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Nature and Form of the Contract

A. What is it? (Article 1458 NCC)

ARTICLE 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of 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)

CONCEPT OF CONTRACT OF SALE -contract of sale is a contract whereby one of the

contracting parties (SELLER) obligates himself to transfer the ownership and to deliver a
determinate thing, and the other party (BUYER) obligates himself to pay a sum of money
or its equivalent (PRICE)

CHARACTERISTICS OF A CONTRACT OF SALE

1. CONSENSUAL- it is perfected by mere consent of the parties.

2. BILATERAL- the parties are bound by reciprocal obligations

SELLER- to deliver and transfer ownership of the thing sold

BUYER- to pay the price

3. ONEROUS- the thing sold is conveyed in consideration of the price.

4. COMMUTATIVE- the thing sold is considered the equivalent of the price paid (the contract
may be ALEATORY- depending on an uncertain event or contingency)

5. NOMINATE- it has a special name given to it by law namely “SALE”

6. PRINCIPAL- it can exist by itself without being dependent upon another contract.

TWO KINDS OF CONTRACT OF SALE

1. ABSOLUTE- the sale is not subject to any conditions and where title or ownership passes to
the buyer upon the delivery of the thing sold.

2. CONDITIONAL-where the contract is subject to certain conditions usually the full payment
of the purchase price. The delivery of the thing sold does not transfer ownership until the
CONDITION is fulfilled

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)
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ARTICLE 1713. By the contract for a piece of work the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also furnish the material. (1588a)

ARTICLE 1643. In the lease of things, one of the parties binds himself to give to another the
enjoyment or use of a thing for a price certain, and for a period which may be definite or
indefinite. However, no lease for more than ninety-nine years shall be valid. (1543a)

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)

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)

ARTICLE 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence. (n)

B. OBJECT OR SUBJECT MATTER

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)

OBJECT OR SUBJECT MATTER - It refers to the determinate thing which is the object
of the contract. - If the seller and the buyer differ in regard to the thing sold, there is no
meeting of the minds therefore, there is no sale
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REQUISITES CONCERNING OBJECT

1. THINGS

a. determinate thing

b. licit or lawful (legal) – it should not be contrary to law, morals, good customs, public order, or
public policy. (if the subject matter is illicit, the contract is void and cannot, therefore be ratified)
c. not be impossible

2.RIGHTS- all rights which are not intransmissible or personal may be the object of sale. Like:
the right of usufruct, the right of conventional redemption. (services may be the object of
contract but cannot be the object of contract of sale)

KINDS OF ILLICIT THINGS -illicit per se (of its nature) ex: decayed food unfit for
consumption -illicit per accidens ( because of some provisions of law declaring it illegal) Ex:
prohibited lottery tickets and prohibited drugs

RIGHT OF VENDOR TO TRANSFER OWNERSHIP

1. ONE CAN SELL ONLY WHAT HE OWNS -it is essential in order for a sale to be valid, he
must be the OWNER or at least must be authorized by the owner of the thing sold. It is a well
known principle of law that nobody can dispose of that which he does not have.

2.SUFFICIENT IF RIGHT EXISTS AT TIME OF DELIVERY -It is sufficient if he has the right
to sell the thing at the time when the ownership is to pass.

C. Nature (Article 1460 NCC)

ARTICLE 1460. A thing is determinate when it is particularly designated or physically

segregated from all others of the same class.

The requisite that a thing be determinate is satisfied if at the time the contract is entered
into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties. (n)

SUBJECT MATTER MUST BE DETERMINATE

1. WHEN THING DETERMINATE-A thing is determinate or specific when it is

particularly designated or physically segregated from all others of the same class. In
accordance with the general rule that the object of every contract must be determinate as
to its kind. -it is identified by its individuality Ex: the watch I am wearing, my car
2. 2. SUFFICIENT IF SUBJECT MATTER CAPABLE OF BEING MADE
DETERMINATE -it is sufficient that the thing is determinable or capable of being made
determinate without the necessity of a new or further agreement between the parties to
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ascertain its identity, quantity, or quality. It cannot be known what may have been sold;
the contract shall be null and void.

ARTICLE 1165. When what is to be delivered is a determinate thing, the creditor, in addition
to the right granted him by article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the
expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do
not have the same interest, he shall be responsible for any fortuitous event until he has effected
the delivery. (1096)

ARTICLE 1167. If a person obliged to do something fails to do it, the same shall be executed at
his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone. (1098)

ARTICLE 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for
damages. (1101)

ARTICLE 1191. 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 fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

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

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

ARTICLE 1461. Things having a potential existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the
thing will come into existence.

The sale of a vain hope or expectancy is void. (n)

SALE OF THINGS HAVING POTENTIAL EXISTENCE -future thing not existing at the time
the contract is entered into, may be the object of sale provided it has a potential or possible
existence. It is reasonably certain to come into existence as the natural increment or usual
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incident of something in existence already belonging to the seller, and the title will vest in the
buyer the moment the thing comes into existence. The thing sold, however must be specific and
identified and it must be also owned by the vendor at the time.

ARTICLE 1462. The goods which form the subject of a contract of sale may be either existing
goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale, in this Title called “future goods.”

There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen. (n)

GOODS WHICH MAY BE THE OBJECT OF SALE Goods which form the subject of a contract
of sale may be either:

a. EXISTING GOODS OWNED OR POSSESSED BY THE SELLER ex: the sale of bathroom
fixtures currently stored in the seller’s warehouse is a sale of existing goods

b. FUTURE GOODS OR GOODS TO BE MANUFACTURED, RAISED OR ACQUIRED BY

THE SELLER

EXAMPLES:

MANUFACTURED- like the sale of milk bottles to be manufactured with the name of the buyer
pressed in the glass

RAISED- sale of chickens that may be raised in a poultry farm and sale of the future harvest of
palays from a ricefield

ACQUIRED- sale of definite parcel of land the seller expects to buy

SALE OF FUTURE GOODS Even though the contract is in the form of present sale, is valid
only as an EXECUTORY CONTRACT to be fulfilled by the acquisition and delivery of the
goods specified

ARTICLE 1463. The sole owner of a thing may sell an undivided interest therein. (n)

SALE OF UNDIVIDED INTEREST IN A THING

1. BY SOLE OWNER -the sole owner of a thing may sell the entire thing; or only a specific
portion thereof; or an undivided interest therein and such interest may be designated as an aliquot
part of the whole. Such sale shall produce the effect of making the seller and buyer co-owners of
the thing sold.

2. BY CO-OWNER -being the owner of his undivided interest therein, can dispose his share
even without the consent of the other co-owner/s
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ARTICLE 1464. In the case of fungible goods, there may be a sale of an undivided share of a
specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or
measure of the goods in the mass, and though the number, weight or measure of the goods in the
mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the
mass as the number, weight or measure bought bears to the number, weight or measure of the
mass. If the mass contains less than the number, weight or measure bought, the buyer becomes
the owner of the whole mass and the seller is bound to make good the deficiency from goods of
the same kind and quality, unless a contrary intent appears. (n)

SALE OF AN UNDIVIDED SHARE OF A SPECIFIC MASS

FUNGIBLE GOODS -refer to interchangeable goods such as grain, oil, etc. that allow one to be
replaced by another without loss of value.

EFFECT OF SALE The owner of a mass of goods may sell only an undivided share thereof,
provided the mass is specific or capable of being made determinate.

a. if the quantity i.e., number, weight or measure, of the mass is MORE THAN the quantity sold
the parties shall become co-owners of the mass.

b. if the quantity of the mass is LESS THAN the quantity sold, the buyer becomes the owner of
the whole mass, with the seller being bound to make good the deficiency from goods of the same
kind and quality, unless a contrary intent appears.

RISK OF LOSS If the buyer becomes co-owner, with the seller, or other owners of the remainder
of the mass, it follows that the whole mass is at risk of all the parties interested in it.

SUBJECT MATTER The subject matter is an incorporeal or intangible right.

ARTICLE 1465. Things subject to a resolutory condition may be the object of the contract of
sale. (n)

SALE OF THING SUBJECT TO A RESOLUTORY CONDITION

-A resolutory condition is an uncertain event upon the happening of which the obligation (or
right) subject to it is extinguished.

-If the resolutory condition attaching to the object of the contract, which object may include
things as well as rights should happen, then the vendor cannot transfer the ownership of what he
sold since there is no object.
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D. Elements

ELEMENTS OF A CONTRACT OF SALE

1. ESSENTIAL ELEMENTS/ REQUISITES

A. CONSENT OR MEETING OF THE MINDS -It refers to the consent on the part of the
SELLER to transfer and deliver and on the part of the buyer to pay the price. -The parties must
have legal capacity to give consent and to obligate themselves. -when there is an offer of one
party, without the acceptance of the other, THERE IS NO CONSENT

B. OBJECT OR SUBJECT MATTER - It refers to the determinate thing which is the object of
the contract. - If the seller and the buyer differ in regard to the thing sold, there is no meeting of
the minds therefore, there is no sale

C. CAUSE OR CONSIDERATION -It refers to the “price certain in money or its equivalent”

2. NATURAL ELEMENTS- those inherent in a contract of sale, which in the absence of

stipulation excluding them, are deemed to exist. Such as: warranty against eviction, warranty
against hidden defects and encumbrances

3. ACCIDENTAL ELEMENTS- it refers to the stipulation of the parties such as terms, place and
time of payment, and other conditions agreed upon

E. Stages

The stages of a contract of sale are:

1. Negotiation – It covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is perfected.

2. Perfection – It takes place upon the concurrence of the essential elements of the sale, which is
the meeting of the minds of the parties as to the object of the contract and upon the price.

3. Consummation – It begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof.

F. Title or Mode?

SALE IS A TITLE The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should be noted that
sale is not a mode, but merely a title.

A mode is the legal means by which dominion or ownership is created, transferred or destroyed,
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but title is only the legal basis by which to affect dominion or ownership. Under Article 712 of
the Civil Code, "ownership and other real rights over property are acquired and transmitted by
law, by donation, by testate and intestate succession, and in consequence of certain contracts, by
tradition."

Contracts only constitute titles or rights to the transfer or acquisition of ownership, while
delivery or tradition is the mode of accomplishing the same. Therefore, sale by itself does not
transfer or affect ownership; the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.

G. Compare with other contracts

Donation

Barter

ARTICLE 1638. By the contract of barter or exchange one of the parties binds himself to give
one thing in consideration of the other’s promise to give another thing. (1538a)

ARTICLE 1639. If one of the contracting parties, having received the thing promised him in
barter, should prove that it did not belong to the person who gave it, he cannot be compelled to
deliver that which he offered in exchange, but he shall be entitled to damages. (1539a)

ARTICLE 1640. One who loses by eviction the thing received in barter may recover that which
he gave in exchange with a right to damages, or he may only demand an indemnity for damages.
However, he can only make use of the right to recover the thing which he has delivered while the
same remains in the possession of the other party, and without prejudice to the rights acquired in
good faith in the meantime by a third person. (1540a)
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ARTICLE 1641. As to all matters not specifically provided for in this Title, barter shall be
governed by the provisions of the preceding Title relating to sales. (1541a)

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)

Dacion En Pago

ARTICLE 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction
of a debt in money, shall be governed by the law of sales. (n)

DACION EN PAGO vs. CONTRACT OF SALE In dacion en pago, as a special mode of

payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt. In order that there be a valid dation in payment, the following are the
requisites:

(1) There must be the performance of the prestation in lieu of payment (animo solvendi) which
may consist in the delivery of a corporeal thing or a real right or a credit against the third person;

(2) There must be some difference between the prestation due and that which is given in
substitution (aliud pro alio);

(3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due.
The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the
debtor's debt.
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Piece of Work ( Article 1467 NCC)

CONTRACT FOR A PIECE OF WORK VS. CONTRACT OF SALE A contract for a piece of
work, labor and materials may be distinguished from a contract of sale by the inquiry as to
whether the thing transferred is one not in existence and which would never have existed but for
the order of the person desiring it. In such case, the contract is one for a piece of work, not a sale.
On the other hand, if the thing subject of the contract would have existed and been the subject of
a sale to some other person even if the order had not been given then the contract is one, sale."

Example: X and V stipulated in their contract that Y would manufacture upon order of X 20,000
pieces of vinyl frogs and 20,000 pieces of vinyl moosehead according to the samples specified
and approved by X. Y did not ordinarily manufacture these products, but only upon order of X
and price agreed upon. Clearly, the contract executed by and between X and y was a contract for
a 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)

Agency
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ARTICLE 1868. By the contract of agency a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority of the latter.
(1709a)

ARTICLE 1891. Every agent is bound to render an account of his transactions and to deliver to
the principal whatever he may have received by virtue of the agency, even though it may not be
owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be void.
(1720a)

ARTICLE 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers. (1725)

ARTICLE 1919. Agency is extinguished:

(1) By its revocation;

(2) By the withdrawal of the agent;

(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;

(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;

(5) By the accomplishment of the object or purpose of the agency;

(6) By the expiration of the period for which the agency was constituted. (1732a)

ARTICLE 1920. The principal may revoke the agency at will, and compel the agent to return the
document evidencing the agency. Such revocation may be express or implied. (1733a)
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CASES

1. In a Contract of Sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other party to pay a price certain
in money or its equivalent. The Supreme Court ruled that, there is a marked difference
between a sale of hereditary rights and a waiver of hereditary rights; A stranger to
succession cannot conclusively claim ownership over a lot on the sole basis of a waiver
document which does not recite the elements of either a sale, or a donation, or any other
derivative mode of acquiring ownership.—Hence, there is a marked difference between a
sale of hereditary rights and a waiver of hereditary rights. The first presumes the
existence of a contract or deed of sale between the parties. The second is, technically
speaking, a mode of extinction of ownership where there is an abdication or intentional
relinquishment of a known right with knowledge of its existence and intention to
relinquish it, in favor of other persons who are co-heirs in the succession. Private
respondent, being then a stranger to the succession of Cosme Pido, cannot conclusively
claim ownership over the subject lot on the sole basis of the waiver document which
neither recites the elements of either a sale, or a donation, or any other derivative mode of
acquiring ownership. Acap vs. Court of Appeals, 251 SCRA 30, G.R. No. 118114
December 7, 1995
2. When the sellers declared in the “Receipt of Down Payment” that they received an
amount as purchase price for their house and lot without any reservation of title until full
payment of the entire purchase price, the natural and ordinary idea conveyed is that they
sold their property. In a conditional contract of sale, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will definitely affect the seller’s
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title thereto. “Contract to Sell” and “Contract of Sale,” Distinguished; In a contract to

sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or consent to transfer ownership of
the property subject of the contract to sell until the happening of an event. Coronel vs.
Court of Appeals, 263 SCRA 15, G.R. No. 103577 October 7, 1996
3. The manner of payment of the purchase price is an essential element before a valid and
binding contract of sale can exist. Amount given not as a part of the purchase price and as
proof of the perfection of the contract of sale but only as a guarantee that respondents
would not back out of the sale. Option giving respondents the exclusive right to buy the
properties within the period agreed upon is separate and distinct from the contract of sale
which the parties may enter. San Miguel Properties Philippines, Inc. vs. Huang, 336
SCRA 737, G.R. No. 137290 July 31, 2000
4. A contract is what the law defines it to be, taking into consideration its essential elements,
and not what the contracting parties call it; The transfer of ownership in exchange for a
price paid or promised is the very essence of a contract of sale 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. Santos vs. Court
of Appeals, 337 SCRA 67, G.R. No. 120820 August 1, 2000
5. A contract of sale is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price. Voidable or Annullable
Contracts.—Contracts that are voidable or annullable, even though there may have been
no damage to the contracting parties are: (1) those where one of the parties is incapable of
giving consent to a contract; and (2) those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud. There is fraud when, through the
insidious words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to. Fule vs. Court of
Appeals, 286 SCRA 698, G.R. No. 112212 March 2, 1998

Essential requisites of a contract of sale. The rules of law governing contracts in general are
applicable to sales.

(1) Consent or meeting of the minds.

 The essence of consent is the conformity of the parties on the terms of the
contract, the acceptance by one of the offer made by the other. The contract to sell
is a bilateral contract. Where there is merely an offer by one party without the
acceptance of the other, there is no consent.
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 The sale of conjugal property requires the consent of both the husband and the
wife. The absence of the consent of one renders the sale null and void (see Art.
124, Family Code.) while the vitiation thereof (see Art. 1390.) makes it merely
voidable.

CAPACITY TO BUY AND SELL

ARTICLE 1489

PERSON WHO MAY ENTER INTO A CONTRACT OF SALE

General rule: all persons, whether natural or juridical, who can bind themselves by contract have
also legal capacity to buy and sell.

Exceptions: when the law determines that party suffers from either absolute or relative
incapacity.

KINDS OF INCAPACITY
Absolute incapacity- in the case of persons who cannot bind themselves; and
Relative incapacity- where it exists only with reference to certain persons or a certain class of
property.

LIABILITY FOR NECESSARIES OF MINOR OR OTHER PERSON WITHOUT

CAPACITY TO ACT
“Necessaries” are those things which are needed for sustenance, dwelling, clothing and medical
attendance, in keeping with the financial capacity of the family of the incapacitated person.
-generally, the contracts entered into by a minor and other incapacitated persons are
voidable. However, where necessaries are sold and delivered to him (without intervention
of the parent or guardian) he must pay a reasonable price therefor, the contract is valid,
but the minor has the right to recover any excess above a reasonable value paid by him.

SALE BY MINORS
-when the minors pretend that they are now in adult age while in fact they have not, the
sale is valid. They cannot be permitted to excuse themselves from compliance with the
obligations assumed by them or to seek their annulment.

ARTICLE 1490
RELATIVE INCAPACITY OF HUSBAND AND WIFE
1. they are prohibited by the article 1490 from selling property to each other.
2. they are also prohibited from making donations to each other during the marriage
except moderate gifts on the occasion of any family rejoicing. If there has been a
separation of property agreed upon in the marriage settlements, or when there has been a
judicial separation of property decreed between them by the court, THE SALES
BETWEEN THEM, ARE ALLOWED.
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REASON FOR PROHIBITION UNDER ARTICLE 1490

-the possibility that the husband will induce his wife to engage in ruinous operations. The
prohibition is primarily for the protection of 3rd person who relying upon supposed property of
either spouse enters into a contract with either of them only to find out that the property relied
upon was transferred to the other spouse.

PERSONS PERMITTED TO QUESTION SALE

1. the heirs of either spouse, as well as creditors at the time of the transfer, can attack the
validity of the sale but not creditors who became such only after the transaction
2. the government

ARTICLE 1491

INCAPACITY BY REASON OF RELATION TO PROPERTY

-The persons who, because of their position and relation with the persons under their
charge or property under their control, are prohibited from acquiring said property under their
control.
They are the: guardians, agents, executors and administration, public officers and
employees; judicial officers and employees and lawyers and others especially disqualified by
law.

REASON FOR PROHIBITION

-is to prevent frauds on the part of the persons enumerated therein and minimize
temptations to the exertion of undue and improper influence.

OTHER PERSONS ESPECIALLY DISQUALIFIED

1. aliens who are disqualified to purchase private agricultural lands
2. unpaid seller, having a right of lien or having stopped the goods in transit
3. the officer conducting an execution sale of property to enforce a court judgment
rendered against the owner.

ARTICLE 1492
PROHIBITION IN EXTENDS TO SALE IN LEGAL REDEMPTION
1. COMPROMISE-is a contract whereby the parties, by reciprocal concessions, avoid a
litigation or put an end to one already commenced. It is the amicable settlement of a
controversy.
2. by renunciation- a creditor gratuitously abandons his right against his creditor. The
other terms used by the law are condonation and remission.
ARTICLE 1493
EFFECT OF LOSS OF THING AT THE TIME OF SALE
1. THING ENTIRELY LOST
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DISTINGUISHED FROM OTHER TRANSACTIONS/CONTRACT

1. Distinguished from Barter
2. Distinguished from Donation
3. Distinguished from Contract for Piece of Work

INCHAUSTI AND CO. vs. ELLIS CROMWELL, Collector of Internal Revenue

FACTS:
Inchausti is engaged in the business of buying and selling at wholesale hemp. It is customary
to sell hemp in bales. The operation of bailing hemp is designated among merchants by the
word "prensaje." In all sales of hemp by the plaintiff firm, the price is quoted to the buyer at so
much per picul, no mention being made of bailing; but with the tacit understanding, unless
otherwise expressly

Plaintiff Inchausti has always paid to the defendant Collector of Internal Revenue or to his
predecessor in the office of the Collector of Internal Revenue the tax collectible upon the
selling price expressly agreed upon for all hemp sold by the plaintiff firm, but has not, until
compelled to do so paid the said tax upon sums received from the purchaser of such hemp
under the denomination of "prensaje

The plaintiff firm paid to the defendant under protest that the tax for the collected money
under the denomination of "prensaje" is illegal upon the ground that the said charge does not
constitute a part of the selling price of the hemp, but is a charge made for the service of baling
the hemp.

It is the contention of the defendant that the said charge made under the denomination of
"prensaje" is in truth and in fact a part of the gross value of the hemp sold and of its actual
selling price.

ISSUE:
Whether or not the amount collected under the denomination “pensaje” is part of the selling
price of the hemp.

RULING:
Yes. It is considered part of the selling price and the tax was properly imposed. The distinction
between a contract of sale and one for work, labor, and materials is tested by the inquiry
whether the thing transferred is one no in existence and which never would have existed but
for the order of the party desiring to acquire it, or a thing which would have existed and been
the subject of sale to some other person, even if the order had not been given. It is clear that in
the case at bar the hemp was in existence in baled form before the agreements of sale were
made, or, at least, would have been in existence even if none of the individual sales
here in question had been consummated
 17

CELESTINO CO VS CIR (G.R. NO. L-8506)

FACTS:
Celestino Co & Company is a duly registered general co-partnership doing business under the
trade name of Oriental Sash Factory . From 1946 to 1951 it paid percentage taxes of 7% on
the gross receipts of its sash, door and window factory, in accordance with sec. 186 of the
National Internal Revenue Code which is a tax on the original sales of articles by
manufacturer, producer or importer.

However, in 1952 it began to claim only 3% tax under Sec. 191, which is a tax on sales of
services. Petitioner claims that it does not manufacture ready-made doors, sash and windows
for the public, but only upon special orders from the customers, hence, it is not engaged in
manufacturing under sec 186, but only in sales of services covered by sec 191.

ISSUE: Whether the petitioner company provides special services or is engaged in

manufacturing.

HELD: The important thing to remember is that Celestino Co & Company habitually makes
sash, windows and doors, as it has represented in its stationery and advertisements to the
public.

That it <manufactures= the same is practically admitted by appellant itself. The fact that
windows and doors are made by it only when customers place their orders, does not alter the
nature of the establishment, for it is obvious that it only accepted such orders as called for the
employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in
a position habitually to manufacture. The Oriental Sash Factory does nothing more than sell
the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting
them to such sizes and combining them in such forms as its customers
may desire.

SC opinion when this Factory accepts a job that requires the use of extraordinary or additional
equipment, or involves services not generally performed by it-it thereby contracts for a piece
of work 4 filing special orders within the meaning of Article 1467.

The orders herein exhibited were not shown to be special. They were merely orders for work 4
nothing is shown to call them special requiring extraordinary service of the factory. The
thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously
made, such orders should not be called special work, but regular work. The Supreme Court
affirms the assailed decision by the CTA.

INOCENCIA YU DINO and her HUSBAND doing business under the trade name "CANDY
CLAIRE FASHION GARMENTS, vs COURT OF APPEALS and ROMAN SIO, doing
 18

business under the name "UNIVERSAL TOY MASTER MANUFACTURING"

FACTS:
Petitioners spouses Dino, doing business under the trade name "Candy Claire Fashion
Garment" are engaged in the business of manufacturing and selling shirts. Respondent Sio is
part owner and general manager of a manufacturing corporation doing business under the trade
name "Universal Toy Master Manufacturing." Petitioners and respondent Sio entered into a
contract whereby the latter would manufacture for the petitioners 20,000 pieces of vinyl frogs
and 20,000 pieces of vinyl mooseheads with the sample approved by the petitioners.

Respondent Sio delivered the 40,000 pieces of frogs and mooseheads. Subsequently,
petitioners returned to respondent 29,772 pieces of frogs and mooseheads for failing to comply
with the approved sample. Petitioners then demanded from the respondent a refund of the
purchase price of the returned goods in the amount of P208,404.00. As respondent Sio refused
to pay, petitioners filed on July 24, 1989 an action for collection of a sum of money in the
Regional Trial Court of Manila, Branch 38. The trial court ruled in favor of the petitioners.

Respondent Sio sought recourse in the Court of Appeals. On January 24, 1994, the respondent
court reversed its decision and dismissed petitioners' Complaint for having been filed beyond
the prescriptive period.

ISSUE:
Whether or not the contract between the petitioner and the respondent was a contract for a
piece of work.

RULING:

CONTRACT OF PIECE OF WORK

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.

"Art. 1713. By the contract for a piece of work the contractor binds himself to execute a piece
of work for the employer, in consideration of a certain price or compensation. The contractor
may either employ only his labor or skill, or also furnish the material."

It was stipulated in the contract that respondent would manufacture upon order of the
petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according to
the samples specified and approved by the petitioners.

Respondent Sio did not ordinarily manufacture these products, but only upon order of the
petitioners and at the price agreed upon. Clearly, the contract executed by and between the
petitioners and the respondent was a contract for a piece of work. At any rate, whether the
 19

agreement between the parties was one of a contract of sale or a piece of work, the provisions
on warranty of title against hidden defects in a contract of sale apply to the case at bar. Article
1567 provides for the remedies available to the vendee in case of hidden defects:

"Art. 1567. 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."

By returning the 29,772 pieces of vinyl products to respondent and asking for a return of their
purchase price, petitioners were in effect "withdrawing from the contract" as provided in Art.
1567. The prescriptive period for this kind of action is provided in Art. 1571 of the New Civil
Code which provides that the action shall be barred after six months from the delivery of the
thing sold. Respondent made the last delivery of the vinyl products to petitioners on
September 28,1988 and the action to recover the purchase price of the goods was filed on July
24, 1989, more than nine months from the date of last delivery. Clearly, Petitioners are barred
from claiming a sum of money from respondent.

4. Distinguished from Agency to Sell

ANDRES QUIROGA vs PARSONS HARDWARE CO.,

G.R. L-11491 August 23, 1918

FACTS:
On January 24, 1911, a contract was entered into by and between Andres Quiroga and J.
Parsons, to whose rights and obligations the present defendant later subrogated itself. The
contract stipulated that Don Andres Quiroga grants the exclusive right to sell his beds in the
Visayan Islands to J. Parsons.

Quiroga files a case against Parsons for allegedly violating the following stipulations: not to
sell the beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the dozen and in no other
manner. With the exception of the obligation on the part of the defendant to order the beds by
the dozen and in no other manner, none of the obligations imputed to the defendant in the two
causes of action are expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied
in a contract of commercial agency. The whole question, therefore, reduced itself to a
determination as to whether the defendant, by reason of the contract hereinbefore transcribed,
was a purchaser or an agent of the plaintiff for the sale of his beds.

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

 20

RULING:
In order to classify a contract, due regard must be given to its essential clauses. In the contract
in question, what was essential, as constituting its cause and subject matter, is that the plaintiff
was to furnish the defendant with the beds which the latter might order, at the price stipulated,
and that the defendant was to pay the price in the manner stipulated. The price agreed upon
was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of
from 20 to 25 per cent, according to their class.

Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in
cash, if the defendant so preferred, and in these last two cases an additional discount was to be
allowed for prompt payment. These are precisely the essential features of a contract of
purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and,
on the part of the defendant, to pay their price. These features exclude the legal conception of
an agency or order to sell whereby the mandatory or agent received the thing to sell it, and
does not pay its price, but delivers to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in selling it, he returns it. By
virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds,
was necessarily obliged to pay their price within the term fixed, without any other
consideration and regardless as to whether he had or had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for these contracts are incompatible with
each other. But, besides, examining the clauses of this contract, none of them is found that
substantially supports the plaintiff's contention.

Not a single one of these clauses necessarily conveys the idea of an agency. The words
commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract
itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and
3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the
Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are
not incompatible with the contract of purchase and sale.

VICTORIAS MILLING CO. vs. COURT OF APPEALS

FACTS:
St. Therese Merchandising (STM) regularly bought sugar from Victorias Milling Co
(VMC). In the course of their dealings, VMC issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M. SLDR No.
1214M, dated October 16, 1989, covers 25,000 bags of sugar. Each bag contained 50 kg and
 21

priced at P638.00 per bag. The transaction covered was a “direct sale”.

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation
(CSC) its rights in the same SLDR for P14,750,000.00. CSC issued checks in payment. That
same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar
covered by the said SLDR. Enclosed in the letter were a copy of SLDR No. 1214M and a letter
of authority from STM authorizing CSC to “withdraw for and in our behalf the refined sugar
covered by the SLDR” On Oct. 27, 1989, STM issued checks to VMC as payment for 50,000
bags, covering SLDR No. 1214M. CSC surrendered the SLDR No. 1214M and to VMC’s
NAWACO Warehouse and was allowed to withdraw sugar. But only 2,000 bags had been
released because VMC refused to release the other 23,000 bags.

Therefore, CSC informed VMC that SLDR No. 1214M had been “sold and
endorsed” to it. But VMC replied that it could not allow any further withdrawals of sugar
against SLDR No. 1214M because STM had already withdrawn all the sugar covered by the
cleared checks. VMC also claimed that CSC was only representing itself as STM’s agent as it
had withdrawn the 2,000 bags against SLDR No. 1214M “for and in behalf” of STM. Hence,
CSC filed a complaint for specific performance against Teresita Ng Sy (doing business under
STM's name) and VMC. However, the suit against Sy was discontinued because later became
a witness. RTC ruled in favor of CSC and ordered VMC to deliver the 23,000 bags left. CA
concurred. Hence this appeal.

ISSUES:
W/N CA erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon
SLDR No. 1214M as assignee.

HELD:
NO. CSC was not an agent of STM. VMC heavily relies on STM’s letter of authority that said
CSC is authorized to withdraw sugar “for and in our behalf”. It is clear from Art. 1868 that
the: basis of agency is representation. On the part of the principal, there must be an actual
intention to appoint or an intention naturally inferable from his words or actions, and on the
part of the agent, there must be an intention to accept the appointment and act on it, and in the
absence of such intent, there is generally NO agency. One factor, which most clearly
distinguishes agency from other legal concepts, is control; one person – the agent – agrees to
act under the control or direction of another – the principal. Indeed, the very word “agency”
has come to connote control by the principal. The control factor, more than any other, has
caused the courts to put contracts between principal and agent in a separate category. Where
the relation of agency is dependent upon the acts of the parties, the law makes no presumption
of agency and it is always a fact to be proved, with the burden of proof resting upon the
persons alleging the agency, to show not only the fact of its existence but also its nature and
extent. It appears that CSC was a buyer and not an agent of STM. CSC was not subject to
STM’s control. The terms “for and in our behalf” should not be eyed as pointing to the
existence of an agency relation. Whether or not a contract is one of sale or agency depends on
the intention of the parties as gathered from the whole scope and effect of the language
employed. Ultimately, what is decisive is the intention of the parties. (In fact, CSC even
informed VMC that the SLDR was sold and endorsed to it.)
 22

Agency distinguished from sale.

In an agency to sell, the agent, in dealing with the thing received, is bound to act according to
the instructions of his principal, while in a sale, the buyer can deal with the thing as he pleases,
being the owner. The elementary notion of sale is the transfer of title to a thing from one to
another, while the essence of agency involves the idea of an appointment of one to act for
another. Agency is a relationship which often results in a sale, but the sale is a subsequent step
in the transaction. (Teller, op. cit., p. 26; see Commissioner of Internal Revenue vs. Manila
Machinery & Supply Co., 135 SCRA 8 [1985].) An authorization given to another containing
the phrase “for and in our behalf’’ does not necessarily establish an agency, as ultimately what
is decisive is the intention of the parties. Thus, the use of the words “sold and endorsed’’ may
mean that the parties intended a contract of sale, and not a contract of agency.

PARTIES TO SALE - CASES

PARTIES TO THE SALE (Art 1489)
Minors, Insane or Demented Persons, Deaf-Mutes (Art 1387, 1393, 1328)
Necessaries (Art 1489, Art 194 of FC) Senility and Serious Illness

FACTS:
Paulina Rigonan owned three (3) parcels of land, located at Batac and Espiritu, Ilocos Norte,
including the house and warehouse on one parcel. She allegedly sold them to private
respondents, the spouses Felipe and Concepcion Rigonan, who claim to be her relatives. In
1966, herein petitioners Eugenio Domingo, Crispin Mangabat and Samuel Capalungan, who
claim to be her closest surviving relatives, allegedly took possession of the properties by
means of stealth, force and intimidation, and refused to vacate the same. Consequently, on
February 2, 1976, herein respondent Felipe Rigonan filed a complaint for revindication against
petitioners in the Regional Trial Court of Batac, Ilocos Norte. On July 3, 1977, he amended the
complaint and included his wife as co-plaintiff. They alleged that they were the owners of the
three parcels of land through the deed of sale executed by Paulina Rigonan on January 28,
1965; that since then, they had been in continuous possession of the subject properties and had
introduced permanent improvements thereon; and that defendants (now petitioners) entered the
properties illegally, and they refused to leave them when asked to do so.

Herein petitioners, as defendants below, contested plaintiffs' claims. According to defendants,

the alleged deed of absolute sale was void for being spurious as well as lacking consideration.
They said that Paulina Rigonan did not sell her properties to anyone. As her nearest surviving
kin within the fifth degree of consanguinity, they inherited the three lots and the permanent
improvements thereon when Paulina died in 1966. They said they had been in possession of
the contested properties for more than 10 years. Defendants asked for damages against
plaintiffs.
 23

ISSUE:
Whether or not Paulina Rigonan was competent to enter into said contract (NO)

RULING:
Now, on the main issue. Did private respondents establish the existence and due execution of
the deed of sale? Our finding is in the negative.

First, note that private respondents as plaintiffs below presented only a carbon copy of this
deed. When the Register of Deeds was subpoenaed to produce the deed, no original
typewritten deed but only a carbon copy was presented to the trial court. Although the Court of
Appeals calls it a "duplicate original," the deed contained filled in blanks and alterations.

Secondly, we agree with the trial court that irregularities abound regarding the execution and
registration of the alleged deed of sale. On record, Atty. Tagatag testified that he himself
registered the original deed with the Register of Deeds. Yet, the original was nowhere to be
found and none could be presented at the trial. Also, the carbon copy on file, which is
allegedly a duplicate original, shows intercalations and discrepancies when compared to
purported copies in existence. the alleged vendor Paulina Rigonan was not given a copy.

Thirdly, we have to take into account the element of consideration for the sale. The price
allegedly paid by private respondents for nine (9) parcels, including the three parcels in
dispute, a house and a warehouse, raises further questions. Consideration is the why of a
contract, the essential reason which moves the contracting parties to enter into the contract. On
record, there is unrebutted testimony that Paulina as landowner was financially well off. She
loaned money to several people. We see no apparent and compelling reason for her to sell the
subject parcels of land with a house and warehouse at a meager price of P850 only.

In the present case, at the time of the execution of the alleged contract, Paulina Rigonan was
already of advanced age and senile. She died an octogenarian on March 20, 1966, barely over
a year when the deed was allegedly executed on January 28, 1965, but before copies of the
deed were entered in the registry allegedly on May 16 and June 10, 1966.

The general rule is that a person is not incompetent to contract merely because of advanced
years or by reason of physical infirmities. However, when such age or infirmities have
impaired the mental faculties so as to prevent the person from properly, intelligently, and
firmly protecting her property rights then she is undeniably incapacitated.

The unrebutted testimony of Zosima Domingo shows that at the time of the alleged execution
of the deed, Paulina was already incapacitated physically and mentally. She narrated that
Paulina played with her waste and urinated in bed.

Given these circumstances, there is in our view sufficient reason to seriously doubt that she
consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to
 24

show that said price was paid to and received by her. Thus, we are in agreement with the trial
court's finding and conclusion on the matter.

Sales of Spouses
Sales to Third Parties (Art 73 of FC, Art 96 of FC, Art 124 of FC)

GUIANG VS. CA
G.R. No. 125172, June 26, 1998

FACTS:
Private respondent Gilda Corpuz and Judie Corpuz are legally married spouses. They have
three children, namely: Junie (18 years old), Harriet (17), and Jodie (15). The couple bought a
421 sq. meter lot in Koronadal, South Cotabato from Manuel Callejo through a conditional
deed of sale.

The consideration was payable in installment.

In 1988, the couple sold one-half portion of their Lot to petitioner-spouses Antonio and
Luzviminda Guiang. Since then, Guiang occupied the one-half portion and built their house
thereon. They are thus adjoining neighbors of the Corpuzes. Gilda Corpuz left for Manila to
look for work abroad.

Unfortunately, she became a victim of an unscrupulous illegal recruiter. She was not able to go
abroad. She stayed for sometime in Manila. After his wife's departure for Manila, Judie
Corpuz seldom went home to the conjugal dwelling. He stayed most of the time at his place of
work.
Harriet Corpuz learned that her father intended to sell the remaining one-half portion including
their house to Guiangs. She wrote a letter to her mother. Gilda Corpuz replied that she was
objecting to the sale. Harriet, however, did not inform her father about this; but instead gave
the letter to Luzviminda Guiang so that she would advise her father.

However, in the absence of his wife Gilda, Judie Corpuz pushed through the sale. He sold to
Luzviminda Guiang thru a "Deed of Transfer of Rights" remaining one-half portion of their lot
and the house. Gilda returned home. She found her children staying with other households.

Only Junie was staying in their house. Harriet and Joji were with Mr. Panes. Gilda gathered
her children together and stayed at their house. Her husband was nowhere to be found. She
was informed by her children that their father had a wife already. For staying in their house
sold by her husband, spouses Guiang complained before the Barangay authorities for
trespassing.

The parties thereat signed a document for amicable settlement stating that Gilda Corpuz and
 25

her three children must leave voluntarily the house without any charge. Thereafter, Gilda
approached the Barangay Captain for the annulment of the settlement. Annulment not having
been made, they stayed put in her house and lot. Spouses Guiang filed a motion for execution
of the amicable settlement with the MTC.

However, Private Respondent Gilda Corpuz filed a Complaint against her husband Judie
Corpuz and Petitioner-Spouses Antonio and Luzviminda Guiang. The said Complaint sought
the declaration of a Deed of Transfer of Right, which involved the conjugal property, null and
void.

ISSUE:
(1) W/N the contract of sale (Deed of Transfer of Rights) was merely voidable, and
(2) W/N such contract was ratified by private respondent when she entered into an amicable
settlement with them.

HELD:
On the First Issue:

Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the
parties-litigants in good faith and for valuable consideration.

The absence of private respondent's consent merely rendered the Deed voidable under Article
1390 of the Civil Code, which provides: "Art. 1390. The following contracts are voidable or
annullable, even though there may have been no damage to the contracting parties:

xxxxxxxxx
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud."
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification. The error in petitioners' contention is evident. Article 1390, par. 2,
refers to contracts visited by vices of consent, i.e., contracts which were entered into by a
person whose consent was obtained and vitiated through mistake, violence, intimidation,
undue influence or fraud. In this instance, private respondent's consent to the contract of sale
of their conjugal property was totally inexistent or absent.

This being the case, said contract properly falls within the ambit of Article 124 of the Family
Code, which was correctly applied by the to lower court:

"Art. 124. The administration and enjoyment of the conjugal partnership properly shall belong
to both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject
recourse to the court by the wife for proper remedy, which must be availed of within five years
from the date of the contract implementing such decision."

In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other spouse may assume sole powers of
 26

administration. These powers do not include the powers of disposition or encumbrance which
must have the authority of the court or the written consent of the other spouse.

Furthermore, it must be noted that the fraud and the intimidation referred to by petitioners
were perpetrated in the execution of the document embodying the amicable settlement. Gilda
Corpuz alleged during trial that barangay authorities made her sign said document through
misrepresentation and coercion.13 In any event, its execution does not alter the void.

The character of the deed of sale between the husband and the petitioners-spouses, as will be
discussed later. The fact remains that such contract was entered into without the wifes consent.
In the absence of such authority or consent, the disposition or encumbrance shall be void.

However, the transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or authorization by the court before the offer is withdrawn by either or
both offerors.

In sum, the nullity of the contract of sale is premised on the absence of private respondent's
consent. To constitute a valid contract, the Civil Code requires the concurrence of the
following elements: (1) cause, (2) object, and (3) consent, the last element being indubitably
absent in the case at bar.

On the Second Issue:

Insisting that the contract of sale was merely voidable, petitioners aver that it was duly ratified
by the contending parties through the "amicable settlement" they executed on March 16, 1990.
The position is not well taken. The trial and the appellate courts have resolved this issue in
favor of the private respondent. The trial court correctly held:
"By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed to Transfer of
Rights” cannot be ratified, even by an "amicable settlement". The participation by some
barangay authorities in the "amicable settlement" cannot otherwise validate an invalid act.

Moreover, it cannot be denied that the "amicable settlement, entered into by plaintiff Gilda
Corpuz and defendant spouses Guiang is a contract. It is a direct offshoot of the Deed of
Transfer of Rights.

By express provision of law, such a contract is also void. Thus, the legal provision, to wit:
Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and
inexistent. (Civil Code of the Philippines)."

In summation therefore, both the Deed of transfer of Rights and the "amicable settlement" are
null and void.
 27

ABALOS vs. MACATANGAY (September 30, 2004)

FACTS:
Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with
improvements. Armed with a Special Power of Attorney dated June 2, 1988, purportedly
issued by his wife, Arturo executed a Receipt and Memorandum of Agreement (RMOA) dated
October 17, 1989, in favor of respondent, binding himself to sell to respondent the subject
property and not to offer the same to any other party within thirty (30) days from date. Arturo
acknowledged receipt of a check from respondent in the amount of Five Thousand Pesos
(P5,000.00), representing earnest money for the subject property, the amount of which would
be deducted from the purchase price of One Million Three Hundred Three Hundred Thousand
Pesos (P1,300,000.00). Further, the RMOA stated that full payment would be effected as soon
as possession of the property shall have been turned over to respondent.

Subsequently, Arturo9s wife, Esther, executed a Special Power of Attorney dated October 25,
1989, appointing her sister, Bernadette Ramos, to act for and in her behalf relative to the
transfer of the property to respondent. Ostensibly, a marital squabble was brewing between
Arturo and Esther at the time and to protect his interest, respondent caused the annotation of
his adverse claim on the title of the spouses to the property on November 14, 1989.

Respondent sent a letter to Arturo and Esther informing them of his readiness and willingness
to pay the full amount of the purchase price. The letter contained a demand upon the spouses
to comply with their obligation to turn over possession of the property to him. On the same
date, Esther, through her attorney in- fact, executed in favor of respondent, a Contract to Sell
the property to the extent of her conjugal interest therein.

He reiterated his demand upon them to comply with their obligation to turn over possession of
the property. Arturo and Esther failed to deliver the property which prompted respondent to
cause the respondent to file a complaint for specific performance with damages against
petitioners.

The court declared that the RMOA is a contract to sell because it signifies a unilateral offer of
Arturo to sell the property to respondent for a price certain within a period of thirty days. The
RMOA does not impose upon respondent an obligation to buy petitioner9s property, as in fact
it does not even bear his signature thereon. It is quite clear that after the lapse of the thirty-day
period, without respondent having exercised his option, Arturo is free to sell the property to
another. This shows that the intent of Arturo is merely to grant respondent the privilege to buy
the property within the period therein stated. There is nothing in the RMOA which indicates
that Arturo agreed therein to transfer ownership of the land which is an essential element in a
contract of sale.

ISSUE: Can the sale be declared valid based on the RMOA?

HELD: No. The sale would is not valid. Granting for the sake of argument that the RMOA is a
contract of sale, the same would still be void. Quite glaring is the absence of the signature of
Esther in the RMOA, which proves that she did not give her consent to the transaction initiated
 28

by Arturo. The husband cannot alienate any real property of the conjugal partnership without
the wife’s consent.

However, it was the Contract to Sell executed by Esther through her attorney-in-fact which the
Court of Appeals made full use of. Holding that the contract is valid, the appellate court
explained that while Esther did not authorize Arturo to sell the property, her execution of the
SPA authorizing her sister to sell the land to respondent clearly shows her intention to convey
her interest in favor of respondent. In effect, the court declared that the lack of Esthe’s consent
to the sale made by Arturo was cured by her subsequent conveyance of her interest in the
property through her attorney-in-fact.

This ruling is erroneous.

The nullity of the RMOA as a contract of sale emanates not only from lack of Esther9s consent
thereto but also from want of consideration and absence of respondent9s signature t hereon.
Such nullity cannot be obliterated by Esther’s subsequent confirmation of the putative
transaction as expressed in the

Contract to Sell. Under the law, a void contract cannot be ratified and the action or defense for
the declaration of the inexistence of a contract does not prescribe. A void contract produces no
effect either against or in favor of anyone it cannot create, modify or extinguish the juridical
relation to which it refers.

True, in the Contract to Sell, Esther made reference to the earlier RMOA executed by Arturo in
favor of respondent. However, the RMOA which Arturo signed is different from the deed
which
Esther executed through her attorney-in-fact. For one, the first is sought to be enforced as a
contract of sale while the second is purportedly a contract to sell only. For another, the terms
and conditions as to the issuance of title and delivery of possession are divergent.

The congruence of the wills of the spouses is essential for the valid disposition of conjugal
property. Where the conveyance is contained in the same document which bears the
conformity of both husband and wife, there could be no question on the validity of the
transaction. But when there are two (2) documents on which the signatures of the spouses
separately appear, textual concordance of the documents is indispensable.

Hence, in this case where the wife’s putative consent to the sale of conjugal property appears
in a separate document which does not, however, contain the same terms and conditions as in
the first document signed by the husband, a valid transaction could not have arisen.

Even on the supposition that the parties only disposed of their respective shares in the
property, the sale, assuming that it exists, is still void for as previously stated, the right of the
husband or the wife to one-half of the conjugal assets does not vest until the liquidation of the
conjugal partnership. prior to the liquidation of the conjugal partnership, the interest of each
spouse in the conjugal assets is inchoate, a mere expectancy. The right of the husband or wife
to one-half of the conjugal assets does not vest until the dissolution and liquidation of the
conjugal partnership, or after dissolution of the marriage, when it is finally determined that,
 29

after settlement of conjugal obligations, there are net assets left which can be divided
between the spouses or their respective heirs

MODINA VS. CA

FACTS: This case involves parcels of land registered under the name of Ramon Chiang.
Chiang theorized that the subject properties were sold to him by his wife, Merlinda Plana
Chiang
as evidenced by a Deed of Sale and were subsequently sold by Chiang to the petitioner Serafin
Modina. (Dates of sale: August 3, 1979 and August 24, 1979, respectively.)

Modina brought a Complaint for Recovery of Possession with Damages against the private
respondents before the RTC. Upon learning the institution of the said case, Merlinda presented
a Complaint-in-intervention, seeking the declaration of nullity of the Deed of Sale between her
husband and MODINA on the ground that the titles of the parcels of land in dispute were
never legally transferred to her husband. She contended that fraudulent acts were allegedly
employed by her husband to obtain a Torrens Title in his favor. However, she confirmed the
validity of the lease contracts with the other private respondents.

MERLINDA also admitted that the said parcels of land were those ordered sold by the CFI of
Iloilo in <Intestate Estate of Nelson Plana where she was appointed as the administratix,
being the widow of the deceased, her first husband. An Authority to Sell was issued by the said
Probate Court for the sale of the same properties. RTC ruled in favor of the wife Merlinda
declaring the two sales in August 1979 as void and inexistent. Upon appeal, the CA affirmed in
toto the RTC ruling.

ISSUES:
1. Whether or not the sale of subject lots should be nullified. YES
2. Whether or not petitioner Modina was a purchaser in good faith. NO

HELD:
1.)The sale of the subject lots should be nullified.
Prohibition of sale between spouses

Art. 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

Art. 191.
The sale between Chiang spouses was null and void. The ownership of the lot did not transfer
to Ramon Chiang. Hence, the sale to Modina was null and void. The exception to the rule laid
down in Art. 1490 of the New Civil Code not having existed with respect to the property
 30

relations of Ramon Chiang and Merlinda Plana Chiang, the sale by the latter in favor of the
former of the properties in question is invalid for being prohibited by law. Not being the owner
of subject properties, Ramon Chiang could not have validly sold the same to plaintiff Serafin
Modina. The sale by Ramon Chiang in favor of Serafin Modina is, likewise, void and
inexistent. Serafin Modina is, likewise, void and inexistent.

A contract of sale without consideration is a void contract Under Article 1409 of the New Civil
Code, enumerating void contracts, a contract without consideration is one such void contract.
One of the characteristics of a void or inexistent contract is that it produces no effect. So also,
inexistent contracts can be invoked by any person whenever juridical effects founded thereon
are asserted against him. A transferor can recover the object of such contract by accion
reivindicatoria and any possessor may refuse to deliver it to the transferee, who cannot enforce
the transfer.

Thus, Modina9s insistence that Merlinda cannot attack subject contract of sale as she was a
guilty party thereto is equally unavailing. Merlinda can recover the property Since one of the
characteristics of a void or inexistent contract is that it does not produce any effect,
MERLINDA can recover the property from petitioner who never acquired title thereover.

Records show that in the complaint-in-intervention of MERLINDA, she did not aver the same
as a ground to nullify subject Deed of Sale. In fact, she denied the existence of the Deed of
Sale in favor of her husband. In the said Complaint, her allegations referred to the want of
consideration of such Deed of Sale. She did not put up the defense under Article 1490, to
nullify her sale to her husband CHIANG because such a defense would be inconsistent with
her claim that the same sale was inexistent.

2.) Modina was not a purchaser in good faith

There are circumstances which are indicia of bad faith on Mondina’s part:
(1) He asked his nephew, Placido Matta, to investigate the origin of the property and the latter
learned that the same formed part of the pr operties of MERLINDA’s first husband;
(2) that the said sale was between the spouses;
(3) that when the property was inspected, MODINA met all the lessees who informed that
subject lands belong to MERLINDA and they had no knowledge that the same lots were sold
to the husband.

It is a well-settled rule that a purchaser cannot close his eyes to facts which would put a
reasonable man upon his guard to make the necessary inquiries, and then claim that he acted in
good faith. His mere refusal to believe that such defect exists, or his wilful closing of his eyes
to the possibility of the existence of a defect in his vendor’ s title, will not make him an
innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defect as would have led to its discovery had he acted
with that measure of precaution which may reasonably be required of a prudent man in a like
situation.
 31

CALIMLIM- CANULLAS vs. FORTUN (June 22, 1984)

FACTS: Petitioner MERCEDES Calimlim-Canullas and FERNANDO Canullas were married

on December 19, 1962. They begot five children. They lived in a small house on the
residential land in question located at Bacabac, Bugallon, Pangasinan. After FERNANDO's
father died in 1965, FERNANDO inherited the land.

In 1978, FERNANDO abandoned his family and was living with private respondent Corazon
DAGUINES. During the pendency of this appeal, they were convicted of concubinage. On
April 15, 1980, FERNANDO sold the subject property with the house thereon to DAGUINES
for the sum of P2,000.00. In the document of sale, FERNANDO described the house as "also
inherited by me from my deceased parents."

Unable to take possession of the lot and house, DAGUINES initiated a complaint on June 19,
1980 for quieting of title and damages against MERCEDES. The latter resisted and claimed
that the house in dispute where she and her children were residing, including the coconut trees
on the land, were built and planted with conjugal funds and through her industry; that the sale
of the land together with the house and improvements to DAGUINES was null and void
because they are conjugal properties and she had not given her consent to the sale.

ISSUE: whether or not the sale of the lot together with the house and improvements thereon
was valid.

HELD: No. Not Valid. Second paragraph of Article 158 of the Civil Code, provides:
xxx xxx xxx
Buildings constructed at the expense of the partnership during the marriage on land belonging
to one of the spouses also pertain to the partnership, but the value of the land shall be
reimbursed to the spouse who owns the same. We hold that pursuant to the foregoing provision
both the land and the building belong to the conjugal partnership but the conjugal partnership
is indebted to the husband for the value of the land. The spouse owning the lot becomes a
creditor of the conjugal partnership for the value of the lot, which value would be reimbursed
at the liquidation of the conjugal partnership.

The foregoing premises considered, it follows that FERNANDO could not have alienated the
house and lot to DAGUINES since MERCEDES had not given her consent to said sale

Specific Incapacity Mandated by Law (Art 1491, 1492)

Rubias vs. Baller 51 SCRA 120

FACTS:
 32

In 1952, the land registration court dismissed Francisco Militante’s application of registration
for 171 hectares of land located in Barotac Viejo, province of Iloilo, but in 1958, the CA
affirmed by final judgment the land registration court’s decision. While appealing the decision
of the land registration court, Francisco Militante purportedly sold to his lawyer counsel and
son inlaw, Atty. Domingo Rubias, for the sum of P2,000.00 “a parcel of untitled land having an
area of 144 hectares.” The land claimed by the Atty. Rubias as his own was surveyed on June 6
and 7,1956, and a plan approved by Director of Land on November 15, 1956 was issued,
identified as Psu 155241.

In 1964, Atty. Rubias filed a suit to recover the ownership and possession of certain portions of
the lot against its present occupant, Isaias Batiller, who allegedly entered said portions of the
lot on 1945 and in 1959.

Defendant Batiller on the other hand proved by competent evidence during the trial that
subject lot No. 2 of the Psu-1552 was originally owned and possessed by Felipe Batiller,
grandfather of the defendant Basilio Batiller, on the death of the
former in 1920, as his sole heir. Isaias Batiller succeeded his father, Basilio Batiller, in the
ownership and possession of the land in the year 1930, and since then up to the present.
Batiller also stated that the alleged predecessors in interest of the plaintiff have never been in
the actual possession of the land and that they never had any title thereto, and that their
application for Free Patent over said land has been approved.

ISSUE:
Whether or not the contract of sale between appellant and his father-in-law, the late Francisco
Militante over the property subject of Plan Psu-99791 was void because it was made when
plaintiff was counsel of his father-in-law
in a land registration case involving the property in dispute?

RULING:
VOID.
The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that a sale
of property in litigation to the party litigant's lawyer "is not void but voidable at the election of
the vendor" was correctly held by the lower court to have been superseded by the later 1929
case of Director of Lands vs. Abagat.

In this later case of Abagat, the Court expressly cited two antecedent cases involving the same
transaction of purchase of property in litigation by the lawyer which was expressly declared
invalid under Article 1459 of the Civil Code of Spain (of which Article 1491 of our Civil
Code of the Philippines is the counterpart) upon challenge thereof not by the vendor-client but
by the adverse parties against whom the lawyer was to enforce his rights as vendee thus
acquired.

These two antecedent cases thus cited in Abagat clearly superseded (without so expressly
stating the previous ruling in Wolfson: The spouses, Juan Soriano and Vicente Macaraeg, were
the owners of twelve parcels of land. Vicenta Macaraeg died in November, 1909, leaving a
large number of collateral heirs but no descendants. Litigation between the surviving husband,
 33

Juan Soriano, and the heirs of Vicenta immediately arose, and the herein appellant Sisenando
Palarca acted as Soriano's lawyer. On May 2, 1918, Soriano executed a deed for the aforesaid
twelve parcels of land in favor of Sisenando Palarca and on the following day, May 3, 1918,
Palarca filed an application for the registration of the land in the deed. After hearing, the Court
of First Instance declared that the deed was invalid by virtue of the provisions of article 1459
of the Civil Code, which prohibits lawyers and solicitors from purchasing property rights
involved in any litigation in which they take part by virtue of their profession.

The application for registration was consequently denied, and upon appeal by Palarca to the
Supreme Court, the judgement of the lower court was affirmed by a decision promulgated
November 16,1925. (G.R. No. 24329, Palarca vs. Director of Lands, not reported.)

In the meantime cadastral case No. 30 of the Province of Tarlac was instituted, and on August
21, 1923, Eleuteria Macaraeg, as administratrix of the estate of Vicente Macaraeg, filed claims
for the parcels in question. Buenaventura Lavitoria administrator of the estate of Juan Soriano,
did likewise and so did Sisenando Palarca. In a decision dated June 21, 1927, the Court of First
Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and ordered the
registration of the land in his name.

Upon appeal to this court by the administration of the estates of Juan Soriano and
Vicente Macaraeg, the judgment of the court below was reversed and the land adjudicated to
the two estates as conjugal property of the deceased spouses. (G.R. No. 28226, Director of
Lands vs. Abagat, promulgated May 21, 1928, not
reported.)

In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the
lawyer's purchase of the land in litigation from his client, ordered the issuance of a writ of
possession for the return of the land by the lawyer to the adverse parties without
reimbursement of the price paid by him and other expenses, and ruled that "the appellant
Palarca is a lawyer and is presumed to know the law. He must, therefore, from the beginning,
have been well aware of the defect in his title and is, consequently, a possessor in bad faith.

The purchase by a lawyer of the property in litigation from his client is categorically
prohibited by Article 1491, paragraph (5) of the Civil Code, and that consequently, plaintiff's
purchase of the property in litigation from his client was void and could produce no legal
effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts
expressly prohibited or declared void by law are inexistent and that these contracts cannot be
ratified. Article 1491 of our Civil Code prohibits certain persons, by reason of the relation of
trustor their peculiar control over the property, from acquiring such property in their trust or
control either directly or indirectly and "even at a public or judicial auction," as
follows: (1) guardians;(2) agents; (3) administrators; (4) public officers and employees;
judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially
disqualified by law.

The rationale for that fundamental consideration of public policy render void and inexistent
such expressly prohibited purchase Article 1409 of the Civil Code, declared such prohibited
 34

contracts as " inexistent and void from the beginning"

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured
by ratification. The public interest and public policy remain paramount and do not permit of
compromise or ratification. (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 of 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 an 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.' defendant claims that plaintiff could not have acquired any interest
in the property in dispute as the contract he (plaintiff)
had with Francisco Militante was inexistent and void. (See pp. 22-31, Record on Appeal).

Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not
invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides
that 'The defense of illegality of contracts is not available to third persons whose interests are
not directly affected' (See pp. 32-35 Record on Appeal).

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured
by ratification. The public interest and public policy remain paramount and do not permit of
compromise or ratification. In his aspect, the permanent disqualification of public and judicial
officers and lawyers grounded on public policy differs from the first three cases of guardians,
agents and administrators (Article 1491, Civil Code), as to whose transactions it had been
opined that they may be "ratified" by means of and in "the form of a new contact, in which
cases its validity shall be determined only by the circumstances at the time the execution of
such new contract.

The causes of nullity which have ceased to exist cannot impair the validity of the new contract.
Thus, the object which was illegal at the time of the first contract, may have already become
lawful at the time of the ratification or second contract; or the service which was impossible
may have become possible; or the intention which could not be ascertained may have been
clarified by the parties The ratification or second contract would then be valid from its
execution; however, it does not retroact to the date of the first contract."

NOTES
Article 1491 provides that the following persons cannot acquire any purchase, even at a public
or judicial auction, either
in person or through the mediation of another:
(1) guardian
(2) agents
(3) executors and administrators
(4) public officers and employees
(5) those in the administration of justice
(a) judges
 35

(b) prosecuting attorneys

(c) clerks of superior and inferior courts
(d) other officers and employees connected with the administration of justice
(e) other officers and employees
(6) any others specially disqualified by law

Subject Matter of Sale

• Existing; Potential Existence (Emptio Rei Speratae) (Not Emptio Spei); Future Things;
Contingent; Subject to Resolutory Condition; Licit/Legal; Determinate/Determinable (At time of
perfection)

• Effect if there is no subject-matter?; Sale of Lotto/ Sweepstakes Ticket; Sale of Future

Inheritance
• Consider Article 1461, 1462, 1463, 1347, 1465, 1459, 1460, 1184, 1409, 1575, 1505
(NCC)

SUBJECT MATTER OF SALE

1. REQUISITES
• THINGS
o POSSIBLE- existing, future, and contingent
 Whether the subject matter is of a type and nature that exists or could be made to exist to
allow the seller reasonable certainly of being able to comply with his obligations
o Licit
 Not outside the commerce of man
 If illicit, contract is void
o Determinate or determinable
 Determinate: particularly designated or physically segregated from all others of the same
class
 Determinable:
• Thing is capable of being made determinate
• Without the necessity of a new further contract
• RIGHTS – must be transmissible, except:
 36

o Future inheritance
o Service
EMPTIO REI SPERATAE
–Sale of an expected thing.
–Sale is subject to the condition; that the thing will exist; if it does not, there is no contract.
–Uncertainty is with regard to the quality of the thing and not the existence of the thing.
–Object is a future thing.

EMPTIO SPEI
– Sale of a mere hope or expectancy that the thing will come to existence; sale of the hope itself
–Sale is effective even if the thing does not come into existence, unless it is a vain hope.
–The uncertainty is with regard to the existence of the thing.
–Object is a present thing which is the hope or expectancy.
Quantity of subject matter is not essential for perfection; must determine nature and quality of
subject matter.
Seller need not be the owner of the subject matter at the time of perfection: sufficient that he is
the owner at the time of delivery. Exception: foreclose sale.
Article 1461 of New Civil Code of the Philippines
Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the
thing will come into existence. The sale of a vain hope or expectancy is void.
Article 1462 of New Civil Code of the Philippines
The goods which form the subject of a contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the
perfection of the contract of sale, in this Title called “future goods.”
There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen.
Article 1463 of New Civil Code of the Philippines
The sole owner of a thing may sell an undivided interest therein. (n)
Article 1464. In the case of fungible goods, there may be a sale of an undivided share of a
specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or
 37

measure of the goods in the mass, and though the number, weight or measure of the goods in the
mass, and though the number, weight or measure of the goods in the mass is undetermined. By
such a sale the buyer becomes owner in common of such a share of the mass as the number,
weight or measure bought bears to the number, weight or measure of the mass. If the mass
contains less than the number, weight or measure bought, the buyer becomes the owner of the
whole mass and the seller is bound to make good the deficiency from goods of the same kind and
quality, unless a contrary intent appears.
Article 1347 of New Civil Code of the Philippines
All things which are not outside the commerce of men, including future things, may be the object
of a contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals, good customs, public order or public policy
may likewise be the object of a contract.
Article 1465 of New Civil Code of the Philippines
Things subject to a resolutory condition may be the object of the contract of sale. (n)
Article 1459 of New Civil Code of the Philippines
The thing must be licit and the vendor must have a right to transfer the ownership thereof at the
time it is delivered.
Requisites for the object of the Contract of Sale

The thing or the object of the contract of sale must be determinate or capable of being
determinate. It also needs to be licit or lawful, that is, it should not be contrary to law, morals,
good customs, public order, and public policy. Third, it should not be impossible. The object of
the contract must be within the commerce of men, which means that it is legal and its ownership
is transferable.

Rights that are transmissible or personal may also be the object of the contract of sale. Examples
of this is the right of usufruct.

It should be noted that services (or obligations to do) cannot be the object of a contract of sale,
even if they can be the object of a contract. (Contract for a piece of work)

Licit vs. Illicit things

 38

Article 1459 of the Philippine Civil Code requires that the object of the contract of sale must be
licit or lawful. Illicit things are therefore things that are unlawful or illegal. Things can be illicit
per se or per accidens.

Per se is a Latin phrase which means "in itself". Things that are illicit or illegal per se are things
that are inherently unlawful. An example of this is the selling of rotten food for consumption,
since it may be the cause of food poisoning.

Per accidens is a Latin phrase which means "by chance". Things that are illicit per accidens then
are things that are illegal because of a provision that declares it unlawful. An example of this
would be the selling of jueteng tickets.

Right to transfer ownership

One can only sell what he owns. In order for the sale to be valid, the vendor must be the owner
of the object of the contract of sale (or authorized by the owner to sell the object) in order to
transfer the ownership of the thing being sold.

It should be noted however that if at the time of delivery the right to transfer the ownership
exists, then the contract is valid. This means that it is not necessary that the seller has the
ownership of the object of the contract of sale during the formation or perfection of the contract
for as long as the ownership exists during the time of delivery.

This is of course to give way for future goods or goods that depend on contingency to be the
object of the contract of sale.
Article 1460 of New Civil Code of the Philippines
A thing is determinate when it is particularly designated or physical segregated from all others of
the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the
thing is capable of being made determinate without the necessity of a new or further agreement
between the parties.
Article 1184 of New Civil Code of the Philippines
 39

The condition that some event happen at a determinate time shall extinguish the obligation as
soon as the time expires or if it has become indubitable that the event will not take place.
The condition that some event happen at a determinate time shall extinguish the obligation is a
positive condition. Article 1184 applies id a condition is a positive one. The obligation subject to
a positive condition will be extinguished as soon as the time expires or as soon as it has become
indubitable that the event will not take place although the time specified has not yet expired.
Article 1409 of New Civil Code of the Philippines
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 1575 of New Civil Code of the Philippines
The sale of animals suffering from contagious diseases shall be void.
A contract of sale of animals shall also be void if the use or service for which they are acquired
has been stated in the contract, and they are found to be unfit therefor.
Article 1505 of New Civil Code of the Philippines
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;
 40

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

Cases
Araneta 49 OG 45 (GR# l-2886)
Araneta v Tuazon, G.R. No. L-2886, Aug. 22, 1962
FACTS:
Paz Tuason de Paterno, who is the registered owner of an approximately 40,703 square meter
land, obtained from Jose Vidal several loanstotallingP90,098 and constituted a first mortgage on
the aforesaid property to secure the debt. In January and April, 1943, she obtained additional
loans of P30,000 andP20,000upon the same security. On each of the last-mentioned occasions
the previous contract of mortgage was renewed and the amounts received were consolidated. In
the first novated contract the time of payment was fixed at two years and in the second and last at
four years. In 1943 Paz Tuason decided to sell the entire property for the net amount of P400,000
to Gregorio Araneta, who at that time Jose Araneta was said to be the president of the same.
Allegedly, Jose Araneta also acted as agent of Paz Tuason for the sale of the latter’s land. Thus,
the result of the negotiations was the execution on October 19, 1943, of a contract called
"Promesa de Compra y Venta". This contract also stated that Paz Tuason would sell to Gregorio
Araneta, Inc. for the said amount of P400,000 the entire estate except for the mortgage to Jose
Vidal. Paz Tuason had offered to Vidal the check for P143,150 in full settlement of her mortgage
obligation, but the mortgagee had refused to receive that check or to cancel the mortgage. A case
was filed against Vidal but the action never came on for trial and the record and the checks were
destroyed during the war operations in January or February, 1945; and neither was the case
reconstituted afterward. After liberation, an instant action was begun by Gregorio Araneta, Inc.to
compel Paz Tuason to deliver to the plaintiff a clear title to the lots described free from all liens
and encumbrances, and a deed of cancellation of the mortgage to Vidal. Vidal came into the case
in virtue of summon issued by order of the court, and filed a cross-claim against Paz Tuazon to
foreclose his mortgage. The lower court's judgment was that deed of sale between Araneta
andTuason was invalid. , unless Vidal's mortgage was cancelled.
ISSUE/S: Whether or not Jose Araneta acted as agent of Paz Tuason de Paterno.
RULING: No. Jose Araneta did not act as agent of Paz Tuason. Even if Paz Tuason have known
that Jose Araneta is the same as Gregorio Araneta Inc., she would still go with sale of her
property as Jose Araneta did not by way of being an agent performed such act of being an agent
for the sale was between the corporation and not that of with Jose. Otherwise, greed would have
set in in the heart of Jose, Would Jose have been the agent as well as the purchaser of the
property of Paz, than to respect their trusted and respected relationship as principal and agent.
Moreover, Jose Araneta was not given any authority to make a binding contract. He was not
given the confidence to administer, and act in behalf of Paz so there was no betrayal of thrust as
Jose acted only as a middle-man tasked only to look for a buyer and not to administer any sale
 41

between any prospective buyers. Adding to this, Jose was not to make the terms of payment.
Therefore, Jose Araneta was left with no power or discretion whatsoever, which he could abuse
to his advantage and to the owner’s prejudice. He is not entrusted as an agent for the agent’s
incapacity to buy principal’s property rests in the fact that the agent and principal from one
juridical person.
Sibal 50 P 512
FACTS:
Sibal owns parcels of land which was attached in another case. In these parcels of land,
sugarcanes were growing and it was attached and sold to Valdez. Sibal was able to redeem the
parcel of land with in the 1 year redemption period. As regards the sugar cane, Sibal was trying
to redeem it but Valdez refused to accept the money and to return the sugar canes. Valdez is
claiming that sugar canes are considered personal property and cannot be subject to redemption.

ISSUE:
Whether the sugar cane in question is a personal property or real property.

RULING:
The sugar canes are considered personal property. Under the Chattel Mortgage law:

Sec 2: "All personal property shall be subject to mortgage, agreeably to the provisions of this
Act, and a mortgage executed in pursuance thereof shall be termed a chattel mortgage.“

Section 7 in part provides: "If growing crops be mortgaged the mortgage may contain an
agreement stipulating that the mortgagor binds himself properly to tend, care for and protect the
crop while growing '* * *."

There was an assumption in the Chattel Mortgage Law that “growing crops” are personal
property when Section 7 provides for the rules on mortgage if it will be mortgaged.

For the purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law,
"un gathered products" have the nature of personal property.
 42

Moreover, growing fruits identified for harvesting are considered personal property.

Tanedo 252 S 80
FACTS:
October 20, 1962: Lazardo Tañedo executed a notarized deed of absolute sale in favor of his
eldest brother, Ricardo Tañedo, and the latter’s wife, Teresita Barera (private respondents)
whereby he conveyed forP1,500 one hectare of his future inheritance from his parents.

February 28, 1980: Upon the death of his father Matias, Lazaro made another a davit to rearm
the 1962 sale.

January 13, 1981: Lazaro acknowledged therein his receipt of P 10,000.00 as consideration for
the sale.

February 1981: Ricardo learned that Lazaro sold the same property to his children (petitioners)
through a deed of sale dated December 29, 1980.

On June 7, 1982, Ricardo recorded the Deed of Sale in their favor in the Registry of Deeds.

Petitioners led a complaint for rescission (plus damages) of the deeds of sale executed by Lazaro
in favor of Ricardo. They contend that Lolo Matias desired that whatever inheritance Lazaro
would receive from him should be given to his (Lazaro’s) children.

Ricardo (private respondents) however presented in evidence a “Deed of Revocation of a Deed

of Sale” wherein Lazaro revoked the sale in favor of his children for the reason that it was
“simulated or ctitious-without any consideration whatsoever.

”LAZARO’S VERSION: He executed a sworn statement in favor of his children. BUT he also
testified that he sold the property to Ricardo, and that it was a lawyer who induced him to
execute a deed of sale in favor of his children after giving him ve pesos (P5.00) to buy a “drink”.
LABO Trial court ruled in favor of Lazaro’s children. Ca armed TC’s decision.
 43

ISSUES:

1. Is the sale of a future inheritance valid? NO

2. Was Ricardo’s registration of the deed of valid? YES

HELD: SC rules in favor of Ricardo.

Pursuant to Art 1347, the contract made in 1962 (sale of future inheritance) is not valid and
cannot be the source of any right nor the creator of any obligation between the parties. (“No
contract may be entered into upon a future inheritance except in cases expressly authorized by
law.)

However, Article 1544 governs the preferential rights of vendees in cases of multiple sales. The
property in question is land, an immovable, and ownership shall belong to the buyer who in good
faith registers it rstin the registry of property. Thus, although the deed of sale in favor of Ricardo
was later than the one in favor of Lazaro’s children, ownership would vest with Ricardo because
of the undisputed fact of registration. On the other hand, petitioners have not registered the sale
to them at all. Lazaro’s children contend that they were in possession of the property and that
Ricardo never took possession thereof. As between two purchasers, the one who registered the
sale in his favor has a preferred right over the other who has not registered his title, even if the
latter is in actual possession of the immovable property. WHEREFORE, the petition is DENIED
and the assailed Decision of the Court of Appeals is AFFIRMED.

Price and other consideration

- The ideal consideration for a contract of sale would be “price” as a “sum certain in
money or its equivalent.” However, it is possible that a “sale” may still be valid when it
has for its cause or consideration an item other than price.
- This is in line with the principal doctrine reiterated by the Court in Polytechnic
University of the Philippines v. Court of Appeals, that the concept of “contract of sale”
under Article1458 of the Civil Code is “in effect, a ‘catch- all’ provision which
effectively brings within its grasp a whole gamut of transfers whereby ownership of a
thing is ceded for a consideration.”
- The existence of the “obligation to pay the price” does not play a critical role in defining
a sale, provided that valuable consideration is present, because the “obligation to transfer
 44

ownership and deliver possession” of the subject matter is the more defining element of
sale.

What is Price? What can be considered as a price?

- Under Article 1458 of the New Civil Code, price is the sum of money or its equivalent.
The term “equivalent” of price can cover other than money, which can be paid under the
mutual arrangements agreed upon by the parties to the contract of sale.
- Price signifies the sum stipulated as the equivalent of the thing sold and also every
incident taken into consideration for the fixing of the price put to the debit of the buyer
and agreed to by him
- A seller cannot unilaterally increase the price previously agreed upon with the buyer,
otherwise, it would be a violation of the essential characteristic of “obligatory force” of
contracts of sale. In the same manner, buyer could not unilaterally withdraw from a valid
sale

Requisites/ Requirements/ Elements of Price

1. Real
2. Must be in money or its equivalent (must be valuable consideration)
3. Certain or ascertainable

CASES

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondent

FACTS:
Antonia Torres and Emeteria Baring entered into a joint venture agreement with Manuel Torres
for the development of a land into a subdivision. They executed a Deed of Sale covering the
land, and Manuel Torres obtained a loan for the project. The venture failed, and the land was
foreclosed. Disputes arose regarding the use of the loan and the alleged interference of
petitioners in scaring away prospective buyers. Petitioners filed a criminal case for estafa, which
resulted in acquittal, and later filed a civil case seeking damages.
 45

ISSUE:
Whether or not the transaction between petitioner and respondent was that of joint
venture/partnership.
RULING:
Yes. The transaction between petitioner and respondent was a joint venture/partnership. A
reading of the terms of agreement shows the existence of partnership pursuant to Art 1767 of
Civil Code, which states “By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.” In the agreement, petitioners would contribute property to the
partnership in the form of land which was to be developed into a subdivision; while respondent
would give, in addition to his industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided according to the stipulated
percentage. In this case, petitioners transferred the title to the land to facilitate its use in the name
of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the
proceeds of which were used for the survey and the subdivision of the land. He developed the
roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-
cost housing units on the property. The contract manifested the intention of the parties to form a
partnership. Therefore, the court affirmed the existence of a partnership and denied petitioners'
demand for damages.

G.R. No. 143513 November 14, 2001

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and FIRESTONE CERAMICS, INC., respondents.

FACTS:
Petitioner National Development Corp., a government owned and controlled corporation, had in
its disposal a 10 hectares property. Sometime in May 1965, private respondent Firestone
Corporation manifested its desire to lease a portion of it for ceramic manufacturing business. On
August 24, 1965, both parties entered into a contract of lease for a term of 10 years renewable for
another 10 years. Prior to the expiration of the aforementioned contract, Firestone wrote NDC
requesting for an extension of their lease agreement. It was renewed with an express grant to
Firestone of the first option to purchase the leased premise in the event that it was decided "to
dispose and sell the properties including the lot..."
Cognizant of the impending expiration of the leased agreement, Firestone informed NDC
through letters and calls that it was renewing its lease. No answer was given. Firestone's
predicament worsened when it learned of NDC's supposed plans to dispose the subject property
in favor of petitioner Polytechnic University of the Philippines. PUP referred to Memorandum
 46

Order No. 214 issued by then President Aquino ordering the transfer of the whole NDC
compound to the National Government. The order of conveyance would automatically result in
the cancellation of NDC's total obligation in favor of the National Government.
Firestone instituted an action for specific performance to compel NDC to sell the leased property
in its favor.
ISSUE:
Whether or not there is a valid sale between NDC and PUP.
RULING:
Yes. There is a valid sale between NDC and PUP as the three requisites were present – (1)
consent – as seen in the Memorandum Order NO. 214, which explicitly states the acquiescence
of the parties to the sale of the property, (2) object – NDC Compound, (3) consideration –
cancellation of NDC’s liabilities in favor of the National Government. Firestone can exercise its
right of first refusal. Therefore, there is a valid sale between NDC and PUP.

G.R. No. 133749 August 23, 2001

HERNANDO R. PEÑALOSA alias "HENRY PEÑALOSA," petitioner,
vs.
SEVERINO C. SANTOS (deceased), Substituted by his heirs: OLIVER SANTOS and
ADYLL M. SANTOS, and ADELA DURAN MENDEZ SANTOS, respondents.

FACTS:

The case involves a dispute over the sale of a residential property located at No. 113 Scout
Rallos Street, Quezon City, owned by Severino C. Santos and Adela Mendez Santos. In 1988, the
property was negotiated for sale between the respondents and petitioner, Hernando R. Peñalosa.
Two deeds of absolute sale were executed, with the second deed dated September 12, 1988,
stating a sale price of P2,000,000. The petitioner, claiming ownership, filed an ejectment case
against a tenant, and after a court judgment, occupied the property in 1989. However, the
respondents contested the sale, alleging that the second deed was void for various reasons,
including non-payment of the purchase price.

ISSUE:

Whether or not there was a perfected contract of sale between Severino C. Santos and Henry
Peñalosa

RULING:

Yes. There was a perfected contract of sale between Severino C. Santos and Henry Peñalosa. The
elements of a valid contract of sale under Art. 1458 of the Civil Code are: (1) consent or meeting
of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In
 47

this case, the second deed reflects the presence of all these elements. Thus, there is already a
perfected contract of sale.

G.R. No. 109410 August 28, 1996

CLARA M. BALATBAT, petitioner,
vs.
COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA
REPUYAN, respondents.

FACTS:

The case involves a legal dispute over a property in Manila covered by Transfer Certificate of
Title No. 135671. Aurelio A. Roque initially filed a complaint for partition, resulting in a court
decision on March 29, 1979, which ordered the partition of the property among heirs.
Subsequently, the property was titled in the names of different heirs on October 5, 1979. Aurelio
Roque later sold his 6/10 share in the property to spouses Aurora Tuazon-Repuyan and Jose
Repuyan on April 1, 1980. However, disagreements arose regarding the payment of the property
and its partition. The case also involves the petitioner, Clara Balatbat, who claimed an interest in
the property and filed a complaint seeking the delivery of the owner's duplicate copy of T.C.T.
No. 135671.

ISSUE:

Whether or not there was double sale as contemplated under Art. 1544 of Civil Code.

RULING:

Yes. There was double sale as contemplated under Article 1544 of the Civil Code. Under Article
1544 of the Civil Code, in case of double sale of an immovable property, ownership 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. In this
case, the one who has registered the sale in his favor, has a preferred right over the other who has
not registered his title even if the latter is in actual possession of the immovable property.
Furthermore, even in default of the first registrant or first in possession, private respondents have
presented the oldest title. Thus, there was double sale as contemplated under Article 1544 of the
Civil Code and private respondents who acquired the subject property in good faith and for
valuable consideration established a superior right as against the petitioner.

G.R. No. 138018 July 26, 2002

RIDO MONTECILLO, petitioner,
vs.
IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA ABUCAY, respondents.
 48

FACTS:

Ignacia Reynes ("Reynes") filed a complaint against Rido Montecillo ("Montecillo") for the
declaration of nullity and quieting of title over a parcel of land in Mabolo, Cebu City. Reynes
alleged that she sold the property to Montecillo through a deed of sale, but Montecillo failed to
pay the agreed purchase price within the specified period. Subsequently, Reynes revoked the sale
and executed a new deed of sale selling the same property to Spouses Redemptor and Elisa
Abucay ("Abucay Spouses").

ISSUE:

Whether the deed of sale is void ab initio or merely rescissible.

RULING:

Yes. The Deed of Sale in question is void for lacking 1) consent; and 2) consideration. Under
Article 1318 of the Civil Code, "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;
(3) Cause of the obligation which is established." Article 1352 of the Civil Code also provides
that "Contracts without cause x x x produce no effect whatsoever." In this case, the disagreement
on the manner of payment demonstrated a lack of consent, rendering the purported contract null
and void ab initio. Furthermore, the failure to pay the purchase price constitutes a breach of
obligation under an existing valid contract, while lack of consideration prevents the contract's
existence. Thus, the deed of sale is void ab initio.

G.R. No. 120724-25 May 21, 1998

FERNANDO T. MATE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and INOCENCIO TAN, respondents.

FACTS:

In October 1986, petitioner Fernando Mate was approached by his wife's cousin, Josefina Rey,
seeking help to avoid criminal charges for violating B.P. 22 due to rubber check issuances. Rey
proposed that Mate convey his three lots in Tacloban City to respondent Inocencio Tan to
appease him, with a plan to later redeem the properties. After initial rejection, Mate agreed under
specific conditions, including a simulated deed of sale with a right to repurchase. Rey issued
postdated checks as consideration, but they were later dishonored.

ISSUE:

Whether or not the Deed of Sale with Right to repurchase is valid.

RULING:
 49

Yes. The Deed of Sale with Right to repurchase is valid. Consideration existed at the time of the
execution of the deed of sale with right of repurchase. It is not only Mate’s kindness to Josie,
being his cousin, but also his receipt of P420k from her which impelled him to execute such
contract. He also had in his possession checks from Josie in an equivalent amount precisely to
repurchase the two lots. Josie thus assumed the responsibility of paying the repurchase price on
behalf of Mate to Tan. That the checks issued by Josie were dishonored created a cause of action
for her prosecution for violation of B.P. 22, but not for the annulment of the subject contract.
Therefore, the Deed of Sale with Right to repurchase is valid.

G.R. No. L-10141 January 31, 1958

REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
PHILIPPINE RESOURCES DEVELOPMENT CORPORATION and the COURT OF
APPEALS, respondents.

FACTS:

The Republic of the Philippines filed a complaint against Macario Apostol seeking the collection
of an unpaid balance for the purchase of logs and almaciga. The Philippine Resources
Development Corporation (PRDC) moved to intervene, asserting ownership of materials
delivered by Apostol to the Bureau of Prisons as a settlement for personal debts. The trial court
initially denied the motion, prompting the PRDC to appeal to the Court of Appeals. The PRDC
argued that its legal interest lay in the evaluation and assignment of a price to the materials by
Apostol, as this directly impacted its rights. The Court of Appeals ultimately allowed the
intervention, emphasizing the petitioner's legal interest and the potential adverse effects of the
judgment on its claimed ownership of the delivered materials.

ISSUE:

Whether or not payment in kind is equivalent to price paid in money

RULING:

Yes. Price may be paid in money or ITS EQUIVALENT—in this case, the goods. Under Article
1458 of the Civil Code, a contract of sale and the obligation of the buyer to “pay the price certain
in money or its equivalent”, the term “equivalent” of price can cover other than money, which
can be paid under the mutual arrangements agreed upon by the parties to the contract of sale. In
this case, the goods claimed by PRDC belong to it and delivered to the Bureau of Prison by
Apostol in payment of his account is sufficient payment therefor. Thus, payment in kind is
equivalent to price paid in money.

G.R. No. L-67888 October 8, 1985

IMELDA ONG, ET AL., petitioners,
vs.
ALFREDO ONG, ET AL., respondents.
 50

FACTS:

Imelda Ong executed a Quitclaim Deed on February 25, 1976, transferring half of a parcel of
land to Sandra Maruzzo for a nominal consideration of One Peso (P1.00) and other valuable
considerations. Later, Imelda Ong revoked the Quitclaim Deed and donated the entire property to
her son. Sandra Maruzzo, through her guardian, filed a legal action seeking recovery of
ownership, nullification of the Deed of Donation, and accounting. The trial court ruled in favor
of Maruzzo, considering the Quitclaim Deed as a valid conveyance equivalent to a Deed of Sale.
Imelda Ong challenged this decision, arguing that the One Peso consideration was insufficient,
but the Intermediate Appellate Court affirmed, emphasizing the presumed existence of other
valuable considerations and rejecting the argument that the inadequacy of monetary
consideration rendered the deed void.

ISSUE:

Whether or not the Quitclaim Deed is valid.

RULING:

Yes. Quitclaim Deed is valid. The ruling invoked Article 1354 of the Civil Code, which presumes
the existence of a sufficient cause or consideration supporting a contract, and Article 1350, which
states that liberality of the assignor may be sufficient cause for a valid contract. The
consideration stated in the deed was not just One Peso (P1.00) but also included other valuable
considerations, even if not explicitly mentioned. Furthermore, even if the Quitclaim Deed were
considered a donation, the acceptance requirement by legal representatives applies only to
onerous and conditional donations. In this case, the donation was simple and pure, requiring no
formal acceptance. Therefore, the Quitclaim is valid.

G.R. No. L-8238 December 2, 1913

ANTONIO M. BARRETTO, plaintiff-appellee,
vs.
JOSE SANTA MARINA, defendant-appellant.

FACTS:

The case involves a dispute between Antonio M. Barretto, the plaintiff, and Jose Santa Marina,
the defendant, over the profits of the La Insular cigar and cigarette factory. Barretto, holding a
share in the factory, offered to sell his participation to Santa Marina. The parties executed a
contract on May 3, 1910, agreeing to the sale, and appointed appraisers to determine the total net
value of the factory. The appraisers concluded their report on November 14, 1910, determining
the net value. Barretto acknowledged receiving his share of the value from Santa Marina in a
subsequent contract on November 22, 1910. Afterward, Barretto demanded his share of the
 51

profits from June 30, 1909, to November 22, 1910, which Santa Marina refused, leading to
Barretto filing a lawsuit.

ISSUE:

Whether or not the sale agreement constituted a perfected sale.

RULING:

Yes. The sale agreement constituted a perfected sale. Under article 1450 of the Civil Code, there
are two indispensable requisites in a perfected sale: (1) There must be an agreement upon the
thing which is the object of the contract; and (2) the contracting parties must agree upon the
price. In this case, the object of the contract in the case at bar was the whole of the plaintiff's
right, title, and interest in La Insular. As to the thing and the price the minds of the contracting
parties met, and all questions relating thereto were settled. Nothing was left unfinished in so far
as the contracting parties were concerned. Neither party could withdraw from the contract
without the consent of the other. The result is that the two essential requisites necessary to
constitute a perfected sale were present. Therefore, the sale agreement constituted a perfected
sale.

G.R. No. 13753, February 15, 1919

MITSUI BUSSAN KAISHA, Plaintiff-Appellee, v. THE MANILA ELECTRIC
RAILROAD AND LIGHT COMPANY, Defendant-Appellant.

FACTS:

Prior to December 23, 1914, the plaintiff corporation, Mitsui Bussan Kaisha, had contracted to
sell large quantities of coal to the defendant, the Manila Electric Railroad and Light Company.
Deliveries under this contract were made from time to time to meet the requirements of the
defendant company from shipments arriving from Japan. The basic price fixed in the contract
was P9.45 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." This means of course
and ash contend, and not otherwise." This means of course that the price could be made certain
by the application of known factors. While extensive deliveries were still to be made under the
contract above referred to, the Legislature, by Act No. 2432, passed December 23, 1914, and
imposed a specific tax of one pose per metric ton on coal. Shortly thereafter this Act was
amended in certain respects by Act No. 2445. In the period embracing the months from March to
October, inclusive, of the year 1915, the plaintiff company brought to Manila from Japan large
quantities of coal amounting in all to 11,874.75 metric tons for delivery to the defendant
company upon the contract abovementioned. In order to effect the entrance of said coal, through
the Bureau of Customs, at the port of Manila, it was necessary for the plaintiff company to pay
the new internal-revenue tax imposed by Acts Nos. 2432 and 2445; and it did in fact pay in
 52

satisfaction of said tax the aggregate sum of P11,874.75. The plaintiff then demanded
reimbursement of said sum from the defendant, basing its claim upon the provision from Act No.
2445. The defendant refused to accede to this demand, and the present action was instituted by
the plaintiff to recover the amount so paid out by it. From judgment entered in favor of the
plaintiff the defendant has appealed.
ISSUE:
Whether or not the plaintiff is obligated to bear the burden of the internal-revenue tax on coal.
RULING:
No. the plaintiff is not obligated to bear the burden of the internal-revenue tax on coal. Under the
provisions of Act No. 2445, which has been legalized by Congressional legislation, a purchaser
of coal under a contract antedating January 1, 1915, who has accepted deliveries subsequent to
that date, is liable for internal-revenue tax imposed by Act No. 2432, in the absence of an express
agreement placing the burden of the tax on the seller. The words "unless the parties have agreed
or shall agree otherwise," used in Act No. 2445, contemplate a case where express provision has
been made with direct reference to the burden of the tax. The mere fact that a fixed price per ton
is stated in the contract does not bring the case within this exception. Therefore, the plaintiff
corporation, Mitsui Bussan Kaisha (seller) is not obligated to bear burden of the internal revenue
tax on coal.
G.R. No. 172674 July 12, 2007
SPS. JORGE NAVARRA and CARMELITA BERNARDO NAVARRA and RRRC
DEVELOPMENT CORPORATION, Petitioners,
vs.
PLANTERS DEVELOPMENT BANK and ROBERTO GATCHALIAN REALTY,
INC., Respondents.

FACTS:

Jorge Navarra sent a letter to Planters Bank, proposing to repurchase the five (5) lots earlier
auctioned to the Bank, with a request that he be given until August 31, 1985 to pay the down
payment of P300,000.00. Because the amount of P300,000.00 was sourced from a different
transaction between RRRC and Planters Bank and involved different debtors, the Bank required
Navarra to submit a board resolution from RRRC authorizing him to negotiate for and its behalf
and empowering him to apply the excess amount of P300,000.00 in RRRC’s redemption
payment as down payment for the repurchase of the Navarra’s foreclosed properties. Then, on
January 21, 1987, Planters Bank sent a letter to Jorge Navarra informing him that it could not
proceed with the documentation of the proposed repurchase of the foreclosed properties on
account of his noncompliance with the Bank’s request for the submission of the needed board
resolution of RRRC.

The Navarras filed their complaint for Specific Performance with Injunction against Planters
Bank. In their complaint the Navarras, alleged that a perfected contract of sale was made
 53

between them and Planters Bank whereby they would repurchase the subject properties for
P1,800,000.00 with a down payment of P300,000.00.

ISSUE:

Whether there is a perfected contract of sale.

RULING:

No. There is no perfected contract of sale. The essential requisite of consent is lacking. The
eventual failure of the spouses to submit the required board resolution precludes the perfection of
a contract of sale/repurchase between the parties. Contracts are perfected when there is
concurrence of the parties’ wills, manifested by the acceptance by one of the offer made by the
other. In this case, there was no concurrence of the offer and acceptance as would result in a
perfected contract of sale. Evidently, what transpired between the parties was only a prolonged
negotiation to buy and to sell, and, at the most, an offer and a counter-offer with no definite
agreement having been reached by them. Therefore, there is no perfected contract of sale.

HYATT ELEVATORS and ESCALATORS CORPORATION, petitioner, vs. CATHEDRAL

HEIGHTS BUILDING COMPLEX ASSOCIATION, INC., respondent.

Doctrine/s: Contracts; Sales; By the contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and deliver a determinate thing, and the other
to pay therefor a price certain in money or its equivalent. By the contract of sale,
one of the contracting parties obligates himself to transfer the ownership of and
deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent. The absence of any of the essential elements will negate the
existence of a perfected contract of sale.

Natural Obligations; Solutio Indebiti; Unjust Enrichment; Under Article 2142 of

the Civil Code, such acts “give rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or benefited at the expense of
another.”—Withal, it is indisputable that the repairs made on the elevators
ultimately redounded to the benefit of respondent for without said repairs, the
elevators would not be operational. Under Article 2142 of the Civil Code, such
acts “give rise to the juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of another.” It would
certainly be unjust for respondent to benefit from the repairs done by petitioner
only to refuse payment because the papers submitted were not in order.
 54

Facts: Petitioner Hyatt Elevators and Escalators Corporation entered into an "Agreement to
Service Elevators" with respondent Cathedral Heights Building Complex Association, Inc.,
where petitioner was contracted to maintain four passenger elevators installed in respondent's
building. Under the Service Agreement, the duties and obligations of petitioner included monthly
inspection, adjustment and lubrication of machinery, motors, control parts and accessory
equipment. The Service Agreement provides that respondent shall pay for the additional charges
incurred in connection with the repair and supply of parts. Respondent refused to pay.
Issue: Whether or not there is a perfected contract of sale between petitioner and respondent
with regard to the spare parts delivered and installed by petitioner on the four elevators of
respondent.
Ruling: No. The Supreme Court held that by the contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent. The absence of any of the
essential elements will negate the existence of a perfected contract of sale. In the case at bar, the
CA ruled that there was no perfected contract of sale between petitioner and respondent, to wit:
Aside from the absence of consent, there was no perfected contract of sale because there was no
meeting of minds upon the price. As the law provides, the fixing of the price can never be left to
the discretion of one of the contracting parties. In this case, the absence of agreement as to the
price is evidenced by the lack of purchase orders issued by CHBCAI where the quantity, quality
and price of the spare parts needed for the repair of the elevators are stated.

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO

HUANG and GRACE HUANG, respondents.

Doctrine/s: Sales; Amount given not as a part of the purchase price and as proof of the
perfection of the contract of sale but only as a guarantee that respondents would
not back out of the sale.—With regard to the alleged payment and acceptance of
earnest money, the Court holds that respondents did not give the P1 million as
“earnest money” as provided by Art. 1482 of the Civil Code. They presented the
amount merely as a deposit of what would eventually become the earnest money
or downpayment should a contract of sale be made by them. The amount was thus
given not as a part of the purchase price and as proof of the perfection of the
contract of sale but only as a guarantee that respondents would not back out of the
sale. Respondents in fact described the amount as an “earnest-deposit.”
Option giving respondents the exclusive right to buy the properties within the
period agreed upon is separate and distinct from the contract of sale which the
parties may enter.
 55

Option secured by respondents from petitioner was fatally defective;

Consideration in an option contract may be anything of value, unlike in sale
where it must be the price certain in money or its equivalent.
The manner of payment of the purchase price is an essential element before a
valid and binding contract of sale can exist.
It is not the giving of earnest money, but the proof of the concurrence of all the
essential elements of the contract of sale which establishes the existence of a
perfected sale.

Facts: San Miguel Properties offered two parcels of land for sale and the offer was made to an
agent of the respondents. An “earnest-deposit” of P1 million was offered by the respondents and
was accepted by the petitioner’s authorized officer subject to certain terms.
Petitioner, through its executive officer, wrote the respondent’s lawyer that because ethe parties
failed to agree on the terms and conditions of the sale despite the extension granted by the
petitioner, the latter was returning the “earnest-deposit”.
The respondents demanded execution of a deed of sale covering the properties and attempted to
return the “earnest-deposit” but petitioner refused on the ground that the option to purchase had
already expired.
A complaint for specific performance was filed against the petitioner and the latter filed a motion
to dismiss the complaint because the alleged “exclusive option” of the respondents lacked a
consideration separate and distinct from the purchase price and was thus unenforceable; the
complaint did not allege a cause of action because there was no “meeting of the mind” between
the parties and therefore the contact of sale was not perfected.
Issue: Whether or not there was a perfected contract of sale between the parties.
Ruling: No. The Supreme Court ruled that The P1 million “earnest-deposit” could not
have been given as earnest money because at the time when petitioner accepted the terms of
respondents’ offer, their contract had not yet been perfected. This is evident from the following
conditions attached by respondents to their letter. In the present case, the parties never got past
the negotiation stage. The alleged “indubitable evidence” of a perfected sale cited by the
appellate court was nothing more than offers and counter-offers which did not amount to any
final arrangement containing the essential elements of a contract of sale. While the parties
already agreed on the real properties which were the objects of the sale and on the purchase
price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite
the 45-day extension given by petitioner.

ZACARIAS ROBLES, plaintiff and appellee, vs. LIZARRAGA HERMANOS, defendant

and appellant.
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Doctrine/s: STATUTE OF FRAUDS; CONTRACT FOR SALE OF GOODS AND

CHATTELS.—The rule requiring a writing to prove a contract for the sale of
goods and chattels at a price of not less than P100 is not applicable where the
buyer receives part of the goods and chattels.
SUSPENSIVE CONDITION.—An agreement to buy certain things at a valuation
to be determined by an appraisal to be effected jointly by buyer and seller
obligates the buyer to proceed with the appraisal in good faith, and he cannot
escape liability on the contract by frustrating the appraisal. The making of the
appraisal in such case is not a condition prerequisite to the liability of the buyer,
and if he fails to join in the appraisal, he is liable for the true value of the things
contracted about, as the same may be established in the usual course of proof.

Facts: Hacienda Nahalinan was originally owned by Zacarias Robles, Sr. and Anastacia de la
Rama, the plaintiff’s parents. When Robles Sr. died, de la Rama became the administatrix and
leased the hacienda to her son, Zacarias Robles. Three years before the lease was to expire,
Lizarraga Hermanos, a mercantile partnership, proposed to buy all of the property belonging to
the hacienda. As Robles, Jr., still had over two years in his lease contract, he was asked to
surrender such last two years and permit Lizarraga Hermanos to take possession as buyer.
Lizarraga Hermanos agreed to pay him the value of all betterments made on the hacienda and to
buy from him all that belonged to him personally on the hacienda. However, no reference of such
surrender of Robles’ rights as lessee, except in fixing the date when the lease should end, nor of
anything said concerning the improvements or property of a personal nature, was placed in the
instrument of conveyance later executed. Robles filed a case against the respondent.
Issue: Whether or not the sale is enforceable.
Ruling: Yes. The defendant invoked Article 335 of the Code of Civil Procedure, which
states that a contract for the sale of goods, chattels, or things in action at a price not less than
P100, shall be unenforceable unless the contract shall be in writing and subscribed by the parties
charged or by his agent. But the Court notes that the section contains a qualification, which is
thus stated: “unless the buyer accepts and receives part of such goods and chattels. It was found
by the trial court that the personal property such as farming implements, were used by Lizarraga
in the cultivation of the hacienda.

DIONISIA DORADO VDA. DE DELFIN, represented in this act by her heirs, petitioner,
vs. SALVADOR D. DELLOTA, represented by his heirs, and THE INTESTATE ESTATE
OF THE LATE GUMERSINDO DELEÑA, respondents.
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Doctrine/s: Sales; Equitable Mortgage; Elements; Words and Phrases; “Equitable Mortgage,”
Defined.—An equitable mortgage is 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. The essential
requisites of an equitable mortgage are: (1) the parties enter into what appears to
be a contract of sale, (2) but their intention is to secure an existing debt by way of
mortgage.
While jurisprudence recognizes that there is no conclusive test to determine
whether a deed purporting to be a sale on its face is really a simple loan
accommodation secured by a mortgage, case law consistently shows that the
presence of even one of the circumstances enumerated in Article 1602 of the Civil
Code suffices to convert a purported contract of sale into an equitable mortgage.
Gross Inadequacy of Price; There is gross inadequacy in price if a reasonable man
will not agree to dispose of his property.
In sales denominated as pacto de retro, the price agreed upon should not generally
be considered as the just value of the thing sold, absent other corroborative
evidence—there is no requirement in sales that the price be equal to the exact
value of the thing subject matter of the sale.
If the terms of the pacto de retro sale were unfavorable to the vendor, the Supreme
Court has no business extricating her from that bad bargain—courts are not
guardians of persons who are not legally incompetent.

Facts: The late Dionisia Dorado Delfin and her heirs sought to recover a certain parcel of land
from respondent Salvador D. Dellota. Petitioners contended that the Deed of Sale with Right of
entered into by Dionisia and respondent Dellota is an equitable mortgage under Article 1602 of
the Civil Code. They insist that the price stipulated for a five-hectare portion of the subject
property is grossly inadequate. This readily shows that the contract is an equitable mortgage, not
a sale with right of redemption. The trial court rendered a judgment adverse to Dionisia while the
CA affirmed in toto the trial court' decision.
Issue: Whether the Deed of Sale with Right of Redemtion executed by Dionisia and Dellota is
an equitable mortgage under Article 1602 of the Civil Code.
Ruling: No. The Supreme Court ruled that in this case, what should be determined is
whether the consideration of P5,300.00 paid by Gumersindo to Dionisa for a five-hectare portion
of Lot No. 1213 on June 9, 1949 is “unusually inadequate." Following De Ocampo and
Buenaventura, this Court finds no reason to conclude that the 1949 price of P5,300.00 as agreed
upon by the parties was unreasonable or unusually inadequate. Moreover, under the rules of
evidence, it is presumed that a person takes ordinary care of his concerns. In the present case,
there is no evidence herein whatsoever to show that Dionisia did not understand the ramifications
 58

of her signing the "Deed of Sale with Right of Redemption." Nor is there any showing that she
was threatened, forced or defrauded into affixing her signature on the said contract. If the terms
of the pacto de retro sale were unfavorable to Dionisia, this Court has no business extricating her
from that bad bargain. Courts are not guardians of persons who are not legally incompetent, like
Dionisia.

JOSE VALES, plaintiff and appellee,vs. SIMEON A. VILLA, FELIPA S. SILVESTRE, and
MARIA GUIA GARCIA, defendants and appellants.

Doctrine/s: CONTRACTS; ACTION TO SET ASIDE; DURESS, FRAUD AND DECEIT.—

The facts of this case examined for the purpose of determining whether they were
sufficient to sustain an action to set aside certain conveyances made by the
plaintiff to the defendants, to place the parties in statu quo ante, and for damages,
on the ground that such transfers had been obtained by force, duress and undue
influence, and Held: That the facts were insufficient to sustain the action, and
also, that if the action be considered one based upon fraud and deceit, the facts
were not sufficient to sustain the action.
CONSENT THROUGH ERROR.—Consent given through error, as a result of
violence, intimidation, or deceit is void.

Facts: Felipa Silvestre is a widow, 70 years of age, and is the aunt of the defendant Maria Guia
Garcia, wife of the defendant Simeon A. Villa. With regard to the Salsipuedes and Padre Faura
properties the plaintiff claims that they were obtained from him and that he was induced to
execute conveyances therefor in favor of the defendant Maria Guia Garcia under the threat that,
if he did not do so, the defendants would not reconvey to him the properties that is, that they
would repudiate the verbal agreement which plaintiff alleges was attached to that conveyance.
Issue: Whether or not it is valid to annul a series of real estate transactions on the ground of
duress.
Ruling: The Supreme Court ruled that it is clear that all that defendants did was to refuse
to live up to their verbal agreement with the plaintiff unless he gave them an additional
consideration therefor. Plaintiff had his choice. He could refuse to pay again for the right which
he had paid for once, and go into court for relief, or he could pay the price asked. His judgment
operated upon the situation thus presented and he concluded that, from his point of view, his
interests would be best subserved by paying the additional consideration. But having paid it, he
found himself in precisely the situation he was before. The verbal agreement to reconvey, which
he claims he had twice paid for, was still verbal, and he was no better off than before. He took no
receipt showing the purpose of the payment; he required no writing to protect himself from the
very trap into which he had once fallen; but, instead, with the very persons who had refused to
 59

live up to their original agreement because it was verbal, he not only made another verbal
agreement but also paid them, without a scrap of paper to show for it or specify its object, the
sum of P10,000 on that agreement. Not only this, but he did the same thing 3 more times
His acts in general not only contradicted the most material portions of his testimony, but he must
be held to have ratified the conveyances, payments, and acts referred to and to have renounce the
right o interpose the defense which intimidation originally offered him.

LEONARDO ACABAL and RAMON NICOLAS, petitioners, vs. VILLANER ACABAL,

EDUARDO ACABAL, SOLOMON ACABAL, GRACE ACABAL, MELBA ACABAL,
EVELYN ACABAL, ARMIN ACABAL, RAMIL ACABAL, and BYRON ACABAL,
respondents.

Doctrine/s: Absent any evidence of the fair market value of a land as of the time of its sale, it
cannot be concluded that the price at which it was sold was inadequate.—It bears
noting, however, that Villaner failed to present evidence on the fair market value
of the property as of April 19, 1990, the date of execution of the disputed deed.
Absent any evidence of the fair market value of a land as of the time of its sale, it
cannot be concluded that the price at which it was sold was inadequate.
Inadequacy of price must be proven because mere speculation or conjecture has
no place in our judicial system.
Mere inadequacy of the price per se will not rule out the transaction as one of sale
—the price must be grossly inadequate or shocking to the conscience.—Even,
however, on the assumption that the price of P10,000.00 was below the fair
market value of the property in 1990, mere inadequacy of the price per se will not
rule out the transaction as one of sale. For the price must be grossly inadequate or
shocking to the conscience such that the mind revolts at it and such that a
reasonable man would neither directly nor indirectly be likely to consent to it.

Facts: Alejandro Acabal and Felicidad Balasbas executed a Deed of Absolute Sale over a parcel
of land in favor of their son, respondent Villaner Acabal . Villaner was then married to Justiniana
Lipajan. When he became a widower, he executed a deed conveying the same parcel of land in
favor of petitioner Leonardo Acabal.
However, Villaner later claims that the document he signed was a document captioned ―Lease
Contract wherein he leased for the property for 3 years to Leonardo. Villaner filed a complaint
with the Regional Trial Court (RTC) against Leonardo and Ramon Nicolas to whom Leonardo in
turn conveyed the property for annulment of the deeds of sale.
Issue: Whether or not the deed executed by respondent Villaner in favor of petitioner Leonardo
is a Deed of Absolute Sale.
 60

Ruling: The Supreme Court ruled that it bears noting, however, that Villaner failed to
present evidence on the fair market value of the property as of April 19, 1990, the date of
execution of the disputed deed. Absent any evidence of the fair market value of a land as of the
time of its sale, it cannot be concluded that the price at which it was sold was inadequate.
Inadequacy of price must be proven because mere speculation or conjecture has no place in our
judicial system.
Even, however, on the assumption that the price of P10,000.00 was below the fair market value
of the property in 1990, mere inadequacy of the price per se will not rule out the transaction as
one of sale. For the price must be grossly inadequate or shocking to the conscience such that the
mind revolts at it and such that a reasonable man would neither directly nor indirectly be likely
to consent to it.

SALVACION S. TAYENGCO, assisted by her husband JOSE C. TAYENGCO, petitioners,

vs. CONCHITA SYDECO-HAUTEA, MARY SYDECO-TAYENGCO and THE HON.
COURT OF APPEALS, respondents.

Doctrine/s: Sales in partition; Payment in cash, when required.—lf the sale in partition of
property at public auction is for cash, the full amount of the bid should be paid to
the sheriff.
Failure of bidder to make immediate payment.—If a sale is made by the sheriff
for cash and the bidder to whom it was adjudicated fails to make immediate
payment, the sheriff may sell the property anew on the same day without
readvertising, even after the hours of sale have elapsed.
Inadequacy of price, when sufficient to set aside the sale.—lnadequacy of price,
unless shocking to the conscience, is not a sufficient ground for setting aside a
sale if there is no showing that, in the event of a resale, a better price can be
obtained.
Sales when binding; Resale of property before con-firmation of first sale.—
Partition sales become valid and binding only upon confirmation by the court.
Before such confirmation, the bids are mere offers to purchase, the contract is not
complete, and, therefore, the purchaser cannot be in default thereunder. (Cf, Civil
Code, Art. 1326). Hence, if the property is resold before the confirmation of the
first sale, and the resale is duly confirmed by the court, the original purchaser is
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released thereby from further liability upon his purchase, and cannot be held for
the deficiency upon the resale. (30A Am. Jur., Sec. 272, 1059).

Facts: A parcel of land, co-owned by 5 individuals, was to be sold at a public auction to the
highest bidder for cash with the proceeds to be divided among the owners.
During the auction, a lawyer, Tayengco, placed a bid of Php 11,250 for the parcel of land. With
no other person bidding higher than that, he was deemed as the highest bidder. However, the
Sheriff found out that the lawyer did not have enough money with him and consequently, gave
him 2 extensions within the day. But still, he failed to produce the amount needed.
When the Sheriff reopened the proceedings, a man placed a bid of Php 8,100 making him the
highest bidder in the auction. Unlike the first one, the subsequent highest bidder was able to give
the bidding price immediately in cash.
The owners of the parcel of land are now assailing the sale based on the inadequacy of the price
paid by the subsequent highest bidder.
Issue: Whether or not the sale was valid and binding.
Ruling: The Supreme Court ruled that the sale with the bidding price of Php 8,100 was
affirmed. They provided jurisprudence where properties in an auction were sold at a price
considerably lower than their true value.
The Court ruled that the inadequacy of price, unless shocking to the conscience, is not a
sufficient ground for setting aside a sale specifically if there is a showing that, in the event of a
resale, a better price may be obtained.

WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS, HON.

ROBERT BALAO and NATIONAL HOUSING AUTHORITY, respondents.

Doctrine/s: Contracts; Sales; Rescission; The right of rescission or, more accurately,
resolution, of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity
between them.
Motive; Words and Phrases; Cause is the essential reason which moves the
contracting parties to enter into it—it is the immediate, direct and proximate
reason which justifies the creation of an obligation through the will of the
contracting parties.
Ordinarily, a party’s motives for entering into a contract do not affect the contract,
but when the motive predetermines the cause, the motive may be regarded as the
cause.
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Facts: William Uy and Rodel Roxas are agents authorized to sell 8 parcels of land by the owners
thereof. By virtue of such authority, they offered to sell the lands, located in Benguet to National
Housing Authority (NHA) to be utilized and developed as a housing project. The parties
executed a series of Deeds of Absolute Sale covering the subject lands. However, only 5 were
paid for by the NHA because of the report it received from the Land Geosciences Bureau of the
Department of Environment and Natural Resources (DENR) that the remaining area is located at
an active landslide area and therefore, not suitable for development into a housing project,
cancelling the 3 Deed of Sales.
Issue: Whether or not there was legal basis for rescinding the sale.
Ruling: Yes. The Supreme Court ruled that Yes. The right of rescission or, more
accurately, resolution, of a party to an obligation under Article 1191 is predicated on breach of
faith by the other party that violates the reciprocity between them. The power to rescind,
therefore, is given to the injured party.
Cause is the essential reason which moves the contracting parties to enter into it. In other words,
the cause is the immediate, direct and proximate reason which justifies the creation of an
obligation through the will of the contracting parties. Cause, which is the essential reason for the
contract, should be distinguished from motive, which is the particular reason of a contracting
party which does not affect the other party. Ordinarily, a party’s motives for entering into the
contract donor affect the contract. However, when the motive predetermines the cause, the
motive may be regarded as the cause.
In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the
contract were the lands not suitable for housing. In other words, the quality of the land was an
implied condition for the NHA to enter into the contract. On the part of the NHA, therefore, the
motive was the cause for its being a party to the sale. SC held that the NHA was justified in
canceling the contract. The realization of the mistake as regards the quality of the land resulted in
the negation of the motive/cause thus rendering the contract inexistent. The Supreme Court
denied the petition.