaid
balance of the goods they ordered - must be held liable therefor.30

However, we uphold the finding of both the CA and the RTC that petitioner's breach of warranty
was proven by respondent.

Since what was proven was express warranty, the remedy for implied warranties under Article
1567 of the Civil Code does not apply to the instant case. Instead, following the ruling of this
Court in Harrison Motors

Corporation v. Navarro,31 Article 1599 of the Civil Code applies when an express warranty is
breached.1awp++i1 The provision reads:

Where there is a breach of warranty by the seller, the buyer may, at his election:

(l) Accept or keep the goods and set up against the seller, the breach of warranty by way
of recoupment in diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against the seller for damages for
the breach of warranty;

(3) Refuse to accept the goods, and maintain an action against the seller for damages
for the breach of warranty;

(4) Rescind the contract of sale and refuse to receive the goods or if the goods have
already been received, return them or offer to return them to the seller and recover the
price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these
ways, no other remedy can thereafter be granted, without prejudice to the
provisions of the second paragraph of article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the sale if
he knew of the breach of warranty when he accepted the goods without protest,
or if he fails to notify the seller within a reasonable time of the election to rescind,
or if he fails to return or to offer to return the goods to the seller in substantially as
good condition as they were in at the time the ownership was transferred to the
buyer. But if deterioration or injury of the goods is due to the breach or warranty,
such deterioration or injury shall not prevent the buyer from returning or offering
to return the goods to the seller and rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease
to be liable for the price upon returning or offering to return the goods. If the price
or any part thereof has already been paid, the seller shall be liable to repay so
much thereof as has been paid, concurrently with the return of the goods, or
immediately after an offer to return the goods in exchange for repayment of the
price.
 Where the buyer is entitled to rescind the sale and elects to do so, if the seller
refuses to accept an offer of the buyer to return the goods, the buyer shall
thereafter be deemed to hold the goods as bailee for the seller, but subject to a
lien to secure the payment of any portion of the price which has been paid, and
with the remedies for the enforcement of such lien allowed to an unpaid seller by
article 1526.

(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to the buyer and the value they
would have had if they had answered to the warranty.

Quinones has opted for a reduction in price or nonpayment of the unpaid balance of the
purchase price. Applying Article 1599 (1), this Court grants this remedy.

The above provisions define the remedy of recoupment in the diminution or extinction of price in
case of a seller's breach of warranty. According to the provision, recoupment refers to the
reduction or extinction of the price of the same item, unit, transaction or contract upon which a
plaintiffs claim is founded. 32

In the case at bar, Quinones refused to pay the unpaid balance of the purchase price of the
primer-coated G.I. sheets PhilSteel had delivered to him. He took this action after complaints
piled up from his customers regarding the blistering and peeling-off of the paints applied to the
bus bodies they had purchased from his Amianan Motors. The unpaid balance of the purchase
price covers the same G .I. sheets. Further, both the CA and the RTC concurred in their finding
that the seller's breach of express warranty had been established. Therefore, this Court finds
that respondent has legitimately defended his claim for reduction in price and is no longer liable
for the unpaid balance of the purchase price of ₱448,04l.50

EQUITABLE MORTGAGE
ARTICLE 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee
as rent or otherwise shall be considered as interest which shall be subject to the usury laws. (n)

Heirs of Soliva vs. Soliva

RULING: The 1970 Conditional Sale with Pacto de Retro is a true sale, not an equitable
mortgage under Article 1602 of the Civil Code

An equitable mortgage is one which, although lacking the proper formalities, form or words, or
other requisites prescribed by law for a mortgage, nonetheless shows the real intention of the
parties to make the property subject of the contract as security for debt and contains nothing
impossible or anything contrary to law in this intent.31

A contract of sale, whether an absolute sale or with a right of repurchase, is presumed by law to
be an equitable mortgage under any of the following circumstances:32

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:

1. When the price of a sale with right to repurchase is unusually inadequate;

2. When the vendor remains in possession as lessee or otherwise;

3. When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;

4. When the purchaser retains for himself a part of the purchase price;

5. When the vendor binds himself to pay the taxes on the thing sold;

6. In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee
as rent or otherwise shall be considered as interest which shall be subject to the usury
laws.33 For the presumption of an equitable mortgage to arise under any of the circumstances
enumerated in Article1602, however, two requisites must concur: (a) that the parties entered
into a contract denominated as a contract of sale; and (b) that their intention was to secure an
existing debt by way of mortgage.34

The CA debunked Antero’s argument that the 1970 Pacto de Retro Sale was an equitable
mortgage because it found nothing which supports his theory that the "sale with right to
repurchase was executed to secure a debt."35 Moreover, it pointed out that Cenon’s
administration of the property from 1962 up to his death in 1987 indubitably shows that he had,
all the while, been in constructive possession of the property.

We uphold these findings of the CA as we equally find nothing on the records that supports a
contrary conclusion.36 More than this, we uphold the CA’s ruling on this issue for the following
reasons:
First, Cenon immediately declared in his name the property sold and had continuously paid
taxes for it, sourced from the property’s income. As an owner, Cenon has the right to the
property’s fruits and income which he could freely dispose of according to his discretion. Thus,
contrary to Antero’s claim, Cenon’s payment of the taxes from the property’s income is in fact
consistent with his exercise of ownership rights over the property.

Second, Cenon and his children benefited from the property’s produce.

Third, Juana, as the vendor a retro, never questioned the nature of the 1970 Pacto de Retro
sale as a mortgage, nor argued that in reality it was intended to secure a debt.

Fourth, other than his bare allegation, Antero (with the plaintiffs a quo) did not present any
evidence to prove that what the parties to the 1970 Sale a Retro actually intended was to secure
a debt, instead of a true sale. Neither did they prove that she entered into the Pacto de Retro
sale believing in good faith that it was one of mortgage.

Further, the records show that Cenon entered into the Pacto de Retro sale to prevent Juana
from continuously mortgaging and encumbering the property. 37 Antero never controverted this
fact.

And fifth, Antero (or the plaintiffs a quo) failed to prove bad faith on Cenon’s part in entering into
the Pacto de Retro sale with Juana. Absent factual and legal basis, we cannot simply accept
Antero’s bad faith argument. Bad faith is never presumed, while good faith is always presumed;
on Antero rested the burden of proving bad faith on Cenon’s part, a burden which he failed to
discharge.38

Of course, we did not fail to notice the clause in the 1970 Deed stating that "after the lapse of
said period the parties may execute another document for any extension of the right of
repurchase."39 Antero equates this with Article 1602 (3) of the Civil Code which states that
"[w]hen upon or after the expiration of the right to repurchase, another instrument extending the
period of redemption or granting a new period is executed."

This clause alone, however, did not and cannot sufficiently give the 1970 Pacto de Retro sale
the character of an equitable mortgage.1âwphi1 Note that the clause used the word "may" in
allowing the parties to execute another contract to extend the right of repurchase. "May" is a
permissive word which simply provides for a situational possibility – of extending Juana’s
exercise of her repurchase right – that, in this case did not even materialize.

Thus, in the absence of any evidence which shows intent, on the part of Juana and Cenon, to
enter into a mortgage or to use the property sold to secure a debt; or of any fact or circumstance
which may reasonably lead this Court to conclude the existence of such intent, we cannot but
be convinced that the transaction covered by the 1970 Deed is a true and valid sale, not an
equitable mortgage.

Finally, we are not unaware of the equitable-mortgage presumption that the law accords in
situations when doubt exists as to the true intent of the parties to the contract. 40 This legal
presumption, however, applies only when doubt, in fact, exists as to the nature of the agreement
of the parties.
When no doubt exists from the facts and the evidence, and the parties to the transaction
(specifically Juana as the vendor a retro in this case), never questioned the nature of their
agreement as one of mortgage, then this legal presumption shall not and cannot apply. After all,
the contract is the law between them and where its terms are clear and leaves no doubt on their
intention, the courts would have no choice but to uphold them

Sy vs. De Vera-Manalo
RULING: Upon examination of the records of the instant case, the Court finds that there was no
reason for the CA to reverse the RTC's correct finding that an equitable mortgage exists in the
instant case. The purported contract of sale between petitioner John and respondent De Vera-
Navarro is an equitable mortgage and not a legitimate contract of sale.

An equitable mortgage is defined as one which although lacking in some formality, or form or
words, or other requisites demanded by a statute, nevertheless reveals the intention of the
parties to charge real property as security for a debt, and contains nothing impossible or
contrary to law.

Its essential requisites are: (1) that the parties entered into a contract denominated as a contract
of sale; and (2) that their intention was to secure an existing debt by way of a mortgage.

Article 1602 of the Civil Code states that a contract shall be presumed to be an equitable
mortgage in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties
is that the transaction shall secure the payment of a debt or the performance of any
other obligation.

In fact, the Court has previously ruled that when in doubt, courts are generally inclined to
construe a transaction purporting to be a sale as an equitable mortgage, which involves a lesser
transmission of rights and interests over the property in controversy.

Applying the foregoing to the instant case, the Court finds that the presence of at least four
badges of an equitable mortgage creates a very strong presumption that the purported (alleged)
contract of sale entered between petitioner John and respondent De Vera-Navarro is an
equitable mortgage.

First, it is not disputed by any party that the supposed vendor of the subject property, petitioner
John, remains to be in possession of the subject property despite purportedly selling the latter to
respondent De Vera-Navarro. It is uncanny for a supposed buyer to desist from taking
possession over property which he/she has already purchased.

Second, the purchase price of the purported sale indicated in the undated Deed of Absolute
Sale is inadequate.
The inadequacy of the purchase price is even confirmed by the acts of respondent De Vera-
Navarro herself. As noted by the RTC, respondent De Vera-Navarro was able to mortgage the
subject property with Landbank of the Philippines for an amount of P13,000,000.00.
Respondent De Vera-Navarro also sold the subject property to respondent BHTLI for the same
amount of P13,000,000.00

Third, the evidence on record shows that respondent De Vera-Navarro retained for herself the
supposed purchase price. Aside from the testimony of petitioner John that no consideration was
paid at all for the supposed contract of sale, the RTC also noted that no proof was presented by
respondent De Vera-Navarro that she actually parted with the sum of P5,000,000.00 in favor of
petitioner John pursuant to the undated Deed of Absolute Sale.

Fourth, from the evidence presented by petitioners Sps. Sy, it is established that the real
intention of the parties is for the purported contract of sale to merely secure the payment of their
debt owing to respondent De Vera Navarro.

Jurisprudence consistently shows that the presence of even one of the circumstances
enumerated in Article 1602 suffices to convert a purported contract of sale into an equitable
mortgage. The existence of any of the circumstances defined in Article 1602 of the New Civil
Code, not the concurrence nor an overwhelming number of such circumstances, is sufficient for
a contract of sale to be presumed an equitable mortgage

PERIOD FOR EXERCISE OF RIGHT OF REDEMPTION (CONVENTIONAL REDEMPTION)

Article 1606. The right referred to in article 1601, in the absence of an express agreement, shall
last four years from the date of the contract.

Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the basis that the contract was a true sale with
right to repurchase. (1508a)

Cebu State College vs. Misterio

RULING: The court ruled in favor of petitioners.

In the present case, the Deed of Sale executed by the parties provide for a right to repurchase
the subject property upon the occurrence of either of two suspensive conditions, particularly: (1)
the cessation of existence of SAHS; or (2) the transfer of SAHS to another school site.

In cases of conventional redemption when the vendor a retro reserves the right to repurchase
the property sold,27 the parties to the sale must observe the parameters set forth by Article 1606
of the New Civil Code, which states:

Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall
last four years from the date of the contract.

Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the basis that the contract was a true sale with
right to repurchase. (Emphasis supplied)

Thus, depending on whether the parties have agreed upon a specific period within which the
vendor a retro may exercise his right to repurchase, the property subject of the sale may be
redeemed only within the limits prescribed by the aforequoted provision.

In the Decision dated June 23, 2005,this Court ruled that since petitioner and respondents in
this case did not agree on any period for the exercise of the right to repurchase the property
herein, respondents may use said right within four (4) years from the happening of the allocated
conditions contained in their Deed of Sale: (a) the cessation of the existence of the SAHS, or (b)
the transfer of the school to other site.28 However, due to respondents’ failure to exercise their
right to redeem the property within the required four (4) years from the time when SAHS had
ceased to exist, or from June 10, 1983, the date of effectivity of BP Blg. 412, this Court held that
respondents are barred by prescription.

Despite this, respondents nevertheless insist on the redemption of the subject property pursuant
to the second suspensive condition, namely, petitioner’s transfer of its school site. Applicable
law and jurisprudence, however, runs contrary to respondents’ stance.

As early as 1913, this Court had already enunciated an unfavourable notion against a prolonged
uncertainty with respect to the ownership and tenure of real property, to wit:

Under the Partidas, as under the Roman Law, no attempt was made to limit the duration of
contracts with pacto de retro. Unless limited by the contract of the parties, it was generally held
that the right to repurchase was perpetual. By its decision of May 12, 1875, the supreme court
of Spain first attempted to place a restriction upon the length of such contracts by holding that
they gave rise to a personal action of prescription in accordance with the law on prescription of
actions. (23 Scaevola. 767.) In the recent times, however, practically all those countries where
such sales are recognized have found it advisable to limit the time within which the right of
redemption can be exercised.(4 Bonel's Com. on the Civil Code, 519.) As stated in Yadao vs.
Yadao (20 Phil. Rep., 260): "A pacto de retro is, in a certain aspect, the suspension of the title to
the land involved. We are of the opinion that it was the intention of the legislature to limit the
continuance of such a condition, with the purpose that the title to the real estate in question
should be definitely placed, it being, in the opinion of the legislature, against public policy to
permit such an uncertain condition relative to the title to real estate to continue for more than ten
years."29

Consistent with such view, this Court frowned upon agreements indicating indefinite stipulations
for the exercise of the right to repurchase and restricted the redemption period to ten (10) years
from the date of the contract of sale, in consonance with the provisions of the Civil Code.
Accordingly, when vendors a retro were granted the right to repurchase properties sold "at any
time they have the money," "in the month of March of any year," or "at any time after the first
year," this Court had not hesitated in imposing the ten (10)-year period, the expiration of which
effectively bars redemption of the subject properties. 30 Similarly, there have been numerous
Occasions31 wherein We invalidated stipulations permitting the repurchase of property only after
the lapse of at least ten (10) years from the date of the execution of the contract for being in
contravention of the limitation mandated by the Civil Code provision. Waivers of such period
were likewise held to be void for being against public policy.32
Furthermore, this Court deemed it necessary to keep within the ten (10)-year period those
instances where parties agree to suspend the right until the occurrence of a certain time, event,
or condition, insofar as the application of the four (4)-year period in the first paragraph of Article
1606 Civil Code would prolong the exercise of the right beyond ten (10) years. Thus, in Rosales
v. Reyes,33 We held that in cases where the four (4)-year period would extend the life of the
contract beyond ten (10) years, the vendor a retro will only have the remainder of the said ten
(10)-year period to redeem the property, in line with the manifest spirit of the law. 34 When, for
instance, the contract provides that the right may only be exercised after seven (7), eight (8), or
nine (9) years after the execution of the sale, the vendor a retro may only redeem the property
before the expiration of the ten (10)-year period from the date of the sale. In line with this,
Umale v. Fernandez, et. al.35 pronounces that the period of redemption agreed upon by the
parties may be extended after the four (4)-year period so long as the total period does not
exceed ten (10) years from the date of the contract.

As elucidated in Badayos v. Court of Appeals:36

While the counting of this four-year period shall begin from the execution of the contract, where
the right is suspended by agreement until after a certain time, event or condition, the period
shall be counted from the time such right could be exercised, but not exceeding ten (10) years
from the execution of the contract. Applying the provision to the instant case, the period to
repurchase the property must be deemed to be four (4) years from 9 March 1975 or until 9
March 1979.37 In the instant case, while the four(4)-year period was counted from the time the
right to repurchase could be exercised or when the SAHS ceased to exist, even beyond ten (10)
years from the execution of the deed of sale, one must not nevertheless lose sight of the
fundamental spirit and intent of the law which have been upheld in jurisprudence, time and time
again, viz.: The question of the period within which the repurchase may be made is unanimously
considered as a question of public interest. It is not a good thing that the title to property should
be left for a long period of time subject to indefinite conditions of this nature. For this reason, the
intention of the law is restrictive and limitative.(10 Manresa)

A long term for redemption renders the tenure of property uncertain and redounds to its
detriment, for neither does the precarious holder cultivate the ground with the same interest as
the owner, nor does he properly attend to the preservation of the building, and owing to the fact
that his enjoyment of the property is temporary, he endeavours above all to derive the greatest
benefit therefrom, economizing to that end even the most essential expenses.38

Hence, while the occurrence of the second suspensive condition may give rise to a separate
cause of action, the same must always be taken in conjunction with the periods prescribed by
law insofar as they frown upon the uncertainty of titles to real property. Otherwise, vendors may
simply impose several resolutory conditions, the happening of each will practically extend the
life of the contract beyond the parameters set forth by the Civil Code. This is certainly not in line
with the spirit and intent of the law. To permit respondents to exercise their right to repurchase
upon the happening of the second resolutory condition, when they utterly failed to timely
exercise the same upon the happening of the first, would effectively result in a circumvention of
the periods expressly mandated by law.

To repeat, Article 1606 expressly provides that in the absence of an agreement as to the period
within which the vendor a retro may exercise his right to repurchase, the same must bed one
within four (4) years from the execution of the contract. In the event the contract specifies a
period, the same cannot exceed ten (10) years. Thus, whether it be for a period of four (4) or ten
(10) years, this Court consistently implements the law and limits the period within which the right
to repurchase may be exercised, adamantly striking down as illicit stipulations providing for an
unlimited right to repurchase. Indubitably, it would be rather absurd to permit respondents to
repurchase the subject property upon the occurrence of the second suspensive condition,
particularly, the relocation of SAHS on October 3, 1997, the time when petitioner ceded the
property to the Province of Cebu, which is nearly forty-one (41) years after the execution of the
Deed of Sale on December 31, 1956. This Court must, therefore, place it upon itself to suppress
these kinds of attempts in keeping with the fundamentally accepted principles of law.

Indeed, the freedom to contract is not absolute. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. 39 When the conditions in a
contract manifest an effective circumvention of existing law and jurisprudence, it is incumbent
upon the courts to construe the same in accordance with its ultimate spirit and intent.
WHEREFORE, premises considered, the instant petition is GRANTED. The Decision dated July
25, 2007 of the Court Appeals in CAG.R. CV No. 77329 is REVERSED and SET ASIDE.

Saclolo vs. Marquito

RULING: The Petition has merit

An equitable mortgage, like any other mortgage, is a mere accessory contract "constituted to
secure the fulfillment of a principal obligation,"42 i.e., the full payment of the loan.

Since the true transaction between the parties was an equitable mortgage and not a sale with
right of repurchase, there is no "redemption" or "repurchase" to speak of and the periods
provided under Article 1606 do not apply. Instead, the prescriptive period under Article 1144 43 of
the Civil Code is applicable. In other words, the parties had 10 years from the time the cause of
action accrued to file the appropriate action.

A review of the records unequivocally shows that the parties faithfully abided by their true
agreement for 19 years counted from the execution of the Memorandum of Deed of Sale with
Right of Repurchase.

Although the Memorandum of Deed of Sale with Right of Repurchase was executed in 1984
and the period to redeem the same supposedly lapsed in 1994 if such contract were a true sale
with right to repurchase, both the RTC and CA found that subsequent loans were extended to
either or both of the petitioners in 1987, 2003, and 2004, "using the same land as security for
the loan."44 These facts were alleged in petitioners' Complaint45 and were not specifically denied
in respondents' Answer.46

The release of additional loans on the basis of the same security, coupled with the fact that
respondents never filed an action to consolidate ownership over the subject property under
Article 1607,47 evidently shows that for 19 years, respondents expressly recognized: 1) that
petitioners continued to own the subject property and 2) that the loan and equitable mortgage
subsisted.
Thus, petitioners' cause of action to recover the subject property can be said to have accrued
only in 2004, that is, when respondents rejected petitioners' offers to pay and extinguish the
loan and to recover the mortgaged property as it was only at this time that respondents
manifested their intention not to comply with the true agreement of the parties. Undoubtedly, the
filing of the complaint in 2005 was made well-within the 10-year prescriptive period. Such
treatment is more in keeping with the principle that:

The provisions of the Civil Code governing equitable mortgages disguised as sale contracts, like
the one herein, are primarily designed to curtail the evils brought about by contracts of sale with
right to repurchase, particularly the circumvention of the usury law and pactum commissorium.
Courts have taken judicial notice of the well-known fact that contracts of sale with right to
repurchase have been frequently resorted to in order to conceal the true nature of a
contract, that is, a loan secured by a mortgage. It is a reality that grave financial distress renders
persons hard-pressed to meet even their basic needs or to respond to an emergency, leaving
no choice to them but to sign deeds of absolute sale of property or deeds of sale with pacto de
retro if only to obtain the much-needed loan from unscrupulous money lenders.48

Respondents, for their part, are not without remedy. They are entitled to collect the outstanding
amount of petitioners' loan, plus interest, and to foreclose on the subject property should the
latter fail to pay the same.49 To allow respondents to appropriate the subject lot without prior
foreclosure would produce the same effect as a pactum comissorium.50 Upon full satisfaction of
the debt, the mortgage, being a security contract, shall be extinguished 51 and the property
should be returned to herein petitioners. As the records are bereft of any basis for the
determination of the outstanding amount of the loan, the Court is left with no choice but to
remand the instant case to the RTC for a determination of the outstanding amount of the loan
and the imposition of the applicable interest, and for a declaration of whether or not respondents
are entitled to foreclose on the equitable mortgage

OBLIGATION OF VENDOR A RETRO IN CASE OF REDEMPTION

Article 1616. The vendor cannot avail himself of the right of repurchase without returning to the
vendee the price of the sale, and in addition: (1) The expenses of the contract, and any other
legitimate payments made by reason of the sale; (2) The necessary and useful expenses made
on the thing sold. (1518)

Hojas vs. Philippines Amanah Bank

RULING: The petition is DENIED

Our records show that the above account has already been foreclosed by the bank. However,
the borrowers concerned can still exercise the one (1) year right of redemption over the
foreclosed properties until April 21, 1988.

As the Bank has adopted an incentive scheme whereby payments are liberalized to give
chances to former owners to repossess their properties, we suggest that you advise your
parents to drop by at our Zamboanga Office so they can avail of this rare privilege which shall
be good only up to December 31, 1988. [Emphases and Underscoring Supplied]18

As correctly held by the RTC and upheld by the CA, the date "December 31, 1988" refers to the
last day when owners of foreclosed properties, like petitioners, could submit their payment
proposals to the bank. The letter was very clear. It was about the availment of the liberalized
payment scheme of the bank. On the last day for redemption, the letter was also clear. It was
April 21, 1988. It was never extended.

The opportunity given to the petitioners was to avail of the liberalized payment scheme which
program would expire on December 31, 1988. As explained by Abraham Iribani (Iribani), the
OIC of the Project Development Department of PAB, it was to give a chance to previous owners
to repossess their properties on easy term basis, possibly by condonation of charges and
penalties and payment on instalment. The letter of Carpizo was an invitation to the petitioners to
come to the bank with their proposal. It appears that the petitioners could not come up with a
proposal acceptable to the bank.

For said reason, the mortgaged property was included in the list of mortgaged properties that
would be sold through a scheduled public bidding. Thus, on August 11, 1988, Iribani wrote the
petitioners about the scheduled bidding. In response, the petitioners told Iribani that they would
go Manila to explain their case. They did not, however, return even after the public bidding. In
this regard, the CA was correct when it wrote:

Here, there is no estoppel to speak of. The letter does not show that the Bank had unqualifiedly
represented to the Hojases that it had extended the redemption period to December 31, 1988.
Thus, the Hojases have no basis in positing that the public sale conducted on November 4,
1988 was null and void for having been prematurely conducted.19

Moreover, petitioners’ allegation that they had signified their intention to avail of the incentive
scheme (which they have equated to their intention to redeem the property), did not amount to
an exercise of redemption precluding the bank from making the public sale. 20 In the case of
China Banking Corporation v. Martir,21 this Court expounded on what constitutes a proper
exercise of the right of redemption, to wit:

The general rule in redemption is that it is not sufficient that a person offering to redeem
manifests his desire to do so. The statement of intention must be accompanied by an actual and
simultaneous tender of payment. This constitutes the exercise of the right to repurchase.

In several cases decided by the Court where the right to repurchase was held to have been
properly exercised, there was an unequivocal tender of payment for the full amount of the
repurchase price. Otherwise, the offer to redeem is ineffectual. Bona fide redemption
necessarily implies a reasonable and valid tender of the entire repurchase price, otherwise the
rule on the redemption period fixed by law can easily be circumvented.

Moreover, jurisprudence also characterizes a valid tender of payment as one where the full
redemption price is tendered. Consequently, in this case, the offer by respondents on July 24,
1986 to redeem the foreclosed properties for ₱1,872,935 and the subsequent consignation in
court of ₱1,500,000 on August 27, 1986, while made within the period of redemption, was
ineffective since the amount offered and actually consigned not only did not include the interest
but was in fact also way below the ₱2,782,554.66 paid by the highest bidder/purchaser of the
properties during the auction sale.

In Bodiongan vs. Court of Appeals, we held:

In order to effect a redemption, the judgment debtor must pay the purchaser the redemption
price composed of the following: (1) the price which the purchaser paid for the property; (2)
interest of 1% per month on the purchase price; (3) the amount of any assessments or taxes
which the purchaser may have paid on the property after the purchase; and (4) interest of 1%
per month on such assessments and taxes x x x.

Furthermore, Article 1616 of the Civil Code of the Philippines provides:

The vendor cannot avail himself of the right to repurchase without returning to the vendee the
price of the sale x x x.

It is not difficult to understand why the redemption price should either be fully offered in legal
tender or else validly consigned in court. Only by such means can the auction winner be
assured that the offer to redeem is being made in good faith.

Respondents' repeated requests for information as regards the amount of loan availed from the
credit line and the amount of redemption, and petitioner's failure to accede to said requests do
not invalidate the foreclosure. Respondents can find other ways to know the redemption price.
For one, they can examine the Certificate of Sale registered with the Register of Deeds to verify
the purchase price, or upon the filing of their complaint, they could have moved for a
computation of the redemption price and consigned the same to the court. At any rate, whether
or not respondents '"were diligent in asserting their willingness to pay is irrelevant. Redemption
within the period allowed by law is not a matter of intent but a question of payment or valid
tender of the full redemption price within said period.

Even the complaint instituted by respondents cannot aid their plight because the institution of an
action to annul a foreclosure sale does not suspend the running of the redemption period.
(Underscoring supplied)22

In the case at bench, the record is bereft of concrete evidence that would show that, aside from
the fact that petitioners manifested their intention to avail of the scheme, they were also ready to
pay the redemption price. Hence, as they failed to exercise their right of redemption and failed
to take advantage of the liberalized incentive scheme, PAB was well within its right to sell its
property in a public sale

RIGHT OF LEGAL REDEMPTION OF CO-OWNER (ART. 1620-1622)

Article 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all
the other co-owners or of any of them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common. (1522a)

Gochan vs. Mancao

RULING: The instant petition is GRANTED

To be clear, the governing law with respect to redemption by co-owners in case the share of a
co-owner is sold to a third person is Article 1620 of the New Civil Code, which provides:
Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all
the other co-owners or of any of them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common.

Article 1620 contemplates of a situation where a co-owner has alienated his pro-indiviso shares
to a third party or stranger to the co-ownership. 32 Its purpose is to provide a method for
terminating the co-ownership and consolidating the dominion in one sole owner.33 In Basa v.
Aguilar,34 the Court stated:

Legal redemption is in the nature of a privilege created by law partly for reasons of public policy
and partly for the benefit and convenience of the redemptioner, to afford him a way out of what
might be a disagreeable or inconvenient association into which he has been thrust. (10
Manresa, 4th Ed., 317.) It is intended to minimize co-ownership. The law grants a co-owner the
exercise of the said right of Decision 12 G.R. No. 182314 redemption when the shares of the
other owners are sold to "a third person." A third person, within the meaning of this Article, is
anyone who is not a co-owner. (Sentencia of February 7, 1944 as cited in Tolentino, Comments
on the Civil Code, Vol. V, p. 160.)35

We already held that only the redeeming co-owner and the buyer are the indispensable parties
in an action for legal redemption, to the exclusion of the seller/co-owner. 36 Thus, the mere fact
that respondent was not impleaded as a party in Civil Case No. CEB-22825 is not in itself
indicative of extrinsic fraud. If a seller/co-owner is not treated as an indispensable party, how
much more is a third person who merely alleged that his lots are affected thereby? Truly, the
exclusion of respondent (or other alleged subdivision lot owners who are equally affected) from
the legal redemption case does not entitle him to the right to ask for the annulment of the
judgment under Rule 47 of the Rules, because he does not even have any legal standing to
participate or intervene therein.1âwphi1

Assuming arguendo that respondent has the personality to be impleaded in Civil Case No. CEB-
22825 since it is settled that a person need not be a party to the judgment sought to be
annulled,37 still, he failed to prove with sufficient particularity the allegation that petitioners
practiced deceit or employed subterfuge that precluded him to fully and completely present his
case to the trial court. Like in other civil cases, the allegation of extrinsic fraud must be fully
substantiated by a preponderance of evidence in order to serve as basis for annulling a
judgment.38 Extrinsic fraud has to be definitively established by the claimant as mere allegation
does not instantly warrant the annulment of a final judgment. 39 Ei incumbit probotio qui dicit, non
qui negat. He who asserts, not he who denies, must prove. 40 Unfortunately, respondent failed to
discharge the burden.

We reverse the CA findings as it is grounded entirely on speculation, surmises or

conjectures.41 Upon examination of the records, the evidence presented by respondent are
plainly wanting to show any specific trick, artifice, or device employed by petitioners that caused
them to prevail over the Spouses Paray. In fact, when petitioners contended that extrinsic fraud
must be present in an action to annul judgment, respondent erroneously countered that it is
"immaterial" and even admitted that "[t]he present case is based on the illegality of the acts of
the [petitioners] arising from the nature of the lots dealt with and the resultant violation by the
[petitioners] of the law declaring the act to be so."42
Of equal importance, aside from respondent’s failure to prove the presence of extrinsic fraud, a
petition to annul the RTC judgment under Rule 47 of the Rules is not the correct legal remedy,
because there are other options clearly available to him to protect his alleged right over the road
lots. Certainly, the issues raised by respondent – on whether the subject lots are road lots by
nature; whether the subject lots are subdivision lots within a subdivision project; whether a right
of way had been granted him by his predecessors-in-interest; whether the laws and
jurisprudence he cited are applicable to the case; and many other incidental matters – are not
proper subjects of, as these would effectively muddle the proper issues for determination in, a
suit for legal redemption. A full-blown trial – either via a proceeding directly attacking the
certificates of title of petitioners, or in an easement case, or even before Civil Case No. CEB-
22996 pending before Cebu RTC Br. 10 – is proper where these factual and legal issues could
be completely threshed out.

The Court has repeatedly stressed that an action to annul a final judgment is an extraordinary
remedy, which is not to be granted indiscriminately. 43 It is a recourse equitable in character,
allowed only in exceptional cases as where there is no adequate or appropriate remedy
available (such as new trial, appeal, petition for relief) through no fault of petitioner. 44 It is an
equitable principle as it enables one to be discharged from the burden of being bound to a
judgment that is an absolute nullity to begin with. 45 Yet, more importantly, the relief it affords is
equitable in character because it strikes at the core of a final and executory judgment, order or
resolution,46 allowing a party-litigant another opportunity to reopen a judgment that has long
elapsed into finality. The reason for the restriction is to prevent this extraordinary action from
being used by a losing party to make a complete farce of a duly promulgated decision that has
long become final and executory.47

x x x The underlying reason is traceable to the notion that annulling final judgments goes
against the grain of finality of judgment. Litigation must end and terminate sometime and
somewhere, and it is essential to an effective administration of justice that once a judgment has
become final, the issue or cause involved therein should be laid to rest. The basic rule of finality
of judgment is grounded on the fundamental principle of public policy and sound practice that at
the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies
must become final at some definite date fixed by law.48

Cabrera vs. Ysaac

Unless all the co-owners have agreed to partition their property, none of them may sell a definite
portion of the land. The co-owner may only sell his or her proportionate interest in the co-
ownership. A contract of sale which purports to sell a specific or definite portion of unpartitioned
land is null and void ab initio.

RULING: The court find that there was no contract of sale. It was null ab initio.

As defined by the Civil Code, "[a] contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service." 75 For
there to be a valid contract, there must be consent of the contracting parties, an object certain
which is the subject matter of the contract, and cause of the obligation which is
established.76 Sale is a special contract. The seller obligates himself to deliver a determinate
thing and to transfer its ownership to the buyer. In turn, the buyer pays for a price certain in
money or its equivalent.77 A "contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price."78 The seller and
buyer must agree as to the certain thing that will be subject of the sale as well as the price in
which the thing will be sold. The thing to be sold is the object of the contract, while the price is
the cause or consideration.

The object of a valid sales contract must be owned by the seller. If the seller is not the owner,
the seller must be authorized by the owner to sell the object.79

Specific rules attach when the seller co-ownsthe object of the contract. Sale of a portion of the
property is considered an alteration of the thing owned in common. Under the Civil Code, such
disposition requires the unanimous consent of the other co-owners. 80 However, the rules also
allow a co-owner to alienate his or her part in the co-ownership.81

These two rules are reconciled through jurisprudence.

If the alienation precedes the partition, the co-owner cannot sell a definite portion of the land
without consent from his or her co-owners. He or she could only sell the undivided interest of
the co-owned property.82 As summarized in Lopez v. Ilustre,83 "[i]f he is the owner of an
undivided half of a tract of land, he has a right to sell and convey an undivided half, but he has
no right to divide the lot into two parts, and convey the whole of one part by metes and
bounds."84

The undivided interestof a co-owner is also referred to as the "ideal or abstract quota" or
"proportionate share." On the other hand, the definite portion of the land refers to specific metes
and bounds of a co-owned property.

To illustrate, if a ten-hectare property is owned equally by ten coowners, the undivided interest
of a co-owner is one hectare. The definite portion of that interest is usually determined during
judicial or extrajudicial partition. After partition, a definite portion of the property held in common
is allocated to a specific co-owner. The co-ownership is dissolved and, in effect, each of the
former co-owners is free to exercise autonomously the rights attached to his or her ownership
over the definite portion of the land. It is crucial that the co-owners agree to which portion of the
land goes to whom.

Hence, prior to partition, a sale of a definite portion of common property requires the consent of
all co-owners because it operates to partition the land with respect to the co-owner selling his or
her share. The co-owner or seller is already marking which portion should redound to his or her
autonomous ownership upon future partition.

The object of the sales contract between petitioner and respondent was a definite portion of a
co-owned parcel of land. At the time of the alleged sale between petitioner and respondent, the
entire property was still held in common. This is evidenced by the original certificate of title,
which was under the names of Matilde Ysaac, Priscilla Ysaac, Walter Ysaac, respondent Henry
Ysaac, Elizabeth Ysaac, Norma Ysaac, Luis Ysaac, Jr., George Ysaac, Franklin Ysaac, Marison
Ysaac, Helen Ysaac, Erlinda Ysaac, and Maridel Ysaac.85

The rules allow respondent to sell his undivided interest in the coownership. However, this was
not the object of the sale between him and petitioner. The object of the sale was a definite
portion. Even if it was respondent who was benefiting from the fruits of the lease contract to
petitioner, respondent has "no right to sell or alienate a concrete, specific or determinate part of
the thing owned in common, because his right over the thing is represented by quota or ideal
portion without any physical adjudication."86

There was no showing that respondent was authorized by his coowners to sell the portion of
land occupied by Juan Cabrera, the Espiritu family, or the Borbe family. Without the consent of
his co-owners, respondent could not sell a definite portion of the co-owned property.

Respondent had no right to define a 95-square-meter parcel of land, a 439-square-meter parcel

of land, or a 321-square-meter parcel of land for purposes of selling to petitioner. The
determination of those metes and bounds are not binding to the co-ownership and, hence,
cannot be subject to sale, unless consented to by all the co-owners.

In finding that there was a valid contract of sale between petitioner and respondent, the Court of
Appeals erred in the application of Pamplona v. Moreto. 87 The ruling in Pamplona should be
read and applied only in situations similar to the context of that case.

Pamplona involved the Spouses Moreto who owned three (3) parcels of land with a total area of
2,346 square meters. The spouses had six (6) children. After the wife had died, the husband
sold one of the parcels to the Pamplona family, even if the conjugal partnership had not yet
been liquidated. The parcel sold measured 781 square meters, which was less than the ideal
share of the husband in the estate. This court allowed the sale to prosper because of the
tolerance from the husband’s co-heirs. This court ruled:

The title may be pro-indiviso or inchoate but the moment the coowner as vendor pointed out its
location and even indicated the boundaries over which the fences were to be erected without
objection, protest or complaint bythe other co-owners, on the contrary they acquiesced and
tolerated such alienation, occupation and possession, We rule that a factual partition or
termination of the co-ownership, although partial, was created, and barred not only the vendor,
Flaviano Moreto, butalso his heirs, the private respondents herein from asserting as against the
vendees petitioners any right or title in derogation of the deed of sale executed by said vendor
Flaviano Moreto.88 (Emphasis supplied)

In Pamplona, the co-heirs of Flaviano Moreto only questioned the sale to the Pamplona family
nine (9) years after the sale. By then, the Pamplona family had exercised several acts of
ownership over the land. That is why this court considered it acquiescence or tolerance on the
part of the co-heirs when they allowed the Pamplonas to take possession and build upon the
land sold, and only questioned these acts several years later.

The ruling in Pamplona does not apply to petitioner. There was no evidence adduced during the
trial that respondent’s co-owners acquiesced or tolerated the sale to petitioner. The co-owners
tolerated petitioner’s possession of a portion of their land because petitioner was a lessee over
a 95-square-meter portion of the property, not the buyer of the 321-squaremeter portion.

There was also no evidence of consent to sell from the co-owners. When petitioner approached
respondent in 1995 to enforce the contract of sale, respondent referred him to Franklin Ysaac,
the administrator over the entire property. Respondent’s act suggests the absence of consent
from the co-owners. Petitioner did not show that he sought Franklin Ysaac’s consent as
administrator and the consent of the other co-owners. Without the consent of the co-owners, no
partial partition operated in favor of the sale to petitioner.
At best, the agreement between petitioner and respondent is a contract to sell, not a contract of
sale. A contract to sell is a promise to sell an object, subject to suspensive conditions. 89 Without
the fulfillment of these suspensive conditions, the sale does not operate to determine the
obligation of the seller to deliver the object.

A co-owner could enter into a contract to sell a definite portion of the property. However, such
contract is still subject to the suspensive condition of the partition of the property, and that the
other co-owners agree that the part subject of the contract to sell vests in favor of the co-
owner’s buyer. Hence, the co-owners’ consent is an important factor for the sale to ripen.

The absence of a contract of sale means that there is no source of obligations for respondent,
as seller, orpetitioner, as buyer. Rescission is impossible because there is no contract to
rescind. The rule in Article 1592 that requires a judicial or notarial act to formalize rescission of a
contract of sale of an immovable property does not apply. This court does not need to rule
whether a letter is a valid method of rescinding a sales contract over an immovable property
because the question is moot and academic.

Even if we assume that respondent had full ownership of the property and that he agreed to sell
a portion of the property to petitioner, the letter was enough to cancel the contract to sell.
Generally, "[t]he power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent on him."95

For the sale of immovable property, the following provision governs its rescission:

Article 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the period, as long as no demand
for rescissionof the contract has been made upon him either judicially or by notarial act. After
the demand, the court may not grant him a new term.

This provision contemplates (1) a contract of sale of an immovable property and (2) a stipulation
in the contract that failure to pay the price at the time agreed upon will cause the rescission of
the contract. The vendee or the buyer can still pay even after the time agreed upon, if the
agreement between the parties has these requisites. This right of the vendee to pay ceases
when the vendor or the seller demands the rescission of the contract judicially or extra judicially.
In case of an extra judicial demand to rescind the contract, it should be notarized.

Hence, this provision does not apply if it is not a contract of sale of an immovable property and
merely a contract to sellan immovable property. A contract to sell is "where the ownership or title
is retained by the seller and is not to pass until the full payment of the price, such payment
being a positive suspensive condition and failure of which is not a breach, casual or serious, but
simply an event that prevented the obligation of the vendor to convey title from acquiring binding
force

The law does not prescribe a form to rescind a contract to sell immovable property. In Manuel,
the non-payment operated to cancel the contract. If mere non-payment is enough to cancel a
contract to sell, the letter given to petitioner’s lawyer is also an acceptable form of rescinding the
contract. The law does not require notarization for a letter to rescind a contract to sell
immovable property. Notarization is only required if a contract of sale is being rescinded.
Petitioner argued that he was willing to comply with the suspensive condition on the contract to
sell because he was ready to pay the balance of the purchase price on June 15,
1992.99 However, his argument is unmeritorious. As ruled by the Regional Trial Court, petitioner
should have resorted to the various modes of consignment when respondent’s wife refused to
accept the payment on respondent’s behalf.100

Therefore, even if we assumed that the contract between petitioner and respondents were
perfected, the strict requisites in Article 1592 did not apply because the only perfected contract
was a contract to sell, not a contract of sale. The courts cannot enforce the right of petitioner to
buy respondent’s property. We cannot order the execution of a deed of sale between petitioner
and respondent.

The question of double sale also becomes moot and academic. There was no valid sale
between petitioner and respondent, while there was a valid sale between the local government
of Naga City and respondent and his coowners. Since there is only one valid sale, the ruleon
double sales under Article 1544 of the Civil Code does not apply.101

RIGHTS OF PRE-EMPTION AND LEGAL REDEMPTION OF ADJACENT OWNERES OF

URBAN LANDS
ARTICLE 1622. Whenever a piece of urban land which is so small and so situated that a major
portion thereof cannot be used for any practical purpose within a reasonable time, having been
bought merely for speculation, is about to be re-sold, the owner of any adjoining land has a right
of pre-emption at a reasonable price.

If the re-sale has been perfected, the owner of the adjoining land shall have a right of
redemption, also at a reasonable price.

When two or more owners of adjoining lands wish to exercise the right of pre-emption or
redemption, the owner whose intended use of the land in question appears best justified shall
be preferred. (n)

Avila vs. Barabat

RULING: The court rule in favor of respondents

For Articles 1602 and 1604 to apply, two requisites must concur: (1) the parties entered into a
contract denominated as a contract of sale and (2) their intention was to secure an existing debt
by way of mortgage.4 Here, both the trial and appellate courts found that Exhibit "A" evidenced a
contract of sale. They also agreed that the circumstances of the case show that Avila intended
her agreement with respondents to be a sale. Both courts were unanimous in finding that the
subsequent acts of Avila revealed her intention to absolutely convey the disputed property. It
was only after the perfection of the contract, when her siblings began protesting the sale, that
she wanted to change the agreement.

Furthermore, contrary to petitioners’ claim, the trial court found that it was respondents who took
over the payment of real property taxes after the execution of Exhibit "A." There is no reason to
depart from these factual findings because, as a rule, factual findings of the trial court, when
adopted and confirmed by the Court of Appeals, are binding and conclusive on the Court and
generally will not be reviewed on appeal to us.5 There is no reason for us to deviate from this
rule.
Petitioners’ claim of gross inadequacy of selling price has no basis. They failed to introduce
evidence of the correct price at the time the land was sold to respondents in 1979. How can we
therefore conclude that the price was grossly inadequate? In the absence of evidence as to the
fair market value of a parcel of land at the time of its sale, we cannot reasonably conclude that
the price at which it was sold was inadequate.6

Petitioners’ rely on Article 1623 in relation to Article 1620 of the Civil Code to justify their right of
redemption. This is incorrect.

These provisions state:

Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all
the other co-owners or any of them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common.

xxxxxxxxx

Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied
by an affidavit of the vendor that he has given written notice thereof to all possible
redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

Petitioners’ right to redeem would have existed only had there been co-ownership among
petitioners-siblings. But there was none. For this right to be exercised, co-ownership must exist
at the time the conveyance is made by a co-owner and the redemption is demanded by the
other co-owner or co-owner(s).7 However, by their own admission, petitioners were no longer
co-owners when the property was sold to respondents in 1979. The co-ownership had already
been extinguished by partition.

The regime of co-ownership exists when the ownership of an undivided thing or right belongs to
different persons.8 By the nature of co-ownership, a co-owner cannot point to any specific
portion of the property owned in common as his own because his share in it remains intangible
and ideal.9

Every act intended to put an end to indivision among co-heirs is deemed to be a

partition.10 Here, the particular portions pertaining to petitioners had been ascertained and they
in fact already took possession of their respective parts. The following statement of petitioners in
their amended answer11 as one of their special and affirmative defenses was revealing:

F-8. That all defendants [i.e., petitioners] in this case who are co-owners of lot 348 have their
own respective buildings constructed on the said lot in which case it can be safely assumed that
that their respective shares in the lot have been physically segregated although there is no
formal partition of the land among themselves.12 (emphasis supplied)
Being an express judicial admission, it was conclusive on petitioners unless it was made
through palpable mistake or that no such admission was in fact made. 13 Petitioners proved
neither and were therefore bound by it.

The purpose of partition is to separate, divide and assign a thing held in common among those
to whom it belongs.14 By their own admission, petitioners already segregated and took
possession of their respective shares in the lot. Their respective shares were therefore
physically determined, clearly identifiable and no longer ideal. Thus, the co-ownership had been
legally dissolved. With that, petitioners’ right to redeem any part of the property from any of their
former co-owners was already extinguished. As legal redemption is intended to minimize co-
ownership,15 once a property is subdivided and distributed among the co-owners, the
community ceases to exist and there is no more reason to sustain any right of legal
redemption.16

Under the law, subject to certain conditions, owners of adjoining urban land have the pre-
emptive right to a lot before it is sold to third parties, or the redemptive right if it has already
been sold. In particular, Article 1622 of the Civil Code provides:

Art. 1622. Whenever a piece of urban land is so small and so situated in that a major portion
thereof cannot be used for any practical purpose within a reasonable time, having been bought
merely for speculation, is about to be re-sold, the owner of any adjoining land has a right of pre-
emption at a reasonable price.

If the re-sale has been perfected, the owner of the adjoining land shall have a right of
redemption, also at a reasonable price.

When two or more owners of adjoining lands wish to exercise the rights of pre-emption or
redemption, the owner whose intended use of the land in question appears best justified shall
be preferred.

However, this provision does not apply here. Aside from the fact that petitioners never raised it
as an issue, the conditions provided for its application were not met. While the property may be
considered as urban land, it was not shown or even alleged that its area and location would
render a major portion of no practical use within a reasonable time. Neither was there any
allegation to the effect that the disputed property was bought merely for speculation.

Almendrala vs. Ngo

RULING: The petition is DENIED for lack of merit.

The Almendrala spouses maintain that they anchored their cause of action on Article 1622 of
the Civil Code, which provides that:

Whenever a piece of urban land which is so small and so situated that a major portion thereof
cannot be used for any practical purpose within a reasonable time, having been bought merely
for speculation, is about to be re-sold, the owner of the adjoining land shall have the right of pre-
emption at a reasonable price.

If the re-sale has been perfected, the owner of the adjoining land shall have a right of
redemption, also at a reasonable price.
When two or more owners of adjoining lands wish to exercise the right of pre-emption or
redemption, the owner whose intended use of the land in question appears best justified shall
be preferred.

There are 4 elements necessary for the application of Article 1622, to wit: (1) that the piece of
land is urban land; (2) that the land is so small that a major portion thereof cannot be
used for any practical purpose within a reasonable time; (3) that it was bought merely for
speculation; and (4) that the land is about to be resold, or that its resale has been
perfected. Before a party may avail of the right of pre-emption or redemption under this
provision, it is necessary that all these elements be alleged in the complaint and proved at the
trial.35

A thorough reading of the complaint in this case reveals that the Almendrala spouses failed to
allege in their complaint that they based their cause of action under Article 1622 because they
did not allege the elements necessary for the application of said provision. They insist,
nonetheless, that they adduced sufficient evidence to support their claim.

Admittedly, the failure of the Almendrala spouses to plead in the complaint that the Ngo
spouses bought the lot for speculation does not forestall relief under Article 1622 if they offered
sufficient evidence to support their claim thereon. As provided for in Section 5, 36 Rule 10 of the
Rules of Court, when issues not raised by the pleadings are tried by express or implied consent
of the parties, they shall be treated in all respects, as if they had been raised in the pleadings.
Thus, even if the complaint be defective, but the parties go to trial thereon, and the plaintiff,
without objection, introduces sufficient evidence to constitute the particular cause of action
which it intended to allege in the original complaint, and the defendant voluntarily produces
witnesses to meet the cause of action thus established, an issue is joined as fully and as
effectively as if it had been previously joined by the most perfect pleadings.37

In the present case, the Court finds, however, that the Almendrala spouses failed to prove the
existence of all of the elements for the application of Article 1622.

It is undisputed that the subject property is urban land and that it is small at 22 square meters.
However, the Almendrala spouses failed to convincingly show that a major portion of the subject
property cannot be used for any practical purpose, that the lot was bought merely for
speculation and that it is about to be resold or the sale has already been perfected.

The testimonies of Ricardo Almendrala and Ariel Uypico on the intention of the Ngo spouses to
sell the subject property are far from convincing. Ricardo Almendrala testified that the subject
property was offered to his friend, Dr. Nabua 38 but he failed to present the latter in court to
confirm and corroborate his testimony thereon. As for Ariel Uypico, his statement on the
intention of the Ngo spouses to sell the subject property is vague and contains no specificities of
individuals allegedly interested in buying it. Thus, there is no clear proof that the subject
property is about to be resold.

Moreover, it does not necessarily follow that the subject property cannot be used for any
practical purpose simply because the building design and plan did not allegedly meet the
requirements of the National Building Code on commercial buildings. In that case, all that needs
to be done is to prepare a building design and plan with due consideration of the space
requirements or limitations imposed by law.
In any event, the Ngo spouses have shown that 15.81 square meters of the subject property
can be used for the construction of the proposed building for their business needs. 39 They have
shown that they did not buy the subject property for speculation. They engaged the services of
an architect to draw a building design and plan thereon. The fact that the building design and
plan were not yet approved by the proper building official or the municipal engineer should not
be taken against them because they adequately explained that this was due to the pending
litigation involving the subject property.40 Naturally, it would be a waste of their time, effort and
money to submit the building design and plan to the proper building official or the municipal
engineer for approval and implement the construction of the proposed building should a
decision later on be rendered against them.

And as regards the alleged perjured testimonies of Wing On Ngo and Jaime Patalud, it is
perfectly within the discretion of the CA to accept portions of the testimony of a witness as it
may deem credible and reject those which it believes to be false. The maxim falsus in uno,
falsus in omnibus is not a strict legal maxim in our jurisprudence. It is neither a categorical test
of credibility nor a positive rule of universal application. 41 It has its own limitations, for when the
mistaken statement is consistent with good faith and is not conclusively indicative of a deliberate
perversion, the believable portion of the testimony should be admitted. Although a person may
err in memory or in observation in one or more respects, he may have told the truth as to other
respects. Stated elsewise, the rule deals only with the weight of evidence and should not be
applied to portions of the testimony corroborated by other evidence, particularly where the false
portions could be innocent mistakes.42 There is no concrete evidence that Wing On Ngo or
Jaime Patalud intended to pervert the truth or prevaricated when they testified on the intention
of the Ngo spouses to make use of the subject property.

Needless to stress, the burden of proof in civil cases is on the plaintiff to establish his case by a
preponderance of evidence. If he claims a right granted or created by law, he must prove his
claim by competent evidence. He must rely on the strength of his own evidence and not on the
weakness of that of his opponent.43 In this case, Almendrala spouses failed to show sufficient
proof of their entitlement to the right of pre-emption or redemption under Article 1622 of the Civil
Code and, therefore, have no enforceable legal right to speak of.

Having thus ruled that the Almendrala spouses have no right of pre-emption or redemption
under Article 1622 of the Civil Code, there is no need to delve on the applicability of Article 1623
of the same Code since such provision involves the 30-day period, counted from written notice,
to exercise the right of pre-emption or redemption

EXERCISE OF RIGHT OF PRE-EMPTION OR REDEMPTION

Article 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied
by an affidavit of the vendor that he has given written notice thereof to all possible
redemptioners.

The right of redemption of co-owners excludes that of adjoining owners. (1524a)

Pascual vs. Ballesteros

RULING: The petition is DENIED
Anent the second issue asserted by the petitioners, we find no reversible error on the part of the
CA in ruling that the 30-day period given to the respondents within which to exercise their right
of redemption has not commenced in view of the absence of a written notice. Verily, despite the
respondents’ actual knowledge of the sale to the respondents, a written notice is still mandatory
and indispensable for purposes of the commencement of the 30-day period within which to
exercise the right of redemption.

Article 1623 of the Civil Code succinctly provides that:

Article 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied
by an affidavit of the vendor that he has given written notice thereof to all possible
redemptioners.

The right of redemption of co-owners excludes that of adjoining owners. (emphasis supplied)

The indispensability of the "written notice requirement" for purposes of the exercise of the right
of redemption was explained by this Court in Barcellano v. Bañas,16 thus:

Nothing in the records and pleadings submitted by the parties shows that there was a written
notice sent to the respondents. Without a written notice, the period of thirty days within which
the right of legal pre-emption may be exercised, does not start.

The indispensability of a written notice had long been discussed in the early case of Conejero v.
Court of Appeals, penned by Justice J.B.L. Reyes:

With regard to the written notice, we agree with petitioners that such notice is indispensable,
and that, in view of the terms in which Article of the Philippine Civil Code is couched, mere
knowledge of the sale, acquired in some other manner by the redemptioner, does not satisfy the
statute. The written notice was obviously exacted by the Code to remove all uncertainty as to
the sale, its terms and its validity, and to quiet any doubts that the alienation is not definitive.
The statute not having provided for any alternative, the method of notification prescribed
remains exclusive.

This is the same ruling in Verdad v. Court of Appeals:

The written notice of sale is mandatory. This Court has long established the rule that
notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from
the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions,
as well as its efficacy and status.

Lately, in Gosiengfiao Guillen v. The Court of Appeals, this Court again emphasized the
mandatory character of a written notice in legal redemption:

From these premises, we ruled that "[P]etitioner-heirs have not lost their right to redeem, for in
the absence of a written notification of the sale by the vendors, the 30-day period has not even
begun to run." These premises and conclusion leave no doubt about the thrust of Mariano: The
right of the petitioner-heirs to exercise their right of legal redemption exists, and the
running of the period for its exercise has not even been triggered because they have not
been notified in writing of the fact of sale.

xxxx

Justice Edgardo Paras, referring to the origins of the requirement, would explain in his
commentaries on the New Civil Code that despite actual knowledge, the person having the right
to redeem is STILL entitled to the written notice. Both the letter and the spirit of the New Civil
Code argue against any attempt to widen the scope of the "written notice" by including therein
any other kind of notice such as an oral one, or by registration. If the intent of the law has been
to include verbal notice or any other means of information as sufficient to give the effect of this
notice, there would have been no necessity or reason to specify in the article that said notice be
in writing, for under the old law, a verbal notice or mere information was already deemed
sufficient.

Time and time again, it has been repeatedly declared by this Court that where the law speaks in
clear and categorical language, there is no room for interpretation. There is only room for
application. Where the language of a statute is clear and unambiguous, the law is applied
according to its express terms, and interpretation should be resorted to only where a literal
interpretation would be either impossible or absurd or would lead to an injustice. x x x (citations
omitted)

Here, it is undisputed that the respondents did not receive a written notice of the sale in favor of
the petitioners. Accordingly, the 30-day period stated under Article 1623 of the Civil Code
within which to exercise their right of redemption has not begun to run. Consequently,
the respondents may still redeem from the petitioners the portion of the subject property
that was sold to the latter.

Bayan vs. Bayan

RULING: The instant Petition is DENIED

Petitioners' right of redemption accrued the moment they have written notice of the foreclosure
sale. In legal pre-emption or redemption under the Civil Code of the Philippines, written notice of
the sale to all possible redemptioners is indispensable.12 Article 1623 of the Civil Code provides:

Art. 1623. The right of legal pre-emption redemption shall not be exercised except within thirty
days from the notice in writing by the prospective vendor, or by the vendor, as the case maybe.
The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

Thus, in the old case of Butte vs. Manuel Uy and Sons, Inc.,13 the Court ruled that Art. 1623 of
the Civil Code clearly and expressly prescribes that the 30 days for making the pre-emption or
redemption are to be counted from notice in writing by the vendor. The reason for this is
because the vendor of an undivided interest is in the best position to know who are his co-
owners, who under the law must be notified of the sale. 14 As held in one case:

It is likewise the notification from the seller, not from anyone else, which can remove all doubts
as to the fact of the sale, its perfection, and its validity, for in a contract of sale, the seller is in
the best position to confirm whether consent to the essential obligation of selling the property
and transferring ownership thereof to the vendee has been given.15

Keeping in mind the rationale behind the written notice of sale by the vendor/s
(co-owner/mortgagor) to the redemptioners, the Court in the case of Etcuban v. Court of
Appeals16 has clarified that even if it was not sent by the vendor as long as the redemptioners
were notified in writing, the same is sufficient for their right to redeem to accrue, thus:

While it is true that written notice is required by the law (Art. 1623), it is equally true that the
same Art. 1623 does not prescribe any particular form of notice, nor any distinctive method for
notifying the redemptioner. So long, therefore, as the latter is informed in writing of the sale and
the particulars thereof, the 30 days for redemption start running, and the redemptioner has no
real cause to complain. In the Conejero case, we ruled that the furnishing of a copy of the
disputed deed of sale to the redemptioner was equivalent to the giving of written notice required
by law in "a more authentic manner than any other writing could have done," and that We
cannot adopt a stand of having to sacrifice substance to technicality.17 x x x (Citations omitted)
In the case of Francisco v. Boiser,18 the Court has adopted the rule that any written notice is
sufficient such that it ruled that the receipt by petitioner of summons in a civil case amounted to
actual knowledge of the sale on the basis of which petitioner may now exercise his right of
redemption. Justifying its ruling, the Court cited an instance where a vendor can delay or even
effectively prevent the meaningful exercise of the right of redemption by not immediately
notifying the co-owner of the sale, thereby causing serious prejudice to a redemptioner's right of
legal redemption.19 To avoid this, the Court ruled that any written notice of sale (even if not sent
by the vendor) is sufficient in order for the right of legal redemption of a co-owner to accrue.

In the instant case, the fact that petitioners alleged in their complaint about the foreclosure sale
of the mortgage, the Sheriffs Certificate of Sale and their annotation/inscription on TCT. Nos. N-
140606, N-140607 and N-140608 conclusively shows that petitioners were notified of the sale
and were furnished said documents, and is tantamount to an actual knowledge of such fact of
sale. No other notice is needed because the Sheriffs Certificate of Sale itself confirms the fact of
sale, its perfection and its due execution.

The bottomline is that petitioners need not wait for the Court to make a definitive ruling on the
validity or invalidity of the mortgage made by their co-owner. They should have known that any
co-owner can mortgage their undivided share in the co-owned property in accordance with
Article 49320 of the Civil Code. Upon notice of the foreclosure sale or receipt of any written
notice of the fact of sale, petitioners' right of legal redemption had already accrued such that
they should have included said issue at the very onset in their complaint. Not having raised the
same with the lower court, it cannot be entertained for the first time in the Motion for
Reconsideration with the appellate court.

Escabarte vs. Heirs of Isaw

RULING: The instant petition is DENIED for lack of merit. The assailed Decision dated October
22, 2012 and the Resolution dated July 29, 2013 of the Court of Appeals-Cagayan de Oro City
in CA-G.R. CV No. 01659-MIN are AFFIRMED.

The Deed of Resale executed in favor of Fausto and Benigno which also covers the aliquot
shares of Octoc, Igbay and Martina in the Zamboanga del Norte lot refers to an ordinary sale
and not a redemption done for the benefit of the heirs of spouses Bawing. Through this sale,
Fausto and Benigno acquired three-eighths of the Zamboanga del Norte lot to the exclusion of
the other heirs of spouses Bawing.

For resolution of the present case, a reference to Article 1088 of the Civil Code is proper. The
said provision states, "Should any of the heirs sell his hereditary rights to a stranger before the
partition, any or all of the coheirs may be subrogated to the rights of the purchaser by
reimbursing him for the price of the sale, provided they do so within the period of one month
from the time they were notified in writing of the sale by the vendor."

For a transaction to be considered one of legal redemption inuring to the benefit of the co-heirs,
the following requisites must concur: 1) there should be several heirs or partitioners to the
common thing; 2) one of them sells his hereditary right; 3) the sale should be made to a
stranger to the inheritance and before the partition is made; 4) one or more of the co-heirs
exercise this right within the period of one month counted from the time they are notified
in writing of the sale by the vendor; and 5) the buyer is reimbursed for the price of the same.6
In this case, the fourth requisite is lacking. As a general rule, the 30-day redemption period
given to the remaining co-heirs under Article 1088 runs from written notice of the sale by the
vendor. In Mariano v. Court of Appeals,7 the Court declared:

The requirement of a written notice has long been settled as early as in the case of Castillo v.
Samonte, where this Court quoted the ruling in Hernaez v. Hernaez, 32 Phil., 214, thus:

"Both the letter and spirit of the New Civil Code argue against any attempt to widen the scope of
the notice specified in Article 1088 by including therein any other kind of notice, such as verbal
or by registration. If the intention of the law had been to include verbal notice or any other
means of information as sufficient to give the effect of this notice, then there would have been
no necessity or reasons to specify in Article 1088 of the New Civil Code that the said notice be
made in writing for, under the old law, a verbal notice or information was sufficient."

x x x x

The ruling in Castillo v. Samonte, supra, was reiterated in the case of Garcia v.
Calaliman, where We also discussed the reason for the requirement of the written notice. We
said:

"Consistent with aforesaid ruling, in the interpretation of a related provision (Article 1623 of the
New Civil Code) this Court had stressed that written notice is indispensable, actual knowledge
of the sale acquired in some other manners by the redemptioner, notwithstanding. He or she is
still entitled to written notice, as exacted by the code to remove all uncertainty as to the sale, its
terms and its validity, and to quiet any doubt that the alienation is not definitive. The law not
having provided for any alternative, the method of notifications remains exclusive, though the
Code does not prescribe any particular form of written notice nor any distinctive method for
written notification of redemption.8 (Citations omitted)

ASSIGNMENT OF CREDIT
Article 1624. An assignment of creditors and other incorporeal rights shall be perfected in
accordance with the provisions of article 1475. (n)
Vargas vs. Acsayan
RULING: The court find the Consolidated Petitions to be meritorious.

Petitioner spouses Vargas contend that they had already disposed the subject property in
question in favor of Tavar Farm & Marketing, as represented by the spouses Tabangcora,
through a Deed of Assignment dated November 1997, for a valuable consideration. Thus, they
could no longer be held liable for the subsequent acts of the spouses Tabangcora regarding
their transactions with herein respondent involving the subject property.

We sustain the validity of the Deed of Assignment executed by spouses Vargas. Under Article
1624 of the Civil Code, assignment of rights partakes of a nature of a sale, such that it is
perfected at the moment there is a meeting of the minds upon the thing which is the object of
the contract and upon the price.21 The meeting of the minds contemplated here is that between
the assignor of the credit and his assignee, 22 there being no necessity for the consent of any
other person not a party to the contract. Here, the CA invalidated the Deed of Assignment
purportedly because the parties never mentioned anything about a valuable consideration that
was paid by the spouses Tabangcora to spouses Vargas.

Under Art. 1354 of the Civil Code, consideration is presumed unless the contrary is
proven.23 The presumption that a contract has sufficient consideration cannot be overthrown by
a mere assertion that it has no consideration.24 Paragraph No. 2 of the said Deed of Assignment
states as follows:cralawred

x x x [T]he ASSIGNORS, for valuable considerations, do hereby assign, transfer and convey
unto the ASSIGNEE, its successors and assigns, the above described parcel of land including
all the improvements thereon, free from liens and encumbrances.25 (Underscoring supplied)

The valuable consideration need not be specified. To rebut the presumption that there was
consideration, it is incumbent upon respondent to show that no consideration was passed
between the parties. However, respondent cannot explicitly state that the Deed of Assignment
was executed without any consideration at all. In his attempt to nullify the Deed of Assignment,
respondent raised some peripheral issues surrounding the execution of the said Deed.

Respondent argued that one of the spouses Vargas (Rico Vargas) admitted that the Deed of
Assignment was executed so that Maximino Tabangcora could apply for a loan with a
bank.26 This admission alone cannot invalidate the Deed of Assignment duly agreed upon by the
parties. Under Article 1331 of the Civil Code, the particular motives of the parties in entering into
a contract are different from the cause thereof. Considering that the admitted purpose of the
contract, which is to enable the spouses Tabangcora to obtain a loan, is not contrary to law,
morals and public policy then there is no reason to declare as void the deed of assignment,
which as mentioned earlier is presumed to be executed with a valuable consideration.

Respondent also averred that there was no showing that the parties intend to be bound by the
said Deed considering that there was never any attempt to register it so that the title to the
property will be transferred to the assignees. 27 The parties may have various reasons for not
registering the Deed of Assignment but it is not a conclusive indication that the same was void
and was not binding between the parties.

Respondent, thereafter, reasoned out that if spouses Tabangcora were the owners of the
property by virtue of the Deed of Assignment, there was no need for spouses Vargas to execute
the Special Power of Attorney (SPA) dated November 21, 1997, which authorized them to
execute contracts and enter into agreements with Stardiamond and the SPA dated February 25,
1998, which authorized them to purchase from Stardiamond the improvements erected on the
land and to mortgage the land in favor of Stardiamond. Again, while we cannot ascertain the
reason why the spouses Vargas executed the said SPAs, this alone is not sufficient basis to
invalidate the Deed of Assignment. Since the Certificate of Title was yet to be issued in the
name of Tavar Farm and Marketing (as represented by the spouses Tabangcora), it was still
necessary for the assignor to execute a SPA in order for the assignee to do (i.e. acts of
dominion) what he deemed necessary to the subject property at the moment.

What was clear is that respondent transacted with the spouses Tabangcora involving the
subject property still registered under the names of spouses Vargas. Considering that spouses
Vargas did not execute any SPA authorizing spouses Tabangcora to transact with respondent,
evidently, the latter was just relying on the Deed of Assignment which ceded the rights and
interest of the registered owner to the spouses Tabangcora over the subject property.
Respondent cannot now attack the validity of the said Deed of Assignment which he relied upon
when he transacted with the spouses Tabangcora.

As the Deed of Assignment is declared valid, for all intents and purposes, the subject property
has effectively been transferred to Tavar Farm & Marketing, as represented by Maximino
Tabangcora. Verily, when the spouses Tabangcora entered into a contract with respondent, the
same is only binding between them as the contracting parties. Since there was no showing that
there was a privity of contract between spouses Vargas and respondent, then spouses Vargas
cannot be held liable to the respondent for the payment of any amount or interest due to the
latter.

BINDING EFFECT OF ASSIGNMENT

Article 1625. An assignment of a credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property. (1526)

Serfino vs. Far East Bank

RULING: The petition for review on certiorari is DENIED, and the decision dated February 23,
2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil Case No. 95-9344
is AFFIRMED

We find no basis to support the spouses Serfino’s claim of ownership of the deposit.

"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without
the consent of the debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the assignor could enforce
it against the debtor. It may be in the form of sale, but at times it may constitute a dation in
payment, such as when a debtor, in order to obtain a release from his debt , assigns to his
creditor a credit he has against a third person."12 As a dation in payment, the assignment of
credit operates as a mode of extinguishing the obligation;13 the delivery and transmission of
ownership of a thing (in this case, the credit due from a third person) by the debtor to the
creditor is accepted as the equivalent of the performance of the obligation.14
The terms of the compromise judgment, however, did not convey an intent to equate the
assignment of Magdalena’s retirement benefits (the credit) as the equivalent of the payment of
the debt due the spouses Serfino (the obligation). There was actually no assignment of credit; if
at all, the compromise judgment merely identified the fund from which payment for the
judgment debt would be sourced:

(c) That before the plaintiffs file a motion for execution of the decision or order based [on this]
Compromise Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s]
herself to pay in full the judgment debt out of her retirement benefits as Local [T]reasury
Operation Officer in the City of Bacolod, Philippines, upon which full payment, the plaintiffs
waive, abandon and relinquish absolutely any of their claims for attorney’s fees stipulated in the
Promissory Note (Annex "A" to the Complaint).15 [emphasis ours]

Only when Magdalena has received and turned over to the spouses Serfino the portion of her
retirement benefits corresponding to the debt due would the debt be deemed paid.

In Aquitey v. Tibong,16 the issue raised was whether the obligation to pay the loan was
extinguished by the execution of the deeds of assignment. The Court ruled in the affirmative,
given that, in the deeds involved, the respondent (the debtor) assigned to the petitioner (the
creditor) her credits "to make good" the balance of her obligation; the parties agreed to relieve
the respondent of her obligation to pay the balance of her account, and for the petitioner to
collect the same from the respondent’s debtors. 17 The Court concluded that the respondent’s
obligation to pay the balance of her accounts with the petitioner was extinguished, pro tanto, by
the deeds of assignment of credit executed by the respondent in favor of the petitioner. 18

In the present case, the judgment debt was not extinguished by the mere designation in the
compromise judgment of Magdalena’s retirement benefits as the fund from which payment shall
be sourced. That the compromise agreement authorizes recourse in case of default on other
executable properties of the spouses Cortez, to satisfy the judgment debt, further supports our
conclusion that there was no assignment of Magdalena’s credit with the GSIS that would have
extinguished the obligation.

The compromise judgment in this case also did not give the supposed assignees, the spouses
Serfino, the power to enforce Magdalena’s credit against the GSIS. In fact, the spouses Serfino
are prohibited from enforcing their claim until after the lapse of one (1) week from Magdalena’s
receipt of her retirement benefits:

(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise
Agreement executed until after one (1) week from receipt by the defendant, Magdalena Cortez
of her retirement benefits from the [GSIS] but fails to pay within the said period the defendants’
judgment debt in this case, in which case [this] Compromise Agreement [may be] executed
upon any property of the defendants that are subject to execution upon motion by the plaintiffs. 19

An assignment of credit not only entitles the assignee to the credit itself, but also gives him the
power to enforce it as against the debtor of the assignor.

Since no valid assignment of credit took place, the spouses Serfino cannot validly claim
ownership of the retirement benefits that were deposited with FEBTC. Without ownership
rights over the amount, they suffered no pecuniary loss that has to be compensated by
actual damages. The grant of actual damages presupposes that the claimant suffered a duly
proven pecuniary loss