LAW ON SALES | Atty.

Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

LAW ON SALES Personal Obligations cannot be subject of Specific

Atty. Jazzie Sarona-Lozare, CPA Performance because it would be violation of public
Ateneo de Davao University College of Law policy against Involuntary Servitude
st
1 Semester (School Year 2016-2017) Personal Obligations can be executed by another at the
cost of the obligor and refusal to comply can bring
(Sources: Law on Sales Book by Villanueva, 2016 Lectures of action for damages.
Atty. Jazzie Sarona-Lozare, Civil Code of the Philippines, Real Obligations are subject to specific performance
www.lawphil.net, www.sc.judiciary.gov.ph)
Subject Matter of Sale
Although Article 1458, in defining sale, uses the word
PART I : CONCEPT OF SALE determinate to describe the subject matter of the
sale, the present Law on Sales has expanded the
I) BASIC CONCEPTS coverage to include generic objects which are at least
determinable.
Article 1460 states that the requisite that the thing be
1) CONTRACT OF SALE
determinate is satisfied if at the time the contract is
entered into, the thing is capable of being made
Sources of Obligation
determinate without the necessity of a new or further
Art. 1157. Obligations arise from:
agreement between the parties, which includes
(1) Law;
determinable albeit generic objects as valid subject
(2) Contracts;
matters of sale.
(3) Quasi-contracts;
Even if the subject matter of the sale was generic
(4) Acts or omissions punished by law; and
(determinable), the performance of the seller's
(5) Quasi-delicts.
obligation would require necessarily its physical
segregation or particular designation, making the
Note: With sale, the source of the obligation is obviously
subject matter determinate at the point of
contracts.
performance.
Definition of Contract The use of the word determinate emphasizes the fact
Art. 1305. A contract is a meeting of minds between that the obligation to de from validly becoming the
proper subject matter of sale at the point of perfection.
two persons whereby one binds himself, with respect to the
other, to give something or to render some service.
Acap vs. CA
Definition of Sale (GR NO. 118114, Dec. 7, 1995)
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and to deliver FACTS
a determinate thing, and the other to pay therefor a price certain Felixberto Oruma sold his inherited land to Cosme
in money or its equivalent. Pido, which land is rented by petitioner Teodoro Acap. When
A contract of sale may be absolute or conditional. Cosme died intestate, his heirs executed a Declaration of
Heirship and Waiver of Rights in favor of private respondent
Nature of Obligations Created in a Sale Edy delos Reyes. Respondent informed petitioner of his claim
A) Two Obligations of the Seller over the land, and petitioner paid the rental to him in 1982.
to transfer the ownership and However in subsequent years, petitioner refused to pay the
to deliver the possession, of the subject matter rental, which prompted respondent to file a complaint for the
B) An Obligation of the Buyer recovery of possession and damages. Petitioner averred that he
to pay the price continues to recognize Pido as the owner of the land, and that
he will pay the accumulated rentals to Pidos widow upon her
Notes: return from abroad. The lower court ruled in favor of private
Both sets of Obligations are REAL obligations, meaning respondent.
they are obligations to give.
Distinguished from PERSONAL obligations, which are ISSUES
obligations to do or not to do. (1) Whether the Declaration of Heirship and Waiver of Rights
Why distinguish the kind of obligations? is a recognized mode of acquiring ownership by private
To know the remedies respondent
(2) Whether the said document can be considered a deed of

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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
sale in favor of private respondent
RULING
An asserted right or claim to ownership or a real right
over a thing arising from a juridical act, however justified, is not
per se sufficient to give rise to ownership over the res. That
right or title must be completed by fulfilling certain conditions
imposed by law. Hence, ownership and real rights are acquired
only pursuant to a legal mode or process. While title is the
juridical justification, mode is the actual process of acquisition
or transfer of ownership over a thing in question.
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. Upon the other hand, a declaration of
heirship and waiver of rights operates as a public instrument
when filed with the Registry of Deeds whereby the intestate
heirs adjudicate and divide the estate left by the decedent
among themselves as they see fit. It is in effect an extrajudicial
settlement between the heirs under Rule 74 of the Rules of
Court. 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.
A notice of adverse claim is nothing but a notice of a
claim adverse to the registered owner, the validity of which is
yet to be established in court at some future date, and is no
better than a notice of lis pendens which is a notice of a case
already pending in court. It is to be noted that while the
existence of said adverse claim was duly proven, there is no
evidence whatsoever that a deed of sale was executed
between Cosme Pido's heirs and private respondent
transferring the rights of Pido's heirs to the land in favor of
private respondent. Private respondent's right or interest
therefore in the tenanted lot remains an adverse claim which
cannot by itself be sufficient to cancel the OCT to the land and
title the same in private respondent's name. Consequently,
while the transaction between Pido's heirs and private
respondent may be binding on both parties, the right of
petitioner as a registered tenant to the land cannot be
perfunctorily forfeited on a mere allegation of private
respondent's ownership without the corresponding proof
thereof.
No valid contract of sale.
Both are actually declarations of heirship but the thing
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with the one in Pido is there was a clear absolute sale, while
the one in delos reyes is a declaration of heirship and waiver of
rights. Here, the contract executed in favour of delos reyes was
not really the sale that is contemplated under 1458. Take note
that the sale of hereditary rights presumes the existence of a
contract of a deed of sale between the parties. now when the
heirs of Pido executed the Declaration of Heirship and waiver of
rights, it operates as a public instrument when filed with the
Registry of Deeds whereby the intestate heirs adjudicate and
divide the estate left by the decedent among themselves as
they see fit. It is in effect an extrajudicial settlement between
the decedent and the heirs. It is a mode of extinction of
ownership among the heirs. Considering that delos Reyes is not
an heir, but a stranger to the succession of Cosme Pido, he
cannot conclusively claim ownership over the subject lot on the
sole basis of the Declaration of Heirship and Waiver of Rights
which neither recites the elements of either a sale, or a
donation, or any other derivative mode of acquiring ownership.
1458 Tells us that in a contract of sale there are two parties. On
the one hand we have the seller, or the vendor, who has the
obligation to transfer the ownership and deliver the possession
of the subject matter. On the other hand, we have the buyer, or
the vendee, who has the obligation to pay the price certain in
money or its equivalent. one of those obligations is mentioned
in the Declaration of heirship and Waiver of Rights. There was
no intention between the parties to be bound by the
obligations provided under 1458.
Again, a contract of sale is an agreement when the
party, or the seller or the vendor, obligates himself to deliver
and transfer the ownership of a determinate thing to another
party called the buyer or vendee who in turn obligates himself
to pay a price certain ir money or its equivalent. Recall 1156 of
the Obligations and Contracts: Obligation is a juridical necessity
to give, to do or not to do. What is involved in a contract of
sale? Obligation to give. What kind of obligation would that be?
Real obligation (as compared to obligation to do or not to do,
which are considered personal obligations). In a contract of sale
the parties have real obligation, and therefore it can be the
subject of an action for specific performance. Also, take note
that once a contract of sale is perfected the parties are bound
by the fulfilment of their stipulations as well as all its
consequences.
Discussion:
The law on obligations and contacts is applied in
contracts of sales suppletorily. Take note that contracts of sale
involve positive obligation, subject to injunction. We also
discussed that the subject matter in a contract of sale must be
determinate, or at least determinable.
Elements of Contract of Sale
(a) Consent or meeting of the minds to transfer ownership in
exchange for the price
(b) Subject Matter
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(c) Price certain in money or its equivalent
When all 3 elements are present, there being a
meeting of the minds, then a perfected contract of
sale arises and its validity is not affected by the fact
that previously a fictitious deed of sale was
executed y the parties or by the fact of non-
performance of the obligations thereafter.
The sale is VOID when some of the essential
requisites are not present. (Supreme Court). The
more appropriate term to use when an essential
element is not present at meeting of the minds is to
declare a NO CONTRACT situation. (Villanueva)
When all 3 elements are present, but there is defect
or illegality constituting any of such elements, the
resulting contract is either VOIDABLE when the
defect constitutes a vitiation of consent, or VOID as
mandated under Article 1409 of the Civil Code.
Toyota Shaw vs. CA
(GR NO. 116650, May 23, 1995)
FACTS
Sometime in June of 1989, Luna L. Sosa wanted to
purchase a Toyota Lite Ace. It was then a seller's market and
Sosa had difficulty finding a dealer with an available unit for
sale. But upon contacting Toyota Shaw, Inc., he was told that
there was an available unit. So on 14 June 1989, Sosa and his
son, Gilbert, went to the Toyota office at Shaw Boulevard,
Pasig, Metro Manila. There they met Popong Bernardo, a sales
representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite
Ace not later than 17 June 1989 because he, his family, and a
balikbayan guest would use it on 18 June 1989 for his birthday.
He added that if he does not arrive in his hometown with the
new car, he would become a "laughing stock."
Bernardo assured Sosa that a unit would be ready for
pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed a
document entitled "Agreements Between Mr. Sosa & Popong
Bernardo of Toyota Shaw, Inc."
It was also agreed upon by the parties that the balance
of the purchase price would be paid by credit financing through
B.A. Finance, and for this Gilbert, on behalf of his father, signed
the documents of Toyota and B.A. Finance pertaining to the
application for financing.
The next day, Sosa and Gilbert went to Toyota to
deliver the downpayment of P100,000.00. They met Bernardo
who then accomplished a printed Vehicle Sales Proposal (VSP)
No. 928, on which Gilbert signed under the subheading
CONFORME. Rodrigo Quirante, the Sales Supervisor of
Bernardo, checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called
Gilbert to inform him that the vehicle would not be ready for
pick up at 10:00 a.m. as previously agreed upon but at 2:00
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p.m. that same day. At 2:00 p.m., Sosa and Gilbert met
Bernardo at the latter's office.
After waiting for about an hour, Sosa alleged that
Bernardo told them that the car could not be delivered because
"nasulot ang unit ng ibang malakas." Toyota contends,
however, that the Lite Ace was not delivered to Sosa because of
the disapproval by B.A. Finance of the credit financing
application of Sosa.
On 20 November 1989, Sosa filed a complaint against
Toyota for damages.
ISSUE
Was the document, executed and signed by the
petitioner's sales representative, a perfected contract of sale,
binding upon Toyota Shaw?
RULING
NO.
This Court had already ruled that a definite agreement
on the manner of payment of the price is an essential element
in the formation of a binding and enforceable contract of sale.
This is so because the agreement as to the manner of payment
goes into the price such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price.
Definiteness as to the price is an essential element of a binding
agreement to sell personal property.
Moreover, the document shows the absence of a
meeting of minds between Toyota and Sosa.
For one thing, Sosa did not even sign it. For another,
Sosa was well aware from its title that he was not dealing with
Toyota but with Popong Bernardo and that the latter did not
misrepresent that he had the authority to sell any Toyota
vehicle. It was incumbent upon Sosa to act with ordinary
prudence and reasonable diligence to know the extent of
Bernardo's authority as an agent in respect of contracts to sell
Toyota's vehicles.
At the most, the document may be considered as part
of the initial phase of the generation or negotiation stage of a
contract of sale.
The second phase of the generation or negotiation
stage in this case was the execution of the VSP. It must be
emphasized that thereunder, the balance to be paid on
installment should be financed by B.A.
There was no contract of sale. There was that VSP, but
no obligation on the part of Toyota to transfer ownership of the
determinate thing and theres no correlative obligation on the
part of Sosa to pay a price certain. Nothing appears in the said
agreement or proposal as to the price. The provision on the
payment had no specific reference to the sale, it could refer to
the sale in installment, but nothing was mentioned as to the
price, as well as to the manner of receiving payment. In fact,
while it is true that there was this document, there is no
meeting of the minds. Remember that Sosa did not even sign
the said VSP. In the absence of consent, in the absence of a
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
price certain or its equivalent, in the absence of these essential
elements there can be no valid contract of sale.
Polytechnic University vs. CA
(GR NO. 143513, Nov. 14, 2001)
FACTS
Petitioner NDC (National Development Corp.) a GOCC
owned & had in its disposal a 10 hectar property which is the
NDC Compound.
A portion of which was leased to private respondent
FIRESTONE CORPORATION for ceramic manufacturing business.
Both parties entered into a contract of lease for a term of 10
years renewable for another 10 years. Firestone built several
warehouses and facilities therein.
Prior to the expiration of the said lease contract,
Firestone wrote NDC requesting for an extension of their lease
agreement. Since business between NDC and FIRESTONE went
smooth, the lease was twice renewed, this time conferring
upon Firestone an express grant the first option to purchase
the leased premise in the event that NDC decided to dispose
and sell the properties including the lot. So Firestone now has
the right of first refusal.
Eventually though, a Memorandum Order No. 214 was
issued by then President Corazon 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. The memorandum order was in consideration of
NDCs P57M debt.
And so, pursuant thereto, NDC had no choice but to
transfer the property to Polytechnic University of the
Philippines, another GOCC, and in need of expansion.
Firestone therefore instituted an action for specific
performance to compel NDC to sell the leased property in its
favor.
ISSUE
Did the transfer of the leased property from NDC to
PUP amount to a sale wherein, consequently, FIRESTONE can
rightfully invoke its right of first refusal?
RULING
YES. Contrary to what PUP and NDC propose, there is
not just one party involved in the questioned transaction. The
inherent weakness of NDCs proposition that there was no sale
as it was only the government which was involved in the
transaction reveals itself. Beyond cavil, a government owned
and controlled corporation has a personality of its own, distinct
and separate from that of the government.
Moreover, the preponderance of evidence shows that
NDC sold to PUP the whole NDC compound, including the
leased premises, without the knowledge much less consent of
FIRESTONE which had a valid and existing right of first refusal.
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All three (3) essential elements of a valid sale, without
which there can be no sale, were attendant in the "disposition"
and "transfer" of the property from NDC to PUP - consent of
the parties, determinate subject matter, and consideration
therefor.
Consent to the sale is obvious from the prefatory
clauses of Memorandum Order No. 214 which explicitly states
the acquiescence of the parties to the sale of the property -
PUP has expressed its willingness to acquire said NDC
properties and NDC has expressed its willingness to sell the
properties to PUP
Furthermore, the cancellation of NDC's liabilities in
favor of the National Government in the amount of
P57,193,201.64 constituted the "consideration" for the sale.
In the instant case, the right of first refusal is an
integral and indivisible part of the contract of lease and is
inseparable from the whole contract. Thus, it is not correct for
PUP and NDC to insist that there was no consideration paid by
FIRESTONE to entitle it to the exercise of the right, inasmuch as
the stipulation is part and parcel of the contract of lease.
It is a settled principle in civil law that when a lease
contract contains a right of first refusal, the lessor is under a
legal duty to the lessee not to sell to anybody at any price until
after he has made an offer to sell to the latter at a certain price
and the lessee has failed to accept it.
Discussion:
There was a valid contract of sale.
Why do we need to determine if there was a sale in favor of
PUP?
If there is a sale, then there is a violation of the right of
first refusal of firestone.
Was there a valid sale? What are the essential elements here?
What is the defense of NDC?
Here its important to know if theres a valid contract of
sale so as to determine whether there was a violation
of the right of first refusal which was granted to
firestone. The trial court ruled that there was a valid
contract of sale. NDC, on the other hand, contended
that thjere was no sale in favor of PUP. What was its
defense? That the ownership of the property remained
in the government. However, while it is true that these
are government entities, nevertheless, they have
separate charters. So, they are different entities. So,
that defense was not upheld by the court.
The Court said here that there was a valid contarct of
sale. Again, the obligations imposed under 1458 are
present. It is therefore a general requisite for the
existence of a valid and enforceable contract of sale
that it be mutually obligatory. NDC and PUP have
separate individual personality.
The SC also held that all the essential elements of a
valid sale are present. There was consent. This was
clearly shown in the memorandum order, which
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
explicitly states that PUP has expressed its willingness
to acquire said NDC properties and NDC has expressed
its willingness to sell the properties to PUP.
Now, the consideration was the cancellation of NDCs
liabilities. Here, it was clearly a valid contract of sale.
Transfer of title or an agreement to transfer title for a
price paid, or promised to be paid, is the very essence
of sale.
Essential Elements of a Contract of Sale
Consent
Object or Subject Matter
Consideration or Price
Again, the essential elements of a contract of sale are
the consent, object or subject matter, and price or
consideration. Since these are essential elements, they are
therefore necessary for the validity of a contract of sale. If one
of these essential elements is absent, then there can be no
perfected contract of sale.
f there is a defect in the consent, then what we have is
a voidable contract. If there is a subject matter but it is illegal or
illicit, then it is a void contract.
Natural Elements of a Contract of Sale
We also have natural elements of a contract. These are
elements of a contract which exist even in the absence of an
agreement of the parties, because the law provides that these
elements exist, nevertheless. In a contract of sale, we have
implied warranties against division and implied warranties
against hidden defects. Even if the parties did not agree to such,
the law deems it existent in every contract of sale.
Accidental Elements of a Contract of Sale
We have accidental elements. These are elements
which are stipulated by the parties, such as the existence of
conditions, as well as the stipulation on the payment of price.
nd
Also take note that on the 2 paragraph of Article 1458,
a contract of sale may be absolute or conditional.
When we say conditional, it may be subject to a
suspensive or resolutory condition. The condition that is referred
to in 1458(2) refers to the perfection of the contract. Conditions
may refer to the perfection of the contract or to the
performance of the obligations arising from the contract. In
1458(2), the happening of the condition would give rise to the
perfection of the contract of sale.
Manila Container vs. PNB
(GR NO. 166862, Dec. 20, 2006)
FACTS
Manila Metal Corp. executed a real estate mortgage
(TCT. 32098) as a security for its loan from PNB amounting to
900,000 php, later on 1,000,000 php and 653,000 php
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Aug. 5, 1982: PNB filed a petition for extrajudicial
foreclosure for the property to be sold at a public auction
911,532.21 php (outstanding as of June 30) + interest +
attorney's fees
Sept. 2, 1982: PNB won the public auction at
1,000,000 php
Feb. 17, 1983: Certificate of Sale was issued and
registered at the Registry of Deeds and was annotated at the
dorsal portion of the title (Redeemable until Feb 17,1983)
Petitioner requested 1 year extension until Feb
17,1984 but was rejected by PNB saying it is their policy not to
accept partial redemption
Jun. 1,1984: Since petitioner failed to redeem, TCT.
32098 was cancelled and a new title was issued in favor of PNB
Meanwhile, Special Assets Management Department
(SAMD) had prepared a statement of account as of Jun 25,1984
amounting to 1,574,560.47 php (bid price + interest + advances
of insurance premiums + advances on relaty taxes + reg. exp.
+misc. exp + piblication cost)
Petitioner deposited 725,000 php as deposit to
repurchase and was issued an O.R.
PNB management rejected the recommendation of
SAMD and demanded that petitioner pay the markt value of
2,660,000 php.
Jun 24, 1984: PNB informed petitioner that its B.O.D had
agreed to accept its offer to purchase but at 1,931,389.53 less
the 725,000 php.
PNB President did not conform to the letter but
merely indicated that he has received it.
Petitioner rejected this since PNB has already accepted
its downpayment so it can no longer increase the price.
PNB also rejected petitioners payment for the balance.
Petitioner filed a complaint against PNB for Annulment
of Mortgage and Mortgage Foreclosure, Delivery of Title, or
Specific Performance with Damages
CA affirmed RTC: Favored PNB and demanded that it
refund the 725,000 php (no sale because no meeting of the
minds in terms of price)
Lot was later transferred to its PNB President Bayani
Gabriel
Petitioner filed a petition for certiorari
ISSUES
1. WON the statement of account by SAMD is only a
recommendation subject to the approval of the BOD -
YES
2. WON there was a contract of sale - NO
3. WON earnest money establishes a contract of sale -
NO
RULING
(1)YES. Art. 1318 of NCC: no contract unless the following
requisites concur:
Consent of the contracting parties;
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Object certain which is the subject matter of the
contract;
Cause of the obligation which is established.
The fixing of the price can never be left to the decision
of one of the contracting parties. But a price fixed by one of the
contracting parties, if accepted by the other, gives rise to a
perfected sale.
When there is merely an offer by one party without
acceptance of the other, there is no contract.
(2) NO. Section 23 of the Corporation Code:
Corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or
acts of a corporation must be made either by the
board of directors or by a corporate agent duly
authorized by the board. Absent such valid
delegation/authorization, the rule is that the
declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or
connected with the performance of authorized duties
of such director, are held not binding on the
corporation.
A corporation can only execute its powers and transact
its business through its: Board of Directors, officers and agents
when authorized by: (a) a board resolution; or (b) its by-laws.
(3) NO. ART. 1482. Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and
as proof of the perfection of the contract.
The deposit of P725,000 was accepted by PNB on the
condition that the purchase price is still subject to the approval
of the PNB Board.
Absent proof of the concurrence of all the essential
elements of a contract of sale, the giving of earnest money
cannot establish the existence of a perfected contract of sale.
No perfected contract of sale.
Discussion:
Price is an essential element for a valid contract of sale.
A contract of sale is consensual in nature and is perfected upon
mere meeting of the minds. When there is merely an offer by
one party without acceptance of the other, there is no contract.
Again, there must be consent as to the price. When theres
merely an offer by one party and without acceptance by the
other party, there can be no valid contract.
Here Manila Container was told that PNB did not allow
partial redemption. It sent a letter to the president reiterating its
offer to purchase the property. There was no response to
petitioner's letters. As to the Statement of Account, the amount
indicated therein was clearly not the purchase price. It cannot be
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considered as an unqualified acceptance to petitioners offer to
purchase the property because it was only a computation of the
amount which petitioner was obliged to pay in case PNB would
later agree to sell the property. Acceptance of the offer here was
in fact qualified. In other words, there was merely a counter-
offer, there was no absolute acceptance that would give rise to a
valid contract of sale.
Velarde vs. CA
(GR NO. 108346, Jul. 11, 2001)
FACTS
The private respondent executed a Deed of Sale with
Assumption of Mortgage, with a balance of P1.8 million, in
favor of the petitioners. Pursuant to said agreements, plaintiffs
paid the bank (BPI) for three (3) months until they were
advised that the Application for Assumption of Mortgage was
denied. This prompted the plaintiffs not to make any further
payment. Private respondent wrote the petitioners informing
the non-fulfillment of the obligations. Petitioners, thru counsel
responded that they are willing to pay in cash the balance
subject to several conditions. Private respondents sent a
notarial notice of cancellation/rescission of the Deed of Sale.
Petitioners filed a complaint which was consequently dismissed
by an outgoing judge but was reversed by the assuming judge
in their Motion for Reconsideration. The Court of Appeals
reinstated the decision to dismiss.
ISSUES
(1) WON the sale is valid.
(2)WON rescission is valid.
RULING
(1) YES. There was actually a perfected contract of sale wherein
they have agreed that the mortgage will be assumed; that if,
however, the assumption of the mortgage will not be approved
by the bank, the buyer in this case will be obligated to pay the
balance.
(2)YES. Article 1191 of the New Civil Code applies. The breach
committed did not merely consist of a slight delay in payment
or an irregularity; such breach would not normally defeat the
intention of the parties to the contract. Here, petitioners not
only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as
preconditions to the performance of their own obligation. In
effect, the qualified offer to pay was a repudiation of an
existing obligation, which was legally due and demandable
under the contract of sale. Hence, private respondents were
left with the legal option of seeking rescission to protect their
own interest.
Discussion:
What was the condition given by plaintiff for them to pay the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
balance?
For respondent to (a) deliver actual possession of the
property to her not later than January 15, 1987 for her
immediate occupancy; (b) cause the release of title and
mortgage from the Bank of P.I. and make the title
available and free from any liens and encumbrances;
and (c) execute an absolute deed of sale in her favor
free from any liens or encumbrances not later than
January 21, 1987
What did the Court say regarding these conditions?
The conditions were not allowed since they imposed
additional obligations that were not previously agreed
upon.
What is the basis of the court in granting the action for
rescission?
Art. 1191. The power to rescind is implied in reciprocal
obligations.
There was actually a perfected contract of sale wherein
they have agreed that the mortgage will be assumed; that if,
however, the assumption of the mortgage will not be approved
by the bank, the buyer in this case will be obligated to pay the
balance. When petitioners received notice of the banks
disapproval of their application to assume the mortgage, they
should have paid the P1.8M balance. However, they added
conditions that they will only pay when the property will be
delivered, title on the property will be released, and a deed of
sale will be executed. Such conditional offer to pay cannot take
the place of actual payment as would discharge the obligation of
a buyer under a contract of sale. These conditions were not in
existence at the time the contract was perfected.
Remember, when they entered into a contract of sale,
they obligated themselves to transfer the ownership and
delivery of the determinate thing. And the buyer could then
therefore apply certain value or its equivalent. However, it is
evident that the buyer in this case failed to perform his
obligation, which now gives the seller the right to rescind the
contract, finding its basis in Article 1191 of the Civil Code. Again,
the power to rescind is implied in reciprocal obligations. In this
case, the buyer was in breach of his obligation to pay and
therefore, he would now be considered in delay and the seller
has the right to ask for rescission of the contract.
2) STAGES IN THE LIFE OF A CONTRACT OF SALE
a) Policitacion or negotation the period from the time the
prospective contracting parties indicate their interests in the
contract to the time the contract is perfected
b) Perfection takes place upon the concurrence of the essential
elements of the sale which are the meeting of the minds of the
parties as to the object of the contract and upon the price
c) Consummation begins when the parties perform their
respective undertaking under the contract of sale, culminating in
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the extinguishment thereof
San Miguel Properties vs. Spouses Huang
(GR NO. 137290, Jul. 31, 2000)
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 petitioners authorized officer subject
to certain terms.
Petitioner, through its executive officer, wrote the
respondents lawyer that because if the 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: WON there was a perfected contract of sale between
the parties
RULING
NO. 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.
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.
The first condition for an option period of 30 days
sufficiently shows that a sale was never perfected. As petitioner
correctly points out, acceptance of this condition did not give
rise to a perfected sale but merely to an option or an accepted
unilateral promise on the part of respondents to buy the
subject properties within 30 days from the date of acceptance
of the offer. Such 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. All that respondents had was just the option to buy the
properties which privilege was not, however, exercised by them
because there was a failure to agree on the terms of payment.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
No contract of sale may thus be enforced by respondents.
Even the option secured by respondents from
petitioner was fatally defective. Under the second paragraph of
Art. 1479, an accepted unilateral promise to buy or sell a
determinate thing for a price certain is binding upon the
promisor only if the promise is supported by a distinct
consideration. 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. There is no showing here of
any consideration for the option. Lacking any proof of such
consideration, the option is unenforceable.
Equally compelling as proof of the absence of a
perfected sale is the second condition that, during the option
period, the parties would negotiate the terms and conditions of
the purchase. The stages of a contract of sale are as follows: (1)
negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time
the contract is perfected; (2) perfection, which takes place
upon the concurrence of the essential elements of the sale
which are the meeting of the minds of the parties as to the
object of the contract and upon the price; and (3)
consummation, which begins when the parties perform their
respective undertakings under the contract of sale, culminating
in the extinguishment thereof.
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.
Discussion:
Here, the contention is that allegedly there was a
contract of sale because of the earnest money (P1M). Again, SC
held that it was merely a deposit, it is merely a guaranty that the
respondents would not back out from the sale. However, there
was never a perfected contract of sale. The earnest deposit
could not be taken as an earnest money because there was no
meeting of the minds yet. At the time the petitioner accepted
the terms of respondents offer, their contract had not yet been
perfected.
What they have here was an offer, then a counter-offer,
then the extension period to accept the counter offer. At the
end, there was no acceptance, so there was never a perfected
contract of sale. They never passed the negotiation stage.
The negotiation stage covers the period from the time
the prospective contracting parties indicate their
interests in the contract to the time the contract is
perfected.
Perfection is the shortest stage. It happens upon the
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meeting of the minds and ends thereafter. It takes place
upon the concurrence of the essential elements of the
sale which are the meeting of the minds of the parties,
as to the object of the contract, and upon the price.
And the last stage is the consummation stage, which
begins when the parties perform their respective
undertaking under the contract of sale, culminating in
the extinguishment or death of the said contract of
sale.
II) ESSENTIAL CHARACTERISTICS OF A CONTRACT OF SALE
Now recall, how are contracts perfected?
So the general rule is that contracts are perfected by
mere consent. These are consensual contracts.
We also have contracts perfected by delivery which are
called real contracts.
And contracts perfected by conforming to the forms or
requirements provided by law, which are solemn and
formal contracts.
Classifications of Contracts of Sale
As to Equivalence
Onerous
Gratuitous or Remuneratory
As to nature
Principal
Accessory
Preparatory
As to the obligations of the parties
Unilateral or
Bilateral
As to nomenclature
Nominate or
Innominate
the risk of fulfillment
Commutative or
Aleatory
1) NOMINATE AND PRINCIPAL
Sale is a nominate contract since it has been given a
particular name by law, more importantly, its nature and
consequences are governed by a set of rules in the Civil Code,
which euphemistically we refer to as the Law on Sales.
Sale is a principal contract, as contrasted from
accessory or preparatory contracts, because it can stand on its
own, and does not depend on another contract for its validity or
existence.
Article 1458. By the contract of sale one of the
8
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
contracting parties obligates himself to transfer the ownership
and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Nominate and Principal Characteristics of Sale
In determining the real character of the contract,
the title given to it by the parties is not as significant
as its substance.
In determining the nature of a contract, the courts
look at the intent of the parties and not at the
nomenclature used to describe it.
Contracts are not defined by the parties thereto but
by the principles of law.
All other contracts which have for their objective
the transfer of ownership and delivery of possession
of a determinate subject matter for a valuable
consideration, are governed necessarily by the Law
on Sales.
2) CONSENSUAL
Sale is a consensual contract (as contrasted from
solemn and real contracts) since it is perfected by mere consent,
at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price.
Sale is valid once there is a meeting of the minds
as to the price despite the manner of its actual
payment, or even when there has been breach
thereof.
Sale is valid but subject to reformation if the real
price is not stated in the contract.
Sale is void if there is no meeting of the minds as
to the price because the price stipulated is
simulated.
Under Article 1475 of the Civil Code
From the moment of perfection of the sale, the
parties may reciprocally demand performance, even
when the parties have not affixed their signatures to
the written form of such sale, but subject to the
provisions of the law governing the form of
contracts.
The actual delivery of the subject matter or
payment of the price agreed upon are not necessary
components to establish the existence of a valid
sale, and their non-performance do not also
invalidate or render void a sale that has began to
exist as a valid contract at perfection.
Non-performance merely becomes the legal basis
for the remedies of either specific performance or
rescission, with damages in either case.
Doctrines pertaining to sale being a consensual contract (Fule
vs. CA):
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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
has the force of law between the contracting parties
and they are expected to abide in good faith by
their respective contractual commitments
the embodiment of certain contracts in a public
instrument, is only for convenience, and registration
of the instrument only adversely affects third
parties (Article 1358)
formal requirements are for the benefit of third
parties
non-compliance of formal requirements does not
adversely affect the validity of the contract nor the
contractual rights and obligations of the parties
Burden of Proof
The party who alleges it must show its existence by
competent proof, as well as of the essential
elements thereof.
However, when all 3 elements of a sale are present,
there being a meeting of the minds, then a
perfected contract of sale arises, and its validity is
not affected by the fact that previously a fictitious
deed of sale was executed by the parties. At that
point, the burden is on the other party to prove the
contrary.
When one of the parties is unable to read, or if the
contract is in a language not understood by him,
and mistake or fraud is alleged, the person
enforcing the contract must show that the terms
thereof have been fully explained to the former.
(Article 1332 of the Civil Code)
Quijada vs. CA
(December 4, 1998)
FACTS
Petitioners are the children of the late Trinidad
Quijada who was one of the heirs of the late Pedro Corvera and
inherited from the latter the two-hectare parcel of land subject
of the case.
On April 5, 1956, Trinidad Quijada and her sisters
executed a deed of conditional donation in favor of the
Municipality of Talacogon, the condition being that the land
shall be used exclusively for the construction of a provincial
high school. However, Trinidad remained in possession of the
land. On July 29, 1962, Trinidad sold the land to respondent
Regalado Mondejar. In 1980, the heirs of Trinidad, herein
petitioners, filed a complaint for forcible entry against the
respondent. In 1987, the proposed campus did not materialize,
and the Sangguniang Bayan enacted a resolution donating back
the land to the donor. In the meantime, respondent Mondejar
conveyed portions of the land to the other respondents. On
July 5, 1988, petitioners filed a complaint for quieting of title,
9
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
recovery of possession and ownership of the land.
ISSUE: WON there was a perfected contract of sale
RULING
YES. The donation was subject to the condition that
the donated property shall be "used solely and exclusively as a
part of the campus of the proposed Provincial High School in
Talacogon." The donation further provides that should "the
proposed Provincial High School be discontinued or if the same
shall be opened but for some reason or another, the same may
in the future be closed" the donated property shall
automatically revert to the donor. Such condition, not being
contrary to law, morals, good customs, public order or public
policy was validly imposed in the donation.
When the Municipality's acceptance of the donation
was made known to the donor, the former became the new
owner of the donated property donation being a mode of
acquiring and transmitting ownership notwithstanding the
condition imposed by the donee. The donation is perfected
once the acceptance by the donee is made known to the
donor. Accordingly, ownership is immediately transferred to the
latter and that ownership will only revert to the donor if the
resolutory condition is not fulfilled.
In this case, that resolutory condition is the
construction of the school. It has been ruled that when a
person donates land to another on the condition that the latter
would build upon the land a school, the condition imposed is
not a condition precedent or a suspensive condition but a
resolutory one. Thus, at the time of the sales made in 1962
towards 1968, the alleged seller (Trinidad) could not have sold
the lots since she had earlier transferred ownership thereof by
virtue of the deed of donation. So long as the resolutory
condition subsists and is capable of fulfillment, the donation
remains effective and the donee continues to be the owner
subject only to the rights of the donor or his successors-in-
interest under the deed of donation. Since no period was
imposed by the donor on when must the donee comply with
the condition, the latter remains the owner so long as he has
tried to comply with the condition within a reasonable period.
Such period, however, became irrelevant herein when the
donee-Municipality manifested through a resolution that it
cannot comply with the condition of building a school and the
same was made known to the donor. Only then when the
non-fulfillment of the resolutory condition was brought to the
donor's knowledge that ownership of the donated property
reverted to the donor as provided in the automatic reversion
clause of the deed of donation.
The donor may have an inchoate interest in the
donated property during the time that ownership of the land
has not reverted to her. Such inchoate interest may be the
subject of contracts including a contract of sale. In this case,
however, what the donor sold was the land itself which she no
longer owns. It would have been different if the donor-seller
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sold her interests over the property under the deed of
donation which is subject to the possibility of reversion of
ownership arising from the non-fulfillment of the resolutory
condition.
Sale, being a consensual contract, is perfected by mere
consent, which is manifested the moment there is a meeting of
the minds as to the offer and acceptance thereof on three (3)
elements: subject matter, price and terms of payment of the
price. Ownership by the seller on the thing sold at the time of
the perfection of the contract of sale is not an element for its
perfection. What the law requires is that the seller has the right
to transfer ownership at the time the thing sold is delivered.
Perfection per se does not transfer ownership which occurs
upon the actual or constructive delivery of the thing sold. A
perfected contract of sale cannot be challenged on the ground
of non-ownership on the part of the seller at the time of its
perfection; hence, the sale is still valid.
Discussion:
What is the difference between a suspensive condition and a
resolutory condition?
A suspensive condition gives rise to the obligations
contract while in a resolutory condition, the happening
thereof extinguishes the obligations of contract.
So initially, the sale was not valid. Now however here,
there was subsequent transfer of ownership, and petitioners
became the owners of the subject property upon the reversion
of the ownership of the land to them. Consequently, ownership
is transferred to respondent Mondejar and those who claim
their right from him. When we will discuss Article 1434 also take
note that title passes by operation of law to the buyer.
Villanueva vs. PNB
(December 6, 2006)
FACTS
Villanueva offered to purchase the lots for
P3,677,000.00. He also manifested that he was depositing
P400,000.00 to show his good faith but with the understanding
that said amount may be treated as part of the payment of the
purchase price only when his offer is accepted by PNB.
At the bottom of said letter there appears an unsigned
marginal note stating that P400,000.00 was deposited into
Villanueva's account with PNB-General Santos Branch.
PNB forwarded the letter of Villanueva to Ramon
Guevara, Vice President, SAMD. Guevara informed Villanueva
that only Lot No. 19 is available and that the asking price
therefor is P2,883,300.00.
Instead of submitting a revised offer, Villanueva
merely inserted at the bottom of Guevara's letter a marginal
note, which reads:
CONFORME: PRICE OF P2,883,300.00 (downpayment
of P600,000.00 and the balance payable in two (2)
10
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
years at quarterly amortizations.)
Villanueva paid P200,000.00 to PNB which the latter
issued a receipt to acknowledge receipt of the "partial payment
deposit on offer to purchase." On the dorsal portion of Official
Receipt No. 16997, Villanueva signed a typewritten note,
stating:
This is a deposit made to show the sincerity of my
purchase offer with the understanding that it shall be returned
without interest if my offer is not favorably considered or be
forfeited if my offer is approved but I fail/refuse to push
through the purchase.
Thereafter, however, Guevara wrote Villanueva that
SAMD is deferring negotiations with him over said property and
returning his deposit of P580,000.00.
Undaunted, Villanueva attempted to deliver postdated
checks covering the balance of the purchase price but PNB
refused the same.
Thus Villanueva filed a Complaint for specific
performance which the RTC granted anchoring its judgment on
the finding that there existed a perfected contract of sae
between PNB and Villanueva.
PNB appealed to the CA which reversed and set aside
the decision, stating that in the case at bench, consent, in
respect to the price and manner of its payment, is lacking. The
record shows that appellant, thru Guevara's July 6, 1990 letter,
made a qualified acceptance of appellee's letter-offer dated
June 28, 1990 by imposing an asking price of P2,883,300.00 in
cash for Lot 19. The letter dated July 6, 1990 constituted a
counter-offer (Art. 1319, Civil Code), to which appellee made a
new proposal, i.e., to pay the amount of P2,883,300.00 in
staggered amounts, that is, P600,000.00 as downpayment and
the balance within two years in quarterly amortizations.
CA held that a qualified acceptance, or one that
involves a new proposal, constitutes a counter-offer and a
rejection of the original offer (Art. 1319). Consequently, when
something is desired which is not exactly what is proposed in
the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the
offer annuls the offer.
ISSUE: WON there was a perfected contract of sale
RULING
NO. Contracts of sale are perfected by mutual consent
whereby the seller obligates himself, for a price certain, to
deliver and transfer ownership of a specified thing or right to
the buyer over which the latter agrees. Mutual consent being a
state of mind, its existence may only be inferred from the
confluence of two acts of the parties: an offer certain as to the
object of the contract and its consideration, and an acceptance
of the offer which is absolute in that it refers to the exact object
and consideration embodied in said offer. While it is impossible
to expect the acceptance to echo every nuance of the offer, it is
imperative that it assents to those points in the offer which,
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under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of
mutuality produces not a contract but a mere counter-offer
awaiting acceptance. More particularly on the matter of the
consideration of the contract, the offer and its acceptance must
be unanimous both on the rate of the payment and on its term.
An acceptance of an offer which agrees to the rate but varies
the term is ineffective.
Tracing the transactions and letters between
Villanueva and PNB, it can be said that there was no perfected
contract of sale between the parties. The first letter of PNB
stating that only Lot 19 was available was certainly not an
acceptance but a mere counter-offer. Further, such counter-
offer imposed two more conditions that Villanueva submit a
revised offer to purchase based on the new price and that such
sae of property be approved by the Board of Directors.
However, Villanuevas reply
to said counter-offer was not an acceptance but a further
counter-offer since he qualified his acceptance proposing a
two-year payment.
Moreover, Villanuevas contention that the
repudiation was belated since PNB already agreed to his
counter-offer when it accepted his downpayment, the Court
ruled that acceptance of Villanuevas payments did not amount
to an implied acceptance of his last counter-offer. PNB-GenSan
Branch had no authority to bind PNB to a contract of Sale with
Villanueva. Neither did SAMD have authority to bind PNB. Both
clearly stated that whatever is offered will be subject to
approval of PNBs higher authorities.
In sum, the amounts paid by petitioner were not in the
nature of downpayment or earnest money but were mere
deposits or proof of his interest in the purchase of Lot No. 19.
Acceptance of said amounts by respondent does not
presuppose perfection of any contract.
Discussion:
So there was no contract of sale here.
Again, contracts of sale are perfected by mutual
consent whereby the seller obligates himself, for a price certain,
to deliver and transfer ownership of a specified thing or right to
the buyer over which the latter agrees. Mutual consent being a
state of mind, its existence may only be inferred from the
confluence of two acts of the parties: an offer certain as to the
object of the contract and its consideration, and an acceptance
of the offer which is absolute in that it refers to the exact object
and consideration embodied in said offer.
While it is impossible to expect the acceptance to echo
every nuance of the offer, it is imperative that it assents to those
points in the offer which, under the operative facts of each
contract, are not only material but motivating as well. Anything
short of that level of mutuality produces not a contract but a
mere counter-offer awaiting acceptance. More particularly on
the matter of the consideration of the contract, the offer and its
acceptance must be unanimous both on the rate of the payment
11
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
and on its term. An acceptance of an offer which agrees to the
rate but varies the term is ineffective.
As what happened here in Villanueva. The letter of
Villanueva was an offer to buy independent of the invitation to
bid. It was a definite offer as it identified with certainty the
properties sought to be purchased and fixed the contract price.
Respondent replied that only Lot No. 19 is available and that the
price is now P2, 883,300.00. So therefore, the reply here by the
bank, was not an acceptance but a mere counter-offer. To which
Villanueva made a counter-offer, he inserted the term
"downpayment of P600,000.00 and the balance payable in two
years at quarterly amortization."
So in essence, the acceptance here was not absolute.
Therefore, it did not give rise to the perfection of a contract of
sale. Acceptance of said partial amounts by respondent does not
presuppose perfection of any contract. Once again, there was no
meeting of the minds as to the price and the manner of payment
thereof. So again, the consensual nature of a contract of sale is
perfected by mere consent, validly binding upon the meeting of
the minds as to the object and the price. As we have discussed,
actual delivery of subject matter based or the giving of the price
are not necessary to the perfection of a contract of sale.
Nonperformance or the failure to give the subject matter or
failure to pay the price merely becomes the legal basis for
remedies for specific performance or rescission. Obligations
arising therefrom, from an intended contract of sale may now
have the force of law between the parties.
Now, what are the modalities that may affect consent?
One of which is the subject of the contract, suspensive
term or the suspensive condition.
Meeting of the minds in a contract of sale, take note,
must be complete. Even if there was partial delivery, if there is
no agreement as to the price and the price is not certain, there
will be no valid contract of sale. So even if the thing was
delivered to the buyer but there was no meeting of minds as to
the price, the contract of sale cannot be considered as valid.
However, do take not that there may be instances
wherein you could still say that there is a valid sale even if the
sale itself does not have full consent of the owner. One of which
is provided in our Constitution, the States inherent power of
eminent domain. So you have a private property, the
Government will expropriate it, take it for public use, and will
give you just compensation. You cannot refuse even if it is the
land of your great-grandmother because the State exercises its
power of eminent domain. So the effect there is you actually sell
your property to the Government.
Other instances we have for example are execution
sale. You owe a person a sum of money and a case was filed in
court, the court finds you liable yet you still refuse to pay. The
sheriff and the plaintiff will find properties in your name, those
owned by you, and they will be sold to the highest bidder in a
public auction. So thats the sale. And the proceeds or sale
thereof will be applied to the obligation.
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Same thing with the foreclosure of mortgage. You
borrow money, you mortgage your property, and you failed to
pay your obligation. Your mortgage will now be foreclosed, your
property will now be sold in a public auction to the highest
bidder. And then the proceeds will be applied to the obligation.
The public auction there will be considered as a valid contract of
sale even if you can say that it does not have the full consent of
the owner.
Do take note here that there must be consent. What is
the kind of consent that is required by law for it to give rise to a
perfected contract of sale?
For consent to be valid, it must meet the following
requisites:
(a) it should be intelligent, or with an exact notion of the matter
to which it refers;
Intelligence in consent is vitiated by error;
(b) it should be free and
freedom is vitiated by violence, intimidation or undue
influence;
(c) it should be spontaneous.
spontaneity is vitiated by fraud.
Vda. De Ape vs. CA
(April 15, 2005)
FACTS
Cleopas Ape died in 1950 and left a parcel of land (Lot
2319) to his 11 children. The children never formally divided
the property amongst themselves except through hantal-
hantal whereby each just occupied a certain portion and
developed each.
On the other hand, the spouses Lumayno were
interested in the land so they started buying the portion of land
that each of the heirs occupied. On 11 Apr 1973, one of the
children, Fortunato, entered into a contract of sale with
Lumayno. In exchange of his lot, Lumayno agreed to pay
P5,000.00. She paid in advance P30.00. Fortunato was given a
receipt prepared by Lumaynos son in law (Andres Flores).
Flores also acted as witness. Lumayno also executed sales
transactions with Fortunatos siblings separately.
In 1973, Lumayno compelled Fortunato to make the
the delivery to her of the registrable deed of sale over
Fortunatos portion of the Lot No. 2319. Fortunato assailed the
validity of the contract of sale. He also invoked his right to
redeem (as a co-owner) the portions of land sold by his siblings
to Lumayno. Fortunato died during the pendency of the case.
ISSUE: Whether or not there was a valid contract of sale?
RULING
No. Fortunato was a no read no write person. It was
incumbent for the the other party to prove that details of the
contract was fully explained to Fortunato before Fortunato
signed the receipt.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
A contract of sale is a consensual contract, thus, it is
perfected by mere consent of the parties. It is born from the
moment there is a meeting of minds upon the thing which is
the object of the sale and upon the price. Upon its perfection,
the parties may reciprocally demand performance, that is, the
vendee may compel the transfer of the ownership and to
deliver the object of the sale while the vendor may demand the
vendee to pay the thing sold. For there to be a perfected
contract of sale, however, the following elements must be
present: consent, object, and price in money or its equivalent.
For consent to be valid, it must meet the following
requisites:
(a) it should be intelligent, or with an exact notion of the
matter to which it refers;
(b) it should be free and
(c) it should be spontaneous. Intelligence in consent is vitiated
by error; freedom by violence, intimidation or undue influence;
spontaneity by fraud.
Lumayno claimed that she explained fully the receipt
to Fortunato, but Flores testimony belies it. Flores said there
was another witness but the other was a maid who also lacked
education. Further, Flores himself was not aware that the
receipt was to transfer the ownership of Fortunatos land to
her mom-in-law. It merely occurred to him to explain the
details of the receipt but he never did.
Discussion:
So here there was no valid contract of sale. While it is
true that it is a consensual contract perfected by mere consent,
take note of the requisites of a valid consent. To be valid,
consent first should be intelligent, or with an exact notion of the
matter to which it refers. For example, the seller understands
that he is selling a specific property for a certain price. Second, it
should be free and third, it should be spontaneous. Intelligence
in consent is vitiated by error; freedom by violence, intimidation
or undue influence; spontaneity by fraud.
In this case, the general rule is that he who alleges
fraud or mistake in a transaction must substantiate his
allegation. However, the exception to this rule is provided for
under Article 1332 of the Civil Code which provides that "When
one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract, in this case the buyer, must
show that the terms thereof have been fully explained to the
former (in this case Fortunato)."
In this case, as private respondent is the one seeking to
enforce the claimed contract of sale, she bears the burden of
proving that the terms of the agreement were fully explained to
Fortunato Ape who was an illiterate. This she failed to do.
While she claimed in her testimony that the contents of the
receipt were made clear to Fortunato, such allegation was
debunked by Andres Flores himself when the latter took the
witness stand. Mere allegation is not sufficient. There was no
proof that it was clearly explained by the buyer to Fortunato.
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Again, according to Article 1315, contracts are
perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.
Laforteza vs. Machuca
(June 16, 2000)
FACTS
Roberto Laforteza and Gonzalo Laforteza, Jr., in their
capacities as attorneys-in-fact of Dennis Laforteza, entrered
into a MOA (Contract to Sell) with Alonzo Machuca over a
house and lot registered in the name of the late Francisco
Laforteza. Machuca was able to pay the earnest money but
however failed to pay the balance on time.
Upon a request of an extension of time, Machuca
informed petitioner heirs that the balance was already covered,
but petitioners refused to accept the balance and told Machuca
that the subject property is no longer for sale.
The petitioners contend that the Memorandum of
Agreement is merely a lease agreement with option to
purchase; hence, it only gave the respondent a right to
purchase the subject property within a limited period without
imposing upon them any obligation to purchase it. And since
the respondents tender of payment was made after the lapse
of the option agreement, his tender did not give rise to the
perfection of a contract of sale.
ISSUES:
(1) WON the tender of payment after the lapse of the option
agreement gave rise to the perfection of a contract of sale
(2) WON the six-moth period during which the respondent
would be in possession of the property as lessee was a period
within which to exercise an option.
RULING
(1) YES.
A perusal of the Memorandum Agreement shows that
the transaction between the petitioners and the respondent
was one of sale and lease.
A contract of sale is a consensual contract and 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. From that moment the parties may reciprocally demand
performance subject to the provisions of the law governing the
form of contracts. In the case at bench, all the elements of a
contract of sale were thus present.
(2) NO.
The six-month period during which the respondent
would be in possession of the property as lessee, was clearly
not a period within which to exercise an option. An option is a
contract granting a privilege to buy or sell within an agreed
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
time and at a determined price. An option contract is a
separate and distinct contract from that which the parties may
enter into upon the consummation of the option. An option
must be supported by consideration. An option contract is
governed by the second paragraph of Article 1479 of the Civil
Code, which reads:
Art. 1479. An accepted unilateral promise to
buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from the price.
In the present case, the six-month period merely
delayed the demandability of the contract of sale and did not
determine its perfection for after the expiration of the six-
month period, there was an absolute obligation on the part of
the petitioners and the respondent to comply with the terms of
the sale.
Discussion:
So here there is a valid contract of sale.
In this case, the issuance of the new certificate of title
in the name of the late Francisco Laforteza and the execution of
an extrajudicial settlement of his estate was not a condition
which determined the perfection of the contract of sale.
Petitioners' contention that since the condition was not met,
they no longer had an obligation to proceed with the sale of the
house and lot is unconvincing. The petitioners fail to distinguish
between a condition imposed upon the perfection of the
contract and a condition imposed on the performance of an
obligation. Failure to comply with the first condition results in
the failure of a contract, while the failure to comply with the
second condition only gives the other party the option either to
refuse to proceed with the sale or to waive the condition.
In this case, there was already a perfected contract. The
condition was imposed only on the performance of the
obligations contained therein. Considering however that the title
was eventually "reconstituted" and that the petitioners admit
their ability to execute the extrajudicial settlement of their
father's estate, the respondent had a right to demand fulfillment
of the petitioners' obligation to deliver and transfer ownership
of the house and lot.
Also take note the nomenclature of the contract,
although it was denominated as a "Contract to Sell", the
Supreme Court held that the parties contemplated a contract of
sale. We will discuss further the distinctions between a contract
to sell and a contract of sale. The mere fact that the obligation of
the respondent to pay the balance of the purchase price was
made subject to the condition that the petitioners first deliver
the reconstituted title of the house and lot does not make the
contract a contract to sell for such condition is not inconsistent
with a contract of sale.
3) BILATERAL AND RECIPROCAL
Sale is a bilateral contract embodying reciprocal
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obligations, as distinguished from a unilateral contract, because
it imposes obligations on both parties to the relationship (Art.
1458), and whereby the obligation or promise of each party is
the cause or consideration for the obligation or promise of the
other (Art. 1191).
Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a creditor
of the other, such that the obligation of one is dependent upon
the obligation of the other. They are to be performed
simultaneously such that the performance of one is conditioned
upon the simultaneous fulfillment of the other.
Legal effects and consequences of sale being a bilateral
contract composed of reciprocal obligations:
(a) The power to rescind is implied, and such power need not be
stipulated in the contract in order for the innocent party to
invoke the remedy (Art. 1191)
(b) Neither party incurs delay if the other party does not comply,
or is not ready to comply in a proper manner, with what is
incumbent upon him (Art. 1168, last par.)
(c) From the moment one of the parties fulfills his obligation, the
default by the other begins (Art. 1168), without the need of
prior demand (Art. 1191)
Reciprocal and Nominate Nature of Sale
It is therefore a genera requisite for the existence of
a valid and enforceable contract of sale that it be
mutually obligatory, i.e, there should be a
concurrence of the promise of the vendor to sell a
determinate thing +and the promise of the vendee
to receive and pay for the property so delivered and
transferred. (Polytechnic University of the
Philippines vs. CA)
The right of rescission of a party to an obligation
under Article 1191 is predicated on a breach of faith
by the other party who violates the reciprocity
between them. (Carrascoso, Jr. vs. CA)
Cortes vs. CA
(July 12, 2006)
FACTS
For the purchase price of 3.7M, Villa Esperanza
Development Corporation and Antonio Cortes entered into a
contract of sale over the lots located at Baclaran, Paraaque,
Metro Manila. The Corporation advanced to Cortes the total
sum of P1,213,000.00. Later, in September 1983, the parties
executed a deed of absolute sale on the following terms:
The Corporation shall advance 2.2 M as
downpayment, and Cortes shall likewise deliver the
TCT for the 3 lots. The balance of 1.5M shall be
payable within a year from the date of the execution.
The Corporation filed the instant case for specific
performance seeking to compel Cortes to deliver the TCTs and
the original copy of the Deed of Absolute Sale. According to the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Corporation, despite its readiness and ability to pay the
purchase price, Cortes refused delivery of the sought
documents. Cortes claimed that the owners duplicate copy of
the three TCTs were surrendered to the Corporation and it is
the latter which refused to pay in full the agreed down
payment.
RTC rendered a decision rescinding the sale and
directed Cortes to return to the Corporation the amount of
P1,213,000.00, plus interest. CA reversed the decision and
directed Cortes to execute a Deed of Absolute Sale conveying
the properties and to deliver the same to the Corporation
together with the TCTs, simultaneous with the Corporations
payment of the balance of the purchase price of P2,487,000.00.
ISSUE: WON there is delay in the performance of the parties
obligations that would justify the rescission of the contract of
sale
RULING
NO. There is no doubt that the contract of sale in
question gave rise to a reciprocal obligation of the parties.
Reciprocal obligations are those which arise from the same
cause, and which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the
obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other.
In the present case, the Deed of Sale contained a
stipulation that the Corporation shall pay in full the
downpayment upon execution of the contract. However, based
on Cortes admission, he agreed that the Corporations full
payment of the downpayment would depend upon the delivery
of the TCTs of the three subject lots. As such, the corresponding
reciprocal obligation of the Corporations payment was the
transfer of titles by Cortes. His obligation is not only to affix the
signature in the Deed, but to set into motion the process that
would facilitate transfer of title of the lots.
Considering that their obligation was reciprocal,
performance thereof must be simultaneous. The mutual
inaction of Cortes and the Corporation therefore gave rise to a
compensation morae or default on the part of both parties
because neither has completed their part in their reciprocal
obligation. Cortes is yet to deliver the original copy of the
notarized Deed and the TCTs, while the Corporation is yet to
pay in full the agreed down payment of P2,200,000.00. This
mutual delay of the parties cancels out the effects of default,
such that it is as if no one is guilty of delay.
Additionally, under Article 1169 of the Civil Code, from
the moment one of the parties fulfills his obligation, delay by
the other begins. Since Cortes did not perform his part, the
provision of the contract requiring the Corporation to pay in full
the down payment never acquired obligatory force.
Discussion:
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Here, reciprocal obligations are those which arise from
the same cause, and which each party is a debtor and a creditor
of the other, such that the obligation of one is dependent upon
the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other.
Cortes' admitted that he agreed that the Corporation's
full payment of the sum of P2,200,000.00 would depend upon
his delivery of the titles of the three lots. Hence, the phrase
"execution of this instrument" as appearing in the Deed of
Absolute Sale, and which event would give rise to the
Corporation's obligation to pay in full the amount of
P2,200,000.00, cannot be construed as referring solely to the
signing of the deed. The meaning of "execution" in the instant
case is not limited to the signing of a contract but includes as
well the performance or implementation or accomplishment of
the parties' agreement. With the transfer of titles as the
corresponding reciprocal obligation of payment, Cortes'
obligation is not only to affix his signature in the Deed, but to set
into motion the process that would facilitate the transfer of title
of the lots, i.e., to have the Deed notarized and to surrender the
original copy thereof to the Corporation together with the TCTs.
Cortes never surrendered said documents to the
Corporation. Since Cortes did not perform his obligation to have
the Deed notarized and to surrender the same together with the
TCTs, the trial court erred in concluding that he performed his
part in the contract of sale and that it is the Corporation alone
that was remiss in the performance of its obligation. Actually,
both parties were in delay. Considering that their obligation was
reciprocal, performance thereof must be simultaneous. The
mutual inaction of Cortes and the Corporation therefore gave
rise to a compensation morae or default on the part of both
parties because neither has completed their part in their
reciprocal obligation. Cortes is yet to deliver the original copy of
the notarized Deed and the TCTs, while the Corporation is yet to
pay in full the agreed down payment of P2,200,000.00. This
mutual delay of the parties cancels out the effects of default,
such that it is as if no one is guilty of delay.
In the absence of delay, the contract cannot be
rescinded. Under Article 1169 of the Civil Code, from the
moment one of the parties fulfills his obligation, delay by the
other begins. Since Cortes did not perform his part, Cortes
cannot ask the court for rescission. The provision of the contract
requiring the Corporation to pay in full the down payment never
acquired obligatory force. So there was a perfected contract of
sale but there was delay on both parties, cancelling each other
out. So therefore they cannot also resort to rescission.
4) ONEROUS
Art. 1458. Sale is an ONEROUS contract, as
distinguished from a gratuitous contract, because it imposes a
valuable consideration as a prestation, which ideally is a price
certain in money or its equivalent.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Onerous vs. Gratuitous
Onerous burdensome because it imposes a valubable
consideration as a prestation which is a price certain in
money or its equivalent.
Gratuitous an act of pure liberality
Objective Test of the Onerous Nature of a Sale:
Whether or not there is a valuable consideration.
Gaite vs. Fonacier
(July 31, 1961)
DOCTRINE
The stipulation in a contract of sale on the payment of
the balance of the purchase price must be deemed to cover a
suspensive period rather than a condition since there can be
no question that greater reciprocity obtains if the buyer's
obligation is deemed to be actually existing, with only its
maturity (due date) postponed or deferred, than if such
obligation were viewed as non-existing or not binding until the
ore was sold. The Court held that the rules of interpretation
would incline the scales in favor of the greater reciprocity of
interests, since sale is essentially an onerous contract.
FACTS
By a "Deed of Assignment" dated September 29, 1952,
Isabelo Fonacier constituted and appointed Fernando A. Gaite
as his true and lawful attorney-in-fact to enter into a contract
with any individual or juridical person for the exploration and
development of the mining claims in the municipality of Jose
Panganiban, province of Camarines Norte on a royalty basis of
not less than P0.50 per ton of ore that might be extracted
therefrom.
On March 19, 1954, Gaite in turn executed a general
assignment conveying the development and exploitation of
said mining claims into the Larap Iron Mines. Thereafter, Gaite
extracted therefrom what he claim and estimated to be
approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided
to revoke the authority granted by him to Gaite to exploit and
develop the mining claims in question, and Gaite assented
thereto subject to certain conditions. As a result, a document
entitled "Revocation of Power of Attorney and Contract" was
executed on December 8, 1954, wherein Gaite transferred to
Fonacier, for the consideration of P20,000.00, plus 10% of the
royalties that Fonacier would receive from the mining claims,
all his rights and interests on all the roads, improvements, and
facilities in or outside said claims, the right to use the business
name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document,
Gaite transferred to Fonacier all his rights and interests over
the "24,000 tons of iron ore, more or less" that the former had
already extracted from the mineral claims, in consideration of
the sum of P75,000.00, P10,000.00 of which was paid upon the
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signing of the agreement.
To secure the payment of the said balance of
P65,000.00, Fonacier promised to execute in favor of Gaite a
surety bond, and pursuant to the promise, Fonacier delivered
to Gaite a surety bond dated December 8, 1954 with himself
(Fonacier) as principal and the Larap Mines and Smelting Co.
and its stockholders as sureties. Gaite testified, however, that
when this bond was presented to him by Fonacier together
with the "Revocation of Power of Attorney and Contract", on
December 8, 1954, he refused to sign said document unless
another bond under written by a bonding company was put up
by defendants to secure the payment of the P65,000.00
balance of their price of the iron ore in the stockpiles in the
mining claims. Hence, a second bond, also dated December 8,
1954 ,was executed by the same parties to the first bond, with
the Far Eastern Surety and Insurance Co. as additional surety,
but it provided that the liability of the surety company would
attach only when there had been an actual sale of iron ore by
the Larap Mines & Smelting Co. for an amount of not less then
P65,000.00, and that, furthermore, the liability of said surety
company would automatically expire on December 8, 1955.
Both bonds were attached to the "Revocation of Power of
Attorney and Contract", and made integral parts thereof.
On the same day that Fonacier revoked the power of
attorney he entered into a "Contract of Mining Operation",
ceding, transferring, and conveying unto the Larap Mines and
Smelting Co., Inc. the right to develop, exploit, and explore the
mining claims in question, together with the improvements
therein and the use of the name "Larap Iron Mines" and its
good will, in consideration of certain royalties. Fonacier
likewise transferred, in the same document, the complete title
to the approximately 24,000 tons of iron ore which he acquired
from Gaite, to the Larap & Smelting Co., in consideration for
the signing by the company and its stockholders of the surety
bonds delivered by Fonacier to Gaite.
Up to December 8, 1955, when the bond expired with
respect to the Far Eastern Surety and Insurance Company, no
sale of the approximately 24,000 tons of iron ore had been
made by the Larap Mines & Smelting Co., Inc., nor had the
P65,000.00 balance of the price of said ore been paid to Gaite
by Fonacier and his sureties payment of said amount, on the
theory that they had lost right to make use of the period given
them when their bond. And when Fonacier and his sureties
failed to pay as demanded by Gaite, the latter filed the present
complaint against them in the Court of First Instance of Manila
for the payment of the P65,000.00 balance of the price of the
ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the
uniform defense that the obligation sued upon by Gaite was
subject to a condition that the amount of P65,000.00 would be
payable out of the first letter of credit covering the first
shipment of iron ore and/or the first amount derived from the
local sale of the iron ore by the Larap Mines & Smelting Co.,
Inc.; that up to the time of the filing of the complaint, no sale
16
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
of the iron ore had been made, hence the condition had not
yet been fulfilled; and that consequently, the obligation was
not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of
iron ore sold to him by Gaite was actually delivered, and
counterclaimed for more than P200,000.00 damages.
ISSUE: Whether or not the obligation of Fonacier to pay Gaite
the P65,000.00 (balance of the price of the iron ore in
question)is one with a period or term and not one with a
suspensive condition, and that the term expired on December
8, 1955
RULING
The shipment or local sale of the iron ore is not a
condition precedent (or suspensive) to the payment of the
balance of P65,000.00, but was only a suspensive period or
term.
The words of the contract express no contingency in
the buyer's obligation to pay: "The balance of Sixty-Five
Thousand Pesos (P65,000.00) will be paid out of the first letter
of credit covering the first shipment of iron ores . . ." etc. There
is no uncertainty that the payment will have to be made sooner
or later; what is undetermined is merely the exact date at
which it will be made. By the very terms of the contract,
therefore, the existence of the obligation to pay is recognized;
only its maturity or demandability is deferred.
A contract of sale is normally commutative and
onerous: not only does each one of the parties assume a
correlative obligation (the seller to deliver and transfer
ownership of the thing sold and the buyer to pay the price),but
each party anticipates performance by the other from the very
start. While in a sale the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other
understands that he assumes the risk of receiving nothing for
what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of
business to do so; hence, the contingent character of the
obligation must clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of
losing his right over the ore without getting paid for it, or that
Fonacier understood that Gaite assumed any such risk. This is
proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by
Fonacier, the Larap Mines & Smelting Co., and the company's
stockholders, but also on one by a surety company; and the
fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the
balance of P65,000.00.
Assuming that there could be doubt whether by the
wording of the contract the parties indented a suspensive
condition or a suspensive period (dies ad quem) for the
payment of the P65,000.00, the rules of interpretation would
incline the scales in favor of "the greater reciprocity of
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interests", since sale is essentially onerous. The Civil Code of
the Philippines, Article 1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in
favor of the greatest reciprocity of interests.
and there can be no question that greater reciprocity obtains if
the buyer' obligation is deemed to be actually existing, with
only its maturity (due date) postponed or deferred, that if such
obligation were viewed as non-existent or not binding until the
ore was sold.
The only rational view that can be taken is that the
sale of the ore to Fonacier was a sale on credit, and not an
aleatory contract where the transferor, Gaite, would assume
the risk of not being paid at all; and that the previous sale or
shipment of the ore was not a suspensive condition for the
payment of the balance of the agreed price, but was intended
merely to fix the future date of the payment.
5) COMMUTATIVE
Sale is a COMMUTATIVE contract, as distinguished from
an aleatory contract, because a thing of value is exchange for
equal value, i.e., ideally the value of the subject matter is
equivalent to the price paid. Nevertheless, there is no
requirement that the price to be equal to the exact value of the
subject matter; all that is required is for the seller to believe that
what was received was of the commutative value of what he
gave. (Buenaventura vs. Court of Appeals)
Commutative vs. Aleatory
Commutative a thing of value is exchanged for equal
value as a consequence of equal bargaining. It involves
a relative value between what is given and what is
received.
Aleatory chance determines the value received.
The Subjective Test of the Commutative Nature of Sale
Whether or not the party believes in all honesty that he
is receiving good value for what he transferred.
the inadequacy of price does not affect ordinary sale
inadequacy of price may be a ground for setting aside
an execution sale but is not a sufficient ground for the
cancellation of a voluntary contract of sale otherwise
free from invalidating effects
inadequacy of price may show vice in consent, in which
case the sale may be annulled, but such annulment is
not for adequacy of price, but rather for vitiation in
consent
Buenaventura vs. CA
(November 20, 2003)
DOCTRINE
There is no requirement that the price be equal to the
exact value of the subject matter of sale; all that sellers
17
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
believed was that they received the commutative value of what
they gave.
FACTS
Defendant spouses Leonardo Joaquin and Feliciana
Landrito are the parents of plaintiffs Consolacion, Nora, Emma
and Natividad as well as of defendants Fidel, Tomas, Artemio,
Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN.
Sought to be declared null and void ab initio are
certain deeds of sale of real property executed by defendant
parents Leonardo Joaquin and Feliciana Landrito in favor of
their co-defendant children and the corresponding certificates
of title issued in their names
In seeking the declaration of nullity of the aforesaid
deeds of sale and certificates of title, plaintiffs, in their
complaint, aver that the deeds of sale are simulated as they
are, are NULL AND VOIDAB INITIO because
a) Firstly, there was no actual valid consideration for
the deeds of sale xxx over the properties in litis;
b) Secondly, assuming that there was consideration in
the sums reflected in the questioned deeds, the
properties are more than three-fold times more
valuable than the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express
the true intent of the parties (vendors and vendees);
and
d) Fourthly, the purported sale of the properties in
litis was the result of a deliberate conspiracy designed
to unjustly deprive the rest of the compulsory heirs
(plaintiffs herein) of their legitime.
Defendants, on the other hand aver
that plaintiffs do not have a cause of action against
them as well as the requisite standing and interest to
assail their titles over the properties in litis;
that the sales were with sufficient considerations and
made by defendants parents voluntarily, in good faith,
and with full knowledge of the consequences of their
deeds of sale; and
that the certificates of title were issued with sufficient
factual and legal basis
ISSUES
1. Whether the Deeds of Sale are void for lack of
consideration
2. Whether the Deeds of Sale are void for gross
inadequacy of price
RULING
1. Whether the Deeds of Sale are void for lack of consideration
Petitioners assert that their respondent siblings did
not actually pay the prices stated in the Deeds of Sale to their
respondent father. Thus, petitioners ask the court to declare
the Deeds of Sale void.
A contract of sale is not a real contract, but a
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consensual contract. As a consensual contract, a contract of
sale becomes a binding and valid contract upon the meeting of
the minds as to price. If there is a meeting of the minds of the
parties as to the price, the contract of sale is valid, despite the
manner of payment, or even the breach of that manner of
payment. If the real price is not stated in the contract, then the
contract of sale is valid but subject to reformation. If there is no
meeting of the minds of the parties as to the price, because the
price stipulated in the contract is simulated, then the contract
is void. Article 1471 of the Civil Code states that if the price in a
contract of sale is simulated, the sale is void.
It is not the act of payment of price that determines
the validity of a contract of sale. Payment of the price has
nothing to do with the perfection of the contract. Payment of
the price goes into the performance of the contract. Failure to
pay the consideration is different from lack of consideration.
The former results in a right to demand the fulfillment or
cancellation of the obligation under an existing valid contract
while the latter prevents the existence of a valid contract.
Petitioners failed to show that the prices in the Deeds
of Sale were absolutely simulated. To prove simulation,
petitioners presented Emma Joaquin Valdozs testimony stating
that their father, respondent Leonardo Joaquin, told her that
he would transfer a lot to her through a deed of sale without
need for her payment of the purchase price. The trial court did
not find the allegation of absolute simulation of price credible.
Petitioners failure to prove absolute simulation of price is
magnified by their lack of knowledge of their respondent
siblings financial capacity to buy the questioned lots. On the
other hand, the Deeds of Sale which petitioners presented as
evidence plainly showed the cost of each lot sold. Not only did
respondents minds meet as to the purchase price, but the real
price was also stated in the Deeds of Sale. As of the filing of the
complaint, respondent siblings have also fully paid the price to
their respondent father.
2. Whether the Deeds of Sale are void for gross inadequacy of
price
Petitioners ask that assuming that there is
consideration, the same is grossly inadequate as to invalidate
the Deeds of Sale.
Articles 1355 of the Civil Code states:
Art. 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. (Emphasis supplied)
Article 1470 of the Civil Code further provides:
Art. 1470. Gross inadequacy of price does not
affect a contract of sale, except as may indicate a
defect in the consent, or that the parties really
intended a donation or some other act or contract.
(Emphasis supplied)
Petitioners failed to prove any of the instances
mentioned in Articles 1355 and 1470 of the Civil Code which
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
would invalidate, or even affect, the Deeds of Sale. Indeed,
there is no requirement that the price be equal to the exact
value of the subject matter of sale. All the respondents
believed that they received the commutative value of what
they gave.
In the instant case, the trial court found that the lots
were sold for a valid consideration, and that the defendant
children actually paid the purchase price stipulated in their
respective Deeds of Sale.
6) SALE IS A TITLE AND NOT A MODE
Sale is merely a TITLE that creates the obligation on the
part of the seller to transfer ownership and deliver possession,
but on its own, sale is not a mode that transfers ownership.
(Equatorial Realty vs. Mayfair Theater)
Mode Title
Mode is the legal means by Title only constitutes the legal
which dominion or ownership basis by which to affect
is created, transferred or dominion or ownership.
destroyed
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.
San Lorenzo Dev't Corp vs. CA
(January 21, 2005)
FACTS
It appears that respondent Spouses Lu owned two (2)
parcels of land situated in Sta. Rosa, Laguna covered by TCT No.
T-39022 and TCT No. T-39023 both measuring 15,808 square
meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold
the two parcels of land to respondent Pablo Babasanta, for the
price of P15.00 per square meter. Babasanta made a
downpayment of P50,000.00 as evidenced by a memorandum
receipt issued by Pacita Lu of the same date. Several other
payments totaling P200,000.00 were made by Babasanta.
On 2 June 1989, respondent Babasanta, as plaintiff,
filed before the Regional Trial Court (RTC), Branch 31, of San
Pedro, Laguna, a Complaint for Specific Performance and
Damages against his co-respondents herein, the Spouses Lu.
Babasanta alleged that the lands covered by TCT No. T- 39022
and T-39023 had been sold to him by the spouses at fifteen
pesos (P15.00) per square meter. Despite his repeated
demands for the execution of a final deed of sale in his favor,
respondents allegedly refused.
In their Answer, the Spouses Lu alleged that Pacita Lu
obtained loans from Babasanta and when the total advances of
Pacita reached fifty thousand pesos (P50,000.00), the latter and
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Babasanta, without the knowledge and consent of Miguel Lu,
had verbally agreed to transform the transaction into a contract
to sell the two parcels of land to Babasanta with the fifty
thousand pesos (P50,000.00) to be considered as the
downpayment for the property and the balance to be paid on
or before 31 December 1987. Respondents Lu added that as of
November 1987, total payments made by Babasanta amounted
to only two hundred thousand pesos (P200,000.00) and the
latter allegedly failed to pay the balance of two hundred sixty
thousand pesos (P260,000.00) despite repeated demands.
Babasanta had purportedly asked Pacita for a reduction of the
price from fifteen pesos (P15.00) to twelve pesos (P12.00) per
square meter and when the Spouses Lu refused to grant
Babasantas request, the latter rescinded the contract to sell
and declared that the original loan transaction just be carried
out in that the spouses would be indebted to him in the
amount of two hundred thousand pesos (P200,000.00).
Accordingly, on 6 July 1989, they purchased Interbank
Managers Check No. 05020269 in the amount of two hundred
thousand pesos (P200,000.00) in the name of Babasanta to
show that she was able and willing to pay the balance of her
loan obligation.
On 19 January 1990, herein petitioner San Lorenzo
Development Corporation (SLDC) filed a Motion for
Intervention before the trial court. SLDC alleged that it had
legal interest in the subject matter under litigation because on
3 May 1989, the two parcels of land involved, namely Lot 1764-
A and 1764-B, had been sold to it in a Deed of Absolute Sale
with Mortgage. It alleged that it was a buyer in good faith and
for value and therefore it had a better right over the property
in litigation.
ISSUE: Who between SLDC and Babasanta has a better right
over the two parcels of land in view of the successive
transactions executed by the Spouses Lu.
RULING
An analysis of the facts obtaining in this case, as well
as the evidence presented by the parties, irresistibly leads to
the conclusion that the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a contract of sale.
The receipt signed by Pacita Lu merely states that she
accepted the sum of fifty thousand pesos (P50,000.00) from
Babasanta as partial payment of 3.6 hectares of farm lot
situated in Sta. Rosa, Laguna. While there is no stipulation that
the seller reserves the ownership of the property until full
payment of the price which is a distinguishing feature of a
contract to sell, the subsequent acts of the parties convince us
that the Spouses Lu never intended to transfer ownership to
Babasanta except upon full payment of the purchase price.
The perfected contract to sell imposed upon
Babasanta the obligation to pay the balance of the purchase
price. There being an obligation to pay the price, Babasanta
should have made the proper tender of payment and
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
consignation of the price in court as required by law. Mere
sending of a letter by the vendee expressing the intention to
pay without the accompanying payment is not considered a
valid tender of payment. Consignation of the amounts due in
court is essential in order to extinguish Babasantas obligation
to pay the balance of the purchase price. Glaringly absent from
the records is any indication that Babasanta even attempted to
make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never
acquired obligatory force.
On the assumption that the transaction between the
parties is a contract of sale and not a contract to sell,
Babasantas claim of ownership should nevertheless fail.
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, 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.
Following the above disquisition, respondent
Babasanta did not acquire ownership by the mere execution of
the receipt by Pacita Lu acknowledging receipt of partial
payment for the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid, was not embodied
in a public instrument. Hence, no constructive delivery of the
lands could have been effected. For another, Babasanta had not
taken possession of the property at any time after the
perfection of the sale in his favor or exercised acts of dominion
over it despite his assertions that he was the rightful owner of
the lands. Simply stated, there was no delivery to Babasanta,
whether actual or constructive, which is essential to transfer
ownership of the property. Thus, even on the assumption that
the perfected contract between the parties was a sale,
ownership could not have passed to Babasanta in the absence
of delivery, since in a contract of sale ownership is transferred
to the vendee only upon the delivery of the thing sold.
Norkis Distributors, Inc. vs. CA
(February 7, 1991)
FACTS
Petitioner Norkis Distributors, Inc. is the distributor of
Yamaha motorcycles in Negros Occidental with office in
Bacolod City with Avelino Labajo as its Branch Manager.
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On September 20, 1979, private respondent Alberto
Nepales bought from the Norkis-Bacolod branch a brand new
Yamaha Wonderbike motorcycle then displayed in the Norkis
showroom. The price of P7,500.00 was payable by means of a
Letter of Guaranty from the Development Bank of the
Philippines (DBP), Kabankalan Branch, which Norkis' Branch
Manager Labajo agreed to accept. Hence, credit was extended
to Nepales for the price of the motorcycle payable by DBP upon
release of his motorcycle loan. As security for the loan, Nepales
would execute a chattel mortgage on the motorcycle in favor of
DBP. Branch Manager Labajo issued Norkis Sales Invoice No.
0120 showing that the contract of sale of the motorcycle had
been perfected. Nepales signed the sales invoice to signify his
conformity with the terms of the sale. In the meantime,
however, the motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered
in the Land Transportation Commission in the name of Alberto
Nepales.
On January 22, 1980, the motorcycle was delivered to
a certain Julian Nepales who was allegedly the agent of Alberto
Nepales but the latter denies it. The record shows that Alberto
and Julian Nepales presented the unit to DBP's Appraiser-
Investigator Ernesto Arriesta at the DBP offices in Kabankalan,
Negros Occidental Branch. The motorcycle met an accident on
February 3, 1980 at Binalbagan, Negros Occidental. An
investigation conducted by the DBP revealed that the unit was
being driven by a certain Zacarias Payba at the time of the
accident. The unit was a total wreck, was returned, and stored
inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of
private respondent's motorcycle loan to Norkis in the total sum
of P7,500. As the price of the motorcycle later increased to
P7,828 in March, 1980, Nepales paid the difference of P328 and
demanded the delivery of the motorcycle. When Norkis could
not deliver, he filed an action for specific performance with
damages against Norkis in the RTC. He alleged that Norkis failed
to deliver the motorcycle which he purchased, thereby causing
him damages.
Norkis answered that the motorcycle had already been
delivered to private respondent before the accident, hence, the
risk of loss or damage had to be borne by him as owner of the
unit.
ISSUES
Whether or not there had already been a transfer of
ownership of the motorcycle to private respondent at
the time it was destroyed.
Who should bear the loss of the motorcycle
RULING
The issuance of a sales invoice does not prove transfer
of ownership of the thing sold to the buyer. An invoice is
nothing more than a detailed statement of the nature, quantity
and cost of the thing sold and has been considered not a bill of
20
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

sale. Article 1496 of the Civil Code which provides that "in
In all forms of delivery, it is necessary that the act of the absence of an express assumption of risk by the buyer, the
delivery whether constructive or actual, be coupled with the things sold remain at seller's risk until the ownership thereof is
intention of delivering the thing. The act, without the intention, transferred to the buyer," is applicable to this case, for there
is insufficient. was neither an actual nor constructive delivery of the thing
When the motorcycle was registered by Norkis in the sold, hence, the risk of loss should be borne by the seller,
name of private respondent, Norkis did not intend yet to Norkis, which was still the owner and possessor of the
transfer the title or ownership to Nepales, but only to facilitate motorcycle when it was wrecked. This is in accordance with the
the execution of a chattel mortgage in favor of the DBP for the well-known doctrine of res perit domino.
release of the buyer's motorcycle loan. The Letter of Guarantee
issued by the DBP, reveals that the execution in its favor of a Personal Right vs. Real Right
chattel mortgage over the purchased vehicle is a pre-requisite Personal Right enforceable against a specific person
for the approval of the buyer's loan. If Norkis would not accede Real Right enforceable against the whole world
to that arrangement, DBP would not approve private
respondent's loan application and, consequently, there would
Aznar vs. Yapdiangco
be no sale.
(March 31, 1965)
In other words, the critical factor in the different
FACTS
modes of effecting delivery, which gives legal effect to the act,
Sometime in May, 1959, Teodoro Santos advertised in
is the actual intention of the vendor to deliver, and its
two metropolitan papers the sale of his FORD FAIRLANE 500. In
acceptance by the vendee. Without that intention, there is no
the afternoon of May 28, 1959, a certain L. De Dios, claiming to
tradition (Abuan vs. Garcia, 14 SCRA 759).
be a nephew of Vicente Marella, went to the Santos residence
In the case of Addison vs. Felix and Tioco (38 Phil. 404,
to answer the ad. However, Teodoro Santos was out during this
408), this Court held:
call and only the latter's son, Irineo Santos, received and talked
The thing is considered to be delivered when it is
with De Dios. The latter told the young Santos that he had
"placed in the hands and possession of the vendee."
come in behalf of his uncle, Vicente Marella, who was
(Civil Code, Art. 1462). The thing sold must be placed
interested to buy the advertised car.
in his control. When there is no impediment whatever
On being informed of the above, Teodoro Santos
to prevent the thing sold passing into the tenancy of
instructed his son to see the said Vicente Marella the following
the purchaser by the sole will of the vendor, symbolic
day at his given address: 1642 Crisostomo Street, Sampaloc,
delivery through the execution of a public instrument
Manila. And so, in the morning of May 29, 1959, Irineo Santos
is sufficient. But if notwithstanding the execution of
went to the above address. At this meeting, Marella agreed to
the instrument, the purchaser cannot have the
buy the car for P14,700.00 on the understanding that the price
enjoyment and material tenancy of the thing and
would be paid only after the car had been registered in his
make use of it himself or through another in his name,
name.
because such tenancy and enjoyment are opposed by
Irineo Santos then fetched his father who, together
the interposition of another will, then fiction yields to
with L. De Dios, went to the office of a certain Atty. Jose
reality-the delivery has riot been effects .(Emphasis
Padolina where the deed of the sale for the car was executed in
supplied.)
Marella's favor. The parties to the contract thereafter
The Court of Appeals correctly ruled that the purpose
proceeded to the Motor Vehicles Office in Quezon City where
of the execution of the sales invoice dated September 20, 1979
the registration of the car in Marella's name was effected. Up
and the registration of the vehicle in the name of plaintiff-
to this stage of the transaction, the purchased price had not
appellee (private respondent) with the Land Registration
been paid.
Commission was not to transfer to Nepales the ownership and
From the Motor Vehicles Office, Teodoro Santos
dominion over the motorcycle, but only to comply with the
returned to his house. He gave the registration papers and a
requirements of the Development Bank of the Philippines for
copy of the deed of sale to his son, Irineo, and instructed him
processing private respondent's motorcycle loan.
not to part with them until Marella shall have given the full
Norkis' claim that Julian Nepales was acting as
payment for the car. Irineo Santos and L. De Dios then
Alberto's agent when he allegedly took delivery of the
proceeded to 1642 Crisostomo Street, Sampaloc, Manila where
motorcycle, is controverted by the latter. Alberto denied having
the former demanded the payment from Vicente Marella.
authorized Julian Nepales to get the motorcycle from Norkis
Marella said that the amount he had on hand then was short
Distributors or to enter into any transaction with Norkis relative
by some P2,000.00 and begged off to be allowed to secure the
to said motorcycle. This circumstances more than amply rebut
shortage from a sister supposedly living somewhere on
the disputable presumption of delivery upon which Norkis
Azcarraga Street, also in Manila. Thereafter, he ordered L. De
anchors its defense to Nepales' action.

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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Dios to go to the said sister and suggested that Irineo Santos go
with him. At the same time, he requested the registration
papers and the deed of sale from Irineo Santos on the pretext
that he would like to show them to his lawyer. Trusting the
good faith of Marella, Irineo handed over the same to the latter
and thereupon, in the company of L. De Dios and another
unidentified person, proceeded to the alleged house of
Marella's sister.
At a place on Azcarraga, Irineo Santos and L. De Dios
alighted from the car and entered a house while their
unidentified companion remained in the car. Once inside, L. De
Dios asked Irineo Santos to wait at the sala while he went
inside a room. That was the last that Irineo saw of him. For,
after a considerable length of time waiting in vain for De Dios
to return, Irineo went down to discover that neither the car nor
their unidentified companion was there anymore. Going back
to the house, he inquired from a woman he saw for L. De Dios
and he was told that no such name lived or was even known
therein. Whereupon, Irineo Santos rushed to 1642 Crisostomo
to see Marella. He found the house closed and Marella gone.
Finally, he reported the matter to his father who promptly
advised the police authorities.
That very same day, or on the afternoon of May 29,
1959 Vicente Marella was able to sell the car in question to the
plaintiff-appellant herein, Jose B. Aznar, for P15,000.00.
While the car in question was thus in the possession of
Jose B. Aznar and while he was attending to its registration in
his name, agents of the Philippine Constabulary seized and
confiscated the same in consequence of the report to them by
Teodoro Santos that the said car was unlawfully taken from
him.
In due time, Jose B. Aznar filed a complaint for
replevin against Captain Rafael Yapdiangco, the head of the
Philippine Constabulary unit which seized the car in question
Claiming ownership of the vehicle, he prayed for its delivery to
him. In the course of the litigation, however, Teodoro Santos
moved and was allowed to intervene by the lower court.
The plaintiff-appellant accepts that the car in question
originally belonged to and was owned by the intervenor-
appellee, Teodoro Santos, and that the latter was unlawfully
deprived of the same by Vicente Marella. However, the
appellant contends that upon the facts of this case, the
applicable provision of the Civil Code is Article 1506 and not
Article 559 as was held by the decision under review. Article
1506 provides:
ART. 1506. Where the seller of goods has a voidable
title thereto, but his, title has not been voided at the
time of the sale, the buyer acquires a good title to the
goods, provided he buys them in good faith, for value,
and without notice of the seller's defect of title.
ISSUE: Between Teodoro Santos and the plaintiff-appellant,
Jose B. Aznar, who has a better right to the possession of the
disputed automobile?
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RULING
Teodoro Santos.
Under Art. 1506, it is essential that the seller should
have a voidable title at least. It is very clearly inapplicable
where, as in this case, the seller had no title at all.
Vicente Marella did not have any title to the property
under litigation because the same was never delivered to him.
He sought ownership or acquisition of it by virtue of the
contract. Vicente Marella could have acquired ownership or
title to the subject matter thereof only by the delivery or
tradition of the car to him.
Under Article 712 of the Civil Code, "ownership 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." As interpreted
by this Court in a host of cases, by this provision, ownership is
not transferred by contract merely but by tradition or delivery.
Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the
mode of accomplishing the same.
In the case on hand, the car in question was never
delivered to the vendee by the vendor as to complete or
consummate the transfer of ownership by virtue of the
contract. It should be recalled that while there was indeed a
contract of sale between Vicente Marella and Teodoro Santos,
the former, as vendee, took possession of the subject matter
thereof by stealing the same while it was in the custody of the
latter's son.
There is no adequate evidence on record as to
whether Irineo Santos voluntarily delivered the key to the car
to the unidentified person who went with him and L. De Dios to
the place on Azcarraga where a sister of Marella allegedly lived.
But even if Irineo Santos did, it was not the delivery
contemplated by Article 712 of the Civil Code. For then, it
would be indisputable that he turned it over to the unidentified
companion only so that he may drive Irineo Santos and De Dios
to the said place on Azcarraga and not to vest the title to the
said vehicle to him as agent of Vicente Marella. Article 712
above contemplates that the act be coupled with the intent of
delivering the thing. (10 Manresa 132)
The lower court was correct in applying Article 559 of
the Civil Code to the case at bar, for under it, the rule is to the
effect that if the owner has lost a thing, or if he has been
unlawfully deprived of it, he has a right to recover it, not only
from the finder, thief or robber, but also from third persons
who may have acquired it in good faith from such finder, thief
or robber. The said article establishes two exceptions to the
general rule of irrevindicability, to wit, when the owner
(1) has lost the thing, or
(2) has been unlawfully deprived thereof. In these cases,
the possessor cannot retain the thing as against the
owner, who may recover it without paying any
indemnity, except when the possessor acquired it in a
22
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
public sale.
Article 712. Ownership is acquired by occupation and by
intellectual creation.
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.
They may also be acquired by means of prescription.
By Tradition
Tradition means delivery.
Sale does not transfer ownership.
It is tradition or delivery which, as a consequence of
sale, actually transfers ownership.
Actual Delivery consists in placing the thing sold in the
control and possession of the vendee.
Legal or Constructive Delivery may be had through
any of the following ways:
the execution of a public instrument evidencing the
sale;
symbolical tradition such as the delivery of the keys
of the place where the movable sold is being kept;
traditio longa manu or by mere consent or
agreement if the movable sold cannot yet be
transferred to the possession of the buyer at the
time of the sale;
traditio brevi manu if the buyer already had
possession of the object even before the sale;
and traditio constitutum possessorium, where the
seller remains in possession of the property in a
different capacity.
Equatorial Realty vs. Mayfair Theater, Inc.
(November 21, 1996)
FACTS
Petitioners are Carmelo & Bauermann, Inc.
(owner/seller/lessor). Equiatorial Realty Development is the
buyer. Mayfair Theather is the lessee.
Carmelo owned a parcel of land with a 2-sotrey
building. In 1967, 2 portions of the property were leased to
Mayfair for a period of 20 years.
In 1978, Carmelo sold the entire property to Equatorial
for P11,300.
Mayfair petitioned for annulment of the sale on the
ground that it was violative of Paragraph 8 of the Contract of
Lease between it and Carmelo:
That if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given a 30-day
exclusive option to purchase the same.
When the Trial Court interpreted Paragraph 8 as an
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option contract, Mayfair appealed to the CA which interpreted
said paragraph as a right of first refusal and not an option
contract.
ISSUES:
1) Whether or not possession was acquired by
Equatorial.
2) Whether Equatorial is entitled to back rentals.
RULING
The SC ruled in favor of Mayfair ordering rescission of
the deed of sale and granting him the right of first refusal to
buy the property at P11,300.
1) No. There was no right of ownership transferred from
Carmelo to Equatorial in view of a patent failure to deliver the
property to the buyer.
By a contract of sale, one of the contracting parties
obligates himself to transfer ownership of and to deliver a
determinate thing and the ther to pay therefor a price certain
in money or its equivalent.
Ownership of the thing sold is a real right which the
buyer acquires only upon delivery of the thing to him in any of
the ways specified in Articles 1497 to 1501, or in any other
manner signifying an agreement that the possession is
transferred from the vendor to the vendee. This right is
transferred, not by contract alone, but by trandition or delivery.
And there is said to be delivery if and when the thing sold is
placed in the control and possession of the vendee. Thus, it
has been held that while the execution of a public instrument
of sale is recognized by law as equivalent to the delivery of the
thing sold, such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to
take actual possession of the land sold.
Delivery has been described as a composite act, a
thing in which both parties must join and the minds of both
parties concur. It is an act by which one party parts with the
title to and the ossession of the property, and the other
acquirees the right to and the possession of the same. In its
natural sense, delivery means something in addition to the
delivery of property or title; it means transfer or possesson.
From the peculiar facts of this case, it is clear that
petitioner never took actual control and possession of the
property sold, in view of the respondent's timely objection to
the sale and the continued actual possession of the property.
The objection took form of a court action impugning the sale
which, as we know, was rescinded by a judgment rendered by
this Court in the mother case. It has been held that the
execution of a contact of sale as a form of constructive delivery
is a legal fiction, it holds true only when there is no impediment
that may prevent the passing of the property from the hands of
the vendor into those of the vendee. When there is such
impediment, fiction yield to reality the delivery has not been
effected.
23
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Hence, respondent's opposition to the transfer of the
property by way of sale to Equatorial was a legally sufficient
impediment that effectivly prevented the passing of the
property into the hands of the latter.
2) No. Furthermore, assuming for the sake of the argument
that there was a valid delivery, petitioner is not entitled to any
benfits from the rescinded Deed of Absolute Sale because of its
bad faith. This being the law of the mother case decided in
1996, it may no longer be changed because it has long become
final and executory.
III) DISTINGUISHED FROM OTHER
TRANSACTIONS/CONTRACTS
The title given to a sale by the parties is not as much
significant as its substance.
Courts look at the intent of the parties and the
elements of the contractual relationship and not at the
nomenclature used to describe it.
Pivotal to deciding this issue is the true aim and
purpose of the contracting parties as shown by the
terminology used in the covenant, as well as by their
conduct, words, actions and deeds prior to, during and
immediately after executing the agreement.
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.
1) DISTINGUISHED FROM BARTER
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.
Sale
Article 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the ownership
and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
Rule
Article 1468. If the consideration of the contract
consists partly in money, and partly in another thing, the
transaction shall be characterized by the manifest intention of
the parties. If such intention does not clearly appear, it shall be
considered a barter if the value of the thing given as a part of the
consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale.
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Rules to Determine Whether a Contract is a Sale or a Barter
(Art. 1468)
(a) Manifest intention of the parties
even if the acquisition of a thing is paid for by another
object of greater value than the money component, it
may still be a sale and not a barter, when such was the
intention of the parties.
(b) when intention does not appear and consideration consists
partly in money and partly in another thing
it is a BARTER where the value of the THING given as
part of the consideration exceeds the amount of money
given or its equivalent.
It is a SALE, where the value of the THING given as part
of the consideration equals OR is less than the amount
of money given.
Example to Demonstrate the Rule:
Contract Total Thing (T) Money (M)
BARTER (T>M) P 60,000 = worth P 50,000 + P 10,000
SALE (T<M) P 60,000 = worth P 10,000 + P 50,000
SALE (T=M) P 60,000 = worth P 30,000 + P 30,000
2 Rules Specifically Provided for Barter Contracts
(a) If one of the contracting parties, having received the thing
promised 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 (Art. 1639); and
(b) 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 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, but without prejudice to the rights acquired in
good faith by a third person (Art. 1640).
Note: 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. (Article 1641)
Instances when the Difference between Barter and Sale is
Critical
(a) The rules on the Statue of Frauds (Article 1403), which apply
to the sale of a real property, and personal property bought at
P500 or more, do not apply to barter.
(b) The right of legal redemption granted by law to an adjoining
owner of an urban land (Art. 1622), covers only resale and
does not cover exchanges of properties.
2) DISTINGUISHED FROM DONATION
Donation
Art. 725. DONATION is an act of liberality whereby a
24
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

person disposes gratuitously of a thing or right in favor of Sale Contract for Piece of Work
another person, who accepts it.
Thing transferred is one which Thing transferred is NOT in
would have existed and would existence and would never
Sale Donation
have been the subject of sale have existed but for the order
An onerous contract. A gratuitous contract. to some other person, even if of the party desiring to acquire
(Consideratiion is the (Consideration is the liberality the order had not been given. it.
purchase price) of the owner)
Subject matter is object. Subject matter is service,
A consensual contract A solemn contract which must knowledge or reputation of
(Perfected by mere consent.) comply with the formalities the person who executes or
mandated by law for its validity manufactures the object.
although consent is also
Essence is the object, Essence is the sale of service
required.
irrespective of the party giving or labor.
Takes effect either inter vivos Takes effect only inter vivos or executing it.
(during the lifetime of the (during the lifetime of the
Involves a real obligation. (to Involves a personal obligation.
donor) or mortis causa (after owner/seller)
give) (to do)
death of the donor)
Governed by the Statute of Not covered by the Statute of
Notes: Frauds. Frauds.
When the price of a sale is simulated, the sale itself
may be void, but the act may be shown to have been Staturoy Rules in Determining a Contract for a Piece of Work:
in reality a donation or some other act or contract. (Art. 1) TEST OF SPECIAL ORDERS
1471) If the goods are to be manufactured specifically for the
Even when the donor imposes upon the donee a customer and upon his special order, and not for the
burden, but which is less than the value of the thing general market, it is a contract for a piece of work. (Art.
given, there is still a donation. (Art. 726) 1467)
2 Tests for Distinction:
a) Manufacturing in the ordinary course of business to
3) DISTINGUISHED FROM A CONTRACT FOR A PIECE OF WORK cover SALES contracts; and
b) Manufacturing upon special order of customers, to
Contract for a Piece of Work cover CONTRACTS FOR PIECE OF WORK.
Art. 1713. By the CONTRACT FOR A PIECE-OF-WORK, If the manufacture of goods is made always upon or
the contractor binds himself to execute a piece of work for the after the orders of customers and on the basis of their
employer, in consideration of a certain price or compensation. specifications, the underlying relationship would be
The contractor may either employ only his labor or skill, or also that of a contract for a piece of work. (Celestino Co. vs.
furnish the material. CIR)

Contract of Sale or Contract for a Piece of Work 2) TEST OF EXISTENCE

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.
Tests for Distinguishing Sale from Contract for a Piece-of-Work
(Art. 1467)
(a) Manufacturing in the ordinary course of business to cover
sales contracts; and
(b) Manufacturing upon special order of customers, to cover
contracts for piece-of-work.
The distinction between a sale a contract for work,
labor, and materials is tested by the inquiry of whether
the thing transferred is one not 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. (Inchausti
vs. Cromwell)
CIR vs. Arnoldus Carpentry Shop, Inc.
3) TIMING or HABITUALITY TEST
When the manufacturer engages in the same activity in
the ordinary course of business, and does not need to
employ extraordinary skills and equipment, that would
classify the underlying transaction as a SALE. (Celestino

2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito 25
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Co. vs. CIR)
4) NATURE OF THE OBJECT or the TEST OF NECESSITY
Engineering Machinery Corp. vs. CA
The large quantity of the products to be delivered do
not indicate that the underlying contract is one of sale.
(Dino vs. CA)
5) CONSENSUALITY TEST / TEST OF INTENTION
To Tolentino, the distinction between the 2 contracts
depends on the intention of the parties. Thus, if the
parties intended that at some future date an object has
to be delivered, without considering the work or labor
of the party bound to deliver, the contract is one of
sale. But if one of the parties accepts the undertaking
on the basis of some plan, taking into account the work
he will employ personally or through another, there is a
contract for a piece of work. (Engineering Machinery
Corp. vs. CA)
Inchausti vs. Cromwell
(October 16, 1911)
DOCTRINE
The distinction between a sale and a contract for
work, labor, and materials is tested by the inquiry of whether
the thing transferred is one not 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 a sale to some other person, even if the order had
not been given.
The hemp was in existence in baled form before the
agreements of sale were made, or, at least, would have been in
existence if none of the individual sales in question had been
consummated; and that it would have been baled,
nevertheless, for sale to someone else, since it was proven
customary to sell hemp in bales.
FACTS
That the plaintiff firm for many years past has been
and now is engaged in the business of buying and
selling at wholesale hemp, both for its own account
and on commission.
That it is customary to sell hemp in bales which are
made by compressing the loose fiber by means of
presses, covering two sides of the bale with matting,
and fastening it by means of strips of rattan; that the
operation of bailing hemp is designated among
merchants by the word "prensaje."
That in all sales of hemp by the plaintiff firm, whether
for its own account or on commission for others, 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 agreed,
that the hemp will be delivered in bales and that,
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
according to the custom prevailing among hemp
merchants and dealers in the Philippine Islands, a
charge, the amount of which depends upon the then
prevailing rate, is to be made against the buyer under
the denomination of "prensaje." That this charge is
made in the same manner in all cases, even when the
operation of bailing was performed by the plaintiff or
by its principal long before the contract of sale was
made. Two specimens of the ordinary form of account
used in these operations are hereunto appended,
marked Exhibits A and B, respectively, and made a
part hereof.
That the plaintiff has always paid to the defendant or
to his predecessor in the office of the Collector of
Internal Revenue the tax collectible under the
provisions of section 139 of Act No. 1189 upon the
selling price expressly agreed upon for all hemp sold
by the plaintiff firm both for its own account and on
commission, but has not, until compelled to do so as
hereinafter stated, paid the said tax upon sums
received from the purchaser of such hemp under the
denomination of "prensaje."
That on the 4th day of May, 1910, the plaintiff firm
paid to the defendant under protest the said sum of
P1,370.69, and on the same date appealed to the
defendant as Collector of Internal Revenue, against
the ruling by which the plaintiff firm was required to
make said payment, but defendant overruled said
protest and adversely decided said appeal, and
refused and still refuses to return to plaintiff the said
sum of P1,370.68 or any part thereof.1awphil.net
Upon the facts above set forth, it is contended by the
plaintiff that the tax of P1,370.68 assessed by the
defendant upon the aggregate sum of said charges
made against said purchasers of hemp by the plaintiff
during the period in question, under the
denomination of "prensaje" as aforesaid, namely,
P411,204.35, 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, and that the plaintiff firm is
therefore entitled to recover of the defendant the said
sum of P1,370.68 paid to him under protest, together
with all interest thereon at the legal rate since
payment, and the costs of this action.
Upon the facts above stated 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, and that therefore the tax
imposed by section 139 of Act No. 1189 lawfully
accrued on said sums, that the collection thereof was
lawfully and properly made and that therefore the
plaintiff is not entitled to recover back said sum or any
26
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
part thereof; and that the defendant should have
judgment against plaintiff for his costs.
ISSUE: Whether or not the baled hemp constitutes a contract
of sale or a contra t for a piece of work.
RULING
Contract of Sale.
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. It
would have been baled, nevertheless, for sale to someone else,
since, according to the agreed statement of facts, it is
customary to sell hemp in bales.
It is clear to our minds that in the case at bar the baling was
performed for the general market and was not something done
by plaintiff which was a result of any peculiar wording of the
particular contract between him and his vendee. It is
undoubted that the plaintiff prepared his hemp for the general
market. This would be necessary. One whose exposes goods for
sale in the market must have them in marketable form. The
hemp in question would not have been in that condition if it
had not been baled. the baling, therefore, was nothing peculiar
to the contract between the plaintiff and his vendee. It was
precisely the same contract that was made by every other
seller of hemp, engaged as was the plaintiff, and resulted
simply in the transfer of title to goods already prepared for the
general market. The method of bookkeeping and form of the
account rendered is not controlling as to the nature of the
contract made. It is conceded in the case that a separate entry
and charge would have been made for the baling even if the
plaintiff had not been the one who baled the hemp but,
instead, had received it already baled from his vendor. This
indicates of necessity that the mere fact of entering a separate
item for the baling of the hemp is formal rather than essential
and in no sense indicates in this case the real transaction
between the parties. It is undisputable that, if the plaintiff had
brought the hemp in question already baled, and that was the
hemp the sale which formed the subject of this controversy,
then the plaintiff would have performed no service for his
vendee and could not, therefore, lawfully charge for the
rendition of such service. It is, nevertheless, admitted that in
spite of that fact he would still have made the double entry in
his invoice of sale to such vendee. This demonstrates the
nature of the transaction and discloses, as we have already
said, that the entry of a separate charge for baling does not
accurately describe the transaction between the parties.
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Celestino Co vs. Collector
(August 16, 1911)
FACTS
Celestino Co & Company is a duly registered general
copartnership doing business under the trade name of
"Oriental Sash Factory". From 1946 to 1951 it paid percentage
taxes of 7 per cent on the gross receipts of its sash, door and
window factory, in accordance with section one hundred
eighty-six of the National Revenue Code imposing taxes on sale
of manufactured articles. However in 1952 it began to claim
liability only to the contractor's 3 per cent tax (instead of 7 per
cent) under section 191 of the same Code; and having failed to
convince the Bureau of Internal Revenue, it brought the matter
to the Court of Tax Appeals, where it also failed.
Appellant invokes Article 1467 of the New Civil Code
to bolster its contention that in filing orders for windows and
doors according to specifications, it did not sell, but merely
contracted for particular pieces of work or "merely sold its
services".
ISSUE: Whether or not petitioner could be taxed as a seller or
as a contractor. SELLER.
RULING
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.
It is at once apparent that the Oriental Sash Factory
did not merely sell its services to Don Toribio Teodoro & Co. (To
take one instance) because it also sold the materials. The truth
of the matter is that it sold materials ordinarily manufactured
by it sash, panels, mouldings to Teodoro & Co., although
in such form or combination as suited the fancy of the
purchaser. Such new form does not divest the Oriental Sash
Factory of its character as manufacturer. Neither does it take
the transaction out of the category of sales under Article 1467
above quoted, because although the Factory does not, in the
ordinary course of its business, manufacture and keep on
stockdoors of the kind sold to Teodoro, it could stock and/or
probably had in stock the sash, mouldings and panels it used
therefor (some of them at least).
In our 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 filing special orders within the
meaning of Article 1467. The orders herein exhibited were not
27
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

shown to be special. They were merely orders for work shop is a manufacturer and therefor entitled to tax
nothing is shown to call them special requiring extraordinary exemption on its gross export sales under Section 202 (e) of
service of the factory. the National Internal Revenue Code. He explained that it was
The thought occurs to us that if, as alleged-all the work the 7% tax exemption on export sales which prompted
of appellant is only to fill orders previously made, such orders private respondent to exploit the foreign market which
should not be called special work, but regular work. Would a resulted in the increase of its foreign sales to at least 52% of
factory do business performing only special, extraordinary or its total gross sales in 1977 .
peculiar merchandise?
Anyway, supposing for the moment that the ISSUE: Whether or not private respondent is a manufacturer
transactions were not sales, they were neither lease of services and not a contractor and therefore not liable for the amount
nor contract jobs by a contractor. But as the doors and of P108,720.92, as deficiency contractor's tax, inclusive of
windows had been admittedly "manufactured" by the Oriental surcharge and interest, for the year 1977.
Sash Factory, such transactions could be, and should be taxed
as "transfers" thereof under section 186 of the National RULING
Revenue Code. Private respondent is a "manufacturer" as defined in
the Tax Code and not a "contractor" under Section 205(e) of
the Tax Code as petitioner would have this Court decide.
CIR vs. Arnoldus Carpentry Shop, Inc.
Section 205 (16) [now Sec. 170 (q)] of the Tax Code
(March 25, 1988)
defines "independent contractors" as:
FACTS
... persons (juridical and natural) not enumerated
Arnoldus Carpentry Shop, Inc. (private respondent
above (but not including individuals subject to the
herein) is a domestic corporation which has been in existence
occupation tax under Section 12 of the Local Tax
since 1960. It has for its secondary purpose the "preparing,
Code) whose activity consists essentially of the sale
processing, buying, selling, exporting, importing,
of all kinds of services for a fee regardless of
manufacturing, trading and dealing in cabinet shop products,
whether or not the performance of the service calls
wood and metal home and office furniture, cabinets, doors,
for the exercise or use of the physical or mental
windows, etc., including their component parts and
faculties of such contractors or their employees.
materials, of any and all nature and description" (Rollo, pp.
(Emphasis supplied.)
160-161). These furniture, cabinets and other woodwork
Private respondent's business does not fall under
were sold locally and exported abroad. For this business
this definition.
venture, private respondent kept samples or models of its
Petitioner is ignoring the fact that private
woodwork on display from where its customers may refer to
respondent sells goods which it keeps in stock and not
when placing their orders.
services.
Sometime in March 1979, the examiners of the
Neither can Article 1467 of the New Civil Code help
petitioner Commissioner of Internal Revenue conducted an
petitioner's cause.
investigation of the business tax liabilities of private
Petitioner wants to impress upon this Court that
respondent pursuant to Letter of Authority No. 08307 NA
under Article 1467, the true test of whether or not the
dated November 23, 1978. Based on such an examination,
contract is a piece of work (and thus classifying private
BIR examiners Honesto A. Vergel de Dios and Voltaire
respondent as a contractor) or a contract of sale (which
Trinidad made a report to the Commissioner classifying
would classify private respondent as a manufacturer) is
private respondent as an "other independent contractor"
the mere existence of the product at the time of the
under Sec. 205 (16) [now Sec. 169 (q)] of the Tax Code.
perfection of the contract such that if the thing already exists,
As a result thereof, the examiners assessed private
the contract is of sale, if not, it is work.
respondent for deficiency tax in the amount of P88,972.23.
This is not the test followed in this jurisdiction. As
Later, on January 31, 1981, private respondent received a
can be clearly seen from the wordings of Art. 1467, what
letter/notice of tax deficiency assessment inclusive of charges
determines whether the contract is one of work or of sale is
and interest for the year 1977 in the amount of P 108,720.92.
whether the thing has been manufactured specially for the
This tax deficiency was a consequence of the 3% tax imposed
customer and upon his special order." Thus, if the thing is
on private respondent's gross export sales which, in turn,
specially done at the order of another, this is a contract for a
resulted from the examiners' finding that categorized private
piece of work. If, on the other hand, the thing is
respondent as a contractor.
manufactured or procured for the general market in the
Against this assessment, private respondent filed on
ordinary course of one's business, it is a contract of sale.
February 19, 1981 a protest with the petitioner
The fact that [private respondent] kept models of its
Commissioner of Internal Revenue. In the protest letter,
products... indicate that these products were for sale to the
private respondent's manager maintained that the carpentry

2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito 28
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

general public and not for special orders,' citing Celestino Co the pertinent provisions on warranty of title and against hidden
and Co. v. Collector of Internal Revenue. defects and the payment of price in a contract of sale

Engineering Machinery Corp. vs. CA ISSUE:

(January 24, 1996) 1) Is a contract for the fabrication and installation of a
FACTS central air-conditioning system in a building, one of
Pursuant to the contract dated September 10, 1962 "sale" or "for a piece of work"?
between petitioner and private respondent, the former
undertook to fabricate, furnish and install the air-conditioning 2) What is the prescriptive period for filing actions for
system in the latter's building along Buendia Avenue, Makati in breach of the terms of such contract?
consideration of P210,000.00. Petitioner was to furnish the
materials, labor, tools and all services required in order to so RULING
fabricate and install said system. The system was completed in 1) To Tolentino, the distinction between the two
1963 and accepted by private respondent, who paid in full the contracts depends on the intention of the parties. Thus, if the
contract price. parties intended that at some future date an object has to be
On September 2, 1965, private respondent sold the delivered, without considering the work or labor of the party
building to the National Investment and Development bound to deliver, the contract is one of sale. But if one of the
Corporation (NIDC). The latter took possession of the building parties accepts the undertaking on the basis of some plan,
but on account of NIDC's noncompliance with the terms and taking into account the work he will employ personally or
conditions of the deed of sale, private respondent was able to through another, there is a contract for a piece of work.
secure judicial rescission thereof. The ownership of the building Clearly, the contract in question is one for a piece of
having been decreed back to private respondent, he re- work. It is not petitioner's line of business to manufacture air-
acquired possession sometime in 1971. It was then that he conditioning systems to be sold "off-the-shelf." Its business and
learned from some NIDC, employees of the defects of the air- particular field of expertise is the fabrication and installation of
conditioning system of the building. such systems as ordered by customers and in accordance with
Acting on this information, private respondent the particular plans and specifications provided by the
commissioned Engineer David R. Sapico to render a technical customers. Naturally, the price or compensation for the system
evaluation of the system in relation to the contract with manufactured and installed will depend greatly on the
petitioner. In his report, Sapico enumerated the defects of the particular plans and specifications agreed upon with the
system and concluded that it was "not capable of maintaining customers.
the desired room temperature of 76F - 2F (Exhibit C)".
On the basis of this report, private respondent filed on 2) Having concluded that the original complaint is one for
May 8, 1971 an action for damages against petitioner with the damages arising from breach of a written contract - and not a
then Court of First Instance of Rizal (Civil Case No. 14712). The suit to enforce warranties against hidden defects - we here -
complaint alleged that the air-conditioning system installed by with declare that the governing law is Article 1715 (supra).
petitioner did not comply with the agreed plans and However, inasmuch as this provision does not contain a specific
specifications. Hence, private respondent prayed for the prescriptive period, the general law on prescription, which is
amount of P210,000.00 representing the rectification cost, Article 1144 of the Civil Code, will apply. Said provision
P100,000.00 as damages and P15,000.00 as attorney's fees. states, inter alia, that actions "upon a written contract"
Petitioner moved to dismiss the complaint, alleging that the prescribe in ten (10) years. Since the governing contract was
prescriptive period of six months had set in pursuant to Articles executed on September 10, 1962 and the complaint was filed
1566 and 1567, in relation to Article 1571 of the Civil Code, on May 8, 1971, it is clear that the action has not prescribed.
regarding the responsibility of a vendor for any hidden faults or
defects in the thing sold.
Warranties
Private respondent countered that the contract dated
Article 1714. If the contractor agrees to produce the
September 10, 1962 was not a contract for sale but a contract
work from material furnished by him, he shall deliver the thing
for a piece of work under Article 1713 of the Civil Code. Thus,
produced to the employer and transfer dominion over the thing.
in accordance with Article 1144 (1) of the same Code, the
This contract shall be governed by the following articles as well
complaint was timely brought within the ten-year prescriptive
as by the pertinent provisions on warranty of title and against
period.
hidden defects and the payment of price in a contract of sale.
In its reply, petitioner argued that Article 1571 of the
Civil Code providing for a six-month prescriptive period is
Article 1715. The contract shall execute the work in such
applicable to a contract for a piece of work by virtue of Article
a manner that it has the qualities agreed upon and has no
1714, which provides that such a contract shall be governed by
defects which destroy or lessen its value or fitness for its ordinary

2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito 29
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
or stipulated use. Should the work be not of such quality, the
employer may require that the contractor remove the defect or
execute another work. If the contract fails or refuses to comply
with this obligation, the employer may have the defect removed
or another work executed, at the contractor's cost.
Prescriptive Periods
If the cause of action is breach of warranty in a contract
of sale, apply the law on sale.
If the contract is for a piece of work:
10 years if upon written contract. (Art. 1144)
6 years if upon an oral contract. (Art. 1145)
4 years if based on fraud. (Art. 1146)
Dino vs. CA
(June 20, 2001)
FACTS
Petitioners spouses Dino, doing business under the
trade name "Candy Claire Fashion Garment" are engaged in the
business of manufacturing and selling shirts.1 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 at P7.00 per piece in accordance with the sample
approved by the petitioners. These frogs and mooseheads
were to be attached to the shirts petitioners would
manufacture and sell
Respondent Sio delivered in several installments the
40,000 pieces of frogs and mooseheads. The last delivery was
made on September 28, 1988. Petitioner fully paid the agreed
price. Subsequently, petitioners returned to respondent 29,772
pieces of frogs and mooseheads for failing to comply with the
approved sample. The return was made on different dates: the
initial one on December 12, 1988 consisting of 1,720
pieces, the second on January 11, 1989, and the last on
January 17, 1989.
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.
ISSUE:
1) Whether or not the contract is one of sale or one for
piece of work.
2) Whether or not prescription has set it.
RULING
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
1) As this Court ruled in Engineering & Machinery
Corporation v. Court of Appeals, et al., "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 of sale."
The contract between the petitioners and respondent
stipulated 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
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.
2) Article 1567 provides for the remedies available to
the vendee in case of hidden defects, viz:
"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, viz:
"Art. 1571. Actions arising from the provisions of the
preceding ten articles shall be barred after six months
from the delivery of the thing sold." (Emphasis
supplied)
There is no dispute that respondent made the last delivery of
the vinyl products to petitioners on September 28, 1988. It is
also settled that the action to recover the purchase price of the
goods petitioners returned to the respondent was filed on July
24, 1989, more than nine months from the date of last delivery.
Petitioners having filed the action three months after the six-
month period for filing actions for breach of warranty against
hidden defects stated in Art. 1571, the appellate court
dismissed the action
CIR vs. CA and Ateneo
(April 18, 1997)
FACTS
Private respondent is a non-stock, non-profit
educational institution with auxiliary units and branches all
30
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
over the Philippines. One such auxiliary unit is the Institute of
Philippine Culture (IPC), which has no legal personality separate
and distinct from that of private respondent. The IPC is a
Philippine unit engaged in social science studies of Philippine
society and culture. Occasionally, it accepts sponsorships for its
research activities from international organizations, private
foundations and government agencies.
On July 8, 1983, private respondent received from
petitioner Commissioner of Internal Revenue a demand letter
dated June 3, 1983, assessing private respondent the sum of
P174,043.97 for alleged deficiency contractor's tax, and an
assessment dated June 27, 1983 in the sum of P1,141,837 for
alleged deficiency income tax, both for the fiscal year ended
March 31, 1978. Denying said tax liabilities, private respondent
sent petitioner a letter-protest and subsequently filed with the
latter a memorandum contesting the validity of the
assessments.
On March 17, 1988, petitioner rendered a letter-
decision canceling the assessment for deficiency income tax
but modifying the assessment for deficiency contractor's tax by
increasing the amount due to P193,475.55. Unsatisfied, private
respondent requested for a reconsideration or reinvestigation
of the modified assessment. At the same time, it filed in the
respondent court a petition for review of the said letter-
decision of the petitioner. While the petition was pending
before the respondent court, petitioner issued a final decision
dated August 3, 1988 reducing the assessment for deficiency
contractor's tax from P193,475.55 to P46,516.41, exclusive of
surcharge and interest.
ISSUE:
Is Ateneo de Manila University, through its auxiliary
unit or branch the Institute of Philippine Culture
performing the work of an independent contractor and, thus,
subject to the three percent contractor's tax levied by then
Section 205 of the National Internal Revenue Code?
RULING
After reviewing the records of this case, we find no
evidence that Ateneo's Institute of Philippine Culture ever sold
its services for a fee to anyone or was ever engaged in a
business apart from and independently of the academic
purposes of the university.
In the first place, the petitioner has presented no
evidence to prove its bare contention that, indeed, contracts
for sale of services were ever entered into by the private
respondent.
Moreover, the Court of Tax Appeals accurately and
correctly declared that the " funds received by the Ateneo de
Manila University are technically not a fee. They may however
fall as gifts or donations which are tax-exempt" as shown by
private respondent's compliance with the requirement of
Section 123 of the National Internal Revenue Code providing
for the exemption of such gifts to an educational institution.
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Therefore, it is clear that the funds received by
Ateneo's Institute of Philippine Culture are not given in the
concept of a fee or price in exchange for the performance of a
service or delivery of an object. Rather, the amounts are in the
nature of an endowment or donation given by IPC's
benefactors solely for the purpose of sponsoring or funding the
research with no strings attached. As found by the two courts
below, such sponsorships are subject to IPC's terms and
conditions. No proprietary or commercial research is done, and
IPC retains the ownership of the results of the research,
including the absolute right to publish the same. The copyrights
over the results of the research are owned by Ateneo and,
consequently, no portion thereof may be reproduced without
its permission. The amounts given to IPC, therefore, may not be
deemed, it bears stressing as fees or gross receipts that can be
subjected to the three percent contractor's tax.
It is also well to stress that the questioned
transactions of Ateneo's Institute of Philippine Culture cannot
be deemed either as a contract of sale or a contract of a piece
of work. "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." By its very nature, a contract of
sale requires a transfer of ownership. Thus, Article 1458 of the
Civil Code "expressly makes the obligation to transfer
ownership as an essential element of the contract of sale,
following modern codes, such as the German and the Swiss.
Even in the absence of this express requirement, however,
most writers, including Sanchez Roman, Gayoso, Valverde,
Ruggiero, Colin and Capitant, have considered such transfer of
ownership as the primary purpose of sale. Perez and Alguer
follow the same view, stating that the delivery of the thing does
not mean a mere physical transfer, but is a means of
transmitting ownership. Transfer of title or an agreement to
transfer it for a price paid or promised to be paid is the essence
of sale." In the case of a 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. .
. . If the contractor agrees to produce the work from materials
furnished by him, he shall deliver the thing produced to the
employer and transfer dominion over the thing, . .
." Ineludably, whether the contract be one of sale or one for a
piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object. In the case at bench, it is
clear from the evidence on record that there was no sale either
of objects or services because, as adverted to earlier, there was
no transfer of ownership over the research data obtained or
the results of research projects undertaken by the Institute of
Philippine Culture.
Furthermore, it is clear that the research activity of
the Institute of Philippine Culture is done in pursuance of
maintaining Ateneo's university status and not in the course of
an independent business of selling such research with profit in
mind.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

Quiroga and Parsons Hardware and Co. entered into a

contract under the following conditions among others:
4) DISTINGUISHED FROM AGENCY TO SELL ARTICLE 1. Don Andres Quiroga grants the
exclusive right to sell his beds in the Visayan Islands to
Art. 1868. By the contract of agency, a person binds J. Parsons under the following conditions:
himself to render some service or to do something in Mr. Quiroga shall furnish beds of his
representation or on behalf of the principal, with the consent or manufacture to Mr. Parsons for the latter's
authority of the latter. establishment in Iloilo, and shall invoice them
at the same price he has fixed for sales, in
A contract of agency is one that essentially establishes a Manila, and, in the invoices, shall make and
representative capacity in the person of the agent on allowance of a discount of 25 per cent of the
behalf of the principal, and one characterized as highly invoiced prices, as commission on the sale;
fiduciary. and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different
Sale Contract of Agency to Sell/Buy styles.
Mr. Parsons binds himself to pay Mr. Quiroga
Not unilaterally A contract of agency to sell is
for the beds received, within a period of sixty
revocable. essentially revocable even in the
days from the date of their shipment.
presence of an irrevocability clause
The expenses for transportation and
because it covers an underlying
shipment shall be borne by M. Quiroga, and
fiduciary relationship.
the freight, insurance, and cost of unloading
The buyer himself In an agency to sell, he agent is not from the vessel at the point where the beds
pays for the price of obliged to pay the price, and is are received, shall be paid by Mr. Parsons.
the object, which merely obliged to deliver the price If, before an invoice falls due, Mr. Quiroga
constitutes his main which he may receive from the should request its payment, said payment
obligation. buyer. when made shall be considered as a prompt
The buyer, after In an agency to buy, the agent does payment, and as such a deduction of 2 per
delivery, becomes the not become the owner of the thing cent shall be made from the amount of the
owner of the subject subject of the agency, even if the invoice. The same discount shall be made on
matter. object is delivered to him. the amount of any invoice which Mr. Parsons
may deem convenient to pay in cash.
The seller warrants. The agent who effects sale assumes Mr. Quiroga binds himself to give notice at
no personal liability as long as he least fifteen days before hand of any
acts within his authority and in the alteration in price which he may plan to make
name of the principal. However, it in respect to his beds, and agrees that if on
is legally possible for an agent or a the date when such alteration takes effect he
broker to voluntarily bind himself to should have any order pending to be served
the warranties of the seller. to Mr. Parsons, such order shall enjoy the
The agent is disqualified from advantage of the alteration if the price
receiving any personal profit from thereby be lowered, but shall not be affected
the transaction covered by the by said alteration if the price thereby be
agency, and any profit received increased, for, in this latter case, Mr. Quiroga
should pertain to the principal. assumed the obligation to invoice the beds at
the price at which the order was given.
Mr. Parsons binds himself not to sell any
Statutory Rule
other kind except the "Quiroga" beds.
In construing a contract containing provisions
ART. 2. In compensation for the expenses of
characteristic of both the sale and of the contract of agency to
advertisement which, for the benefit of both
sell, the essential clauses of the whole instrument shall be
contracting parties, Mr. Parsons may find himself
considered. (Art. 1466)
obliged to make, Mr. Quiroga assumes the obligation
to offer and give the preference to Mr. Parsons in case
Quiroga vs. Parsons Hardware Co. anyone should apply for the exclusive agency for any
(August 23, 1918) island not comprised with the Visayan group.
FACTS ART. 3. Mr. Parsons may sell, or establish

2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito 32
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
branches of his agency for the sale of "Quiroga" beds
in all the towns of the Archipelago where there are no
exclusive agents, and shall immediately report such
action to Mr. Quiroga for his approval.
ART. 4. Xxx
Quiroga alleged that Parsons violated the following
conditions:
1. not to sell the beds at higher prices than those of the
invoices
2. to have an open establishment in Iloilo
3. itself to conduct the agency
4. to keep the beds on public exhibition
5. to pay for the advertisement expenses for the same
6. to order the beds by the dozen and in no other
manner.
Except for (6), none of the obligations imputed by
Quiroga are expressed in the contract. He alleged that Parsons
was his agent for th sale of his beds in Iloilo, and that the said
obligations are implied in a contract of commercial sale.
ISSUE: Whether Parsons, by reason of the contract, was a
purchaser or an agent of the Quiroga for the sale of his beds.
RULING
Parson was a purchaser and not an agent.
The terms and conditions of the parties have the
essential features of a contract of purchase and sale. There
was the obligation on the part of Quiroga to supply the beds,
and, on the part of Parsons, 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. In the case at bar, Parsons, on receiving the
beds, was necessarily obliged to pay their price within the term
fixed (60 days), without any other consideration and regardless
as to whether he had or had not sold the beds.
Not a single one of the clauses in the contract
necessarily conveys the idea of an agency.
The words commission on sales used in clause (A) of
article 1 mean nothing else than a mere discount on
the invoice price.
The word agency, also used in articles 2 and 3, only
expresses that the Parsons was the only one that
could sell the Quiroga beds in the Visayan Islands.
As to the remaining clauses, the least that can be said
is that they are not incompatible with the contract of
purchase and sale.
Parsons offered Vidals (former VP of Parsons) that the
latter drafted the contract and testified that Parsons was to be
an agent for Quirogas beds and to collect commission on sales.
However, per evidence, it was found out that Lopez was the
one who drafted the contract. Assuming arguendo that it was
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
indeed Vidal who drafted, he was clearly mistaken as to the
classification of the contract. But it must be understood that a
contract is what the law defines it to be, and not what it is
called by the contracting parties.
Discussion:
So you have here a Contract of Sale. The parties clearly
obliged themselves with the obligations as we have discussed in
Art. 1458. 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. This show the essential features of a Contract of
Purchase and Sale; obligation on the part of Quiroga to supply
the beds and on the part of the defendant to pay the 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 can return the things
unsold to Quiroga.
The words commission on sales here doesnt mean that
Parsons is an agent. Its nothing else but a mere discount on the
invoice price. The word agency that were used by the parties,
only expresses that Parsons was the only one that could sell the
plaintiff's beds in the Visayan Islands. With regard to the return
of the beds, this was based on mutual tolerance in the
performance of the contract. Here, if Parsons were to return the
beds, he still has to get the consent and notify Quiroga. The
return was made of certain brass beds was not effected in
exchange for the price paid for them, but was for other beds of
another kind; requested the plaintiff's prior consent with respect
to said beds, which shows that it was not considered that the
defendant had a right, by virtue of the contract, to make this
return.
One of the features that was emphasized in the case
was that in a Contract of Agency, the principal can remove the
power given to the agent. A sale, on the other hand, is a
contractual relationship that is not inherently removable. As to
agency, however, the principal can remove it especially when
there is a breach of trust on the part of the agent. A Contract of
Agency is based on trust and confidence. If you do not trust the
agent, then you can remove the powers that you gave to him.
Puyat & Sons, Inc. vs. Arco Amusement Co.
(June 20, 1941)
FACTS
PUYAT & SONS was acting as an exclusive agent in the
Philippines of STAR PIANO CO. which deals in cinematograph
equipment and machinery.
ARCO AMUSEMENT wanted to purchase sound
reproducing devices for its cinematograph and thus
approached PUYAT & SONS. It was agreed that PUYAT & SONS
would order, in behalf of ARCO, sound reproducing equipment
from STAR PIANO and it would pay the price of the equipment
33
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
plus 10% commission and all other expenses.
PUYAT & SONS allegedly inquired for the price
quotation of the orders excluding the discount from STAR
PIANO. However, STAR PIANO gave PUYAT & SONS the list
price.
ARCO was able to transact twice from PUYAT & SONS
for $1,700 and $1,600 plus the additional commission and
expenses.
Three years later, ARCO discovered the price quoted to
them by the PUYAT & SONS was not the net price but rather
the list price, and that the PUYAT & SONS had obtained a
discount from the Starr Piano Company.
ARCO now sought to obtain a reimbursement. This
was left unheeded and thus ARCO brought the action to the
court.
TC: Contract of Purchase and Sale.
CA: Contract of Agency. PUYAT & SONS was ordered
to pay ARCO the overpayment it made.
ISSUE: WON the contract which was entered into by PUYAT &
SONS and ARCO is one of contract of agency.
RULING
NO. The contract was one of purchase and sale, and
not one of agency.
The contract is the law between the parties and
should include all the things they are supposed to have been
agreed upon. What does not appear on the face of the contract
should be regarded merely as "dealer's" or "trader's talk",
which cannot bind either party.
The letters of ARCO accepting the prices of $1,700 and
$1,600, respectively, for the equipment subject of its contract
with PUYAT & SONS, are clear in their terms and admit no other
interpretation that the ARCO agreed to purchase from PUYAT &
SONS the equipment at the prices indicated which are fixed and
determinate.
SC agree with the TC that whatever unforeseen
events might have taken place unfavorable to the PUYAT &
SONS (such as change in prices, mistake in their quotation, loss
of the goods not covered by insurance or failure of the STARR
PIANO to properly fill the orders as per specifications), ARCO
might still legally hold PUYAT & SONS to the prices fixed of
$1,700 and $1,600." This is incompatible with the pretended
relation of agency between the parties, because in agency, the
agent is exempted from all liability in the discharge of his
commission provided he acts in accordance with the
instructions received from his principal, and the principal must
indemnify the agent for all damages which the latter may incur
in carrying out the agency without fault or imprudence on his
part.
Also:
1. The 10% commission does not necessarily make
PUYAT & SONS an agent of ARCO, as this provision is
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
only an additional price which ARCO bound itself to
pay, and which stipulation is not incompatible with the
contract of purchase and sale.
2. It is incompatible to hold that PUYAT & SONS is an
agent of both ARCO and STARR PIANO. It is out of the
ordinary for one to be the agent of both the vendor
and the purchaser.
It follows that PUYAT & SONS (vendor) is not bound to
reimburse ARCO (vendee) for any difference between the cost
price and the sales price which represents the profit realized by
the vendor out of the transaction. This is the very essence of
commerce without which merchants or middleman would not
exist.
The fact that PUYAT & SONS obtained more or less
profit ARCO calculated before entering into the contract or
reducing the price agreed between them. Not every
concealment is fraud; and short of fraud, it were better that,
within certain limits, business acumen permit of the loosening
of the sleeves and of the sharpening of the intellect of men and
women in the business world.
Discussion:
We have here a contract of sale. The letters by which
the respondent accepted the prices for the sound equipment
subject of its contract with the petitioner, are clear in their terms
and admit no other interpretation.
In a Contract of Agency, the agent is exempted from all
liabilities as long as he acts in accordance with the instructions
given or received from his principal. While the letters state that
the petitioner will receive 10% commission, again, the mere use
of the words commission doesnt that there is a Contract of
Agency. The 10% commission doesnt necessarily make the
petitioner is an agent of the respondent. This is only an
additional price which respondent bound himself to pay which
stipulation is not incompatible with the contract of purchase and
sale.
There is no Contract of Agency as between ARCO and
Gonzalo Co. However, do take note that Gonzalo here is
deemed to be the exclusive agent of the Starr Piano. To hold the
Gonzalo as an agent of ARCO will then be incompatible with the
admitted fact that Gonzalo is the exclusive agent of the same
company in the Philippines. It is out of the ordinary for one to
be the agent of both the vendor and the purchaser.
Considering that there is sale and no agency, petitioner
as vendor is not bound to reimburse ARCO for any difference
between the cost price and the sales price because the
difference is actually a profit on the part of Gonzalo.
It is not duty bound to reveal the private arrangement it
had with the Starr Piano Company relative to such discount to its
prospective customers.
What is emphasized here? A person purported as an
agent as in this case is not really an agent but rather a seller.
Therefore, he doesnt not have to account the profit-margin that
he has earned from acquiring the property for the alleged
34
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
principal, ARCO.
Ker & Co. Ltd. vs. Lingad
(April 30, 1971)
FACTS
KER & CO. was assessed by the CIR a commercial
broker's percentage tax, surcharge, and compromise penalty
for P20,272.33. KER & CO. requested for the taxs cancellation
but the CIR refused.
This arose from the contract between KER & CO. and
UNITED STATES RUBBER INTERNATIONAL. It was stipulated
that:
1. All specifications for the goods ordered were subject
to acceptance by the Company with KER & CO
required to accept such goods shipped as well as to
clear the same through customs and to arrange for
delivery in its warehouse in Cebu City.
2. Orders are to be filled in whole or in part from the
stocks carried by the Company's neighboring
branches, subsidiaries or other sources of Company's
brands.
3. Shipments were to be invoiced at prices to be agreed
upon, with the customs duties being paid by KER & CO
for account of the Company.
4. All resale prices, lists, discounts and general terms and
conditions of local resale were to be subject to the
approval of the Company and to change from time to
time in its discretion.
5. KER & CO is allowed a discount of 10% on the net
amount of sales of merchandise made under such
agreement.
6. On a date to be determined by the Company, KER &
CO was required to report to it data showing in detail
all sales during the month immediately preceding,
specifying therein the quantities, sizes and types
together with such information as may be required for
accounting purposes, with the Company rendering an
invoice on sales as described to be dated as of the
date of inventory and sales report.
7. KER & CO had to make payment on such invoice or
invoices on due date with the Company being
privileged at its option to terminate and cancel the
agreement forthwith upon the failure to comply with
this obligation.
8. The Company was to keep the consigned stock fully
insured against loss or damage by fire or as a result of
fire, the policy of such insurance to be payable to it in
the event of loss.
9. KER & CO assumed full responsibility with reference to
the stock and its safety at all times
10. Upon request of the Company at any time, KER & CO
was to render inventory of the existing stock which
could be subject to change.
11. "Upon the termination or any cancellation of this
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
agreement all goods held on consignment shall be
held by the Distributor for the account of the
Company, without expense to the Company, until such
time as provision can be made by the Company for
disposition."
ISSUE: Whether the relationship created is one of vendor and
vendee or of broker and principal.
HELD
The relationship is one of broker and principal and
thus CIR may tax KER & CO.
There is no doubt that the contract is one of agency
except that it was provided in the contract that KER & CO. was
not constituted as "the agent or legal representative of the
Company for any purpose whatsoever." It would be, however,
to impart to such an express disclaimer a meaning it should not
possess to ignore what is manifestly the role assigned to KER &
CO. considering the instrument as a whole. That would be to
lose sight altogether of what has been agreed upon.
The circumstances (refer to the agreements) are
irreconcilably antagonistic to the idea of an independent
merchant." Thus, upon analysis of the contract, as a whole,
together with the actual conduct of the parties, it is concluded
that the relationship between them is one of brokerage or
agency.
In the language of Justice J. B. L. Reyes: "Since the
company retained ownership of the goods, even as it
delivered possession unto the dealer for resale to customers,
the price and terms of which were subject to the company's
control, the relationship between the company and the dealer
is one of agency.
If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as
a debtor for the agreed price, and not merely as an agent who
must account for the proceeds of a resale, the transaction is a
sale; while the essence of an agency to sell is the delivery to an
agent, not as his property, but as the property of the principal,
who remains the owner and has the right to control sales, fix
the price, and terms, demand and receive the proceeds less the
agent's commission upon sales made.
The mere disclaimer in a contract that an entity like
KER & CO. is not "the agent or legal representative for any
purpose whatsoever" does not suffice to yield the conclusion
that it is an independent merchant if the control over the
goods for resale of the goods consigned is pervasive in
character.
Discussion:
Even if the agreement between Ker Co. and Rubber
International provided that the agreement doesnt constitute
distributor the agent or legal representative of Rubber
International for any purpose whatsoever, the nature of a
contract is determined not by the nomenclature as used by the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
parties but as to what the law defines it to be; as to whether the
elements of the contract as provided for by law are present.
Despite the stipulation, the SC held that there was
really a Contract of Agency here. Ker Co. is an agent of Rubber
International. Petitioner here can dispose of the products of
the Company only to certain persons and entities and within
stipulated limits, unless excepted by the contract or by the
Rubber Company. Ker Co. was subject to the control of Rubber
International. The rubber company agrees to keep the
consigned goods fully insured under insurance policies payable
to it in case of loss.
And it is also clearly provided in their stipulation or in
their agreement, that all All goods on consignment shall remain
the property of the Company until sold by the Distributor. So
what do we have here? Rubber International retained
ownership of the goods even as it delivered possession unto the
dealer for purposes of resale to customers. So this is clearly a
Contract of Agency. There was a delivery but the delivery was
not transferred, or not intention to transfer ownership but
rather for Ker Co. to sell the goods to the customers.
The decisions say the transfer of title or agreement to
transfer it for a price paid or promised is the essence of sale.
*inaudible* The delivery to an agent was made not as his
property, but as the property of the principal, who remains the
owner.
So in this case of Ker vs Lingad, this time we have a
Contract of Agency.
An assumption of the agent of the risk pertaining to the
cost or the price of the subject matter will make the relation
that of a buyer and seller. But, in this instance, Ker & Co. did not
assume the risk with respect to the price of the property subject
to the relationship. Rubber International is the one who
acquired the insurance with regard to the tools. If there is no
transfer despite the delivery, it shows that we have a Contract of
Agency. Retention of the ownership of the goods delivered to
the possession of the dealer shows that there is a Contract of
Agency. The insurable interest remains with Rubber
International. This clearly shows that the ownership of the
goods, again, was never transferred to Ker & Co.
Schmid and Obery vs. RJL Martinez
(October 18, 1988)
FACTS
RJL MARTINEZ is engaged in the business of deep-sea
fishing. As RJL MARTINEZ needed electric generators for some
of its boats and SCHMIID sold electric generators of different
brands. The parties had two separate transactions over
"Nagata"-brand generators.
The first transaction was the sale of three (3)
generators. SCHMID was te vendor of the generators.
The company supplied the generators from its
stockroom; it was also SCHMID which invoiced the
sale.
The second transaction, which gave rise to the present
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controversy, involves twelve (12) "Nagata"-brand
generators.
As RJL MARTINEZ was canvassing for generators, SC
gave RJL MARTINEZ its Quotation for twelve (12) "Nagata'-
brand generators with the following specifications:
"NAGATA" Single phase AC Alternators, 110/220 V, 60
cycles, 1800 rpm, unity power factor, rectifier type and
radio suppressor,, 5KVA (5KW) $546.75
It was stipulated that payment would be made by
confirming an irrevocable letter of credit in favor of NAGATA
CO. Furthermore, among the General Conditions of Sale
appearing on the dorsal side of the Quotation is the following:
Buyer will, upon request, promptly open irrevocable Letter
of Credit in favor of seller, in the amount stated on the face
of this memorandum, specifying shipment from any
Foreign port to Manila or any safe Philippine port,
permitting partial shipments and providing that in the
event the shippers are unable to ship within the specified
period due to strikes, lack of shipping space or other
circumstances beyond their reasonable control, Buyer
agrees to extend the said Letter of Credit for later
shipment. The Letter of Credit shall otherwise be subject to
the conditions stated in this memorandum of contract.
RJL MARTINEZ opened a letter of credit in favor of
NAGATA CO. Accordingly, SCHMID transmitted to NAGATA CO.
an order for the twelve (12) generators to be shipped directly
to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ
the bill of lading and its own invoice. The invoice states that
"one (1) case of 'NAGATA' AC Generators" consisting of twelve
sets wasbought by order and for account risk of Messrs. RJL
Martinez Fishing Corporation.
For its efforts, SCHMID received from NAGATA CO. a
commission.
All fifteen (15) generators subject of the two
transactions burned out after continuous use. RJL MARTINEZ
informed SCHMID about this development. In turn, SCHMID
brought the matter to the attention of NAGATA CO.
NAGATA CO. sent two technical representatives who
made an ocular inspection and conducted tests on
some of the burned out generators, which by then had
been delivered to the premises of SCHMID.
It was found that the generators were overrated. The
capacity of a generator was supposed to be 5 KVA
(kilovolt amperes). However, it turned out that the
actual capacity was only 4 KVA.
SCHMID replaced the three (3) generators subject of the
first sale with generators of a different brand.
As for the twelve (12) generators subject of the second
transaction, the Japanese technicians advised RJL MARTINEZ to
ship three (3) generators to Japan, which the company did.
These three (3) generators were repaired by NAGATA CO. itself
and thereafter returned to RJL MARTINEZ; the remaining nine
(9) were neither repaired nor replaced.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
NAGATA CO., however, wrote SCHMID suggesting that
the latter check the generators, request for spare parts
for replacement free of charge, and send to NAGATA
CO. SCHMID's warranty claim including the labor cost
for repairs. SCHMID indicated that it was not
agreeable to these terms.
As not all of the generators were replaced or repaired,
RJL MARTINEZ formally demanded that it be refunded the cost
of the generators and paid damages.
SCHMID maintained that it was not the seller of the
twelve (12) generators and thus refused to refund the
purchase price.
RJL MARTINEZ brought suit against SCHMID on the
theory that the latter was the vendor of the twelve
(12) generators and, as such vendor, was liable under
its warranty against hidden defects.
SCHMID seeks reversal on the following grounds:
Schmid was merely the indentor in the sale [of the
twelve (12) generators] between Nagata Co., the
exporter and RJL Martinez, the importer;
as mere indentor, Schmid is not liable for the seller's
implied warranty against hidden defects, Schmid not
having personally assumed any such warranty.
in any event, conformably with Article 1563 of the Civil
Code, there was no implied warranty against hidden
defects in the sale of these twelve (12) generators
because these were sold under their trade name
"Nagata"; and
Schmid, accordingly, is not liable for the
reimbursement claimed by RJL Martinez nor for the
latter's unsubstantiated claim of PI 10.33 operational
losses a day nor for exemplary damages, attorney's
fees and costs.
ISSUE: Whether the second transaction between the parties
was a sale or an indent transaction.
SCHMID maintains that it was the latter; RJL
MARTINEZ claims that it was a sale.
RULING
A contract is what the law defines it to be, considering its
essential elements, and not what it is caged by the contracting
parties.
The Civil Code defines a contract of sale, thus:
ART. 458. 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.
It has been said that the essence of the contract of
sale is transfer of title or agreement to transfer it for a price
paid or promised."If such transfer puts the transferee in the
attitude or position of an owner and makes him liable to the
transferor as a debtor for the agreed price, and not merely as
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an agent who must account for the proceeds of a resale, the
transaction is, a sale."
On the other hand, there is no statutory definition of
"indent" in this jurisdiction. However, the Rules and
Regulations to Implement Presidential Decree No. 1789 (the
Omnibus Investments Code) lumps "indentors" together with
"commercial brokers" and "commission merchants" in this
manner:
... A foreign firm which does business through the
middlemen acting in their own names, such asindentors,
commercial brokers or commission merchants, shall not be
deemed doing business in the Philippines. But such
indentors, commercial brokers or commission merchants
shall be the ones deemed to be doing business in the
Philippines.
Therefore, an indentor is a middlemen in the same
class as commercial brokers and commission merchants.
A broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own
name but in the name of those who employed him; he is
strictly a middleman and for some purpose the agent of
both parties. A broker is one whose occupation it is to bring
parties together to bargain, or to bargain for them, in
matters of trade, commerce or navigation. Judge Storey, in
his work on Agency, defines a broker as an agent employed
to make bargains and contracts between other persons, in
matters of trade, commerce or navigation, for
compensation commonly called brokerage.
A commission merchant is one engaged in the purchase or
sale for another of personal property which, for this
purpose, is placed in his possession and at his disposal. He
maintains a relation not only with his principal and the
purchasers or vendors, but also with the property which is
subject matter of the transaction.
Thus, the chief feature of a commercial broker and a
commercial merchant is that in effecting a sale, they are merely
intermediaries or middle-men, and act in a certain sense as the
agent of both parties to the transaction.
Webster defines an indent as "a purchase order for
goods especially when sent from a foreign country." It would
appear that there are three parties to an indent transaction,
namely, the buyer, the indentor, and the supplier who is usually
a non-resident manufacturer residing in the country where the
goods are to be bought An indentor may therefore be best
described as one who, for compensation, acts as a middleman
in bringing about a purchase and sale of goods between a
foreign supplier and a local purchaser.
The admissions of the parties and the facts appearing
on record more than suffice to warrant the conclusion that
SCHMID was not a vendor, but was merely an indentor, in the
second transaction.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
RJL MARTINEZ admitted that the generators were
purchased "through indent order". In the same vein, it
admitted in its demand letter previously sent to SCHMID that
twelve (12) of en (15) Nagata-brand generators "were
purchased through your company (SCHMID), by indent order
and three (3) by direct purchase." The evidence also show that
RJL MARTINEZ paid directly NAGATA CO, for the generators, and
that the latter company itself invoiced the sale, and shipped
the generators directly to the former. The only participation of
SCHMID was to act as an intermediary or middleman between
NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL
MARTINEZ and forwarding the same to NAGATA CO. for which
the company received a commission from NAGATA CO.
The above transaction is significantly different from
the first transaction wherein SCHMID delivered the goods from
its own stock (which it had itself imported from NAGATA CO.),
issued its own invoice, and collected payment directly from the
purchaser.
These facts notwithstanding, RJL MARTINEZ insists
that SCHMID was the vendor of the twelve generators on the
following grounds:
First, it is contended that the Quotation and the
General Conditions of Sale on the dorsal side thereof do not
necessarily lead to the conclusion that NAGATA CO., and not
SCHMID, was the real seller in the case of the twelve (12)
generators in that:
i. the signing of the quotation, which was under
SCHMID's letter-head, perfected the contract of sale
(impliedly, as between the signatories theretoi.e.,
RJL MARTINEZ and SCHMID);
ii. the qualification that the letter of credit shall be in
favor of NAGATA CO. constituted simply the manner of
payment requested by SCHMID (implying that
SCHMID, as seller, merely chose to waive direct
payment, stipulating delivery of payment instead to
NAGATA CO. as supplier);
Second, it is asserted that the acts of SCHMID after it
was informed of the defect in the generators were indicative of
its awareness that it was the vendor and acknowledgment of its
liability as such vendor. Attention is called to these facts: When
RJL MARTINEZ complained to SCHMID that the generators were
defective, SCHMID immediately asked RJL MARTINEZ to send
the defective generators to its shop to determine what was
wrong. SCHMID likewise informed NAGATA CO. about the
complaint of RJL MARTINEZ. When the Japanese technicians
arrived, SCHMID made available its technicians, its shop and its
testing equipment. After the generators were found to have
factory defects, SCHMID facilitated the shipment of three (3)
generators to Japan and, after their repair, back to the
Philippines.
Third, it is argued that the contents of the letter from
NAGATA CO. to SCHMID regarding the repair of the generators
indicated that the latter was "within the purview of a seller."
Fourth, it is argued that if SCHMID is considered as a
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mere agent of NAGATA CO., a foreign corporation not licensed
to do business in the Philippines, then the officers and
employees of the former may be penalized for violation of the
old Corporation Law.
The facts do not bear out these contentions.
The first contention disregards the circumstances
surrounding the second transaction as distinguished from
those surrounding the first transaction, as noted above.
Neither does the solicitous manner by which SCHMID
responded to RJL MARTINEZ's complaint prove that the former
was the seller of the generators. As aptly stated by counsel, no
indentor will just fold its hands when a client complains about
the goods it has bought upon the indentor's mediation. In its
desire to promote the product of the seller and to retain the
goodwill of the buyer, a prudent indentor desirous of
maintaining his business would have to act considerably.
towards his clients.
Note that in contrast to its act of replacing the three
(3) generators subject of the first transaction, SCHMID did not
replace any of the twelve (12) generators, but merely rendered
assistance to both RJL TINES and NAGATA CO. so that the latter
could repair the defective generators.
The proposal of NAGATA CO. rejected by SCHMID that
the latter undertake the repair of the nine (9) other defective
generators, with the former supplying the replacement parts
free of charge and subsequently reimbursing the latter for
labor costs [Exhibit "I"], cannot support the conclusion that
SCHMID is vendor of the generators of the second transaction
or was acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the
Corporation Law finds no application to SCHMID and its officers
and employees relative to the transactions in the instant case.
What the law seeks to prevent, through said provision, is the
circumvention by foreign corporations of licensing
requirements through the device of employing local
representatives. An indentor, acting in his own name, is not,
however, covered by the above-quoted provision. In fact, the
provision of the Rules and Regulations implementing the
Omnibus Investments Code quoted above, which was copied
from the Rules implementing Republic Act No. 5455, recognizes
the distinct role of an indentor, such that when a foreign
corporation does business through such indentor, the foreign
corporation is not deemed doing business in the Philippines.
In view of the above considerations, this Court rules
that SCHMID was merely acting as an indentor in the purchase
and sale of the twelve (12) generators subject of the second
transaction. Not being the vendor, SCHMID cannot be held
liable for the implied warranty for hidden defects under the
Civil Code.
2. However, even as SCHMID was merely an indentor, there was
nothing to prevent it from voluntarily warranting that twelve
(12) generators subject of the second transaction are free from
any hidden defects. In other words, SCHMID may be held
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
answerable for some other contractual obligation, if indeed it
had so bound itself. As stated above, an indentor is to some
extent an agent of both the vendor and the vendee. As such
agent, therefore, he may expressly obligate himself to
undertake the obligations of his principal (See Art. 1897, Civil
Code.)
Discussion:
The term indentor was emphasized in this case. An
indentor is a middlemen in the same class as commercial
brokers and commission merchants. A broker is generally
defined as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of
which he has no concern; the negotiator between other parties,
never acting in his own name but in the name of those who
employed him; he is strictly a middleman and for some purpose
the agent of both parties. Notice the phrase used by the SC, for
some purpose the agent of both parties.
Likewise, it is also mentioned that the chief feature of a
commercial broker and a commercial merchant is that in
effecting a sale, they are merely intermediaries or middle-men,
and act in a certain sense as the agent of both parties to the
transaction.
Notice these phrases. The SC, although it did not
clearly gave a distinction but you can see that the SC did not
outright say that an indentor is similar to that of an agent as
defined in Art 1868 of the Civil Code.
As what was pointed out earlier, pertaining to the case
of Gonzalo vs ARCO and Ker & Co. vs Lingad, we mentioned
there that two agents cannot be an agent of both the vendor
and a purchaser. Why? Because we have to protect the interest
of your principal. If you are the agent of a principal, your
interest is to protect the principal. What is your intention? It is
to sell the subject matter at the best price. But if you are the
agent also of the buyer, you buy at the lowest price possible.
Thats why the SC here somehow made a slight distinction of the
term indentor as to agent in the general sense.
Indentor is one who, for compensation, acts as a
middleman in bringing about a purchase and sale of goods
between a foreign supplier and a local purchaser. So it doesnt
act as a direct representative of either of the parties. It is
emphasized an indentor is a middleman.
As in this case, RJL purchased through an indent order.
RJL paid directly to Nagata. The only participation of Schmidt
was to act as an intermediary or middleman between Nagata
and RJL. The sale was between RJL and Nagata and therefore
Nagata should be the one whos liable for the alleged breach of
warranty against hidden defects.
As to the contention that Schmidt responded to the
complaint of RJL with regard to the generators, the SC
emphasized here that a prudent indentor desirous of
maintaining his business would have to act considerably towards
his clients. It doesnt mean that Schmidt was actually the one
who sold or entered into a contract of sale.
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Although a commercial broker, commission merchant,
or indentor is neither the seller nor the buyer of the contract
effected, he may voluntary assume warranties of seller if there is
a stipulation. In the absence of a stipulation as in the case of
Schmidt, the indentor couldnt be held liable for the breach of
hidden defects. Under our law, the one who will be liable is the
seller. Again, in this case, that would be Nagata.
Victorias Miling Co. vs. CA
(June 19, 2000)
FACTS
St. Therese Merchandising regularly bought sugar
from petitioner Victorias Milling Co., Inc. In the course of their
dealings, petitioner issued several Shipping List/Delivery
Receipts to STM as proof of purchases. Among these was SLDR
No. 1214M, which gave rise to the instant case. Dated October
16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each
bag contained 50 kilograms and priced at P638.00 per bag as
"per sales order VMC Marketing No. 042 dated October 16,
1989." The transaction it covered was a "direct sale." The SLDR
also contains an additional note which reads: "subject for
availability of a stock at NAWACO."
STM sold to private respondent Consolidated Sugar
Corporation its rights in SLDR No. 1214M for P 14,750,000.00.
CSC issued one check dated October 25, 1989 and three checks
postdated November 13, 1989 in payment.
CSC wrote petitioner that it had been authorized by
STM to withdraw the sugar covered by SLDR No.
1214M. 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 Shipping List/Delivery Receipt-
Refined Sugar (SDR) No. 1214 dated October 16, 1989
in the total quantity of 25,000 bags."
STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn,
issued Official Receipt No. 33743 acknowledging receipt of the
said checks in payment of 50,000 bags. Aside from SLDR No.
1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M
to the petitioner's NAWACO warehouse and was allowed to
withdraw sugar.
after 2,000 bags had been released, petitioner refused
to allow further withdrawals of sugar against SLDR No.
1214M.
CSC inquired when it would be allowed to withdraw
the remaining 23,000 bags.
Petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM
had already dwithdrawn all the sugar covered by the cleared
checks.
CSC sent petitioner a letter demanding the release of
the balance of 23,000 bags.
Petitioner reiterated that all the sugar corresponding
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
to the amount of STM's cleared checks had been fully
withdrawn. Petitioner also noted that CSC had
represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No. 1214M
"for and in behalf" of STM.
CSC filed a complaint for specific performance.
alleged that STM had fully paid petitioner for the sugar
covered by SLDR No. 1214M. Therefore, the latter had
no justification for refusing delivery of the sugar.
prayed that petitioner be ordered to deliver the
23,000 bags covered by SLDR No. 1214M (plus
unrealized profits and damages)
Petitioner's primary defense a quo was that it was an
unpaid seller for the 23,000 bags. Since STM had already drawn
in full all the sugar corresponding to the amount of its cleared
checks, it could no longer authorize further delivery of sugar to
CSC. Petitioner also contended that it had no privity of contract
with CSC.
the SLDRs, which it had issued, were not documents of
title, but mere delivery receipts issued pursuant to a
series of transactions entered into between it and
STM. The SLDRs prescribed delivery of the sugar to
the party specified therein and did not authorize the
transfer of said party's rights and interests.
CSC did not pay for the SLDR and was actually STM's
co-conspirator to defraud it through a
misrepresentation that CSC was an innocent
purchaser for value and in good faith.
ISSUES:
Whether or not CSC was an agent of STM and
hence, estopped to sue upon SLDR No. 1214M as an
assignee.
Whether or not the sale of sugar under SLDR
No. 1214M was a conditional sale or a contract to sell
and hence freed petitioner from further obligations.
RULING
(1) Petitioner heavily relies upon STM's letter of authority
allowing CSC to withdraw sugar against SLDR No. 1214M to
show that the latter was STM's agent. The pertinent portion of
said letter reads:
"This is to authorize Consolidated Sugar Corporation or its
representative to withdraw for and in our behalf (stress
supplied) the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25, 000 bags.
The Civil Code defines a contract of agency as follows:
"Art. 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."
It is clear from Article 1868 that the basis of agency is
representation. On the part of the principal, there must be an
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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.
In the instant case, it appears plain to us that private
respondent CSC was a buyer of the SLDFR form, and not an
agent of STM. Private respondent CSC was not subject to STM's
control. The question of whether 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.
That the authorization given to CSC contained the phrase "for
and in our (STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties. That
no agency was meant to be established by the CSC and STM is
clearly shown by CSC's communication to petitioner that SLDR
No. 1214M had been "sold and endorsed" to it.The use of the
words "sold and endorsed" means that STM and CSC intended
a contract of sale, and not an agency. Hence, on this score, no
error was committed by the respondent appellate court when
it held that CSC was not STM's agent and could independently
sue petitioner.
(2) Petitioner contends that the sale of sugar under SLDR No.
1214M is a conditional sale or a contract to sell, with title to
the sugar still remaining with the vendor. Noteworthy, SLDR No.
1214M contains the following terms and conditions:
"It is understood and agreed that by payment by
buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to
buyer/trader and delivery to him/it is deemed effected and
completed (stress supplied) and buyer/trader assumes full
responsibility therefore"
The aforequoted terms and conditions clearly show
that petitioner transferred title to the sugar to the buyer or his
assignee upon payment of the purchase price. Said terms
clearly establish a contract of sale, not a contract to sell.
Petitioner is now estopped from alleging the contrary. The
contract is the law between the contracting parties. And where
the terms and conditions so stipulated are not contrary to law,
morals, good customs, public policy or public order, the
contract is valid and must be upheld. Having transferred title to
the sugar in question, petitioner is now obliged to deliver it to
the purchaser or its assignee.
Discussion:
The basis of agency is representation. The agent acts
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
for or in behalf as a representative of the principal wherein there
must be an actual intention to appoint or an intention naturally
inferable from his words or action on the part of the principal.
On the part of the agent, there must be an intention to accept
the appointment and act on it.
One factor which most clearly distinguishes agency
from other legal concepts is control. A principal controls the
acts of his agent. Here, CSC has shown that the 25,000 bags of
sugar covered by the SLDR were sold and transferred by STM. So
there is valid sale and transfer to CSC. CSC was a buyer of the
SLDR form, and not an agent of STM. It was not subject to STMs
control.
So, again, even if you have that phrase only acted for
and in behalf of STM the SC said to look at the intention of the
parties. Whether a contract is one of agency or sale depends on
the intention of the parties as gathered from the whole scope
and effect of the language employed. The authorization given
containing the phrase for or in our behalf did not establish an
agency. No agency was meant to establish. That no agency was
meant to be established by the CSC and STM is clearly shown by
CSC's communication to VMC that SLDR No. 1214M had been
"sold and endorsed" to it. So there was an intention to enter
into a contract of sale. This is important since it was CSC who
filed for a complaint for specific performance and VMC here
alleged that is should be STM if ever which should file and not
CSC being allegedly as an agent. Again, there is no agency in a
valid contract of sale.
Take note of the distinction of the two contracts. Again,
sale is defined under Art. 1458 while agency is defined under
Art. 1868.
As mentioned earlier, an agency is essentially
removable by the principal if there is no more trust because of
the fiduciary nature of a contract of agency. Sale on the other
hand is not unilaterally revocable because it is not based on
trust and confidence. In sale, the buyer pays the price for the
object purchased. If there is a contract of agency, the agent is
not obliged to pay the price. His obligation is to deliver, to remit
the price that he receives from the customers. In sale, the buyer
becomes the owner after delivery while in agency, the agent
doesnt become the owner despite delivery.
In case of sale, the seller is liable for breach of warranty
as provided for under the law. If there is a contract of agency,
the agent doesnt assume any personal liability as long as he acts
within the authority given by the principal. And in fact, and
agent doesnt receive profit.
A sale is a principal contract, on the other hand an
agency is a principal contract with essentially three parties; the
principal, the agent, and subsequently the third party to whom
or with whom the agent entered into a contract for or in behalf
of the principal. In a sale, we only have two parties and one
contract of sale. In agency, we have one contract of agency as a
preparatory contract and then subsequently a principal contract
with the agent acts for or in behalf of the principal.
The characteristics of sale are onerous while in agency
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
it is presumed to be onerous unless otherwise stipulated by the
parties.
Contracts of sale are unenforceable when not in
writing. It is covered under the Statute of Frauds. In agency on
the other hand are valid and enforceable in any form.
Other Practical Value of Being Able to Distinguish
The Statue of Frauds is only applicable in a contract of
sale and not in an agency.
General Rule: A contract of agency to sell is valid and
enforceable in whatever form it may be entered into.
Exception: When the sale of a piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing, otherwise, the sale shall
be void. (Art. 1874)
5) DISTINGUISHED FROM DACION EN PAGO
Dation in payment
one whereby property is alienated to the creditor in full
satisfaction of a debt in money
constitutes the delivery and transmission of a thing by
the debtor to the creditor as an accepted equivalent of
the performance of the obligation
governed by the Law on Sales, since it essentially
involves the transfer of ownership of a subject matter
PNB vs. Pineda
(May 13, 1991)
FACTS
In 1963, the Arroyos obtained a loan of 580k from PNB
to purchase 60% of the subscribed capital stock and acquire
controlling interest of private respondent Tayabas Cement
Company (TCC). The spouses executed a real estate mortgage
over a parcel of land (La Vista property) as security for the loan.
Thereafter, TCC filed with PNB an application and agreement
for the establishment of an 8 year deferred letter of credit for
7M dollars in favor of Toyo Menka Kaisha to cover the
importation of a cement plant machinery and equipment.
Upon approval of the said application and opening of letter of
credit by PNB in favor of Toyo Menka for the account of TCC,
the Arroyo spouses executed a surety agreement. The imported
cement equipment arrived from Japan and were released to
TCC under a trust receipt agreement. Toyo Menka made the
corresponding drawings against the letter of credit as
scheduled.
TCC failed to remit and pay the corresponding amount
covered by the drawings. As per trust receipt agreement, PNB
notified TCC of its intention to repossess the machinery and
equipment for failure to settle its obligations under the letter of
credit. PNB also foreclosed the REM executed by the spouses
Arroyo in favor of TCC. PNB contends that the sale of the La
Vista property was made to satisfy not only the amount owed
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
by the spouses on their personal loan but also the amount of
expenses owed by the spouses as sureties of TCC. The Arroyos
object to the said foreclosure, contending that repossession of
the imported machinery and equipment by PNB amounted to
dacion en pago, which extinguished their obligation as surety to
TCC.
ISSUE: WON the repossession of the machinery amounts to a
dacion en pago. NO
RULING
The repossession does not amount to dacion en pago.
Dation in payment takes place when property is alienated to
the creditor in satisfaction of a debt in money and the same is
governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the
obligation. As aforesaid, the repossession of the machinery and
equipment in question was merely to secure the payment of
TCC's loan obligation and not for the purpose of transferring
ownership thereof to PNB in satisfaction of said loan. Thus, no
dacion en pago was ever accomplished.
PNB has the right to foreclose the mortgages executed
by the spouses Arroyo as sureties of TCC. A surety is considered
in law as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter, and
their liabilities are interwoven as to be inseparable. As sureties,
the Arroyo spouses are primarily liable as original promisors
and are bound immediately to pay the creditor the amount
outstanding.
PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt
agreement executed by and between PNB and TCC giving the
former the unqualified right to the possession and disposal of
all property shipped under the Letter of Credit until such time
as all the liabilities and obligations under said letter had been
discharged. PNBs possession of the subject machinery and
equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said
possession by itself cannot be considered payment of the loan
secured thereby. Payment would legally result only after PNB
had foreclosed on said securities, sold the same and applied
the proceeds thereof to TCCs loan obligation. Mere possession
does not amount to foreclosure for foreclosure denotes the
procedure adopted by the mortgagee to terminate the rights of
the mortgagor on the property and includes the sale itself.
The transfer of ownership to extinguish a pre-existing
obligation is the essence in dation in payment, therefore it is
not a consensual contract, but a real contract and novates the
original debt relationship into a consummated sale.
Discussion:
So in this case there NO dation en pago. While it is true
that the PNB took possession of the said equipment in pursuant
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
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to the Trust Receipt Agreement, this did not result to dation en
pago. The repossession was only for the purpose of securing
payment. Payment only happened after the PNB foreclosed the
said equipment and applied the proceeds thereof to the loan
owed to them. Mere possession does not amount to foreclosure
because foreclosure yet has to follow a procedure to be adopted
by the mortgagee.
In dation en pago, it is the delivery and transmission of
ownership by the debtor to the creditor as an accepted
equivalebnt of the performance of the obligation. The same is
governd by the Law on Sales.
Article 1245 says, 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. Do remember, however,
that dation en pago is different from pactum commisorium.
Pactum commisorium of s automatic appropriation in case of
default or failure of payment on the debtor. Pactum
commissorium is VOID. And it is different from dation en pago
where there in no automatic appropriation. In dation en pago,
the debtor has to offer the property in lieu of the monetary
obligation and the creditor has to give his consent. The creditor
can refuse dation en pago.
Requisites for a valid dation in payment:
(a) Animo Solvendi Performance of the prestation in lieu of
payment which may consist in the delivery of a corporeal thing
or a real right or a credit against the third person.
(b) Aliud Pro Alio Some difference between the prestation due
and that which is given in substitution
(c) 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.
Lo. vs. KJS
(October 8, 2003)
FACTS
Petitioner ordered scaffolding equipments from
respondent for its construction business. Petitioner made a
downpayment and was able to pay 2 monthly installments,
but failed thereafter. Respondent on the other hand, fully
complied with its deliveries. Unable to settle his obligation,
petitioner executed a deed of assignment over his
receivables with Jomero Realty Corporation. However,
respondent was not able to collect the receivable since
Jomero alleges that the petitioner also has a liability with
him and therefore, such receivable has already been
extinguished through prescription. Respondent now filed an
action for recovery of sum of money.
ISSUE: WON the obligation was extinguished with the
execution of the Deed of Assignment of credit.? NO.
RULING
An assignment of credit is an agreement by virtue
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of which the owner of a credit, known as the assignor, by
a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers
his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same
extent as the assignor could enforce it against the debtor.
Corollary thereto, 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 debtors debt. As such, the vendor
in good faith shall be responsible, for the existence and
legality of the credit at the time of the sale but not for
the solvency of the debtor, in specified circumstances. Hence,
the petitioner is still liable.
Aquintey vs. Tibong
(December 20, 2006)
FACTS
Felicidad secured loan amounting to 773k from
Agrafina. Felicidad failed to pay such loan which prompted
Agrafina to file a complaint for sum of money and
damages against Felicidad before RTC. Felicidad executed
deeds of assignment of credits (obligations) duly notarized
by Atty. A-ayo, in which Felicidad transferred and assigned
to Agrifina the total amount of P546,459.00 due from her
debtors. In the said deeds, Felicidad confirmed that her
debtors were no longer indebted to her for their
respective loans.
For her part, Agrifina conformed to the deeds of
assignment relative to the loans of Virginia Morada and
Corazon Dalisay. She was furnished copies of the deeds as
well as the promissory notes. The spouses Tibong argues
that this resulted in a novation of the original obligation to
Agrifina. They insisted that by virtue of these documents,
Agrifina became the new collector of their debtors; and
the obligation to pay the balance of their loans had been
extinguished.
RTC ruled 472k plus interest for the actual amount
of obligation and 25k for atty fees.
CA affirmed the decision of RTC with modification
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holding that the balance of the total indebtedness amounts
to P51,341.00 plus the stipulated interest of 6% per month
from May 11, 1999 until the finality of this decision.
ISSUE: WON the deeds of assignment executed by spouses
tibong in favor of Aquintey resulted in the novation of
the original obligation? YES.
RULING
An assignment of credit is an agreement by virtue
of which the owner of a credit, known as the assignor, by
a legal cause, such as sale, dation in payment, exchange
or donation, and without the consent of the debtor,
transfers his credit and accessory rights to another, known
as the assignee, who acquires the power to enforce it to
the same extent as the assignor could enforce it against
the debtor. It may be in the form of sale, but at times it
may constitute a dation in payment, such as when a
debtor, in order to obtain a release from his debt, assigns
to his creditor a credit he has against a third person.
In Vda. de Jayme v. Court of Appeals, the Court
held that dacion en pago is the delivery and transmission
of ownership of a thing by the debtor to the creditor as
an accepted equivalent of the performance of the
obligation. It is a special mode of payment where the
debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding debt. 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 obligation. As such, the
essential elements of a contract of sale, namely, consent,
object certain, and cause or consideration must be present.
In its modern concept, what actually takes place in dacion
en pago is an objective novation of the obligation where
the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the
purchase price. In any case, common consent is an
essential prerequisite, be it sale or novation, to have the
effect of totally extinguishing the debt or obligation.
**in sum, the difference between a contract of
sale and dacion en pago is that in the contract of sale,
the consideration is the price (money) while the
consideration in dacion en pago is the extinguishment of a
preexisting debt.
*** requisites of Dacion en pago (1) there must
be a 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); and (3) there must be an agreement
between the creditor and debtor that the obligation is
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immediately extinguished by reason of the performance of a
prestation different from that due.
Discussion:
What is now the basis why it has a different ruling to the case of
KJS? Why is it that there is no breach of warranty in Aquintey?
Insolvency of Debtors. The reason why Agrifina was not
able to collect was the insolvency of the debtors, the
subjects of the assignment. Otherwise, there will be
breach of warranty because at the time of the
assignment, the obligations must exist. In 1620, the
vendor in good faith is responsible for the existence
and legality of credit at the time of sale unless it shall
have been sold as doubtful but not the insolvency of
the debtor. Consent of the debtors are not essential for
the perfection of dation en pago.
So in this case, the failure to pay was due to the
inability to pay by the debtors of spouses Tibong. There was no
breach of warranty because the obligation existed at the time of
the assignment. Also in this case, the Supreme Court also held
that in the modern concept of dation en pago, what actually
takes place is an objective novation.
SSS vs. AGP
(April 30, 2008)
FACTS
Sometime in 2000, AG&P premiums and loan
amortization delinquencies from SSS amounted to P7.3 M.
AG&P proposed to SSS to pay its said arrears by end of
2000, but requested for the condonation of all penalties; In
turn, SSS suggested two (2) options to AG&P, either to pay
by installment or through "dacion en pago"; AG&P chose
to settle its obligation with the SSS through dacion en
pago initially on its 5,999sqm property situated in Baguio
City (appraised value is about P80M). However, AG&P was
not amenable to SSSs proposal to subdivide its Baguio
property in order to carve out an area sufficient to cover
AG&Ps delinquencies; So, AG&P made another proposal,
offering as payment a portion of its 58,153 sqm-lot in
Batangas. SSS also included SEMIRARA, one of the other
companies under DMCI group that had outstanding
delinquencies with the SSS in the proposed settlement
through dacion en pago; AG&P was, thereafter directed by
SSS to submit certain documents, such as TCT, Tax
Declaration covering the subject lot, and the proposed
subdivision plan, which requirements AG&P immediately
complied;
In 2001, SSS, finally approved AG&Ps proposal to
settle its and SEMIRARAs delinquencies through dacion en
pago, which as of March 2001 amounted to around P29M.
From the time of the approval of AG&Ps proposal up to
the present, AG&P is religiously remitting the premium
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
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contributions and loan amortization of its member-
employees to the defendant; To effect the property transfer,
a Deed of Assignment has to be executed between the
AG&P and SEMIRARA and SSS. Because of SSSs failure to
come up with the required Deed of Assignment to effect
said transfer, AG&P prepared the draft and submitted it to
the Office of the Vice-President NCR in July 2001. When
SSS failed to take any action on said Deed of Assignment
the draft was again resubmitted in December 2001. From
its original submission of the Deed of Assignment in July
2001 to its re-submission in December 2001, and SSS
returning of the revised draft in February 28, 2003 AG&P
was consistent in its regular follow ups with SSS as to the
status of its submitted Deed of Assignment;
On February 28, 2003, or more than a year after
the approval of AG&Ps proposal, SSS sent the revised
copy of the Deed of Assignment to AG&P. However, the
amount of the AG&P and SEMIRARAs obligation appearing
in the approved Deed of Assignment has ballooned from
around P29M to P40M allegedly because of the additional
interests and penalty charges assessed on AG&P and
SEMIRARAs outstanding obligation from April 2001, the
date of approval of the proposal, up to January 2003;
AG&P demanded for the waiver and deletion of the
additional interests on the ground that delay in the
approval of the deed and the subsequent delay in
conveyance of the property in defendants name was solely
attributable to the defendant; hence, to charge them with
additional interests and penalties amounting to more than
P10M would be unreasonable. AG&P maintained that they
only owe P29M from SSS. SSS, however, refused to accept
the payment through dacion en pago, unless AG&P and
SEMIRARA also pay the additional interests and penalties
being charged. AG&P and SEMIRARA filed a complaint for
specific performance and damages against SSS before the
RTC.
RTC dismissed AG&P and SEMIRARAs complaint,
stating that it is not a suit for specific performance. CA
reversed RTC decision, and said otherwise.
RTC Ruling: The alleged dacion en pago is crystal
clear manifestation of offering a special form of payment
which to the mind of the court will produce effect only
upon acceptance by the offeree and the observance and
compliance of the required formalities by the parties. No
matter in what form it may be, still the court believes that
the subject matter is the payment of contributions and
the corresponding penalties, not specific performance to
enforce dacion en pago.
CA Ruling: The subject of the complaint is no
longer the payment of the premium and loan amortization
delinquencies, as well as the penalties appurtenant
thereto, but the enforcement of the dacion en pago
pursuant to the SSS Resolution. The action therefore is
correctly one for specific performance.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
(Note: the reason for the dismissal of the RTC and
consequently the basis for the reversal of CA are actually
more on the issue on jurisdiction. Parang na side mention lang
ang dacion en pago)
ISSUE: WON the action for specific performance was proper in
order to enforce the agreed dacion en pago. YES
RULING
SSS stated its resolution that "the dacion en pago
proposal of AG&P Co. of Manila and Semirara Coals
Corporation to pay their liabilities in the total amount of
P30,652,710.71 as of 31 March 2001 by offering their 5.8
ha. property located in San Pascual, Batangas, be, as it is
hereby, approved .." This statement unequivocally evinces its
CONSENT to the dacion en pago.
Dacion en pago is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.
It is a special mode of payment where the debtor offers
another thing to the creditor who accepts it as equivalent
of payment of an outstanding debt. 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
debtors debt. As such, the essential elements of a contract
of sale, namely, consent, object certain, and cause or
consideration must be present . In its modern concept,
what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the
debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or
novation, to have the effect of totally extinguishing the debt or
obligation.
The controversy lies in the non-implementation of
the approved and agreed dacion en pago on the part of
the SSS. As such, the SC agreed with CA that the proper
suit is doubtless, a suit for specific performance. (-> Recall
that in a Contract of Sale (obligation to give, which is
really what dacion en pago partakes of), an action for
specific performance is proper)
Yuson vs. Vitan
(July 27, 2006)
FACTS
Complainant Mar Yuson was a taxi driver. He
received a sum of money by way of inheritance. According
to him, he and his wife intended to use the money to
purchase a taxi. They were able to purchase a secondhand
taxi, and Atty. Vitan helped him with all the legal matters
concerning this purchase. The lawyer borrowed P100,000
from them and agreed that the loan would be repaid.
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To guarantee payment, respondent executed in
favor of complainant several postdated checks to cover the
loaned amount which turned out to be worthless as it
were drawn against the lawyer's closed account in the
Bank of Commerce in Escolta, Manila. The six dishonored
checks were presented during the hearing before the IBP
commissioner.
Complainant seek the aid of the IBP National
Committee on Legal Aid (NCLA) in obtaining payment. An
administrative case was filed against Atty. Vitan. When the
date passed without any payment, complainant demanded
a collateral to secure the loan. Thus, in his favor, Atty.
Vitan executed a document denominated as a Deed of
Absolute Sale, covering the latter's parcel of land located in
Sta. Maria, Bulacan. According to complainant, their
intention was to transfer the title of the property to him
temporarily, so that he could either sell or mortgage it. It
was further agreed that, if it was mortgaged, respondent
would redeem it as partial or full payment of the loan.
Curiously, however, the parties executed a second
Deed of Absolute Sale, this time in favor of Atty. Vitan,
with complainant as vendor. The purpose of this particular
document was not explained by either party. Atty. Vitan
explained that he had already settled his obligation. He
maintained that he had in fact executed, in complainant's
favor, a Deed of Absolute Sale over his 203-square-meter
residential property in Sta. Maria, Bulacan. He clarified that
"[their] understanding was that [complainant] ha[d] the
option to use, mortgage or sell [the property] and return
to me the excess of the proceeds after obtaining his
money represented by my six (6) dishonored checks."
The respondent attached the second Deed of Absolute
Sale. Only after the IBP investigating commissioner had
rendered her Report and Recommendation did Atty. Vitan
submit his Answer to the Letter-Complaint. He called the
second document a "Counter Deed of Sale," executed as a
"sort of collateral/security for the account of [his] liaison
officer [Evelyn Estur]." He admitted having given several
postdated checks amounting to P100,000, supposedly to
guarantee the indebtedness of Estur to complainant. Atty.
Vitan argued for the first time that it was she who had
incurred the debts, and that he had acted only as a
"character reference and/or guarantor."
He maintained that he had given in to the one-
sided transactions, because he was "completely spellbound
by complainant's seeming sincerity and kindness." To
corroborate his statements, he attached Estur's Affidavit.
ISSUE: WON the contention of Atty. Vitan that his
obligation was already extinguished by virtue of dation in
payment is tenable. NO
HELD:
Atty. Vitan contends that his obligation was
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
already extinguished, because he had allegedly sold his
Bulacan property to complainant. Basically, respondent is
asserting that what had transpired was a dation in
payment. Governed by the law on sales, it is a transaction
that takes place when a piece of property is alienated to
the creditor in satisfaction of a debt in money. It involves
delivery and transmission of ownership of a thing -- by the
debtor to the creditor -- as an accepted equivalent of the
performance of the obligation.
Going over the records of this case, we find the
contention of Atty. Vitan undeserving of credence. The
records reveal that he did not really intend to sell and
relinquish ownership over his property in Sta. Maria,
Bulacan, notwithstanding the execution of a Deed of
Absolute Sale in favor of complainant. The second Deed of
Absolute Sale, which reconveyed the property to
respondent, is proof that he had no such intention. This
second Deed, which he referred to as his "safety net," betrays
his intention to counteract the effects of the first one .
In a manner of speaking, Atty. Vitan was taking
back with his right hand what he had given with his left.
The second Deed of Absolute Sale returned the parties
right back where they started, as if there were no sale in
favor of complainant to begin with. In effect, on the basis
of the second Deed of Sale, respondent took back and
asserted his ownership over the property despite having
allegedly sold it. Thus, he fails to convince us that there
was a bona fide dation in payment or sale that took place
between the parties; that is, that there was an
extinguishment of obligation.
It appears that the true intention of the parties
was to use the Bulacan property to facilitate payment.
They only made it appear that the title had been
transferred to complainant to authorize him to sell or
mortgage the property. Atty. Vitan himself admitted in his
letter dated July 30, 2004, that their intention was to
convert the property into cash, so that payment could be
obtained by complainant and the excess returned to
respondent. The records, however, do not show that the
proceeds derived were sufficient to discharge the
obligation of the lawyer fully; thus, he is still liable to the
extent of the deficiency.
Discussion:
So take note of the distinctions laid out in this case, in
sale, there is no basis in credit. In dation en pago, there is. In
sale, the cost is the price. In dation, the price is the
extinguishment of the obligation.
6) DISTINGUISHED FROM PAYMENT BY CESSION
This is one of the special forms of payment.
Four special forms of payment
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1. Payment by cession
2. Dacion en pago
3. Tender of payment and consignation
4. Application of payment
Art. 1255. The debtor may cede or assign his property
to his creditors in payment of his debts. This cession, unless there
is stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by
special laws.
Requisites of payment by cession:
1. There must be at least two creditors
2. Debtor must be partially insolvent in a sense that he
still has properties but his properties are not sufficient
to pay his creditors
3. The payment by cession must be accepted by the
creditors.
Note: There is no transfer of ownership to the creditors. The
rights over the property are transferred to the creditors so that
the creditors can sell it and the proceeds to be applied to the
obligations of the debtor prorate to the creditors.
What is the difference?
There is no transfer of ownership unlike in a contract of
sale, there is an intention to transfer ownership.
7) DISTINGUISHED FROM LEASE
In a contract of lease, the lessor binds himself to give to
another (the lessee) the enjoyment of use of a thing for a price
certain, and for a period which may be definite or indefinite.
(Article 1643)
A conditional sale may be made in the form of a ease
with option to buy as a device to circumvent the provisions of
the Recto Law governing the sale of personal property on
installments. It may be stipulated in such contract that the
lessee has the option to buy the leased property for a small
consideration at the end of the term of the lease, provided that
the rent has been duly paid; or if the rent throughout the term
had been paid, title shall vest in the lessee. Such contract are
really conditional sales and are deemed leases in name only.
Discussion:; However, no lease for more than ninety-nine years
shall be valid.
Filinvest vs. CA
(September 29, 1989)
DOCTRINE
When a lease clearly shows that the rentals are meant
to be installment payments to a sale contract, despite the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
nomenclature given by the parties ,it is a sale by installments.
FACTS:
The spouses Sy Bang wanted to expand their
gravel production business, and decided to look for a rock
crusher with the help of Gemini Motor Sales. They found
a rock crusher they wanted to buy (as they were
apprantly satisfied after inspecting it), but the 550k price
presented a problem. The spouses Sy then applied for
financial assistance from Filinvest. Filinvest agreed, but on
the following conditions:
1. that the machinery be purchased in the petitioner's
name;
2. that it be leased (with option to purchase upon the
termination of the lease period) to the private respondents;
and
3. that the private respondents execute a real estate
mortgage in favor of the petitioner as security for the
amount advanced by the latter.
And so in 1981, a contract lease of machinery
(with option to purchase) was entered into by both
parties. This contract also stipulated that ownership of the
machine would pass to the spouses at the end of the 2yr
period. The spouses Bang then executed a real estate
mortgage over 2 parcels of land in favor of Filinvest, and
the rock crusher was delivered to the spouses. Three
months after the delivary, however, the spouses
complained to Filinvest, alleging that contrary to the 20 to
40 tons per hour capacity of the machine as stated in the
lease contract, the machine could only process 5 tons of
rocks and stones per hour. They then demanded that the
petitioner make good the stipulation in the lease contract.
They followed that up with similar written complaints to
the petitioner, but the latter did not, however, act on
them. Subsequently, the private respondents stopped
payment on the remaining checks they had issued to the
petitioner.
As a consequence of the non-payment by the
private respondents of the rentals on the rock crusher as
they fell due despite the repeated written demands, the
petitioner extrajudicially foreclosed the real estate
mortgage. The spouses protested, and the RTC and CA
ruled in favor of the spouses. Both courts ordered the
spouses to return the deective machine to Filinvest and
for Filinvest to return the 470k as guaranty deposit and
rentals to the spouses. Filinvest appealed, stating that it
was not the seller of the machine (but only a financer),
and further absolving itself of any liability arising out of
the lease contract it signed with the private respondents
due to the waiver of warranty made by the latter. The
petitioner likewise maintains that the private respondents
being presumed to be knowledgeable about machineries,
should be held responsible for the detection of defects in
the machine they had acquired, and on account of that,
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they are estopped from claiming any breach of warranty.
Finally.
ISSUE: What is the real nature of the contract between Filinvest
and the spouses Bang? CONTRACT OF SALE.
RULING
Filinvest was the owner of the machine even if it was
not the seller. They are, however, not liable. While it is
accepted that the petitioner is a financing institution, it is
not, however, immune from any recourse by the private
respondents. Notwithstanding the testimony of private
respondent Jose Sy Bang that he did not purchase the rock
crusher from the petitioner, the fact that the rock crusher
was purchased from Rizal Consolidated Corporation in the
name and with the funds of the petitioner proves beyond
doubt that the ownership thereof was effectively
transferred to it. It is precisely this ownership which
enabled the petitioner to enter into the "Contract of Lease of
Machinery and Equipment" with the private respondents. It
was the private respondents who chose, inspected, and
tested the subject machinery.
It was only after they had inspected and tested
the machine, and found it to their satisfaction, that the
private respondents sought financial aid from the petitioner.
One of the stipulations in the contract they entered into
with the petitioner is an express waiver of warranties in
favor of the latter. By so signing the agreement, the
private respondents absolved the petitioner from any liability
arising from any defect or deficiency of the machinery they
bought.
Sale as lease contracts aim to circumvent Article 1484
par 3.
Article 1484 states:
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 or 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.
Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the
lessor, retains, likewise, the right to repossess the same,
without going through the process of foreclosure, in the
event the vendee-lessee defaults in the payment of the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
installments. There arises therefore no need to constitute a
chattel mortgage over the movable sold. More important,
the vendor, after repossessing the property and, in effect,
canceling the contract of sale, gets to keep all the
installments-cum-rentals already paid. It is thus for these
reasons that Article 1485 of the new Civil Code provides that:
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
possession or enjoyment of the thing.
POLICY : The nomenclature of the agreement
cannot change its true essence, as the intent of the
parties should prevail.
8) DISTINGUISHED FROM CONTRACT TO SELL
A contract to sell is akin to a conditional sale where the
efficacy or obligatory force of the vendor's obligation to transfer
title is subordinated to the happening of a future and uncertain
event, so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had
never existed. The suspensive condition is commonly full
payment of the purchase price.
In a contract to sell, the ownership is reserved in the
seller and is not to pass until full payment of the purchase price
is made. Full payment is a positive suspensive condition.
However, the title remains in the vendor if the vendee does not
comply with the condition precedent of making payment at the
time specified in the contract.
Almira vs. CA
(March 20, 2003)
FACTS
Juana Almira et.al. (petitioners) are the wife & children
of late Julio Garcia who inherited fromo his mother, Maria
Alibudbud, Lot 1642. Lot 1642 was co-owned & registered in
names of 3 persons Vicente de Guzman (), Enrique
Hemedes () & Francisco Alibudbud (). No separate title was
issued in the name of Julio Garcia but there were tax
declarations in his name to the extent of his grandfathers
share.
5 Jul 84: Heirs of Julio Garcia & Federico Briones
entered into Kasunduan ng Pagbibilihan over 21,460sqm
portion of Lot 1642 for P150k. Briones paid P65k upon
execution while balance of P85k was made payable within
6mos from date of execution.
Heirs of Garcia allegedly informed Briones that TCT No
RT-1076 of Lot 1642 was in possession of
cousinConchalinaAlibudbud. Briones still willingly entered into
the Kasunduan provided that full payment of purchase price
will be made upon delivery to him of the title.
Briones took possession of the property & made
various payments to Heirs. However, upon failure of Heirs to
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deliver the separate title to the property, he refused to make
further payments. Heirs filed complaint for rescission of
Kasunduan, among others, against Briones.
ISSUE: WON the contract entered into by the parties was a
contract to sell which entitles the Heirs to rescission
RULING
Negative, contract of sale. The rights of the parties are
governed by the terms and the nature of the contract they
enter into. In a contract to sell, ownership is, by agreement,
reserved to the vendor and is not to pass until full payment of
the purchase price; whereas, in contract of sale, title to the
property passes to the vendee upon delivery of the thing sold.
Non-payment by the vendee in a contract of sale entitles the
vendor to demand specific performance or rescission of the
contract, with damages, under Article 1191.
Careful reading of the provisions of the Kasunduan
reveals that it is a contract of sale. A deed of sale is absolute in
nature in the absence of any stipulation reserving title to the
vendor until full payment of the purchase price. In such cases
ownership of the thing sold passes to the vendee upon actual
or constructive delivery thereof. There is nothing in the
Kasunduan which expressly provides that Heirs retain title or
ownership of the property, until full payment of the purchase
price. The absence of such stipulation in the Kasunduan
coupled with the fact that Briones took possession of the
property upon the execution of the Kasunduan indicate that
the parties have contemplated a contract of absolute sale.
There was a perfected contract of sale. The parties
agreed on the sale of a determinate object and the price
certain therefor, without any reservation of title on the part of
Heirs. Ownership was effectively conveyed by Heirs to Briones,
who was given possession of the property. The delivery of a
separate title in name of Julio Garcia was a condition imposed
on Briones obligation to pay the balance of the purchase price.
It was not a condition imposed on the perfection of the
contract of sale.
Hence, cannot avail of rescission. The power to rescind
is only given to the injured party. In the case at bar, Heirs were
not ready, willing and able to comply with their obligation to
deliver a separate title in the name of Julio Garcia to Briones.
Therefore, they are not in a position to ask for rescission of the
Kasunduan. It is Briones who has the option either to refuse to
proceed with the sale or to waive the performance of the
condition imposed on his obligation to pay balance of the
purchase price.
Discussion:
Is rescission available in Contract to Sell/Contract of Sale?
Rescission is only available in a Contract of Sale.
Why was rescission not available here despite having a perfected
Contract of Sale?
The power to rescind is only given to the injured party.
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In the case at bar, Heirs were not ready, willing and able
to comply with their obligation to deliver a separate
title in the name of Julio Garcia to Briones. Therefore,
they are not in a position to ask for rescission of the
Kasunduan. It is Briones who has the option either to
refuse to proceed with the sale or to waive the
performance of the condition imposed on his obligation
to pay balance of the purchase price.
What was the condition in the delivery of title? Title in the
name of whom?
Title in the name of Julio Garcia.
What are the distinctions between a Contract to Sell and a
Contract of Sale?
CONTRACT TO SELL CONTRACT OF SALE
The ownership is reserved in Title passes to the buyer upon
the seller and is not to pass delivery of the thing sold.
until full payment of the
purchase price is made
Full payment is a positive Non-payment of the price is a
suspensive condition. negative resolutory condition
Title remains in the vendor if The vendor has lost and
the vendee does not comply cannot recover the ownership
with the condition precedent of the land sold until & unless
of making payment at the time the contract of sale itself is
specified in the contract. resolved and set aside.
Reyes vs. Tuparan
(June 1, 2011)
FACTS
Mila Reyes owned a lot, where she put up a 3-storey
commercial building known as RBJ Building & residential
apartment building. Since 90, she had been operating a
drugstore & cosmetics store on the ground flr where she also
had been residing while other areas were leased by tenants &
street vendors.
Dec 89: Victoria Tuparan leased a space on the
ground flr of RBJ Building for her pawnshop business for
P4k/mo. Tuparan invested thousands of pesos in Reyes
financing/lending business.
20 Jun 88: Reyes mortgaged the properties to Farmers
Savings Bank to secure loan of P2M. She decided to sell her real
properties for P6.5M so she could liquidate her bank loan &
finance her businesses. Tuparan verbally offered to
conditionally buy the properties for P4.2M & to assumed the
bank loan of P2.278M:
Conditional sale will be canceled if Reyes finds another
buyer of said properties within next 3mos
Reyes would continue to use the space occupied by
her drugstore & cosmetics store without rentals for duration of
installments
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Lease for 15yrs in favor of Reyes over said space for
P8k
Tuparan will undertake renewal & payment of fire
insurance
FSL approved the proposal on the condition that Reyes
would sign as co-maker for the mortgage obligation assumed
by Tuparan.
26 Nov 90: the parties & FSL executed Deed of
Conditional Sale of Real Properties with Assumption of
Mortgage.
Tuparan however defaulted in the payment of her
obligations. Instead of paying in lump sum, she paid Reyes in
small amounts from time to time.
19 Mar 92: residential building was gutted by fire.
Tuparan neglected to renew the fire insurance policy on the
buildings.
Since Dec 90: Tuparan had taken possession of the
real properties & had been continuously collecting &receving
monthly rental income from the tenants & vendors without
sharing it with Reyes.
10 Sep 92: Reyes filed complaint for Rescission of
contract with damages against Tuparan.
ISSUE: WON the Deed entered into by the parties & FSL is a
contract to sell or contract of sale
RULING
Contract to sell. Stipulation in the contract: title and
ownership of the subject real properties shall remain with
Reyes until the full payment of Tuparan of the balance of the
purchase price and liquidation of the mortgage obligation of
2M; upon full payment by Tuparan of the full balance of the
purchase price and the assumed mortgage obligation, FSL shall
issue the corresponding Deed of Cancellation of Mortgage and
Reyes shall execute the corresponding Deed of Absolute Sale in
favor of Tuparan.
Reyes obligation to sell the subject properties
becomes demandable only upon the happening of the positive
suspensive condition, which is Tuparans full payment of the
purchase price. Without full payment, there can be no breach
of contract to speak of because Reyes has no obligation yet to
turn over the title. Tuparans failure to pay in full the purchase
price is not the breach of contract contemplated under Article
1191 but rather just an event that prevents Reyes from being
bound to convey title.
Considering, however, that the Deed of Conditional
Sale was not cancelled by Reyes and that out of the total
purchase price of the subject property in the amount of 4.2M,
the remaining unpaid balance of Tuparan is only 805k, a
substantial amount of the purchase price has already been
paid. It is only right and just to allow Tuparan to pay the said
unpaid balance of the purchase price to Reyes.
Granting that a rescission can be permitted under
Article 1191, the Court still cannot allow it for the reason that,
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
considering the circumstances, there was only a slight or casual
breach in the fulfillment of the obligation. Rescission is allowed
only when the breach is substantial & fundamental to the
fulfillment of the obligation.
Cannot be denied that Tuparan paid to FSL Bank Reyes
mortgage obligation in the amount of 2,278,078.13, which
formed part of the purchase price of the subject property.
Likewise, it is not disputed that Tuparan paid directly to Reyes
the amount of 721,921.87 representing the additional
payment for the purchase of the subject property. Clearly, out
of the total price of 4,200,000.00, Tuparan was able to pay the
total amount of 3M, leaving a balance of 1.2M.
Discussion:
Assuming that this was a Contract of Sale, is rescission available?
Granting that a rescission can be permitted under
Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there was
only a slight or casual breach in the fulfillment of the
obligation. Rescission is allowed only when the breach
is substantial & fundamental to the fulfillment of the
obligation.
Spouses Serrano vs. Caguiat
(February 28, 2007)
FACTS
Mar 90: GodofredoCaguiat offered to buy the lot of
Sps. Herrera. Sps. agreed to sell it at P1,500/sqm. Caguiat gave
them P100k as partial payment. Sps. gave respondent Receipt
for Partial Payment of Lot 23, stating that Caguiat promised to
pay the balance on/before 23 Mar 90.
28 Mar: Caguiat wrote Sps. informing them of
readiness to pay the balance & requesting them to prepare the
final DOS.
4 Apr: Sps. sent letter to Caguiat stating that Amparo
Herrera is leaving for abroad & that they are cancelling the
transaction. Also informed Caguiat that he can recover the
earnest money anytime. In another letter, informed Caguiat
that they delivered PNB check in amount of P100k to Caguiats
counsel.
In view of cancellation, Caguiat filed complaint for
specific performance. TC ruled there was perfected contract of
sale. CA affirmed.
ISSUE: WON the document Receipt for Partial Payment is a
contract to sell or contract of sale
RULING
Contract to sell. Interpreting the Receipt, no other
interpretation than that they agreed to a conditional contract
of sale, consummation of which is subject only to the full
payment of the purchase price MR. CAGUIAT PROMISED TO
PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE
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MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE
FINAL DEED OF SALE ON THIS DATE.
A contract to sell is akin to a conditional sale where
the efficacy or obligatory force of the vendor's obligation to
transfer title is subordinated to the happening of a future and
uncertain event, so that if the suspensive condition does not
take place, the parties would stand as if the conditional
obligation had never existed. The suspensive condition is
commonly full payment of the purchase price.
In a contract of sale, title passes to the buyer upon
delivery of the thing sold. Non-payment of the price is a
negative resolutory condition and the vendor has lost and
cannot recover the ownership of the land sold until & unless
the contract of sale itself is resolved and set aside.
In a contract to sell, the ownership is reserved in the
seller and is not to pass until full payment of the purchase price
is made. Full payment is a positive suspensive condition.
However, the title remains in the vendor if the vendee does not
comply with the condition precedent of making payment at the
time specified in the contract.
"Receipt for Partial Payment" shows that the true
agreement between the parties is a contract to sell. First,
ownership over the property was retained by Sps and was not
to pass to Caguiat until full payment of the purchase price. In
effect, Sps have the right to rescind unilaterally the contract the
moment Caguiat fails to pay within the fixed period. Second,
the agreement between the parties was not embodied in a
deed of sale. The absence of a formal deed of conveyance is a
strong indication that the parties did not intend immediate
transfer of ownership, but only a transfer after full payment.
Third, Sps retained possession of the TCT of the lot. This is an
additional indication that the agreement did not transfer to
Caguiat, either by actual or constructive delivery, ownership of
property.
Art 1482 speaks of earnest money given in a contract
of sale. In this case, the earnest money was given in a contract
to sell. The earnest money forms part of the consideration only
if the sale is consummated upon full payment of the purchase
price. Now, since the earnest money was given in a contract to
sell, Art 1482, which speaks of a contract of sale, does not
apply.
Discussion:
What contracts is it if it is not a Contract of Sale? Contract to
Sell.
What are the factors considered?
The Receipt for Partial Payment shows that the true
agreement between the parties is a contract to sell.
First, ownership over the property was retained by
petitioners and was not to pass to respondent until full
payment of the purchase price. Thus, petitioners need
not push through with the sale should respondent fail
to remit the balance of the purchase price before the
deadline on March 23, 1990. In effect, petitioners have
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
the right to rescind unilaterally the contract the
moment respondent fails to pay within the fixed period.
Second, the agreement between the parties was not
embodied in a deed of sale. The absence of a formal
deed of conveyance is a strong indication that the
parties did not intend immediate transfer of ownership,
but only a transfer after full payment of the purchase
price.
Third, petitioners retained possession of the certificate
of title of the lot. This is an additional indication that
the agreement did not transfer to respondent, either by
actual or constructive delivery, ownership of the
property.
Notice that the SC ruled that A contract to sell is akin
to a conditional sale.
Conditional Sale vs. Contract to Sell
Conditional Sale Contract to Sell
Ownership is automatically Ownership is not automatically
transferred to the buyer upon vested. A Deed of Conditional
full payment of the purchase Sale is first executed.
price
Consent is present. Consent is lacking.
Nabus vs. Pacson
(November 25, 2009)
FACTS
Sps. Nabus were owners of parcels of land, which were
mortgaged to PNB to scure a loan in amount of P30k.
19 Feb 77: Sps. Nabus executed a DOCS covering
1000sqm of land in favor of Sps. Pacson for P170k, provided
that P13k be paid directly to PNB, mortgage balance of P17,500
shall be paid by Pacsons, & as soon as mortgage obligation is
fully paid, Pacsons pay amount of P2k/mo until full amount of
P170k is fully paid.
Pursuant to Deed, Pacsons paid PNB. Thereafter,
Pacsons took possession of the property & constructed a
building and fence.
24 Dec: before payment of balance mortgage with PNB, Bate
Nabus died. Julie Nabus (wife) & minor daughter Michelle
Nabus executed Deed of Extrajudicial Settlement. TCT was
issued in names of Julie & Michelle.
Jan 84: Julie approached Pacson to ask for full
payment of lot but Pacson told her to return after 4 days. When
Julie returned, Pacson sent her & daughter Catalina to Atty.
Rillera for execution of DOAS. Atty. Rillera required Julie to
return in 4 days with DOES, TCT, & guardianship papers of
Michelle. Julie did not return.
Getting suspicious, Pacson went to ROD & asked for
copy of title of land. Found that it was still in the name of Julie
& Michelle. After a week, Pacson heard rumor that lot was sold
to Betty Tolero. Went back to ROD & found that DOAS was
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executed in favor of Tolero. So Pacsons filed complaint for
annulment of deeds.
ISSUE: WON the DOCS was a contract of sale or contract to sell
RULING
Contract to sell. Art. 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.
A contract of sale is absolute when title to the
property passes to the vendee upon delivery of the thing sold.
A deed of sale is absolute when there is no stipulation in the
contract that title to the property remains with the seller until
full payment of the purchase price. The sale is also absolute if
there is no stipulation giving the vendor the right to cancel
unilaterally the contract the moment the vendee fails to pay
within a fixed period. In a conditional sale, as in a contract to
sell, ownership remains with the vendor and does not pass to
the vendee until full payment of the purchase price. The full
payment of the purchase price partakes of a suspensive
condition, and non-fulfillment of the condition prevents the
obligation to sell from arising.
A Contract to Sell may not be considered as a Contract
of Sale because the first essential element (consent or meeting
of the minds) is lacking. In a contract to sell, the prospective
seller explicitly reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the
contract to sell until the happening of an event. What the seller
obliges himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price is
delivered to him.
A contract to sell may thus be defined as a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself to sell
the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment
of the purchase price.
Case at bar: DOCS stipulated that "as soon as the full
consideration of the sale has been paid by the vendee, the
corresponding transfer documents shall be executed by the
vendor to the vendee for the portion sold." Where the vendor
promises to execute a deed of absolute sale upon the
completion by the vendee of the payment of the price, the
contract is only a contract to sell.
If Pacsons paid the SpsNabus in accordance with the
stipulations in DOCS, the consideration would have been fully
paid in June 1983. As vendees given possession of the subject
property, the ownership of which was still with the vendors,
the Pacsons should have protected their interest and inquired
from Julie Nabus why she did not return and then followed
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
through with full payment of the purchase price and the
execution of the deed of absolute sale. The SpsPacson had the
legal remedy of consigning their payment to the court;
however, they did not do so.
Since the Deed of Conditional Sale executed in their
favor was merely a contract to sell, the obligation of the seller
to sell becomes demandable only upon the happening of the
suspensive condition. The full payment of the purchase price is
the positive suspensive condition, the failure of which is not a
breach of contract, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding
force.
Since the contract to sell was without force and effect,
Julie Nabus validly conveyed the subject property to another
buyer, Betty Tolero, through a contract of absolute sale. Sps.
Pacson, however, have the right to reimbursement & damages.
Discussion:
What is the nature of the Contract? Contract to Sell Why is it
important to determine the nature of the contract?
First, to also determine when the obligation of the
seller to sell does becomes demandable. In this case,
obligation of the seller to sell does becomes
demandable only upon the happening of the
suspensive condition. The full payment of the purchase
price is the positive suspensive condition, the failure of
which is not a breach of contract, but simply an event
that prevented the obligation of the vendor to convey
title from acquiring binding force. Second, to also
determine whether there was a valid conveyance to
Tolero.
What are the stipulations/factors that would lead to the
conclusion that they entered into a Contract to Sell?
DOCS stipulated that "as soon as the full consideration
of the sale has been paid by the vendee, the
corresponding transfer documents shall be executed by
the vendor to the vendee for the portion sold." Where
the vendor promises to execute a deed of absolute sale
upon the completion by the vendee of the payment of
the price, the contract is only a contract to sell.
There was no full payment. What is now the effect?
Since the Deed of Conditional Sale executed in their
favor was merely a contract to sell, the obligation of the
seller to sell becomes demandable only upon the
happening of the suspensive condition. The full
payment of the purchase price is the positive
suspensive condition, the failure of which is not a
breach of contract, but simply an event that prevented
the obligation of the vendor to convey title from
acquiring binding force. Thus, for its non-fulfilment,
there is no contract to speak of, the obligor having
failed to perform the suspensive condition which
enforces a juridical relation.
There can be no rescission or fulfilment of an obligation
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that is still non-existent, the suspensive condition not
having occurred as yet. Emphasis should be made that
the breach contemplated in Article 1191 of the New
Civil Code is the obligors failure to comply with an
obligation already extant, not a failure of a condition to
render binding that obligation.
What will happen to the previous payments?
The Spouses Pacson, however, have the right to the
reimbursement of their payments to the Nabuses, and
are entitled to the award of nominal damages.
Under the Deed of Conditional Sale, respondents had
the right to demand from petitioners Julie and Michelle
Nabus that the latter execute in their favor a deed of
absolute sale when they were ready to pay the
remaining balance of the purchase price. The Nabuses
had the corresponding duty to respect the respondents
right, but they violated such right, for they could no
longer execute the document since they had sold the
property to Betty Tolero.] Hence, nominal damages in
the amount of P10,000.00 are awarded to respondents.
In relation to Spouses Serrano, the Court ruled there
that a Contract to Sell is akin to a Conditional Sale. They are
similar but not entirely the same. In Nabus, the Court ruled that,
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although
it is conditioned upon the happening of a contingent event
which may or may not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is completely
abated. However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the
sale to the buyer, ownership thereto automatically transfers to
the buyer by operation of law without any further act having to
be performed by the seller.
Ace Foods Inc. vs. Micro Pacific
(December 11, 2013)
FACTS
ACE Foods is a domestic corporation engaged in the
trading and distribution of consumer goods in wholesale and
retail bases, while MTCL is one engaged in the supply of
computer hardware and equipment.
MTCL sent a letter-proposal for the delivery and sale
of the subject products to be installed at various offices of ACE
Foods. Aside from the itemization of the products offered for
sale, the said proposal further provides for the following
terms, viz.:
TERMS : Thirty (30) days upon delivery
VALIDITY : Prices are based on current dollar rate and subject
to changes without prior notice.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
DELIVERY : Immediate delivery for items on stock, otherwise
thirty (30) to forty-five days upon receipt of [Purchase Order]
WARRANTY : One (1) year on parts and services. Accessories
not included in warranty.
ACE Foods accepted MTCLs proposal and accordingly
issued Purchase Order No. 100023 (Purchase Order) for the
subject products amounting to P646,464.00 (purchase price).
MTCL delivered the said products to ACE Foods as
reflected in Invoice Receipt. The fine print of the
invoice states, inter alia, that "[t]itle to sold property is
reserved in MICROPACIFIC TECHNOLOGIES CO., LTD.
until full compliance of the terms and conditions of
above and payment of the price" (title reservation
stipulation). After delivery, the subject products were
then installed and configured in ACE Foodss premises.
MTCLs demands against ACE Foods to pay the
purchase price, however, remained unheeded.
Instead of paying the purchase price, ACE Foods sent
MTCL a Letter stating that it "ha[s] been returning the
[subject products] to [MTCL] thru [its] sales
representative Mr. Mark Anteola who has agreed to
pull out the said [products] but had failed to do so up
to now."
ACE Foods lodged a Complaint against MTCL, praying
that the latter pull out from its premises the subject products
since MTCL breached its "after delivery services" obligations to
it, particularly, to: (a) install and configure the subject products;
(b) submit a cost benefit study to justify the purchase of the
subject products; and (c) train ACE Foodss technicians on how
to use and maintain the subject products. ACE Foods likewise
claimed that the subject products MTCL delivered are defective
and not working.
MTCL maintained that it had duly complied with its
obligations to ACE Foods and that the subject products were in
good working condition when they were delivered, installed
and configured in ACE Foodss premises. MTCL even conducted
a training course for ACE Foodss representatives/employees;
MTCL, however, alleged that there was actually no agreement
as to the purported "after delivery services." Further, MTCL
posited that ACE Foods refused and failed to pay the purchase
price for the subject products despite the latters use of the
same for a period of nine (9) months. MTCL prayed that ACE
Foods be compelled to pay the purchase price, as well as
damages related to the transaction.
ISSUE: Whether ACE Foods should pay MTCL the purchase price
for the subject products.
HELD:
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 real nature of a contract may be
determined from the express terms of the written agreement
and from the contemporaneous and subsequent acts of the
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
contracting parties. However, in the construction or
interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. The denomination or title
given by the parties in their contract is not conclusive of the
nature of its contents.
The very essence of a contract of sale is the transfer of
ownership in exchange for a price paid or promised. This may
be gleaned from Article 1458 of the Civil Code which defines a
contract of sale as follows:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or
conditional. (Emphasis supplied)
Corollary thereto, a contract of sale is classified as
a consensual contract, which means that the sale is perfected
by mere consent. No particular form is required for its validity.
Upon perfection of the contract, the parties may reciprocally
demand performance, i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may
require the vendee to pay the thing sold.
CONTRACT TO SELL V CONDITIONAL CONTRACT OF SALE. In
contrast, a contract to sell is defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the property despite delivery thereof to the
prospective buyer, binds himself to sell the property exclusively
to the prospective buyer upon fulfillment of the condition
agreed upon, i.e., the full payment of the purchase price. A
contract to sell may not even be considered as a conditional
contract of sale where the seller may likewise reserve title to
the property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract of sale,
the first element of consent is present, although it is
conditioned upon the happening of a contingent event which
may or may not occur.
In this case, the parties have agreed to a contract of
sale and not to a contract to sell. Bearing in mind its consensual
nature, a contract of sale had been perfected at the precise
moment ACE Foods, as evinced by its act of sending MTCL the
Purchase Order, accepted the latters proposal to sell the
subject products in consideration of the purchase price
of P646,464.00. From that point in time, the reciprocal
obligations of the parties i.e., on the one hand, of MTCL to
deliver the said products to ACE Foods, and, on the other hand,
of ACE Foods to pay the purchase price therefor within thirty
(30) days from delivery already arose and consequently may
be demanded. Article 1475 of the Civil Code makes this clear:
Art. 1475. The contract of sale is perfected at
the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the
price.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
From that moment, the parties may
reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
The Court must dispel the notion that the stipulation
anent MTCLs reservation of ownership of the subject products
as reflected in the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the transaction from a
contract of sale into a contract to sell. Records are bereft of any
showing that the said stipulation novated the contract of sale
between the parties which, to repeat, already existed at the
precise moment ACE Foods accepted MTCLs proposal. To be
sure, novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the
amendatory agreement. In either case, however, novation is
never presumed, and the animus novandi, whether totally or
partially, must appear by express agreement of the parties, or
by their acts that are too clear and unequivocal to be mistaken.
In the present case, it has not been shown that the title
reservation stipulation appearing in the Invoice Receipt had
been included or had subsequently modified or superseded the
original agreement of the parties. The fact that the Invoice
Receipt was signed by a representative of ACE Foods does not,
by and of itself, prove animus novandi since: (a) it was not
shown that the signatory was authorized by ACE Foods (the
actual party to the transaction) to novate the original
agreement; (b) the signature only proves that the Invoice
Receipt was received by a representative of ACE Foods to show
the fact of delivery; and (c) as matter of judicial notice, invoices
are generally issued at the consummation stage of the contract
and not its perfection, and have been even treated as
documents which are not actionable per se, although they may
prove sufficient delivery. Thus, absent any clear indication that
the title reservation stipulation was actually agreed upon, the
Court must deem the same to be a mere unilateral imposition
on the part of MTCL which has no effect on the nature of the
parties original agreement as a contract of sale. Perforce, the
obligations arising thereto, among others, ACE Foodss
obligationto pay the purchase price as well as to accept the
delivery of the goods, remain enforceable and subsisting.
The return of the subject products pursuant to a
rescissory action is neither warranted by ACE Foodss claims of
breach either with respect to MTCLs breach of its purported
"after delivery services" obligations or the defective condition
of the products - since such claims were not adequately proven
in this case. The rule is clear: each party must prove his own
affirmative allegation; one who asserts the affirmative of the
issue has the burden of presenting at the trial such amount of
evidence required by law to obtain a favorable judgment,
which in civil cases, is by preponderance of evidence. This,
however, ACE Foods failed to observe as regards its allegations
of breach. Hence, the same cannot be sustained.
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Discussion:
Can we say that the Contract of Sale here was a Conditional
one?
NO.
When was the title reservation made?
After the Contract was perfected.
Olivarez vs. Castillo
(July 9, 2014)
FACTS
Olivarez Realty Corporation and Benjamin executed a
deed of conditional sale over a parcel of lot owned by Bejamin,
covered by TCT No. T-19972, which is also claimed by the
Philippine Tourism Authority under TCT No. T-18493. Under the
terms of the contract, the corporation shalll buy the land for
P19,080,490, with an agreed downpayment of P5,000,000.00
payable in several instalments. The balance of the purchase
price shall be paid by the corporation in 30 equal monthly
installments, commencing on the day the title of the Philippine
Tourism Authority had been cancelled. The corporation shall
file the case against PTA, with the full assistance of Benjamin.
Also, the corporation agreed to pay disturbance compensation
up to P1,500,000.00 only, to the tenants therein, and Benjamin
shall be responsible for clearing the tenants. The parties agreed
that corporation shall immediately occupy the lot, and in case
the contract is cancelled, the improvements put up by the
company shall inure to Benjamin.
Thereafter, Benjamin filed an action to rescind the
contract under Article 1191 of the Civil Code. According to him,
the company only paid him the amount of P2,500,000.00. out
of the P5,000,000.00 instalment price. Contrary to the
companys representation, the company did not file any action
against the Philippine Tourism Authority, nor paid disturbance
compensation to the tenants. Despite demand, the company
refused to pay the full purchase price of the property. He also
argued that the contract was a contract of adhesion, and even
so, the company committed substantial breach of the
obligation warranting rescission under Art. 1191 of the Civil
Code.
The company, on the other hand, countered that
Benjamin did not fully assist in the case to be filed against PTA;
he also did not clear the property of tenants, thus the company
had all the legal right to withhold instalment payment. When
his request for admission to Dr. Pablo Olivarez was objected to
by the company, Benjamin filed a motion for judgment on the
pleadings and/or summary judgment, attaching thereto his
affidavit and the affidavit of a witness attesting to the material
allegations of his complaint. According to him, the company
had already admitted the material allegations of his complaint,
that is, that the company have not yet commenced an action
against PTA, nor paid the disturbance compensation. Should
judgment on the pleadings be denied, a summary judgment is
still porper, since there are no genuine issues tendered by the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
company. The company opposed the motion, since there were
genuine issues which need to be resolved and a full blown trial
is necessary to fresh out the issues.
The trial court granted Benjamins motion and
rendered summary judgment, ruling that the company
substantially admitted the material allegations in Benjamins
complaint, and there were no genuine issues tendered by it. It
rescinded the contract of conditional sale between Benjamin
and Olivarez Realty Corporation and forfeited the
P2,500.000.00 as damages under Art. 1191 of the Civil Code.
On appeal to the Court of Appeals, the appellate court affirmed
the findings of the trial court.
The company thus filed a petition for certiorari under
Rule 45 of the Rules of Court to try to reverse the judgments of
the lower courts. Among the issues it presented for
consideration was the propriety of the summary judgment.
According to the company, it cannot be faulted for withholding
instalment payments.
ISSUE: What then is the nature of the contract between the
company and Benjamin?
RULING
Since Olivarez Realty Corporation illegally withheld
payments of the purchase price, Castillo is entitled to cancel his
contract with petitioner corporation. However, we properly
characterize the parties contract as a contract to sell, not a
contract of conditional sale.
In both contracts to sell and contracts of conditional
sale, title to the property remains with the seller until the
buyer fully pays the purchase price. Both contracts are subject
to the positive suspensive condition of the buyers full payment
of the purchase price.
In a contract of conditional sale, the buyer
automatically acquires title to the property upon full payment
of the purchase price. This transfer of title is by operation of
law without any further act having to be performed by the
seller. In a contract to sell, transfer of title to the prospective
buyer is not automatic. The prospective seller [must] convey
title to the property [through] a deed of conditional sale.
The distinction is important to determine the
applicable laws and remedies in case a party does not fulfill his
or her obligations under the contract. In contracts of
conditional sale, our laws on sales under the Civil Code of the
Philippines apply. On the other hand, contracts to sell are not
governed by our law on sales but by the Civil Code provisions
on conditional obligations.
Specifically, Article 1191 of the Civil Code on the right
to rescind reciprocal obligations does not apply to contracts to
sell. As this court explained in Ong v. Court of Appeals, failure
to fully pay the purchase price in contracts to sell is not the
breach of contract under Article 1191. Failure to fully pay the
purchase price is merely an event which prevents the [sellers]
obligation to convey title from acquiring binding force. This is
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
because there can be no rescission of an obligation that is still
non-existent, the suspensive condition not having [happened].
In this case, Castillo reserved his title to the property and
undertook to execute a deed of absolute sale upon Olivarez
Realty Corporations full payment of the purchase price. Since
Castillo still has to execute a deed of absolute sale to Olivarez
Realty Corporation upon full payment of the purchase price,
the transfer of title is not automatic. The contract in this case is
a contract to sell.
As this case involves a contract to sell, Article 1191 of
the Civil Code of the Philippines does not apply. The contract to
sell is instead cancelled, and the parties shall stand as if the
obligation to sell never existed.
Olivarez Realty Corporation shall return the possession
of the property to Castillo. Any improvement that Olivarez
Realty Corporation may have introduced on the property shall
be forfeited in favor of Castillo per paragraph I of the deed of
conditional sale:
Immediately upon signing this Contract, [Olivarez
Realty Corporation] shall be entitled to occupy, possess and
develop the subject property. In case this Contract is cancelled,
any improvement introduced by [Olivarez Realty Corporation]
on the property shall be forfeited in favor of [Castillo.
As for prospective sellers, this court generally orders
the reimbursement of the installments paid for the property
when setting aside contracts to sell. This is true especially if the
propertys possession has not been delivered to the
prospective buyer prior to the transfer of title.
In this case, however, Castillo delivered the possession
of the property to Olivarez Realty Corporation prior to the
transfer of title. We cannot order the reimbursement of the
installments paid.
In Gomez v. Court of Appeals, the City of Manila and
Luisa Gomez entered into a contract to sell over a parcel of
land. The city delivered the propertys possession to Gomez.
She fully paid the purchase price for the property but violated
the terms of the contract to sell by renting out the property to
other persons. This court set aside the contract to sell for her
violation of the terms of the contract to sell. It ordered the
installments paid forfeited in favor of the City of Manila as
reasonable compensation for [Gomezs] use of the [property]
for eight years.
In this case, Olivarez Realty Corporation failed to fully
pay the purchase price for the property. It only paid
P2,500,000.00 out of the P19,080,490.00 agreed purchase
price. Worse, petitioner corporation has been in possession of
Castillos property for 14 years since May 5, 2000 and has not
paid for its use of the property.
Similar to the ruling in Gomez, we order the
P2,500,000.00 forfeited in favor of Castillo as reasonable
compensation for Olivarez Realty Corporations use of the
property.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
PART II: ELEMENTS OF A CONTRACT OF SALE
Elements of a Contract of Sale
1) Consent
2) Subject Matter or Object
3) Consideration or Price
I) CONSENT
CONSENT
is the first essential element in a contract of sale. Every
person having legal capacity to obligate himself may
validly enter into a contract of sale whether as seller or
buyer. When we say capacity to act, obviously, we refer
to the person who has the power to do acts with legal
effect or the power to obligate himself.
Article 1489. All persons who are authorized in this
Code to obligate themselves, may enter into a contract of sale,
saving the modifications contained in the following articles. x x x
.
So all those who are authorized by the civil code may
enter into a contract of sale. So not just natural
persons, but even juridical persons.
Even juridical persons may enter into a contract of sale.
It can be a buyer, it can be a seller, it can own even the
estate properties.
Article 44. The following are juridical persons: (1)
The State and its political subdivisions; (2) Other
corporations, institutions and entities for public
interest or purpose, created by law; their
personality begins as soon as they have been
constituted according to law; (3) Corporations,
partnerships and associations for private interest or
purpose to which the law grants a juridical
personality, separate and distinct from that of each
shareholder, partner or member.
Article 46. Juridical persons may acquire and
possess property of all kinds, as well as
incurobligations and bring civil or criminal actions,
in conformity with the laws and regulations of their
organization.
Incapacity in relation to a contract of sale
There are 2 kinds of capacity:
1) Absolutely incapacitated persons and
2) relatively incapacitated persons
1) MINORS, INSANE OR DEMENTED PERSONS, DEAF-MUTE
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Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Article 1327. The following cannot give consent to a
contract:
(1) Unemancipated minors; (lahat ng minors ngayon,
unemancipated)
(2) Insane or demented persons, and deaf-mutes who do
not know how to write
Minors
Art. 234. Emancipation takes place by the attainment of
majority. Unless otherwise provided, majority commences at the
age of twenty-one (now 18) years. Emancipation also takes
place: (1) By the marriage of the minor; or (2) By the recording in
the Civil Register of an agreement in a public instrument
executed by the parent exercising parental authority and the
minor at least eighteen years of age. Such emancipation shall be
irrevocable
Article 1489. x x x Where necessaries are those sold and
delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor. Necessaries are those
referred to in article 290 (now Article 194 of Family code).
Art. 194. Support comprises everything indispensable
for sustenance, dwelling, clothing, medical attendance,
education and transportation, in keeping with the financial
capacity of the family.
So the necessaries here are those indispensable for
support is in accordance with the social position of the
family.
Of course, when a food is purchased by a minor or
insane person, hindi naman pwede na bawiin niya kasi
voidable, especially pag nakain na niya. So to raise this
one, there should be a perfected sale and a delivery of
a subject necessaries
However recall in your obligations and contract, that
there is another exception when the minor is in
estoppel. For example, when the minor is asked are
you of legal age, then he says yes, then
subsequently he alleges that the status of the contract
is because he is a minor, hindi yan pwede. Kasi he is
already in estoppel.
Insane or Demented
Article 1328. Contracts entered into during a lucid
interval are valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable.
Effects if one of the parties is incapacitated
The contract is voidable.
Article 1390. The following contracts are voidable or
annullable, even though there may have been no damage to the
contracting parties:
(1) Those where one of the parties is incapable of giving
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
consent to a contract;
(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
Ratification of a Voidable Contract
Article 1393. Ratification may be effected expressly or
tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an
intention to waive his right.
Effect if both parties are incapacitated
The contract is unenforceable.
Labagala vs. Santiago
(December 4, 2001)
FACTS
Jose Santiago owned a parcel of land covered by TCT
64729. Alleging that Jose had fraudulently registered it in his
name alone, his sisters (Nicolasa and Amanda, herein
respondents) sued Jose for the recovery of 2/3 share of the
property. RTC ruled in favor of the sisters and their names were
included in the certificate of title. Jose died intestate.
Respondents filed a complaint for the recovery of title,
ownership and possession against petitioner Labagala to
recover from her the 1/3 portion of the said property pertaining
to Jose, but which came into petitioners sole possession upon
his death. Respondents alleged that Joses share in the
property belongs to them by operation of law since they are
the only legal heirs of their brother.
Respondents contentions: The deed of sale was a
forgery. The deed showed that Jose affixed his thumb mark, but
respondents averred that, having been able to graduate from
college, Jose never put his thumb mark on documents and
always signed his name in full. Respondents also pointed out
that it is highly improbable for petitioner to have paid the
supposed consideration of P150,000 for the sale of the
property because petitioner was unemployed and without any
visible means of livelihood at the time of the alleged sale. It
was quite unusual and questionable that petitioner registered
the deed of sale almost 8 years after the execution of the sale.
Petitioner claimed to be the daughter of Jose, and thus entitled
to his share in the property. She argued that the sale was in fact
a donation to her, and that nothing could have precluded Jose
from putting his thumb mark on the deed of sale instead of his
signature.
ISSUE: WON there was a valid sale. NO
HELD:
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
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The Court agreed with CA that: This deed is shot
through and through with so many intrinsic defects that a
reasonable mind is inevitably led to the conclusion that it is
fake. Why hide the nature of the contract in the faade of a
sale? Why did Santiago (fully aware that he owned only 1/3) sell
or donate the whole property to Ida? Why did Santiago affix
only his thumb mark to a deed that falsely stated that xxx Ida
was of legal age when she was then only 15 years old? Etc
Clearly, there is no valid sale in this case. Jose did not have the
right to transfer ownership of the entire property to petitioner
since 2/3 belonged to his sisters. Petitioner could not have given
her consent to the contract, being a minor at the time. Consent
of the contracting parties is among the essential requisites of a
contract, including one of sale, absent which there can be no
valid contract. Moreover, petitioner admittedly did not pay any
centavo for the property, which makes the sale void. Art 1471:
If the price is simulated, the sale is void, but the act may be
shown to have been in reality a donation, or some other act or
contract. Even assuming that the deed is genuine, it cannot be
a valid donation. It lacks the acceptance of the donee required
by Art 725 of the Civil Code. Being a minor, the acceptance of
the donation should have been made by her father (Leon
Labagala) or mother, or legal representative. No one of those
mentioned in the law accepted the donation for Ida. The
Court also ruled that petitioner is not the child of Jose Santiago,
and cannot inherit from him through succession. No birth
certificate was shown, only a baptismal certificate, which is not
conclusive proof of filiation.
Discussion
Isnt it that minority was one of the basis not to consider the
contract of sale as valid?
Yes. Even granting that there was a deed of sale made
in favor of Ida on 1979, Ida was still a minor at that
time. Hence, she cannot enter into a valid contract of
sale.
Isnt it that when one of the parties is incapacitated, the contract
is merely voidable? In this case, did the court held that the
contract is merely voidable? Or void per se?
It is void. It was not based on the minority of Ida
Labagala but based on the lack of price. It was found
out that Ida did not pay even a single centavo for the
parcel of land. This is because she was still a minor
So with that, there was no perfected contract of sale.
But if you look at the intention allege here by Ida that it was
intended to be a donation, why did the supreme court did not
uphold the status of the contract being a donation? If it is not a
sale, why would it not be a donation as well? What is the
requirement in donation?
Acceptance. Take note that a donation is a formal or
solemn contract. And there must be a compliance with
the requisites provided by law for its validity.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
There is no valid sale here. Take note that the Supreme
Court mentioned that Jose did not have the right to transfer
ownership. However, remember that ownership at the time of
the perfection of the sale is not required. Consent is sufficient
together with price and subject matter. Further, the petitioner
could not have given their consent to the contract being a
MINOR.
We know that when one of the parties being
incapacitated the contract is merely voidable. And in fact, under
your obligation and contract, who can allege the status of the
contract? Only the incapacitated party when he attains capacity
of any person acting as his legal representative of guardian.
But what really made the court decide that there was
no contract of sale is also the fact that there was no
consideration. Petitioner admitted that she did not pay any
centavo for property, which makes the sale void. So in the
absence of price, there could be no valid sale. Now, going back
to the intention that there was really no sale, because what was
allege is a donation, the SC held that there could be no valid
donation for it lacks the acceptance of Ida. Being a minor,
acceptance should have been made by her parent or her legal
representative. Again, donation is a solemn contract.
Francisco vs. Herrera
(November 21, 2002)
FACTS
Eligio Herrera, Sr., the father of respondent, was the
owner of two parcels of land, one consisting of 500 sq. m. and
another consisting of 451 sq. m. On January 3, 1991, petitioner
bought from said landowner the first parcel, for the price of
P1,000,000, paid in installments from November 30, 1990 to
August 10, 1991.On March 12, 1991, petitioner bought the
second parcel, for P750,000. Contending that the contract price
for the two parcels of land was grossly inadequate, the children
of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and
respondent Pastor Herrera, tried to negotiate with petitioner to
increase the purchase price When petitioner refused, herein
respondent then filed a complaint for annulment of sale. In his
complaint, respondent claimed ownership over the second
parcel, allegedly by virtue of a sale in his favor since 1973. He
likewise claimed that the first parcel was subject to the co-
ownership of the surviving heirs of Francisca A. Herrera, the
wife of Eligio, Sr., considering that she died intestate on April 2,
1990, before the alleged sale to petitioner. Finally, respondent
also alleged that the sale of the two lots was null and void on
the ground that at the time of sale, Eligio, Sr. was already
incapacitated to give consent to a contract because he was
already afflicted with senile dementia, characterized by
deteriorating mental and physical condition including loss of
memory. The Regional Trial Court declared the deed of sale null
and void. CA affirmed trial courts decision.
ISSUE: WON the assailed contracts of sale void or merely
voidable and hence capable of being ratified
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HELD:
It was established that the vendor Eligio, Sr. entered
into an agreement with petitioner, but that the formers
capacity to consent was vitiated by senile dementia. Hence, the
Court must rule that the assailed contracts are not void or
inexistent per se; rather, these are contracts that are valid and
binding unless annulled through a proper action filed in court
seasonably.
A void or inexistent contract is one which has no force
and effect from the very beginning. Hence, it is as if it has never
been entered into and cannot be validated either by the
passage of time or by ratification. There are two types of void
contracts: I. Those where one of the essential requisites of a
valid contract as provided for by Art 1318(10) of the NCC is
totally wanting; and II. Those declared to be so under Art 14092
(11) of the NCC.
By contrast, a voidable or annullable contract is one in
which the essential requisites for validity under Art 1318 are
present, but vitiated by want of capacity, error, violence,
intimidation, undue influence or deceit. Article 1318 of the Civil
Code states that no contract exists unless there is a
concurrence of consent of the parties, object certain as subject
matter, and cause of the obligation established. Article 1327
provides that insane or demented persons cannot give consent
to a contract. But, if an insane or demented person does enter
into a contract, the legal effect is that the contract is voidable
or annullable as specifically provided in Article 1390.
An annullable contract may be rendered perfectly
valid by ratification, which can be express or implied. Implied
ratification may take the form of accepting and retaining the
benefits of a contract. This is what happened in this case.
Respondents contention that he merely received payments on
behalf of his father merely to avoid their misuse and that he
did not intend to concur with the contracts is unconvincing. If
he was not agreeable with the contracts, he could have
prevented petitioner from delivering the payments, or if this
was impossible, he could have immediately instituted the
action for reconveyance and have the payments consigned with
the court. None of these happened. As found by the trial court
and the Court of Appeals, upon learning of the sale,
respondent negotiated for the increase of the purchase price
while receiving the installment payments. It was only when
respondent failed to convince petitioner to increase the price
that the former instituted the complaint for reconveyance of
the properties. Clearly, respondent was agreeable to the
contracts, only he wanted to get more. Further, there is no
showing that respondent returned the payments or made an
offer to do so. This bolsters the view that indeed there was
ratification. One cannot negotiate for an increase in the price in
one breath and in the same breath contend that the contract of
sale is void.
Discussion
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Why is it needed here to point out whether the contract is void
or voidable?
Here you have Eligio Sr, who was already suffering from
senile dementia. The Supreme Court held that his
consent was vitiated due to his senile dementia and
therefore the contract is VOIDABLE, not void or
inexistent per se.
Why is this relevant?
Because if it was a void contract, there is no consent at
all, then there could be no ratification. But since there
was only an incapacity, a consent only vitiated by senile
dementia, then you only have a voidable or annullable
contract, of which may be a subject of ratification.
In this case, ratification on the part of the heirs of Eligio
Sr was here. Respondents contention that they merely
received payments on the act of his father merely to
avoid their misuse and that they did not intent to enter
into a contract is UNCONVINCING. If they were not
agreeable with the contract, they could have prevented
petitioner from bringing the payments, or if this is
impossible they could have immediately instituted an
action for reconveyance and have the payment
consigned with the court, none of these happened. It is
only when the respondents fail to convince the
petitioner to increase the price that the former
instituted the complaint for reconveyance of the
property. This bolster the view that indeed there was
an ratification. One cannot negotiate an increase with
the price in one hand, and in the same hand, contend
that the contract of sale is void. So, voidable contract is
subject to RATIFICATION.
Article 1397. The action for the annulment of contracts
may be instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these
flaws of the contract.
Article 1399.When the defect of the contract consists in
the incapacity of one of the parties, the incapacitated person is
not obliged to make any restitution except insofar as he has been
benefited by the thing or price received by him.
this would be in relation to necessaries)
If you are already 100 years old, can you still enter into a
contract of sale?
Paragas vs. Heirs of Dominador Balacano
(August 31, 2005)
FACTS
Gregorio Balacano, married to Lorenza Sumigcay, was
the registered owner of Lot 1175-E and Lot 1175-F of the Subd.
Plan Psd-38042. Gregorio and Lorenza had three children,
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namely: Domingo, Catalino and Alfredo, all surnamed Balacano.
Lorenza died on December 11, 1991. Gregorio, on the other
hand, died on July 28, 1996. Prior to his death, Gregorio was
admitted on June 28, 1996, transferred hospital in the
afternoon of July 19, 1996 until his death. Gregorio purportedly
sold on July 22, 1996, or barely a week prior to his death, a
portion of Lot 1175-E (15,925 square meters out of total area of
22,341 square meters) and the whole Lot 1175-F to Spouses
Paragas for the total consideration of P500,000.00. This sale
appeared in a deed of absolute sale and was notarized by Atty.
De Guzman. Gregorios certificates of title were consequently
cancelled and new certificates of title were issued in favor of
the Spouses Paragas. The Spouses Paragas then sold on
October 17, 1996 a portion of Lot 1175-E consisting of 6,416
square meters to Catalino for the total consideration of
P60,000.00. Domingos children filed on October 22, 1996 a
complaint for annulment of sale and partition against Catalino
and the Spouses Paragas.
They essentially alleged in asking for the nullification
of the deed of sale that: (1) their grandfather Gregorio could
not have appeared before the notary public on July 22, 1996 at
Santiago City because he was then confined at the Veterans
Memorial Hospital in Quezon City; (2) at the time of the alleged
execution of the deed of sale, Gregorio was seriously ill, in fact
dying at that time, which vitiated his consent to the disposal of
the property; and (3) Catalino manipulated the execution of the
deed and prevailed upon the dying Gregorio to sign his name
on a paper the contents of which he never understood because
of his serious condition. Alternatively, they alleged that
assuming Gregorio was of sound and disposing mind, he could
only transfer a half portion of Lots 1175-E and 1175-F as the
other half belongs to their grandmother Lorenza who
predeceased Gregorio they claimed that Lots 1175-E and 1175-
F form part of the conjugal partnership properties of Gregorio
and Lorenza. Finally, they alleged that the sale to the Spouses
Paragas covers only a 5-hectare portion of Lots 1175-E and
1175-F leaving a portion of 6,416 square meters that Catalino is
threatening to dispose. They asked for the nullification of the
deed of sale executed by Gregorio and the partition of Lots
1175-E and 1175-F. They likewise asked for damages. Plaintiff-
appellant Nanette Balacano testified to prove the material
allegations of their complaint. On Gregorios medical condition,
she declared that: (1) Gregorio, who was then 81 years old,
weak and sick, was brought to the hospital in Bayombong,
Nueva Vizcaya on June 28, 1996 and stayed there until the
afternoon on July 19, 1996; (2) thereafter, Gregorio, who by
then was weak and could no longer talk and whose condition
had worsened, was transferred in the afternoon of July 19,
1996 to the Veterans Memorial Hospital in Quezon City where
Gregorio died.
She claimed that Gregorio could not have signed a
deed of sale on July 19, 1996 because she stayed at the hospital
the whole of that day and saw no visitors. She likewise testified
on their agreement for attorneys fees with their counsel and
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
the litigation expenses they incurred.
Defendants posit that Gregorios consent to the sale
should be determined, not at the time Gregorio signed the
deed of sale on July 18, 1996, but at the time when he agreed
to sell the property in June 1996 or a month prior to the deeds
signing; and in June 1996, Gregorio was of sound and disposing
mind and his consent to the sale was in no wise vitiated at that
time.
They presented as witnesses Notary Public de Guzman
and instrumental witness Antonio to prove Gregorios execution
of the sale and the circumstances under the deed was
executed. They uniformly declared that: (1) on July 18, 1996,
they went to the hospital in Bayombong, Nueva Vizcaya where
Gregorio was confined with Rudy; (2) Atty. De Guzman read
and explained the contents of the deed to Gregorio; (3)
Gregorio signed the deed after receiving the money from Rudy;
(4) Julia and Antonio signed the deed as witnesses. Additionally,
Atty. De Guzman explained that the execution of the deed was
merely a confirmation of a previous agreement between the
Spouses Paragas and Gregorio that was concluded at least a
month prior to Gregorios death; that, in fact, Gregorio had
previously asked him to prepare a deed that Gregorio
eventually signed on July 18, 1996. He also explained that the
deed, which appeared to have been executed on July 22, 1996,
was actually executed on July 18, 1996; he notarized the deed
and entered it in his register only on July 22, 1996. He claimed
that he did not find it necessary to state the precise date and
place of execution (Bayombong, Nueva Vizcaya, instead of
Santiago City) of the deed of sale because the deed is merely
aconfirmation of a previously agreed contract between
Gregorio and the Spouses Paragas.
He likewise stated that of the stated P500,000.00
consideration in the deed, Rudy paid Gregorio P450,000.00 in
the hospital because Rudy had previously paid Gregorio
P50,000.00. For his part, Antonio added that he was asked by
Rudy to take pictures of Gregorio signing the deed. He also
claimed that there was no entry on the date when he signed;
nor did he remember reading Santiago City as the place of
execution of the deed. He described Gregorio as still strong but
sickly, who got up from the bed with Julias help. The lower
court, after trial, rendered the decision declaring null and void
the deed of sale purportedly executed by Gregorio Balacano in
favor of the spouses Paragas, noting that at the time Gregorio
executed the deed, Gregorio was ill. Because of the seriousness
of his illness, it is not expected that Gregorio Balacano would
be negotiating a contract of sale. The lower court also ruled
that Lots 1175-E and 1175-F were Gregorios and Lorenzas
conjugal partnership properties. The Court of Appeals affirmed
the Decision of the trial court, with the modification that Lots
1175-E and 1175-F were adjudged as belonging to the estate of
Gregorio Balacano.
ISSUE: * WON Gregorio give an intelligent consent to the sale
of Lots 1175-E and 1175-F when he signed the deed of sale? *
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WON Deed of Sale purportedly executed between petitioners
and the late Gregorio Balacano was null and void
RULING:
It is not disputed that when Gregorio signed the deed
of sale, Gregorio was seriously ill, as he in fact died a week after
the deeds signing. Gregorio died of complications caused by
cirrhosis of the liver. Gregorios death was neither sudden nor
immediate; he fought at least a month-long battle against the
disease until he succumbed to death on July 22, 1996. Given
that Gregorio purportedly executed a deed during the last
stages of his battle against his disease, the Court seriously
doubt whether Gregorio could have read, or fully understood,
the contents of the documents he signed or of the
consequences of his act. There was no conclusive evidence that
the contents of the deed were sufficiently explained to
Gregorio before he affixed his signature. The evidence the
defendants-appellants offered to prove Gregorios consent to
the sale consists of the testimonies of Atty. de Guzman and
Antonio which the Court did not find credible. Additionally, the
irregular and invalid notarization of the deed is a falsity that
raises doubts on the regularity of the transaction itself. While
the deed was indeed signed on July 18, 1996 at Bayombong,
Nueva Vizcaya, the deed states otherwise, as it shows that the
deed was executed on July 22, 1996 at Santiago City. Article 24
of the Civil Code tells us that in all contractual, property or
other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be
vigilant for his protection. Gregorios consent to the sale of the
lots was absent, making the contract null and void.
Consequently, the spouses Paragas could not have made a
subsequent transfer of the property to Catalino Balacano. In
the case at bar, the Deed of Sale was allegedly signed by
Gregorio on his death bed in the hospital. Gregorio was an
octogenarian at the time of the alleged execution of the
contract and suffering from liver cirrhosis at that circumstances
which raise grave doubts on his physical and mental capacity to
freely consent to the contract. Adding to the dubiety of the
purported sale and further bolstering respondents claim that
their uncle Catalino, one of the children of the decedent, had a
hand in the execution of the deed is the fact that on 17 October
1996, petitioners sold a portion of Lot 1175-E consisting of
6,416 square meters to Catalino for P60,000.00. One need not
stretch his imagination to surmise that Catalino was in cahoots
with petitioners in maneuvering the alleged sale.
Discussion
So the general rule is that, as we mentioned earlier, just because
you are in your advance years, doesnt mean you cant give a
valid consent. And the exception is
if it be shown that there is a sickness or a circumstance
by which the mental capacity or the person of the
person to give his consent can no longer be considered
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the same consent that a person with old age or
physically incapacitated to give consent
Consent must be intelligent free and spontaneous so
that it could be considered as the valid consent that would give
rise to a perfected contract of sale. So the mere fact that the
person is already in his advance yearsdoes not necessarily mean
that he could not give a valid consent. While the general rule is
that a person is not incompetent to contact merely because of
advance years or by reason of physical infirmities, when such
years or imfirmities have impaired the mental faculties, so as to
would prevent the person from properly, intelligently or freely
protecting his property rights, then he is undeniably
incapacitated.
In this case the seller was already suffering from liver
cirrhosis and that gave great doubts on his physical and mental
capacity to freely give consent to the contract.
When one of the parties is unable to read, or if the
contract is in a language not understood by him or a mistake or
fraud is alleged, the person executing the contract must show
that the terms threof have been fully explained to him.
2) SALE BY AND BETWEEN SPOUSES
A review (from the Family Code) of the rules in governing
spouses in entering contracts of sale:
Art. 73. Either spouse may exercise any legitimate
profession, occupation, business or activity without the consent
of the other. The latter may object only on valid, serious, and
moral grounds.
In case of disagreement, the court shall decide whether
or not:
(1) The objection is proper, and
(2) Benefit has accrued to the family prior to the objection or
thereafter. If the benefit accrued prior to the objection, the
resulting obligation shall be enforced against the community
property. If the benefit accrued thereafter, such obligation shall
be enforced against the separate property of the spouse who has
not obtained consent.
The foregoing provisions shall not prejudice the rights of
creditors who acted in good faith.
Heirs of Reyes vs. Mijares
(August 28, 2003)
FACTS
In 1960, Vicente Reyes married Ignacia Aguilar but
they had been separated de facto in 1974. The disputed lot was
registered in the name of Spouses Reyes. Vicente Reyes filed a
petition for administration and appointment of guardian with
the MTC. In the said petition, he misrepresented that his wife,
Ignacia, died on March 12, 1982 and that he and their minor
children were her only heirs. On March 1983, respondent
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Spouses Mijares bought the Lot. As a consequence of which,
the certificate of title in the name of Vicente and Ignacia Agilar-
Reyes was cancelled and a new title was issued in the name of
respondent-spoues. These circumstances were discovered by
Ignacia sometime in 1984. Ignacia then sent a letter to
respondent-spouses demanding the return of her share inthe
lot. Failing to settle the matter amicably, Ignacia instituted a
complaint for annulment of sale against respondent-spouses
and Vicente was included as one of the defendants. In their
answer, respondents claimed that they are purchasers in good
faith and that the sale was valid because the same was duly
approved by the court. RTC rendered a decision declaring the
sale of the lot void with respect to the share of Ignacia. During
appeal, Ignacia died and was substituted by her heirs. The
appellate court reversed the decision, ruling that,
notwithstanding the absence of Iganacias consent to the sale,
the same must be held valid in favor of respondent-spouses
because they were innocent purchasers for value.
ISSUE:
1.) What is the status of the sale of lot to respondent spouses.
And if so, should it be annulled in its entirety or only with
respect to the share of Ignacia?
2.) Were the respondents innocent purchasers for value?
RULING
(1) Voidable, annulled in its entirety
(2) not buyers in good faith
The governing laws at the time of the sale are Art. 166
and 173 of the New Civil Code which provides:
Article 166. Unless the wife has been declared a non
compos mentis or a spendthrift, or is under civil interdiction or
is confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal partnership without
the wife's consent. If she refuses unreasonably to give her
consent, the court may compel her to grant the same.
Article 173. The wife may, during the marriage, and
within ten years from the transaction questioned, ask the courts
for the annulment of any contract of the husband entered into
without her consent, when such consent is required, or any act
or contract of the husband which tends to defraud her or impair
her interest in the conjugal partnership property. Should the
wife fail to exercise this right, she or her heirs, after the
dissolution of the marriage, may demand the value of property
fraudulently alienated by the husband.
Pursuant to the foregoing provisions, the husband
could not alienate or encumber any conjugal real property
without the consent, express or implied, of the wife otherwise,
the contract is voidable. Indeed, in several cases[30] the Court
had ruled that such alienation or encumbrance by the husband
is void. The better view, however, is to consider the transaction
as merely voidable and not void.[31] This is consistent with
Article 173 of the Civil Code pursuant to which the wife could,
during the marriage and within 10 years from the questioned
transaction, seek its annulment.
There is no dispute that the lot, is a conjugal property
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
having been purchased using the conjugal funds of the spouses
during the subsistence of their marriage. It is beyond cavil
therefore that the sale of said lot to respondent spouses
without the knowledge and consent of Ignacia is voidable. Her
action to annul the March 1, 1983 sale which was filed on June
4, 1986, before her demise is perfectly within the 10 year
prescriptive period under Article 173 of the Civil Code. Even if
we reckon the period from November 25, 1978 which was the
date when Vicente and the respondent spouses entered into a
contract concerning Lot No. 4349-B-2, Ignacias action would
still be within the prescribed period.
The necessity to strike down the contract of July 5,
1963 as a whole, not merely as to the share of the wife, is not
without its basis in the common-sense rule. To be underscored
here is that upon the provisions of Articles 161, 162 and 163 of
the Civil Code, the conjugal partnership is liable for many
obligations while the conjugal partnership exists. Not only that.
The conjugal property is even subject to the payment of debts
contracted by either spouse before the marriage, as those for
the payment of fines and indemnities imposed upon them after
the responsibilities in Article 161 have been covered (Article
163, par. 3), if it turns out that the spouse who is bound
thereby, should have no exclusive property or if it should be
insufficient. These are considerations that go beyond the mere
equitable share of the wife in the property. These are reasons
enough for the husband to be stopped from disposing of the
conjugal property without the consent of the wife. Even more
fundamental is the fact that the nullity is decreed by the Code
not on the basis of prejudice but lack of consent of an
indispensable party to the contract under Article 166.
They are not buyers in good faith because there were
circumstances that should have placed respondent spouses on
guard. The death certificate of Ignacia, shows that she died on
March 22, 1982. The same death certificate, however, reveals
that (1) it was issued by the Office of the Civil Registrar of
Lubao Pampanga on March 10, 1982; (2) the alleged death of
Ignacia was reported to the Office of the Civil Registrar on
March 4, 1982; and (3) her burial or cremation would be on
March 8, 1982. These obvious flaws in the death certificate
should have prompted respondents to investigate further,
especially so that respondent Florentina Mijares admitted on
cross examination that she asked for the death certificate of
Ignacia because she was suspicious that Ignacia was still alive.
Discussion:
Sale is annulled in its entirety. The governing provisions
are Art. 166 and 173 of the NCC because the sale was perfected
before the effectivity of the Family Code. The requirement under
the Civil Code is that the sale must have the consent of the other
spouse. The husband cant alienate or encumber any conjugal
real property without the consent, expressed or implied,
otherwise it is voidable. Under 173, it is required that the
complaint must be made during the marriage and within 10
years of the questioned transaction. All the requisites are
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present in this case. So, the Supreme Court ruled that the sale
entered into by Vicente was VOIDABLE.
Guiang vs. CA
(June 26, 1998)
FACTS
Plaintiff Gilda Corpuz and defendant Judie Corpuz are
legally married spouses. Over the objection of private
respondent and while she was in Manila seeking employment,
her husband sold to the petitioners-spouses one half of their
conjugal property, consisting of their residence and the lot on
which it stood.
Subsequently, the couple Gilda and Judie Corpuz, with
plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter
lot from Manuel Callejo who signed as vendor through a
conditional deed of sale. The consideration was payable in
installment, with right of cancellation in favor of vendor should
vendee fail to pay three successive installments. Sometime on
April 22, 1988, the couple Gilda and Judie Corpuz sold one-half
portion of their Lot No. 9, Block 8, to the defendants spouses
Guiang. The latter have since then occupied the one-half
portion and built their house thereon. They are thus adjoining
neighbors of the Corpuzes.
Plaintiff Gilda Corpuz left for Manila sometime in June
1989. She was trying to look for work in the Middle East.
Unfortunately, she became a victim of an unscrupulous illegal
recruiter. She stayed for sometime in Manila. After his wifes
departure for Manila, defendant Judie Corpuz seldom went
home to the conjugal dwelling. Sometime in January 1990,
Harriet Corpuz learned that her father intended to sell the
remaining portion to defendants Guiangs. She wrote a letter
to her mother informing her. Gilda replied that she was
objecting to the sale. Harriet, however, did not inform her
father about this; but instead gave the letter to Mrs.
Luzviminda Guiang so that she Guiang would advise her father.
However, in the absence of his wife Gilda Corpuz,
defendant Judie Corpuz pushed through the sale. On March 1,
1990, he sold to defendant Luzviminda Guiang thru a
document known as Deed of Transfer of Rights the remaining
portion of their lot and the house standing thereon for a total
consideration of P30,000.00 of which P5,000.00 was to be paid
in June , 1990.
Plaintiff 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,
plaintiff was complained against by Guiang spouses before the
Barangay authorities for trespassing. On March 16, 1990, the
parties thereat signed a document known as amicable
settlement. Believing that she had received the shorter end of
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

the bargain, plaintiff went to the Barangay Captain for the to sell the property or an acceptance of such a continuing offer.
annulment of the settlement. Defendant-spouses Guiang Its tenor was to the effect that private respondent would
followed thru the amicable settlement with a motion for the vacate the property. By no stretch of the imagination, can the
execution of the amicable settlement, filing the same with the Court interpret this document as the acceptance mentioned in
MTC. Article 124.
ISSUE: (1) What is the status of the Deed of the transfer of sale
and if the amicable settlement ratified it.
RULING Discussion:
Void and cannot be ratified. Article 124 covers the conjugal partnership property
Article 1390. The following contracts are voidable or which states, among others that in the absence of such authority
annullable, even though there may have been no or consent, the disposition or encumbrance shall be void. In this
damage to the contracting parties: case, the sale was void without the written consent of the wife.
(2) Those where the consent is vitiated by mistake, Take note that in the amicable settlement executed before the
violence, intimidation, undue influence or fraud. barangay, it cannot ratify the transfer of rights because you
The error in petitioners contention is evident. Article cannot ratify a void contract. Next, it cannot be considered as a
1390, par. 2, refers to contracts visited by vices of consent, i.e., continuing offer as provided in Art. 124 because there was no
contracts which were entered into by a person whose consent stipulation that Gilda accepted the offer to buy the subject lot.
was obtained and vitiated through mistake, violence, Article 96 and 124 governs the sale of properties concerning the
intimidation, undue influence or fraud. In this instance, private community and conjugal property, respectively. In applying
respondents consent to the contract of sale of their conjugal Article 124 in this case, sale by the husband without the wifes
property was totally inexistent or absent. written consent is void and not merely voidable since one of the
The sale was done on March 1990 , said contract essential elements (consent) was absent.
properly falls within the ambit of Article 124 of the Family
Code, which was correctly applied by the two lower courts:
ART. 124. The administration and enjoyment
Ainza vs. Spouses Padua
of the conjugal partnership property shall belong to
(June 30, 2005)
both spouses jointly. In case of disagreement, the
FACTS
husbands decision shall prevail, subject to recourse to
In April 1987, Ainza and her daughter Eugenia orally
the court by the wife for proper remedy, which must be
agreed that Ainza pay P100k in exchange for half of the portion
availed of within five years from the date of the
of Eugenias undivided conjugal property. No Deed of Absolute
contract implementing such decision.
Sale was executed. There was physical delivery of the land
In the event that one spouse is incapacitated
through Concepcions other daughter (Natividad) acting as atty-
or otherwise unable to participate in the
in-fact. Concepcion thereafter allowed Natividad and her
administration of the conjugal properties, the other
husband occupy the purchased portion of the land. In 1994,
spouse may assume sole powers of administration.
Antonio caused the division of the lot into three (two were
These powers do not include the powers of disposition
occupied by the spouses), necessarily displacing Natividad. He
or encumbrance which must have the authority of the
also had each subdivision titled. Antonio requested Natividad
court or the written consent of the other spouse. In the
to vacate the premises. Antonio averred that his wife only
absence of such authority or consent, the disposition
admitted of selling 1/3 of the property to Concepcion for which
or encumbrance shall be void. However, the
a receipt was issued signed by Concepcion. The RTC ruled in
transaction shall be construed as a continuing offer on
favor of Concepcion. The CA reversed the RTC ruling. CA
the part of the consenting spouse and the third
explained that the property is conjugal hence the sale should
person, and may be perfected as a binding contract
have been with Antonios consent.
upon the acceptance by the other spouse or
ISSUE: W/N what was the status of the sale, the right of the
authorization by the court before the offer is
husband to annul the sale, and if the sale was within the
withdrawn by either or both offerors.
Statute of Frauds
Neither can the amicable settlement be considered a
RULING:
continuing offer that was accepted and perfected by the
Voidable but prescribed.
parties, following the last sentence of Article 124. The order of
A contract of sale is perfected by mere consent, upon
the pertinent events is clear: after the sale, petitioners filed a
a meeting of the minds on the offer and the acceptance
complaint for trespassing against private respondent, after
thereof based on subject matter, price and terms of payment.
which the barangay authorities secured an amicable settlement
(1) The consent of both Eugenia and Antonio is necessary for
and petitioners filed before the MTC a motion for its execution.
the sale of the conjugal property to be valid. Antonios consent
The settlement, however, does not mention a continuing offer
cannot be presumed. Except for the self-serving testimony of

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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
petitioner Natividad, there is no evidence that Antonio
participated or consented to the sale of the conjugal property.
Eugenia alone is incapable of giving consent to the contract.
Therefore, in the absence of Antonios consent, the disposition
made by Eugenia is voidable.
(2) The contract of sale between Eugenia and Concepcion being
an oral contract, the action to annul the same must be
commenced within six years from the time the right of action
accrued. Eugenia sold the property in April 1987 hence Antonio
should have asked the courts to annul the sale on or before
April 1993. No action was commenced by Antonio to annul the
sale, hence his right to seek its annulment was extinguished by
prescription.
Even assuming that the ten (10)-year prescriptive
period under Art. 173 should apply, Antonio is still barred from
instituting an action to annul the sale because since April 1987,
more than ten (10) years had already lapsed without any such
action being filed.
In this case, there was a perfected contract of sale
between Eugenia and Concepcion. The records show that
Eugenia offered to sell a portion of the property to Concepcion,
who accepted the offer and agreed to pay P100,000.00 as
consideration. The contract of sale was consummated when
both parties fully complied with their respective obligations.
Eugenia delivered the property to Concepcion, who in turn,
paid Eugenia the price of 100T.
(3) The verbal contract of sale between Eugenia and
Concepcion did not violate the provisions of the Statute of
Frauds that a contract for the sale of real property shall be
unenforceable unless the contract or some note or
memorandum of the sale is in writing and subscribed by the
party charged or his agent. When a verbal contract has been
completed, executed or partially consummated, as in this case,
its enforceability will not be barred by the Statute of Frauds,
which applies only to an executory agreement. Thus, where
one party has performed his obligation, oral evidence will be
admitted to prove the agreement.
In the instant case, the oral contract of sale between
Eugenia and Concepcion was evidenced by a receipt signed by
Eugenia. Antonio also stated that his wife admitted to him that
she sold the property to Concepcion.
Discussion:
The verbal contract did not violate the Statute of Frauds
as found in Art. 1403. Whenever a contract has been
consummated, or even partially complied with, it will not be
barred by its enforceability in the statute of frauds. There was no
dispute that the property was conjugal, sold by the wife in 1987,
prior to the effectivity of the Family Code. The consent of both
Eugenia and Antonio is necessary for the sale of a conjugal
property to be valid. No evidence was shown that Antonio
participated in the sale and therefore the sale shall be
considered voidable in accordance with the provisions of the
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Civil Code, meaning valid until annulled. The Supreme Court
took note that since it was an oral contract, if we apply the
general rules of prescription, which prescribes in 6 years. Even if
we apply the 10 year prescriptive period, Antonio is still barred
from instituting an action because since April 1987, 12 years has
lapsed without any action being filed.
Spouses Fuentes vs. Roca
(April 21, 2010)
FACTS
Sabina Tarroza sold to her son, Tarciano Roca a lot.
Tarciano then offered to sell the lot to Petitioner Spouses
Fuentes. They agreed that the petitioner will only pay the down
payment of P60, 000 and the remaining balance of P140, 000
only if Tarciano could obtain the consent of his estranged wife,
Rosario Roca.
The parties left their agreement with Atty. Plagata who
then worked on the requirements of the sale. According to Atty.
Plagata, he went to Manila and see Rosario and had her sign an
affidavit of consent.
So thereafter, Tarciano executed a deed of absolute
sale and the Spouses Fuentes then paid the balance of P140,
000.
When Tarciano and Rosario passed away, the children
of Tarciano, herein respondent Rocas, filed for an action for
annulment of sale and reconveyance of the land against the Sps
Fuentes alleging the sale was void due to the lack of consent
from Rosario. They alleged that the affidavit was a forgery.
RTC: Dismissed the case. CA: Reversed.
ISSUE: What is the status of the sale, whether the CC or the FC
would govern, did the action prescribe.
RULING
The sale was void, the Family Code will govern and
the action did not prescribe
The Court agrees with the CAs observation that
Rosarios signature strokes on the affidavit appears heavy,
deliberate, and forced. Her specimen signatures, on the other
hand, are consistently of a lighter stroke and more fluid. The
way the letters "R" and "s" were written is also remarkably
different. The variance is obvious even to the untrained eye.
Significantly, Rosarios specimen signatures were made
at about the time that she signed the supposed affidavit of
consent. They were, therefore, reliable standards for
comparison. The Fuentes spouses presented no evidence that
Rosario suffered from any illness or disease that accounted for
the variance in her signature when she signed the affidavit of
consent. Notably, Rosario had been living separately from
Tarciano for 30 years since 1958. And she resided so far away in
Manila. It would have been quite tempting for Tarciano to just
forge her signature and avoid the risk that she would not give
her consent to the sale or demand a stiff price for it.
What is more, Atty. Plagata admittedly falsified the
jurat of the affidavit of consent. That jurat declared that
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Rosario swore to the document and signed it in Zamboanga
City on January 11, 1989 when, as Atty. Plagata testified, she
supposedly signed it about four months earlier at her residence
in Paco, Manila on September 15, 1988. While a defective
notarization will merely strip the document of its public
character and reduce it to a private instrument, that falsified
jurat, taken together with the marks of forgery in the signature,
dooms such document as proof of Rosarios consent to the sale
of the land. That the Fuentes spouses honestly relied on the
notarized affidavit as proof of Rosarios consent does not
matter. The sale is still void without an authentic consent.
Contrary to the ruling of the Court of Appeals, the law
that applies to this case is the Family Code, not the Civil Code.
Although Tarciano and Rosario got married in 1950, Tarciano
sold the conjugal property to the Fuentes spouses on January
11, 1989.
When Tarciano married Rosario, the Civil Code put in
place the system of conjugal partnership of gains on their
property relations. While its Article 165 made Tarciano the sole
administrator of the conjugal partnership, Article 166
prohibited him from selling commonly owned real property
without his wifes consent. Still, if he sold the same without his
wifes consent, the sale is not void but merely voidable. Article
173 gave Rosario the right to have the sale annulled during the
marriage within ten years from the date of the sale. Failing in
that, she or her heirs may demand, after dissolution of the
marriage, only the value of the property that Tarciano
fraudulently sold.
Under the provisions of the Civil Code governing
contracts, a void or inexistent contract has no force and effect
from the very beginning. And this rule applies to contracts that
are declared void by positive provision of law, as in the case of
a sale of conjugal property without the other spouses written
consent. A void contract is equivalent to nothing and is
absolutely wanting in civil effects. It cannot be validated either
by ratification or prescription.
But, although a void contract has no legal effects even
if no action is taken to set it aside, when any of its terms have
been performed, an action to declare its inexistence is
necessary to allow restitution of what has been given under it.
This action, according to Article 1410 of the Civil Code does not
prescribe.
Discussion:
The law that applies here is the Family Code applies in
this case because even though they were married before the
effectivity of the Family Code, the sale was on January 11, 1989.
The status of a sale, which was done without the written
consent or court authority, is void. The action to question a void
contract does not prescribe. The sale was considered void not
because of the forgery but due to the fact that there was no
written consent.
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Spouses Aggabao vs. Spouses Parulan
(September 1, 2010)
FACTS
In January 1991, real estate broker Marta K.Atanacio
offered 2 lots to the petitioners. On February 2, 1991, the
petitioners met up with Elena Parulan and showed them some
documents such as TCT, tax declarations, a copy of the special
power of attorney executed by Dionisio authorizing Elena to
sell the property.
The petitioners paid P200T as earnest money for
which Elena executed a handwritten Receipt of Earnest Money
which stipulated that the petitioners would pay an additional
payment once Elena turned over the property.
On February 4, 1991, the petitioners, accompanied by
the broker, went to the Office of the Register of Deeds to verify
the TCTs shown by Elena. There they discovered that one of the
lots had been encumbered to Banco Filipino, but that the
encumbrance had been cancelled due to the full payment of
the obligation. They noticed that the loan was effected through
and SPA executed by Dionisio in favor of Elena. The other lot on
the other hand had an annotation of an existing mortgage in
favor of Los Baos Rural Bank, with the same SPA with a court
order authorizing Elena to mortgage the lot to secure the loan.
The petitioners and the broker next inquired about the
mortgage and the court order at the Los Baos Rural Bank.
There, they met with Atty. Zarate, related that the bank had
asked for the court order because the lot involved was conjugal
property. Following their verification, the petitioners delivered
P130, 000.00 as additional down payment on February 4, 1991;
and P650, 000.00 to the Los Baos Rural Bank on February 12,
1991, which then released the owners duplicate copy of TCT to
them.
On March 18, 1991, the petitioners delivered the final
amount to Elena, who executed a deed of absolute sale in their
favor. However, Elena did not turn over the owners duplicate
copy of the TCT claiming that said copy was in the possession of
a relative who was then in Hongkong. TCT was cancelled and a
new one was issued in the name of the petitioners. Elena did
not turn over the duplicate owners copy of TCT as promised.
In due time, the petitioners learned that the duplicate
owners copy of TCT had been all along in the custody of Atty.
Jeremy Z. Parulan, who appeared to hold an SPA executed by
his brother Dionisio authorizing him to sell both lots. The
petitioners met on March 25, 1991 with Atty. Parulan wherein
the latter smugly demanded P800, 000.00 in exchange for the
duplicate owners copy of TCT. As a counter-offer, however,
they tendered P250, 000.00, which Atty. Parulan declined,
giving them only until April 5, 1991 to decide. Hearing nothing
more from the petitioners, Atty. Parulan decided to call them
on April 5, 1991, but they informed him that they had already
fully paid to Elena.
Thus, Dionisio, through Atty. Parulan, commenced an
action, praying for the declaration of the nullity of the deed of
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absolute sale executed by Ma. Elena and the cancellation of the amounts paid to her. But they seemed not to mind her inability
title issued to the petitioners by virtue thereof. In turn, the to produce the TCT, and, instead, they contented themselves
petitioners filed on July 12, 1991 their own action for specific with meeting with Atty. Parulan to negotiate for the possible
performance with damages against the respondents turnover of the TCT to them.
RTC annulled the deed of absolute sale in favor of the
petitioners. The CA affirmed the RTC decision.
ISSUE: W/N the FC will govern, was there a continuing offer, Discussion:
petitioner was a purchaser in good faith The sale was made after the effectivity of the Family
RULING Code, hence, Art. 124 applies. The substantiate their contention
FC will govern, continuing offer, not purchasers in good faith that Dionisio, while holding the administration over the
The void sale was a continuing offer from the property, had delegated to his brother, Atty. Parulan, the
petitioners and Ma. Elena that Dionisio had the option of administration of the property, considering that they did not
accepting or rejecting before the offer was withdrawn by either present in court the SPA granting to Atty. Parulan the authority
or both Ma. Elena and the petitioners. The last sentence of the for the administration. Also, the petitioners insistence that Atty.
second paragraph of Article 124 of the Family Code makes this Parulans making of a counter-offer during the March 25, 1991
clear, stating that in the absence of the other spouses consent, meeting ratified the sale merits no consideration. The meeting
the transaction should be construed as a continuing offer on indeed was a counter offer but the counter-offer of Atty. Farulan
the part of the consenting spouse and the third person, and merits no consideration because the requirement of Article 124
may be perfected as a binding contract upon the acceptance by needs the written consent.
the other spouse or upon authorization by the court before the
offer is withdrawn by either or both offerors.
Firstly, the petitioners knew fully well that the law
Pelayo vs. Perez
demanded the written consent of Dionisio to the sale, but yet
(June 8, 2005)
they did not present evidence to show that they had made
FACTS
inquiries into the circumstances behind the execution of the
David Pelayo (by Deed of Absolute Sale) conveyed to
SPA purportedly executed by Dionisio in favor of Ma. Elena.
Perez 2 parcels of land situated in Panabo Loreza (wife of
Had they made the appropriate inquiries, and not simply
David), and another one whose signature is illegible, witnessed
accepted the SPA for what it represented on its face, they
the execution of the deed. Loreza, however, signed only on the
would have uncovered soon enough that the respondents had
third page in the space provided for witnesses. Because of this,
been estranged from each other and were under de facto
Perez application for registration of the deed with the Office of
separation, and that they probably held conflicting interests
the Register of Deeds was denied. Perez asked Loreza to sign on
that would negate the existence of an agency between them.
the first and second pages, but she refused. Hence, Perez
To lift this doubt, they must, of necessity, further inquire into
instituted the instant complaint for specific performance
the SPA of Ma. Elena.
against her and her husband David.
Secondly, the final payment of P700,000.00 even
Contention of Pelayos: lots were occupied illegally by
without the owners duplicate copy of the TCT No. 63376 being
some persons. They just made it appear that the lots were sold
handed to them by Ma. Elena indicated a revealing lack of
to their friend Perez, since he was a known activist/leftist,
precaution on the part of the petitioners. It is true that she
thereby feared by many. The omission of Lorezas signature was
promised to produce and deliver the owners copy within a
intentional so that the deed could not be registered. The deed,
week because her relative having custody of it had gone to
being simulated and bereft of consideration, is void/inexistent.
Hongkong, but their passivity in such an essential matter was
Contention of Perez: lots were given to him by Pelayo
puzzling light of their earlier alacrity in immediately and
in consideration of his services as his atty-in-fact to make the
diligently validating the TCTs to the extent of inquiring at the
necessary representation with the illegal occupants in his land.
Los Baos Rural Bank about the annotated mortgage. Yet, they
Perez claimed that in any event, the deed was without
could have rightly withheld the final payment of the balance.
his wifes consent and invoked Art 166 of the Civil code:
That they did not do so reflected their lack of due care in
Article 166. Unless the wife has been declared a non
dealing with Ma. Elena.
compos mentis or a spendthrift, or is under civil
Lastly, another reason rendered the petitioners good
interdiction or is confined in a leprosarium, the
faith incredible. They did not take immediate action against
husband cannot alienate or encumber any real
Ma. Elena upon discovering that the owners original copy of
property of the conjugal partnership without the
TCT No. 63376 was in the possession of Atty. Parulan, contrary
wifes consent. it is null and void.
to Elenas representation. Human experience would have
ISSUE: W/N the deed of sale was null and void. NO
impelled them to exert every effort to proceed against Ma.
RULING:
Elena, including demanding the return of the substantial
As to the issue of lack of marital consent: Petitioner

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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

Lorenza, by affixing her signature on the Deed of Sale on the consents to the sale of the property in the hands of the agent
space provided for witnesses, is deemed to have given her or administrator. Petitioners, by signing the Deed of Sale in
implied consent to the contract of sale. Sale is a consensual favor of Perez, are deemed to have given their consent to the
contract that is perfected by mere consent, which may either sale of the subject property in favor of respondent, thereby
be express or implied. making the transaction an exception to the general rule that
A wifes consent to the husbands disposition of agents are prohibited from purchasing the property of their
conjugal property does not always have to be explicit or set principals.
forth in any particular document, so long as it is shown by acts
of the wife that such consent or approval was indeed given.
In the present case, although it appears on the face of Discussion:
the deed of sale that Lorenza signed only as an instrumental Lorenza, by fixing her signature in the deed of sale as
witness, circumstances leading to the execution of said witness, is said to have given her implied consent on the sale.
document point to the fact that Lorenza was fully aware of the Implied consent can only applied if the Civil Code governs the
sale of their conjugal property and consented to the sale. In case and written consent is required if it is in the Family Code. It
their Pre-Trial Brief, petitioners admitted that they have been was shown in the case that it was not the wife that brought the
having serious problems, including threats to the life of David action but the other party for specific performance. If the
Pelayo, due to the conflicts with the illegal occupants of the transaction was indeed entered into without Lorenzas consent,
property. Respondent just offered his help in driving out the we find it quite puzzling why for more than three and a half
said illegal occupants. years, Lorenza did absolutely nothing to seek the nullification of
Human experience tells us that a wife would surely be the assailed contract.
aware of serious problems, such as threats to her husbands
life. It is highly improbably for Lorenza not to be aware of what
her husband was doing to remedy such problems. Petitioners
Abalos vs. Macatangay, Jr.
do not deny that Lorenza was present during the execution of
(September 30, 2004)
the deed since her signature appears. Neither do they claim
FACTS
that Lorenza had no knowledge about the contents of the
In 1988, Arturo Abalos executed a Receipt and
document. Thus, it is quite certain that she knew of the sale of
Memorandum of Agreement (RMOA) binding himself to sell a
their conjugal property between her husband and respondent.
parcel of land (part of the conjugal property) to Macatangay
Moreover, under Art 173, in relation to Art 166, both
and to not offer the same to any other party in 30 days. Note
of the New Civil Code (in effect at the time the deed was
this RMOA did not contain Arturos wifes signature, not did it
executed), the lack of marital consent to the disposition of the
contain Macatangays. Arturo received from Macatangay a
conjugal property does not make the contract void ab initio,
check for 5k which supposedly represented earnest money, to
but merely VOIDABLE.
be deducted from the purchase price of 1.3m.
In the present case, Lorenza did not file a case for the
Subsequently in 1989, Esther Abalos executed a SPOA
annulment of the deed of sale. It was only when respondent
appointing her sister Bernadette to act in her behalf, as she
filed a complaint for specific performance when petitioners
also signified her intent to sell the property to Macatangay.
brought up Lorenzas alleged lack of consent as defense.
Later that year, Macatangay II. sent a letter to the spouses
Therefore, if the transaction was indeed entered into without
informing them of his readiness to pay the full purchase price.
the wifes consent, it is puzzling why for more than 3 years,
Accordingly, Esther executed a Contract to Sell her
Lorenza did absolutely nothing to seek the nullification of the
share of the conjugal property, and stipulated that she will
contract.
deliver a deed of absolute sale upon payment of the full
As to the issue in relation to violation of Art 1491:
purchase price. Macatangay again informed the spouses that
With regard to petitioners contention that the deed of sale is
he had set aside a check for the remaining balance of 1.29m,
invalid under Art 1491 par 2 of the New Civil Code, we find
and demanded that the spouses turn over the possession of
such argument unmeritorious.
the property. The spouses failed to do so.
Art. 1491. The following persons cannot acquire by
The RTC dismissed Macatangays complaint for specific
purchase, even at a public or judicial auction, either in
performance as the RMOA was allegedly falsified, but upon
person or through the mediation of another:
appeal, the CA ruled in favor of Macatangay. According to the
(2) Agents, the property whose administration or sale
CA, even if the RMOA was void, the subsequent SPA issued by
may have been entrusted to them, unless the consent
Esther effectuated the valid sale of the property to Macatangay.
of the principal has been given;
This SPA where Esther expressed her intent to sell to
Under paragraph 2 of the Art 1491, the prohibition
Macatangay, allegedly cured her lack of assent in the RMOA.
against agents purchasing property in their hands for sale or
Thus the CA ordered the spouses to execute in favor of
management is not absolute. It does not apply if the principal
Macatangay the deed of sale. Arturo appealed.

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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
ISSUE: WON there was a valid sale. NO
RULING
a.)RMOA was only an option contract. Also, there was no valid
tender/acceptance of the offer by Macatangay. Recall definition
of option contract.
Perusing the RMOA, 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 petitioners 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.
Unfortunately, the option is not binding upon the
promissory since it is not supported by a consideration distinct
from the price.
Further, Macatangay would have to pay or at least
make a valid tender of payment of the price for only then could
he exact compliance with the undertaking of the other party.
This respondent failed to do. By his own admission, he merely
informed respondent spouses of his readiness and willingness
to pay. The fact that he had set aside a check in the amount of
representing the balance of the purchase price could not help
his cause. A check is not legal tender, and therefore cannot
constitute a valid tender of payment. Not having made a valid
tender of payment, respondents action for specific
performance must fail.
b.) RMOA was void. Esthers SPA did not cure the defect of her
lack of consent. Granting for the sake of argument that the
RMOA is a contract of sale, the same would still be void not
only for want of consideration and absence of respondents
signature thereon, but also for lack of Esthers conformity
thereto.
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 by Arturo. The husband cannot
alienate any real property of the conjugal partnership without
the wifes consent (Article 166, NCC). 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 wifes 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,
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Ateneo de Davao University College of Law | 1st Sem (2016-2017)
a valid transaction could not have arisen.
c.) Even if Esther sold only her share of the conjugal property,
the same is still void as it was done prior to the liquidation of
the conjugal partnership.
It has been held that prior to the liquidation of the
conjugal partnership, the interest of each spouse in the
conjugal assets is inchoate, a mere expectancy, which
constitutes neither a legal nor an equitable estate, and does
not ripen into title until it appears that there are assets in the
community as a result of the liquidation and settlement.
Thus, 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, after
settlement of conjugal obligations, there are net assets left
which can be divided between the spouses or their respective
heirs.
Discussion:
The Supreme Court held that the RMOA is not a
contract of sale but merely to grant the privilege to buy the
property. For the sake of argument that it was a Deed of Sale, it
can be void, not only for one with consideration and absence of
the respondents signature, but also for lack of Esters
conformity. Absence of Esters conformity would turn it void.
The right of the husband of 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, after settlement of conjugal
obligations, there are net assets left which can be divided
between the spouses or their respective heirs.
Calimlim-Canullas vs. Fortun
(June 22, 1984)
FACTS
Petitioner MERCEDES and FERNANDO Canullas were
married in 1962. They begot 5 children. They lived in a small
house on the 891 sqm residential land in question. 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 in
1981.
In 1980, FERNANDO sold the subject property with the
house thereon to DAGUINES for the sum of P2K. 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 for quieting of title and
damages against MERCEDES.
MERCEDES resisted and claimed that the house in
dispute where she and her children were residing, including the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
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.
ISSUES:
(1) WON the construction of a conjugal house on the exclusive
property of the husband ipso facto gave the land the character
of conjugal property YES
(2) WON the sale of the lot together with the house and
improvements thereon was valid under the circumstances
surrounding the transaction. NO!!!
RULING
(1) The Court interpreted par2 of Article 158 of CC which
reads:
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.
So given the above provision, both the land and the
building therefore 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.
Further, SC referred to the ruling in Padilla vs Paterno
to rebut CFIs contention that the land becomes conjugal only
when the conjugal partnership is liquidated and indemnity paid
to the owner of the land. In Padilla SC said that the conversion
from paraphernal to conjugal assets of the subject properties
should be deemed to retroact to the time the conjugal
buildings were first constructed thereon or at the very latest, to
the time immediately before the death of the husband that
ended the conjugal partnership.
They cannot be considered to have become conjugal
property only as of the time their values were paid to the
estate of the widow because by that time the conjugal
partnership no longer existed and it could not acquire the
ownership of said properties. The acquisition by the
partnership of these properties was, subject to the suspensive
condition that their values would be reimbursed to the widow
at the liquidation of the conjugal partnership; once paid, the
effects of the fulfillment of the condition should be deemed to
retroact to the date the obligation was constituted (Art. 1187,
NCC)
(2) The contract of sale was null and void for being
contrary to morals and public policy. The sale was made by a
husband in favor of a concubine after he had abandoned his
family and left the conjugal home where his wife and children
lived and from where they derived their support. That sale was
subversive of the stability of the family, a basic social institution
which public policy cherishes and protects.
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Art. 1409 of the CC states among others that:
contracts whose cause, object, or purpose is contrary
to law, morals, good customs, public order, or public
policy are VOID and inexistent from the very
beginning.
Art. 1352 also provides that: "Contracts without cause,
or with unlawful cause, produce no effect whatsoever.
The cause is unlawful if it is contrary to law, morals,
good customs, public order, or public policy."
Additionally, the law definitely prohibits the spouses
from selling property to each other subject to certain
exceptions. Similarly, donations between spouses
during marriage are prohibited. And this is so because
if transfers or conveyances between spouses were
allowed during marriage, that would destroy the
system of conjugal partnership, a basic policy in civil
law.
It was also designed to prevent the exercise of undue
influence by one spouse over the other, as well as to protect
the institution of marriage. The prohibitions apply to a couple
living as husband and wife without benefit of marriage,
otherwise, "the condition of those who incurred guilt would
turn out to be better than those in legal union. Those
provisions are dictated by public interest.
Discussion:
A conjugal property cannot be alienated because his
wife had not given consent to the sale. We do not apply 166 and
177 of the Civil Code and declare it as voidable but void because,
not of the lack of consent, of it being contrary to law, morals,
good customs, public order or public policy. The sale was made
by the husband to a concubine after he had abandoned his
family and left the conjugal home. The sale was subversive of
the stability of the family and therefore we apply 1409. Article
1490 prohibits a sale to spouses and which would include
donations, unless the donation is moderate. Obviously, it would
be unfair to the wife. The reason of Article 1490 is to prevent
commission of fraud or prejudice to 3rd persons. The provision
of 1490 is also applicable to parties living as husband and wife
without the benefit of marriage.
Take note of Article 1492 when talking about 1491 and 1490.
Article 1492. The prohibitions in the two preceding articles are
applicable to sales in legal redemption, compromises and
renunciations.
Who can validly questions sales between husband and wife?
1.) The heirs
2.) Creditors that are prejudiced they must be creditors
before the sale
3.) Government when the sale is done to avoid the
payment of taxes
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3) OTHERS RELATIVELY DISQUALIFIED
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person or
through the mediation of another:
1. The guardian, the property of the person or persons
who may be under his guardianship;
2. Agents, the property whose administration or sale may
have been intrusted to them, unless the consent of the
principal has been given;
3. Executors and administrators, the property of the estate
under administration;
4. Public officers and employees, the property of the State
or of any subdivision thereof, or of any government-
owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this
provision shall apply to judges and government experts
who, in any manner whatsoever, take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of justice,
the property and rights in litigation or levied upon an
execution before the court within whose jurisdiction or
territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment
and shall apply to lawyers, with respect to the property
and rights which may be the object of any litigation in
which they may take part by virtue of their profession;
6. Any others specially disqualified by law.
a) Guardians, Agents and Administrators
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person or
through the mediation of another:
(1) The GUARDIAN, the property of the person or persons who
may be under his guardianship;
(2) AGENTS, the property whose administration or sale may have
been intrusted to them, unless the consent of the principal has
been given;
(3) EXECUTORS AND ADMINISTRATORS, the property of the
estate under administration;
xxx
Philippine Trust Co. vs. Roldan
(May 31, 1956)
FACTS
These 17 parcels located in Guiguinto, Bulacan, were
part of the properties inherited by Mariano L. Bernardo from
his father, Marcelo Bernardo, deceased. In view of his minority,
guardianship proceedings were instituted, wherein Socorro
Roldan was appointed his guardian.
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Socorro Roldan filed in said guardianship proceedings
a motion asking for authority to sell as guardian the 17 parcels
for the sum of P14,700 to Dr. Fidel C. Ramos, the purpose of
the sale being allegedly to invest the money in a residential
house, which the minor desired to have on Tindalo Street,
Manila. The motion was granted.
As guardian, Roldan executed the proper deed of sale
in favor of her brother-in-law Dr. Fidel C. Ramos, and on August
12, 1947 she asked for, and obtained, judicial confirmation of
the sale. On August 13, 1947, Dr. Fidel C. Ramos executed in
favor of Socorro Roldan, personally, a deed of conveyance
covering the same seventeen parcels, for the sum of P15,000.
And on October 21, 1947 Socorro Roldan sold four parcels out
of the seventeen to another party, reserving to herself the right
to repurchase.
The Philippine Trust Company replaced Socorro Roldan
as guardian and seeks to undo what the previous guardian had
done. The step-mother in effect, sold to herself, the properties
of her ward, contends the Plaintiff, and the sale should be
annulled because it violates Article 1459 of the Civil Code
prohibiting the guardian from purchasing either in person or
through the mediation of another the property of her ward.
ISSUE: Whether or not the sale should be annulled.
RULING
At first glance the resolutions of both courts
accomplished substantial justice the minor recovers his
properties. But if the conveyances are annulled as prayed for,
the minor will obtain a better deal he receives all the fruits of
the lands from the year 1947 (Article 1303 Civil Code) and will
return P14,700, not P15,000.
To our minds the first two transactions herein
described couldnt be in a better juridical situation than if this
guardian had purchased the seventeen parcels on the day
following the sale to Dr. Ramos. Now, if she was willing to pay
P15,000 why did she sell the parcels for less? In one day (or
actually one week) the price could not have risen so suddenly.
Obviously when, seeking approval of the sale she represented
the price to be the best obtainable in the market, she was not
entirely truthful. This is one phase to consider.
Again, supposing she knew the parcels were actually worth
P17,000 then she agreed to sell them to Dr. Ramos at P14,700
and knowing the realtys value she offered him the next day
P15,000 or P15,500, and got it. Will there be any doubt that
she was recreant to her guardianship, and that her acquisition
should be nullified? Even without proof that she had connived
with Dr. Ramos. Remembering the general doctrine that
guardianship is a trust of the highest order, and the trustee
cannot be allowed to have any inducement to neglect his
wards interest and in line with the courts suspicion whenever
the guardian acquires the wards property we have no
hesitation to declare that in this case, in the eyes of the law,
Socorro Roldan took by purchase her wards parcels thru Dr.
Ramos, and that Article 1459 of the Civil Code applies.
She acted it may be true without malice there may
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have been no previous agreement between her and Dr. Ramos
to the effect that the latter would buy the lands for her. But the
stubborn fact remains that she acquired her proteges
properties, through her brother-in-law. That she planned to get
them for herself at the time of selling them to Dr. Ramos, may
be deduced from the very short time between the two sales
(one week). The temptation which naturally besets a guardian
so circumstanced, necessitates the annulment of the
transaction, even if no actual collusion is proved (so hard to
prove) between such guardian and the intermediate purchaser.
This would uphold a sound principle of equity and justice.
Hence, from both the legal and equitable standpoints
these three sales should not be sustained the first two for
violation of article 1459 of the Civil Code and the third because
Socorro Roldan could pass no title to the third buyer.
Discussion:
There was a sale of the property of the ward by the
guardian. The reason of the prohibition under 1491 is that these
persons occupy fiduciary relationship with the seller. The
prohibition under this article prevents them from being tempted
and take advantage of their position. In this case, the general
doctrine that guardianship is a trust of the highest order, and the
trustee cannot be allowed to have any inducement to neglect his
wards interest and in line with the courts suspicion whenever
the guardian acquires the wards property we have no
hesitation to declare that in this case, in the eyes of the law,
Socorro Roldan took by purchase her wards parcels thru Dr.
Ramos. Take note the short period of time between the sales.
Even if the ward benefitted from the sale, it would still be void
so that it cannot be abused or taken advantage.
Distajo vs. CA
(August 25, 2000)
FACTS
During the lifetime of Iluminada Abiertas, she
designated one of her sons, Rufo Distajo, to be the
administrator of her parcels of land denominated as Lot Nos.
1018, 1046, 1047, and 1057.
Iluminada Abiertas certified to the sale of Lot Nos.
1018, 1046 and 1047 in favor of Rufo Distajo and other parcels
of land to her other kins.
After purchasing the above-mentioned parcels of land,
Rufo Distajo, together with his wife, Lagrimas, took possession
of the property and paid the corresponding real estate taxes
thereon.
Consequently, on June 5, 1986, Ricardo Distajo, with
the other heirs of Iluminada Abiertas, filed a complaint for
recovery of possession and ownership of those lands sold
alleging that Rufo Distajo cannot acquire the subject parcels of
land owned by Iluminada Abiertas because the Civil Code
prohibits the administrator from acquiring properties under his
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administration. Rufo Distajo merely employed fraudulent
machinations in order to obtain the consent of his mother to
the sale, and may have even forged her signature on the deeds
of sale of the parcels of land.
ISSUE: Whether or not the sale transactions are void for having
been entered into by the administrator of the properties.
RULING
The sale is valid.
The pertinent Civil Code provision provides:
"Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in
person or through the mediation of another:
xxx
(2) Agents, the property whose administration or sale
may have been entrusted to them, unless the consent
of the principal has been given;
(3) Executors and administrators, the property of the
estate under administration; x x x
Under the above article, the prohibition against agents
purchasing property in their hands for sale or management is
not absolute. It does not apply if the principal consents to the
sale of the property in the hands of the agent or administrator.
In this case, the deeds of sale signed by Iluminada Abiertas
shows that she gave consent to the sale of the properties in
favor of her son, Rufo, who was the administrator of the
properties. Thus, the consent of the principal Iluminada
Abiertas removes the transaction out of the prohibition
contained in Article 1491(2).
Petitioner also alleges that Rufo Distajo employed
fraudulent machinations to obtain the consent of Iluminada
Abiertas to the sale of the parcels of land. However, petitioner
failed to adduce convincing evidence to substantiate his
allegations.
Discussion:
So here, the ability of the agent to sell property is not
absolute. It requires that the principal must give his consent.
Thus, the prohibition does not apply when consent was given by
the principal to a sale made in the hands of the administrator.
The document signed by Illuminada showed she gave consent
and there was no sign of forgery. If you allege fraud or
machination, you must also prove it. Absent any proof, you must
uphold the contract.
Cui vs. Cui
(February 21, 1957)
FACTS
Jesus and Antonio are children of Don Mariano Cui
and Doa Antonia Perales who died intestate. Jesus alleged
that during the marriage of their parents, they have acquired
certain properties (Lots Nos. 2312, 2313 and 2319). Upon the
death of their mother, the properties were placed under the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
administration of their father.(84 years old) However, Antonio,
by means of deceit, secured the transfer of the said lots to
them without any pecuniary consideration; that in the deed of
sale,, Rosario Cui appeared as one of the vendees. Upon
learning of this fact she subsequently renounced her rights
under the sale and returned her portion to Don Mariano Cui by
executing a deed of resale in his favor. that defendants,
fraudulently and with the desire of enriching themselves
unjustly at the expense of their father, Don Mariano Cui, and of
their brothers and co-heirs, secured a loan of P130,000 from
the Rehabilitation properties, and with the loan thus obtained,
defendants constructed thereon an apartment building of
strong materials consisting of 14 doors, valued at
approximately P130,000 and another building on the same
parcels of land, which buildings were leased to some Chinese
commercial firms a monthly rental of P7,600, which defendants
have collected and will continue to collect to the prejudice of
the plaintiffs; Jesus alleged that the sale should be invalidated
so far as the portion of the property sold to Antonio Cui is
concerned, for the reason that when that sale was effected,
Antonio was then acting as the agent or administrator of the
properties of Don Mariano Cui. Jesus lays stress on the power
of attorney Exhibit L which was executed by Don Mariano in
favor of Antonio Cui on March 2,1946, wherein the former has
constituted the latter as his "true and lawful attorney" to
perform in his name and that of the intestate heirs of Doa
Antonia Perales.
ISSUE: WON the sale of the property to Antonio was valid.
RULING
YES. While under article 1459 of the old Civil Code an
agent or administrator is disqualified from purchasing property
in his hands for sale or management, and, in this case, the
property in question was sold to Antonio Cui while he was
already the agent or administrator of the properties of Don
Mariano Cui, we however believe that this question cannot
now be raised or invoked.
The prohibition of the law is contained in article 1459
of the old Civil Code, but this prohibition has already been
removed.
Under the provisions of article 1491, section 2, of the new Civil
Code, an agent may now buy property placed in his hands for
sale or administration, provided that the principal gives his
consent thereto. While the new Code came into effect only on
August 30, 1950, however, since this is a right that is declared
for the first time, the same may be given retroactive effect if no
vested or acquired right is impaired (Article 2253, new Civil
Code). During the lifetime Don Mariano, and particularly on
March 8, 1946, the herein appellants could not claim any
vested or acquired right in these properties, for, as heirs, the
most they had was a mere expentancy. We may, therefore,
invoke now this practical and liberal provision of our new Civil
Code even if the sale had taken place before its effectivity.
Discussion:
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The old civil code was still applicable when the sale took
place(March 8, 1946). The exception under Art 1491 referring to
unless the principal consents only apply to the NEW CIVIL
CODE applies retroactively as long as no vested rights are
impaired. Sale to guardians, agents, executors and
administrators involve private interest. Thus, a sale entered into
is really void. However, it can be ratified by a new contract. For
instance, if the ward has reached the age of majority or the
present legal guardian will sale the property to a previous
guardian. In allegedly that he did not enjoy his full mental
faculties, the SC noted that, although at the time of the sale, he
was already 83 years old but weakness of mind alone is not a
ground to declare the contract void or voidable.
b) Attorneys
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person or
through the mediation of another:
xxx
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with
the administration of justice, the property and rights in litigation
or levied upon an execution before the court within whose
jurisdiction or territory they exercise their respective functions;
this prohibition includes the act of acquiring by assignment and
shall apply to LAWYERS, with respect to the property and rights
which may be the object of any litigation in which they may take
part by virtue of their profession;
xxx
Director of Lands vs. Ababa
(February 27, 1979)
FACTS
The adverse claimant, Atty. Alberto B. Fernandez was
retained as counsel by petitioner, Maximo Abarquez, in Civil
Case No. R-6573 of the Court of First Instance of Cebu, entitled
"Maximo Abarquez vs. Agripina Abarquez", for the annulment
of a contract of sale with right of repurchase and for the
recovery of the land which was the subject matter thereof. The
Court of First Instance of Cebu rendered a decision on May 29,
1961 adverse to the petitioner and so he appealed to the Court
of Appeals.
Litigating as a pauper in the lower court and engaging
the services of his lawyer on a contingent basis, petitioner,
liable to compensate his lawyer whom he also retained for his
appeal executed a document on June 10, 1961 in the Cebuano-
Visayan dialect whereby he obliged himself to give to his
lawyer one-half (1/2) of whatever he might recover from Lots
5600 and 5602 should the appeal prosper.
The real Property sought to be recovered in Civil Case
No. R6573 was actually the share of the petitioner in Lots 5600
and 5602, which were part of the estate of his deceased
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parents and which were partitioned the heirs which included take place only if the appeal prospers. Therefore, the transfer
petitioner Maximo Abarquez and his elder sister Agripina actually takes effect after the finality of a favorable judgment
Abarquez, the defendant in said civil case. rendered on appeal and not during the pendency of the
The case having been resolved and title having been litigation involving the property in question. Consequently, the
issued to petitioner, adverse claimant waited for petitioner to contract for a contingent fee is not covered by Article 1491.
comply with ha obligation under the document executed by
him on June 10, 1961 by delivering the one-half () portion of
the said parcels of land.
Valencia vs. Cabanting
Petitioner refused to comply with his obligation and
(April 26, 1991)
instead offered to sell the whole parcels of land covered by TCT
FACTS
No. 31841 to petitioner-spouses Juan Larrazabal and Marta C.
In 1933, complainant Paulino Valencia (Paulino in
de Larrazabal. Upon being informed of the intention of the
short) and his wife Romana allegedly bought a parcel of land,
petitioner, adverse t claimant immediately took stops to
where they built their residential house, from a certain Serapia
protect his interest by filing with the trial court a motion to
Raymundo, an heir of Pedro Raymundo the original owner.
annotate Ins attorney's lien on TCT No. 31841 on June 10, 1965
However, they failed to register the sale or secure a transfer
and by notifying the prospective buyers of his claim over the
certificate of title in their names.
one-half portion of the parcels of land.
Sometime in December, 1968, a conference was held
The motion was granted. The annotation of adverse
in the house of Atty. Eduardo Jovellanos to settle the land
claim appeared on the new TCT. This adverse claim became the
dispute between Serapia Raymundo another heir of Pedro
subject of a cancellation proceedings filed by petitioner-
Raymundo, and the Valencia spouses since both were relatives
spouses. The trial court resolved the case in favor of the
and distant kin of Atty. Jovellanos. Serapia was willing to
adverse claimant. On appeal, petitioners contended that a
relinquish ownership if the Valencias could show documents
contract for a contingent fee violates Article 1491 because it
evidencing ownership. Paulino exhibited a deed of sale written
involves an assignment of a property subject of litigation.
in the Ilocano dialect. However, Serapia claimed that the deed
covered a different property. Paulino and Serapia were not able
ISSUE: Whether or not the contract for a contingent fee as
to settle their differences.
basis for the interest of Atty. Fernandez is prohibited by Article
On December 15, 1969 Serapia, assisted by Atty.
1491 of the Civil Code.
Arsenio Fer. Cabanting, filed a complaint against Paulino for the
recovery of possession with damages.
RULING:
The Valencias engaged the services of Atty. Dionisio
This contention is without merit. Article 1491 prohibits
Antiniw. Atty. Antiniw advised them to present a notarized
only the sale or assignment between the lawyer and his client,
deed of sale in lieu of the private document written in Ilocano.
of property which is the subject of litigation. As WE have
For this purpose, Paulino gave Atty. Antiniw an amount of
already stated. "The prohibition in said article applies only to a
P200.00 to pay the person who would falsify the signature of
sale or assignment to the lawyer by his client of the property
the alleged vendor. A "Compraventa Definitiva" was executed
which is the subject of litigation. In other words, for the
purporting to be a sale of the questioned lot.
prohibition to operate, the sale of the property must take
On January 22, 1973, the Court of First Instance of
place during the pendency of the litigation involving the
Pangasinan, Branch V, rendered a decision in favor of plaintiff,
property."
Serapia Raymundo. The lower court expressed the belief that
Likewise, under American Law, the prohibition does
the said document is not authentic.
not apply to "cases where after completion of litigation the
Paulino, thereafter, filed a Petition for Certiorari
lawyer accepts on account of his fee, an interest the assets
before the Court of Appeals alleging that the trial court failed
realized by the litigation". "There is a clear distraction between
to provide a workable solution concerning his house. While the
such cases and one in which the lawyer speculates on the
petition was pending, the trial court, on March 9, 1973, issued
outcome of the matter in which he is employed."
an order of execution stating that "the decision in this case has
A contract for a contingent fee is not covered by
already become final and executory". On March 14, 1973, a
Article 1491 because the transfer or assignment of the property
writ of execution was issued.
in litigation takes effect only after the finality of a favorable
On March 20, 1973, Serapia sold 40 square meters of
judgment. In the instant case, the attorney's fees of Atty.
the litigated lot to Atty. Jovellanos and the remaining portion
Fernandez, consisting of one-half (1/2) of whatever Maximo
she sold to her counsel, Atty. Arsenio Fer. Cabanting, on April
Abarquez might recover from his share in the lots in question,
25, 1973.
is contingent upon the success of the appeal. Hence, the
On March 4, 1974, Paulino filed a disbarment
payment of the attorney's fees, that is, the transfer or
proceeding against Atty. Cabanting on the ground that said
assignment of one-half (1/2) of the property in litigation will
counsel allegedly violated Article 1491 of the New Civil Code as

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well as Article II of the Canons of Professional Ethics, ground for suspension.

prohibiting the purchase of property under litigation by a The sale in favor of Atty. Jovellanos does not
counsel. constitute malpractice. There was no attorney-client
On March 21, 1974 the appellate court dismissed the relationship between Serapia and Atty. Jovellanos, considering
petition of Paulino. that the latter did not take part as counsel in Civil Case No. V-
On October 14, 1974, Constancia Valencia, daughter of 2170. The transaction is not covered by Art. 1491 nor by the
Paulino, filed a disbarment proceeding (docketed as Canons adverted to.
Administrative Case No. 1391) against Atty. Dionisio Antiniw for
his participation in the forgery of "Compraventa Definitiva" and
Daroy vs. Abecia
its subsequent introduction as evidence for his client; and also,
(October 26, 1998)
against Attys. Eduardo Jovellanos and Arsenio Cabanting for
FACTS
purchasing a litigated property allegedly in violation of Article
Respondent Abecia was counsel of complainant Daroy
1491 of the New Civil Code; and against the three lawyers, for
in a case for forcible entry. Judgment was rendered in favor of
allegedly rigging Civil Case No. V-2170 against her parents.
complainant as plaintiff in the ejectment case. To satisfy the
judgment, the sheriff sold at public auction a parcel of land
ISSUES: Whether or not Atty. Cabanting purchased the subject
belonging to one of the defendants to complainant Daroy as
property in violation of Art. 1491 of the New Civil Code.
highest bidder for P1,250.00. Upon failure of the defendants to
redeem the land, its ownership was consolidated in
RULING
complainant Daroy.
Under Article 1491 of the New Civil Code:
Complainant Daroy claimed that respondent Abecia
The following persons cannot acquire by purchase,
forged his signature in a deed of absolute sale, dated March 31,
even at a public of judicial auction, either in person or
1971, transferring the subject parcel of land to Jose Gangay
through the mediation of another:
purportedly for the sum ofP1,250.00 and that in a fictitious
xxx xxx xxx
deed of absolute sale, dated April 17, 1971, it was made to
(5) . . . this prohibition includes the act of acquiring by
appear that Gangay in turn conveyed the land to Nena Abecia,
assignment and shall apply to lawyers, with respect to
wife of respondent Abecia, for the sum ofP1,350.00. By means
the property and rights which may be the object of
of the forged deed of sale, Abecia was able to obtain new
any litigation in which they make take part by virtue of
transfer certificates of title, first in the name of Gangay and
their profession.
then in that of Mrs. Abecia, from the Registry of Deeds of
Public policy prohibits the transactions in view of the
Misamis Oriental Daroy claimed he discovered the fraud only in
fiduciary relationship involved. It is intended to curtail any
1984.
undue influence of the lawyer upon his client. Greed may get
the better of the sentiments of loyalty and disinterestedness.
ISSUE: Whether or not Atty. Abecia violated Article 1491 of the
Any violation of this prohibition would constitute malpractice
Civil Code.
(In re: Attorney Melchor Ruste, 40 O.G. p. 78) and is a ground
for suspension. (Beltran vs. Fernandez, 70 Phil. 248).
RULING
Art. 1491, prohibiting the sale to the counsel
NO.
concerned, applies only while the litigation is pending.
Indeed, what appears to have happened in this case is
(Director of Lands vs. Adaba, 88 SCRA 513; Hernandez vs.
that the parties thought that because the land had been
Villanueva, 40 Phil. 775).
acquired by complainant at a public sale held in order to satisfy
In the case at bar, while it is true that Atty. Arsenio Fer.
a judgment in his favor in a case in which respondent was
Cabanting purchased the lot after finality of judgment, there
complainants counsel, the latter could not acquire the
was still a pending certiorari proceeding. A thing is said to be in
land. The parties apparently had in mind Art. 1491 of the Civil
litigation not only if there is some contest or litigation over it in
Code which provides, in pertinent parts, as follows:
court, but also from the moment that it becomes subject to the
ART. 1491. The following persons cannot acquire by
judicial action of the judge. (Gan Tingco vs. Pabinguit, 35 Phil.
purchase, even at a public or judicial auction, either in
81). Logic indicates, in certiorari proceedings, that the appellate
person or through the mediation of another:
court may either grant or dismiss the petition. Hence, it is not
....
safe to conclude, for purposes under Art. 1491 that the
(5) Justices, judges, prosecuting attorneys, clerks of
litigation has terminated when the judgment of the trial court
superior and inferior courts, and other officers and
become final while a certiorari connected therewith is still in
employees connected with the administration of
progress. Thus, purchase of the property by Atty. Cabanting in
justice, the property and rights in litigation or levied
this case constitutes malpractice in violation of Art. 1491 and
upon an execution before the court within whose
the Canons of Professional Ethics. Clearly, this malpractice is a
jurisdiction or territory they exercise their respective

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functions; this prohibition includes the act of acquiring
by assignment and shall apply to lawyers, with respect
to the property and rights which may be the object of
any litigation in which they may take part by virtue of
their profession.
Of course, the parties were mistaken in thinking that
respondent could not validly acquire the land. In Guevara v.
Calalang, on facts similar to those in this case, we held that the
prohibition in Art. 1491 does not apply to the sale of a parcel of
land, acquired by a client to satisfy a judgment in his favor, to
his attorney as long as the property was not the subject of the
litigation. For indeed, while judges, prosecuting attorneys, and
others connected with the administration of justice are
prohibited from acquiring property or rights in litigation or
levied upon in execution, the prohibition with respect to
attorneys in the case extends only to property and rights which
may be the object of any litigation in which they may take part
by virtue of their profession.
The point is, the parties in this case thought the
transfer of the land to respondent Abecia was prohibited and
so they contrived a way whereby the land would be sold to
Jose Gangay, whose wife Anita is the sister of Mrs. Nena
Abecia, and then Gangay would sell the land to Mrs. Abecia.
The sale of the land to Gangay may be fictitious and,
therefore, void, but that complainant Regalado Daroy intended
to convey the land ultimately to respondent Esteban Abecia
appears to be the case.
Ramos vs. Ngaseo
(December 9, 2004)
FACTS
Sometime in 1998, complainant Federico Ramos went
to respondent Atty. Patricio Ngaseo's Makati office to engage
his services as counsel in a case1 involving a piece of land in
San Carlos, Pangasinan. Respondent agreed to handle the case
for an acceptance fee of P20,000.00, appearance fee of
P1,000.00 per hearing and the cost of meals, transportation
and other incidental expenses. Complainant alleges that he did
not promise to pay the respondent 1,000 sq. m. of land as
appearance fees.
On July 18, 2001, the Court of Appeals rendered a
favorable decision ordering the return of the disputed 2-
hectare land to the complainant and his siblings. The said
decision became final and executory on January 18, 2002. Since
then complainant allegedly failed to contact respondent, which
compelled him to send a demand letter on January 29, 2003.
On February 14, 2003, complainant filed a complaint
before the IBP charging his former counsel, respondent Atty.
Ngaseo, of violation of the Code of Professional Responsibility
for demanding the delivery of 1,000 sq. m. parcel of land which
was the subject of litigation.
Respondent argues that he did not violate Article 1491
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of the Civil Code because when he demanded the delivery of
the 1,000 sq. m. of land which was offered and promised to
him in lieu of the appearance fees, the case has been
terminated, when the appellate court ordered the return of the
2-hectare parcel of land to the family of the complainant.
Respondent further contends that he can collect the
unpaid appearance fee even without a written contract on the
basis of the principle of quantum meruit. He claims that his
acceptance and appearance fees are reasonable because a
Makati based legal practitioner, would not handle a case for an
acceptance fee of only P20,000.00 and P1,000.00 per court
appearance.
ISSUE: Whether or not Atty. Ngaseo violated Article 1491 of
the Civil Code.
RULING
No.
Under Article 1491(5) of the Civil Code, lawyers are
prohibited from acquiring either by purchase or assignment the
property or rights involved which are the object of the litigation
in which they intervene by virtue of their profession. The
prohibition on purchase is all embracing to include not only
sales to private individuals but also public or judicial sales. The
rationale advanced for the prohibition is that public policy
disallows the transactions in view of the fiduciary relationship
involved, i.e., the relation of trust and confidence and the
peculiar control exercised by these persons. It is founded on
public policy because, by virtue of his office, an attorney may
easily take advantage of the credulity and ignorance of his
client and unduly enrich himself at the expense of his client.
However, the said prohibition applies only if the sale or
assignment of the property takes place during the pendency of
the litigation involving the client's property. Consequently,
where the property is acquired after the termination of the
case, no violation of paragraph 5, Article 1491 of the Civil Code
attaches.
Invariably, in all cases where Article 1491 was violated,
the illegal transaction was consummated with the actual
transfer of the litigated property either by purchase or
assignment in favor of the prohibited individual. In Biascan v.
Lopez, respondent was found guilty of serious misconduct and
suspended for 6 months from the practice of law when he
registered a deed of assignment in his favor and caused the
transfer of title over the part of the estate despite pendency of
Special Proceedings No. 98037 involving the subject
property. In the consolidated administrative cases of Valencia v.
Cabanting, the Court suspended respondent Atty. Arsenio Fer
Cabanting for six (6) months from the practice of law when he
purchased his client's property which was still the subject of a
pending certiorari proceeding.
In the instant case, there was no actual acquisition of
the property in litigation since the respondent only made a
written demand for its delivery which the complainant refused
75
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
to comply. Mere demand for delivery of the litigated property
does not cause the transfer of ownership, hence, not a
prohibited transaction within the contemplation of Article
1491. Even assuming arguendo that such demand for delivery
is unethical, respondent's act does not fall within the purview
of Article 1491. The letter of demand dated January 29, 2003
was made long after the judgment in Civil Case No. SCC-2128
became final and executory on January 18, 2002.
We note that the report of the IBP Commissioner, as
adopted by the IBP Board of Governors in its Resolution No.
XVI-2003-47, does not clearly specify which acts of the
respondent constitute gross misconduct or what provisions of
the Code of Professional Responsibility have been violated. We
find the recommended penalty of suspension for 6 months too
harsh and not proportionate to the offense committed by the
respondent. The power to disbar or suspend must be exercised
with great caution. Only in a clear case of misconduct that
seriously affects the standing and character of the lawyer as an
officer of the Court and member of the bar will disbarment or
suspension be imposed as a penalty. All considered, a
reprimand is deemed sufficient and reasonable.
Conjugal Partnership of the Spouses Cadavedo vs. Lacaya
(January 15, 2014)
FACTS
The Spouses Vicente Cadavedo and Benita Arcoy-
Cadavedo acquired a homestead grant over a 230,765-square
meter parcel of land known as Lot 5415 located in Gumay,
Pian, Zamboanga del Norte. On April30, 1955, the spouses
Cadavedo sold the subject lot to the spouses Vicente Ames and
Martha Fernandez (the spouses Ames) Transfer Certificate of
Title (TCT) No. T-4792 was subsequently issued in the name of
the spouses Ames.
The present controversy arose when the spouses
Cadavedo filed an action before the RTC(then Court of First
Instance) of Zamboanga City against the spouses Ames for sum
of money and/or voiding of contract of sale of homestead after
the latter failed to pay the balance of the purchase price. The
spouses Cadavedo initially engaged the services of Atty.
Rosendo Bandal who, for health reasons, later withdrew from
the case; he was substituted by Atty. Lacaya.
On February 24, 1969, Atty. Lacaya amended the
complaint to assert the nullity of the sale and the issuance of
TCT No. T-4792 in the names of the spouses Ames as gross
violation of the public land law. The amended complaint stated
that the spouses Cadavedo hired Atty. Lacaya on a contingency
fee basis.
In a decision dated February 1, 1972, the RTC upheld
the sale of the subject lot to the spouses Ames. The spouses
Cadavedo, thru Atty. Lacaya, appealed the case to the CA.
On September 18, 1975, and while the appeal before
the CA in Civil Case No. 1721 was pending, the spouses Ames
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sold the subject lot to their children. The spouses Ames TCT
No. T-4792 was subsequently cancelled and TCT No. T-
25984was issued in their childrens names. On October 11,
1976, the spouses Ames mortgaged the subject lot with the
Development Bank of the Philippines (DBP) in the names of
their children.
On August 13, 1980, the CA issued its decision in Civil
Case No. 1721,reversing the decision of the RTC and declaring
the deed of sale, transfer of rights, claims and interest to the
spouses Ames null and void ab initio. It directed the spouses
Cadavedo to return the initial payment and ordered the
Register of Deeds to cancel the spouses Ames TCT No. T-4792
and to reissue another title in the name of the spouses
Cadavedo. The case eventually reached this Court via the
spouses Ames petition for review on certiorari which this
Court dismissed for lack of merit.
With the finality of the judgment in Civil Case No.
1721,Atty. Lacaya filed on September 21, 1981 a motion for the
issuance of a writ of execution.
On September 23, 1981, the spouses Ames filed Civil
Case No. 3352 against the spouses Cadavedo. On October 16,
1981, the RTC granted the motion filed for the issuance of a
writ of execution in Civil Case No. 1721 and the spouses
Cadavedo took possession of the subject lot on October 24,
1981. Soon after, the subject lot was surveyed and subdivided
into two equal portions, and Atty. Lacaya took possession of
one of the subdivided portions; and (5) on May 13, 1982,
Vicente and Atty. Lacaya executed the compromise agreement.
ISSUE: Whether the attorneys fee consisting of one-half of the
subject lot is valid and reasonable, and binds the petitioners.
RULING
NO.
Article 1491 (5) of the Civil Code forbids lawyers from
acquiring, by purchase or assignment, the property that has
been the subject of litigation in which they have taken part by
virtue of their profession. The same proscription is provided
under Rule 10 of the Canons of Professional Ethics.
A thing is in litigation if there is a contest or litigation
over it in court or when it is subject of the judicial action.
Following this definition, we find that the subject lot was still in
litigation when Atty. Lacaya acquired the disputed one-half
portion.
Whether by virtue of the alleged oral contingent fee agreement
or an agreement subsequently entered into, Atty. Lacaya
acquired the disputed one-half portion (which was after
October 24, 1981) while Civil Case No. 3352 and the motion for
the issuance of a writ of execution in Civil Case No. 1721were
already pending before the lower courts. Similarly, the
compromise agreement, including the subsequent judicial
approval, was effected during the pendency of Civil Case No.
3352. In all of these, the relationship of a lawyer and a client
still existed between Atty. Lacaya and the spouses Cadavedo.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Thus, whether we consider these transactions the
transfer of the disputed one-half portion and the compromise
agreement independently of each other or resulting from one
another, we find them to be prohibited and void by reason of
public policy. Under Article 1409 of the Civil Code, contracts
which are contrary to public policy and those expressly
prohibited or declared void by law are considered in existent
and void from the beginning.
What did not escape this Courts attention is the CAs
failure to note that the transfer violated the provisions of
Article 1491(5) of the Civil Code, although it recognized the
concurrence of the transfer and the execution of the
compromise agreement with the pendency of the two civil
cases subsequent to Civil Case No. 1721. In reversing the RTC
ruling, the CA gave weight to the compromise agreement and
in so doing, found justification in the unproved oral contingent
fee agreement.
While contingent fee agreements are indeed
recognized in this jurisdiction as a valid exception to the
prohibitions under Article 1491(5) of the Civil Code, contrary to
the CAs position, however, this recognition does not apply to
the present case. A contingent fee contract is an agreement in
writing where the fee, often a fixed percentage of what may be
recovered in the action, is made to depend upon the success of
the litigation. The payment of the contingent fee is not made
during the pendency of the litigation involving the clients
property but only after the judgment has been rendered in the
case handled by the lawyer.
In the present case, we reiterate that the transfer or
assignment of the disputed one-half portion to Atty. Lacaya
took place while the subject lot was still under litigation and
the lawyer-client relationship still existed between him and the
spouses Cadavedo. Thus, the general prohibition provided
under Article 1491 of the Civil Code, rather than the exception
provided in jurisprudence, applies. The CA seriously erred in
upholding the compromise agreement on the basis of the
unproved oral contingent fee agreement.
Notably, Atty. Lacaya, in undertaking the spouses
Cadavedos cause pursuant to the terms of the alleged oral
contingent fee agreement, in effect, became a co-proprietor
having an equal, if not more, stake as the spouses Cadavedo.
Again, this is void by reason of public policy; it undermines the
fiduciary relationship between him and his clients.
c) Judges
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person or
through the mediation of another:
xxx
(5) Justices, JUDGES, prosecuting attorneys, clerks of superior
and inferior courts, and other officers and employees connected
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with the administration of justice, the property and rights in
litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in
which they may take part by virtue of their profession;
xxx
Applicability
Article 1491 should cover not only lawyers, but judges
as well.
With regard to judges, the prohibition applies only to
properties or rights in litigation within their territorial
jurisdiction.
RTC within their region
MTC within their municipality
SC the whole Philippines.
Reason for Prohibition
to avoid improper interefence by a judge to a thing
levied upon or sold by his order.
Macariola vs. Asuncion
(May 31, 1982)
FACTS
Civil Case No. 3010 of the Court of First Instance of
Leyte was a complaint for partition filed by Sinforosa R. Bales,
Luz R. Bakunawa, Anacorita Reyes, Ruperto Reyes, Adela Reyes,
and Priscilla Reyes, plaintiffs, against Bernardita R. Macariola,
defendant, concerning the properties left by the deceased
Francisco Reyes, the common father of the plaintiff and
defendant.
On June 8, 1963, a decision was rendered by
respondent Judge Asuncion in Civil Case 3010 which became
final for lack of an appeal, and on October 16, 1963, a project
of partition was submitted to Judge Asuncion which is marked
Exh. A. Notwithstanding the fact that the project of partition
was not signed by the parties themselves but only by the
respective counsel of plaintiffs and defendant, Judge Asuncion
approved it in his Order dated October 23, 196
One of the properties mentioned in the project of
partition was Lot 1184 or rather one-half thereof with an area
of 15,162.5 sq. meters. This lot, which according to the decision
was the exclusive property of the deceased Francisco Reyes,
was adjudicated in said project of partition to the plaintiffs Luz,
Anacorita Ruperto, Adela, and Priscilla all surnamed Reyes in
equal shares, and when the project of partition was approved
by the trial court the adjudicatees caused Lot 1184 to be
subdivided into five lots denominated as Lot 1184-A to 1184-E
inclusive.
Lot 1184-D was conveyed to Enriqueta D. Anota, a
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
stenographer in Judge Asuncion's court, while Lot 1184-E which
had an area of 2,172.5556 sq. meters was sold on July 31, 1964
to Dr. Arcadio Galapon . who was issued transfer certificate of
title No. 2338 of the Register of Deeds of the city of Tacloban.
On March 6, 1965, Dr. Arcadio Galapon and his wife
Sold a portion of Lot 1184-E with an area of around 1,306 sq.
meters to Judge Asuncion and his wife, Victoria S. Asuncion,
which particular portion was declared by the latter for taxation
purposes.
On August 31, 1966, spouses Asuncion and spouses
Galapon conveyed their respective shares and interest in Lot
1184-E to "The Traders Manufacturing and Fishing Industries
Inc." At the time of said sale the stockholders of the
corporation were Dominador Arigpa Tan, Humilia Jalandoni
Tan, Jaime Arigpa Tan, Judge Asuncion, and the latter's wife,
Victoria S. Asuncion, with Judge Asuncion as the President and
Mrs. Asuncion as the secretary (Exhs. E-4 to E-7). The Articles of
Incorporation of "The Traders Manufacturing and Fishing
Industries, Inc." which we shall henceforth refer to as
"TRADERS" were registered with the Securities and Exchange
Commission only on January 9, 1967.
Complainant Bernardita R. Macariola filed on August
9, 1968 the instant complaint dated August 6, 1968 alleging
four causes of action, to wit: [1] that respondent Judge
Asuncion violated Article 1491, paragraph 5, of the New Civil
Code in acquiring by purchase a portion of Lot No. 1184-E
which was one of those properties involved in Civil Case No.
3010 decided by him; [2] that he likewise violated Article 14,
paragraphs I and 5 of the Code of Commerce, Section 3,
paragraph H, of R.A. 3019, otherwise known as the Anti-Graft
and Corrupt Practices Act, Section 12, Rule XVIII of the Civil
Service Rules, and Canon 25 of the Canons of Judicial Ethics, by
associating himself with the Traders Manufacturing and Fishing
Industries, Inc., as a stockholder and a ranking officer while he
was a judge of the Court of First Instance of Leyte; [3] that
respondent was guilty of coddling an impostor and acted in
disregard of judicial decorum by closely fraternizing with a
certain Dominador Arigpa Tan who openly and publicly
advertised himself as a practising attorney when in truth and in
fact his name does not appear in the Rolls of Attorneys and is
not a member of the Philippine Bar; and [4] that there was a
culpable defiance of the law and utter disregard for ethics by
respondent Judge
ISSUE: Whether or not Judge Elias B. Asuncion violated Article
1491, paragraph 5, of the New Civil Code in acquiring by
purchase a portion of Lot No. 1184-E which was one of those
properties involved in Civil Case No. 3010
RULING
No.
Article 1491. The following persons cannot acquire by
purchase, even at a public or judicial action, either in
person or through the mediation of another:
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xxx xxx xxx
(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of
justice, the property and rights in litigation or levied
upon an execution before the court within whose
jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring
by assignment and shall apply to lawyers, with respect
to the property and rights which may be the object of
any litigation in which they may take part by virtue of
their profession [emphasis supplied].
The prohibition in the aforesaid Article applies only to
the sale or assignment of the property which is the subject of
litigation to the persons disqualified therein. WE have already
ruled that "... for the prohibition to operate, the sale or
assignment of the property must take place during the
pendency of the litigation involving the property" (The Director
of Lands vs. Ababa et al., 88 SCRA 513, 519 [1979], Rosario vda.
de Laig vs. Court of Appeals, 86 SCRA 641, 646 [1978]).
In the case at bar, when the respondent Judge
purchased on March 6, 1965 a portion of Lot 1184-E, the
decision in Civil Case No. 3010 which he rendered on June 8,
1963 was already final because none of the parties therein filed
an appeal within the reglementary period; hence, the lot in
question was no longer subject of the litigation. Moreover, at
the time of the sale on March 6, 1965, respondent's order
dated October 23, 1963 and the amended order
dated November 11, 1963 approving the October 16, 1963
project of partition made pursuant to the June 8, 1963
decision, had long become final for there was no appeal from
said orders.
Furthermore, respondent Judge did not buy the lot in
question on March 6, 1965 directly from the plaintiffs in Civil
Case No. 3010 but from Dr. Arcadio Galapon who earlier
purchased on July 31, 1964 Lot 1184-E from three of the
plaintiffs, namely, Priscilla Reyes, Adela Reyes, and Luz R.
Bakunawa after the finality of the decision in Civil Case No.
3010. It may be recalled that Lot 1184 or more specifically one-
half thereof was adjudicated in equal shares to Priscilla Reyes,
Adela Reyes, Luz Bakunawa, Ruperto Reyes and Anacorita
Reyes in the project of partition, and the same was subdivided
into five lots denominated as Lot 1184-A to 1184-E. As
aforestated, Lot 1184-E was sold on July 31, 1964 to Dr.
Galapon for which he was issued TCT No. 2338 by the Register
of Deeds of Tacloban City, and on March 6, 1965 he sold a
portion of said lot to respondent Judge and his wife who
declared the same for taxation purposes only. The subsequent
sale on August 31, 1966 by spouses Asuncion and spouses
Galapon of their respective shares and interest in said Lot
1184-E to the Traders Manufacturing and Fishing Industries,
Inc., in which respondent was the president and his wife was
the secretary, took place long after the finality of the decision
in Civil Case No. 3010 and of the subsequent two aforesaid
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
orders therein approving the project of partition.
While it appears that complainant herein filed on or
about November 9 or 11, 1968 an action before the Court of
First Instance of Leyte docketed as Civil Case No. 4234, seeking
to annul the project of partition and the two orders approving
the same, as well as the partition of the estate and the
subsequent conveyances, the same, however, is of no moment.
The fact remains that respondent Judge purchased on
March 6, 1965 a portion of Lot 1184-E from Dr. Arcadio
Galapon; hence, after the finality of the decision which he
rendered on June 8, 1963 in Civil Case No. 3010 and his two
questioned orders dated October 23, 1963 and November 11,
1963. Therefore, the property was no longer subject of
litigation.
The subsequent filing on November 9, or 11, 1968 of
Civil Case No. 4234 can no longer alter, change or affect the
aforesaid facts that the questioned sale to respondent
Judge, now Court of Appeals Justice, was effected and
consummated long after the finality of the aforesaid decision or
orders.
Consequently, the sale of a portion of Lot 1184-E to
respondent Judge having taken place over one year after the
finality of the decision in Civil Case No. 3010 as well as the two
orders approving the project of partition, and not during the
pendency of the litigation, there was no violation of paragraph
5, Article 1491 of the New Civil Code.
Gan Tingco vs. Pabinguit
(October 17, 1916)
FACTS
Candida Acabo was the owner of six parcels of land, all
situated in the municipality of Jimalalud, Oriental Negros.
These lands were sold on June 12, 1911, by their owner
Candida Acabo, to one Gan Tingco, for P500.
But the purchaser Gan Tingco was unable to take
possession of the six parcels of land sold him by Acabo, for they
were in the possession of Silvino Pabinguit, who alleges certain
rights therein. He claims to have purchased them for P375 from
Faustino Abad; that Abad had become their owner through
purchase from Justice of the Peace Henry Gardner; that the
latter, in turn, had owned them by reason of having purchased
them for P555 at a public auction.
At the said auction sale ordered by Garner being the
Justice of Peace, he appeared to be the higherst bidder. As
Gardner subsequently learned that he was forbidden to
purchase the subject property, he sold what he had purchased
to Faustino Abad, Candida Acabos son.
ISSUE: This raises, therefore, a question as to the true meaning
of paragraph 5 of article 1459 of the Civil Code. lawphil.net
RULING
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The Ley de Bases, in accordance with which the Civil
Code was enacted, provides as follows, in Base No. 26:
The forms, requirements and conditions of each
particular contract shall be determined and defined
subject to the general list of obligations and their
effects, with the understanding that the legislation in
force and the legal principles evolved therefrom by
judicial decisions, etc., etc., shall serve as basis.
One of the bodies of law which conastitute the
legislation now in force in the Novisima Recopilacion. In Law 4,
Title 14, Book 5 of the same is found the following provision:
"We order that in public auctions held by direction of our
alcaldes, neither the latter nor any person whomsoever in their
name shall bid in anything sold at such public auctions." The
word alcaldes means judges. The caption of Title 14 is
"Alcaldes or Provincial Judges," and the entire title deals with
the exercise of judicial jurisdiction. Prior to the enactment of
the Civil Code, the Penal Code was also in force. Article 400 of
the latter prohinits, under penalty, any judge from taking part,
either directly, or indirectly, in any operation of exchange, trade
or porfit with respect to things not the product of his own
property, within the territory over which he exercises
jurisdiction. Judging from the legal oprecedents on which the
Civil Code is based, it would not seem too much to conclude
that the said article of the Civil Code does not make any
distinction between property in litigation. In effect, it appears
to be as delicate a matter for a judge to take part in the sale of
property that had been the subject of ligitgation in his court, as
to intervene in auction of property which, though not directly
litigated in his court, is nevertheless levied upon and sold as the
result of a writ of execution issued by him. What the law
intends to avoid is the improper interference with an interest of
a judge in a thing levied upon and sold by his order.
If under the law Gardner was prohibited from
acquiring the ownership of Acabo's lands, then he could not
have transmitted to Faustino Abad the right of ownership that
he did not possess; nor could Abad, to whom this alleged
ownership had not been transmitte, have conveyed the same
to Pabinguit. What Gardner should have done in view of the
fact that the sale, as he finally acknowledged, was void, was to
claim the price that had been deposited in court, and the
justice of the peace of Guijulngan should have declared the
auction void and have ordered a new sale to be held, besides
correcting the errors that had been committed in the
proceedings. To the reasons already stated, there is to be
added the additional one, with respect to the sale made by
Faustino Abad to Silvino Pabinguit, that Abad was a minor at
the time a circumstance that deprived him of capacity to sell
(Civil Code, art. 1263). Abad had no ownership to transmit to
anyone and, besides, he had no personality to enable him to
contract by himself, on account of his lack of legal age.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
II) SUBJECT MATTER
Requisites of a Valid Subject Matter:
It must be existing (having a potential existence), a
future thing, or een contingent (subject to a resolutory
condition).
It must be licit.
It must be determinate or at least determinable.
1) EXISTING, FUTURE AND CONTINGENT
Existing
Things having a potential existence may be the object
of the contract of sale. (Art. 1461 par. 1)
Emptio Rei Speratae Emptio Spei
The efficacy of the sale of a The sale of a vain hope or
mere hope or expectancy is expectancy is void. (Art. 1461
deemed subject to the par. 3)
condition that the thing will
come into existence. (Art.
1461 par. 2)
Uncertainty as to the quality Uncertainty as to the
and quantity. existence.
Involves a present object. Involves a future object.
Example of an Emptio Sei:
An example of emptio spei is the sale of a sweepstakes
ticket, for say 5100.00, where the buyer purchases the ticket
with the hope that upon the draw the ticket would win him, say
a million pesos. The object of the sale is not the prize, but rather
the ticket, or the chance to win; if the ticket does not win, the
sale is still valid, and the buyer has no right to recover the
amount paid for the ticket.
Future
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." (Art.
1462 par. 1)
All things which are not outside the commerce of men,
including future things, may be the object of a contract.
(Art. 1437 par. 1)
No contract may be entered into upon future
inheritance except in cases expressly authorized by law.
(Art. 1437 par. 2)
Contingent
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There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen. (Art. 1462 par. 2).
Things subject to a resolutory condition may be the
object of the contract of sale. (Art. 1465)
Sibal vs. Valdez
(August 4, 1927)
FACTS
Plaintiff alleged that the defendant Vitaliano
Mamawal, deputy sheriff of the Province of Tarlac, by virtue of
a writ of execution issued by the Court of First Instance of
Pampanga, attached and sold to the defendant Emiliano J.
Valdez the sugar cane planted by the plaintiff and his tenants
on seven parcels of land. Plaintiff offered to redeem said sugar
cane and tendered to the defendant Valdez the amount
sufficient to cover the price paid by the latter, the interest
thereon and any assessments or taxes which he may have paid
thereon after the purchase, and the interest corresponding
thereto. However, Valdez refused to accept the money and to
return the sugar cane to the plaintiff.
Meanwhile, defendant argued that the sugar cane was
personal property hence not subject to redemption.
ISSUES
1. Whether or not the sugar cane is to be classified as personal
property
2. Whether or not future crops to be harvested can be
considered a valid object of sale
RULING
1. No. A crop raised on leased premises in no sense forms part
of the immovable. It belongs to the lessee, and may be sold by
him, whether it be gathered or not, and it may be sold by his
judgment creditors.
Ungathered products have the nature of personal
property. In other words, the phrase personal property
should be understood to include ungathered products. Crops,
whether growing or standing in the field ready to be harvested,
are, when produced by annual cultivation, no part of the realty.
2. Yes. A valid sale may be made of a thing, which though not
yet actually in existence, is reasonably certain to come into
existence as the natural increment or usual incident of
something already in existence, and then belonging to the
vendor, and then title will vest in the buyer the moment the
thing comes into existence (Emerson vs. European Railway Co.,
67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep.,
63.).
A man may sell property of which he is potentially and
not actually possessed.
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Pichel vs. Alonzo
(January 30, 1982)
FACTS
Prudencio Alonzo was awarded by the Government
that parcel of land designated as Lot 21 of Subdivision Plan Psd-
32465 of Balactasan, Lamitan, Basilan City in accordance with
RA 477. The award was cancelled by the Board of Liquidators
on 27January 1965 on the ground that, previous thereto,
Alonzo was proved to have alienated the land to another, in
violation of law. In 1972, Alonzos rights to the land were
reinstated.
On 14 August 1968, Alonzo and his wife sold to Pichel
through a deed of sale all the fruits of the coconut trees
which may be harvested in the land for the period, from 15
September 1968 to 1 January 1976, in consideration of
P4,200.00. It was further stipulated that the vendors right,
title, interest and participation herein conveyed is of his own
exclusive and absolute property, free from any liens
andencumbrances and he warrants to the Vendee good title
thereto and to defend the same against any and all claims of all
persons whomsoever.
Even as of the date of sale, however, the land was still
under lease to one Ramon Sua, and it was the agreement that
part of the consideration of the sale, in the sum of P3,650.00,
was to be paid by Pichel directly to Ramon Sua so as to release
the land from the clutches of the latter. Pending said payment
Alonzo refused to allow the Pichel to make any harvest.
In July1972, Pichel for the first time since the
execution of the deed of sale in his favor, caused the harvest of
the fruit of the coconut trees in the land.
Alonzo filed an action for the annulment of a Deed of
Sale before the CFI Basilan City. On 5 January 1973, the lower
court rendered its decision holding that although
theagreement in question is denominated by the parties as a
deed of sale of fruits of the coconut trees found in the vendors
land, it actually is, for all legal intents and purposes, a contract
of lease of the land itself; an encumbrance prohibited under RA
477.
The court thus held that the deed of sale is null and
void, and ordered Alonzo to pay back Pichel the consideration
of the sale in the sum of P4,200 with interests from the date of
the filing of the complaint until paid, and Pichel to pay the sum
of P500.00 as attorneys fees; with costs against Pichel.
Hence, the petition to review on certiorari was
raised before the Supreme Court. The Supreme Court set aside
the judgment of the lower court and entered
another dismissing the complaint; without costs.
ISSUE: Is the contract of sale valid?
RULING
Contract of sale valid, essential elements valid
The document in question expresses a valid contract of
sale as it has the essential elements of a contract of sale as
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defined under Article 1458 of the New Civil Code. Article1458
provides that 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 therefore a
price certain in money or its equivalent, and that a contract
of sale maybe absolute or conditional. The subject matter of
the contract of sale are the fruits of the coconut trees on the
land during the years from 15 September 1968 up to 1
January1976, which subject matter is a determinate thing.
Things having potential existence may be the object of
the contract of sale
Under Article 1461 of the New Civil Code, things
having a potential existence may be the object of the contract
of sale. A valid sale may be made of a thing, which though not
yet actually in existence, is reasonably certain to come into
existence as the natural increment or usual incident of
something already in existence, and then belonging to the
vendor, and the title will vest in the buyer the moment the
thing comes into existence. A man may sell property of which
he is potentially and not actually possessed.
2) LICIT
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.
Article 1347. 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.
Void Contracts
Article 1409. The following contracts are inexistent and
void from the beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
xxx
Article 1575. 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 1347, par. 2. No contract may be entered into
upon future inheritance except in cases expressly authorized by
law.
Tanedo vs. CA
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

(January 22, 1996) 2. Hence, the "affidavit of conformity" dated February 28,
FACTS 1980, insofar as it sought to validate or ratify the 1962 sale, is
On October 20, 1962, Lazardo Taedo executed a also useless and, in the words of the respondent Court, "suffers
notarized deed of absolute sale in favor of his eldest brother, from the same infirmity." Even private respondents in their
Ricardo Taedo, and the latter's wife, Teresita Barera, private memorandum concede this.
respondents herein, whereby he conveyed to the latter in
consideration of P1,500.00, "one hectare of whatever share I
Martinez vs. CA
shall have over Lot No. 191 of the cadastral survey of Gerona,
(April 29, 1974)
Province of Tarlac and covered by Title T-13829 of the Register
FACTS
of Deeds of Tarlac", the said property being his "future
The spouses Romeo Martinez and Leonor Suarez, now
inheritance" from his parents. Upon the death of his father
petitioners-appellees, are the registered owners of two (2)
Matias, Lazaro executed an "Affidavit of Conformity" dated
parcels of land located in Lubao, Pampanga, covered by transfer
February 28, 1980 to "re-affirm, respect, acknowledge and
certificate of title No. 15856 of the Register of Deeds of the said
validate the sale I made in 1962." On January 13, 1981, Lazaro
province. Both parcels of land are fishponds. The property
executed another notarized deed of sale in favor of private
involved in the instant case is the second parcel mentioned in
respondents covering his "undivided ONE TWELVE (1/12) of a
the above-named transfer certificate of title.
parcel of land known as Lot 191." He acknowledged therein his
The disputed property was originally owned by one
receipt of P10,000.00 as consideration therefor. In February
Paulino Montemayor, who secured a "titulo real" over it way
1981, Ricardo learned that Lazaro sold the same property to his
back in 1883. After the death of Paulino Montemayor the said
children, petitioners herein, through a deed of sale dated
property passed to his successors-in-interest, Maria
December 29, 1980. On June 7, 1982, private respondents
Montemayor and Donata Montemayor, who in turn, sold it, as
recorded the Deed of Sale in their favor in the Registry of Deeds
well as the first parcel, to a certain Potenciano Garcia.
and the corresponding entry was made in Transfer Certificate of
Because Potenciano Garcia was prevented by the then
Title No. 166451.
municipal president of Lubao, Pedro Beltran, from restoring the
Petitioners on July 16, 1982 filed a complaint for
dikes constructed on the contested property, the former, on
rescission (plus damages) of the deeds of sale executed by
June 22, 1914, filed Civil Case No. 1407 with the Court of First
Lazaro in favor of private respondents covering the property
Instance against the said Pedro Beltran to restrain the latter in
inherited by Lazaro from his father.
his official capacity from molesting him in the possession of
Petitioners claimed that their father, Lazaro, executed an
said second parcel, and on even date, applied for a writ of
"Absolute Deed of Sale" dated December 29, 1980. Conveying
preliminary injunction, which was issued against said municipal
to his ten children his allotted portion tinder the extrajudicial
president. The Court, by decision promulgated June 12, 1916,
partition executed by the heirs of Matias, which deed included
declared permanent the preliminary injunction, which,
the land in litigation (Lot 191).
decision, on appeal, was affirmed by the Supreme Court on
Private respondents, however presented in evidence a
August 21, 1918. From June 22, 1914, the dikes around the
"Deed of Revocation of a Deed of Sale" dated March 12, 1981,
property in question remained closed until a portion thereof
wherein Lazaro revoked the sale in favor of petitioners for the
was again opened just before the outbreak of the Pacific War.
reason that it was "simulated or fictitious without any
On April 17, 1925. Potenciano Garcia applied for the
consideration whatsoever".
registration of both parcels of land in his name, and the Court
of First Instance of Pampanga, sitting as land registration court,
ISSUES
granted the registration over and against the opposition of the
1. Is the sale of a future inheritance valid?
Attorney-General and the Director of Forestry. Pursuant to the
2. Was the subsequent execution on January 13, 1981
Court's decision, original certificate of title No. 14318, covering
(and registration with the Registry of Property) of a
said parcels 1 and 2 was issued to the spouses Potenciano
deed of sale covering the same property to the same
Garcia and Lorenza Sioson.
buyers valid?
These parcels of land were subsequently bought by
Emilio Cruz de Dios in whose name transfer certificate of title
RULING
No. 1421 was first issued on November 9, 1925.
1. No. Pursuant to Article 1347 of the Civil Code, "(n)o contract
Thereafter, the ownership of these properties changed
may be entered into upon a future inheritance except in cases
hands until eventually they were acquired by the herein
expressly authorized by law."
appellee spouses who hold them by virtue of transfer
Consequently, said contract made in 1962 is not valid
certificate of title No. 15856.
and cannot be the source of any right nor the creator of any
To avoid any untoward incident, the disputants agreed
obligation between the parties.
to refer the matter to the Committee on Rivers and Streams, by
then composed of the Honorable Pedro Tuason, at that time

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Secretary of Justice, as chairman, and the Honorable Salvador which is not capable of private appropriation or acquisition by
Araneta and Vicente Orosa, Secretary of Agriculture and prescription. (Palanca v. Com. of the Philippines, 69 Phil. 449;
National Resources and Secretary of Public Works and Meneses v. Com. of the Philippines, 69 Phil. 647).
Communications, respectively, as members. This committee Consequently, appellants' title does not include said river.
thereafter appointed a Sub-Committee to investigate the case
and to conduct an ocular inspection of the contested property,
Heirs of Arturo Reyes vs. Socco-Beltran
and on March 11, 1954, said Sub-Committee submitted its
(November 27, 2008)
report to the Committee on Rivers and Streams to the effect
FACTS
that Parcel No. 2 of transfer certificate of title No. 15856 was
On 25 June 1998, respondent Elena Socco-Beltran filed
not a public river but a private fishpond owned by the herein
an application for the purchase of Lot No. 6-B before the
spouses.
Department of Agrarian Reform (DAR), alleging that it was
adjudicated in her favor in the extra-judicial settlement of
ISSUE
Constancia Soccos estate.
Whether or not Lot No. 2 may be appropriated. No.
Petitioners herein, the heirs of the late Arturo Reyes,
filed their protest to respondents petition before the DAR on
RULING
the ground that the subject property was sold by respondents
At the time of the enactment of Section 496, one right
brother, Miguel R. Socco, in favor of their father, Arturo Reyes,
recognized or existing under the law is that provided for in
as evidenced by the Contract to Sell. Petitioners averred that
Article 339 of the old Civil Code which reads as follows:
they took physical possession of the subject property in 1954
Property of public ownership is:
and had been uninterrupted in their possession of the said
1. That destined to the public use, such as roads,
property since then.
canals, rivers, torrents, ports, and bridges constructed
Legal Officer Brigida Pinlac of the DAR Bataan
by the State, and banks shores, roadsteads, and that of
Provincial Agrarian Reform Office conducted an investigation
a similar character. (Par. 1)
and thereafter recommended the approval of respondents
The above-mentioned properties are parts of the
petition for issuance of title over the subject property, ruling
public domain intended for public use, are outside the
that respondent was qualified to own the subject property
commerce of men and, therefore, not subject to private
pursuant to Article 1091 of the New Civil Code.
appropriation.
In an Order dated 15 September 1999, DAR Regional
When it comes to registered properties, the
Director Nestor R. Acosta, however, dismissed respondents
jurisdiction of the Secretary of Public Works & Communications
petition for issuance of title over the subject property on the
under Republic Act 2056 to order the removal or obstruction to
ground that respondent was not an actual tiller and had
navigation along a public and navigable creek or river included
abandoned the said property for 40 years; hence, she had
therein, has been definitely settled and is no longer open to
already renounced her right to recover the same.
question (Lovina v. Moreno, G.R. No L-17821, November 29,
Respondent filed a Motion for Reconsideration of the
1963, 9 SCRA 557; Taleon v. Secretary of Public Works &
foregoing Order, which was denied by DAR Regional Director
Communications G.R. No. L-24281, May 16, 1961, 20 SCRA 69,
Acosta in another Order dated 15 September 1999.
74).
Respondent then appealed to the Office of the DAR
The evidence submitted before the trial court which
Secretary. In an Order, dated 9 November 2001, the DAR
was passed upon by the respondent Court of Appeals shows
Secretary reversed the Decision of DAR Regional Director
that Lot No. 2 (Plan Psu 992) of Transfer Certificate of Title No.
Acosta after finding that neither petitioners predecessor-in-
15856, is a river of the public domain. The technical description
interest, Arturo Reyes, nor respondent was an actual occupant
of both Lots Nos. 1 and 2 appearing in Original Certificate of
of the subject property. However, since it was respondent who
Title No. 14318 of the Register of Deeds of Pampanga, from
applied to purchase the subject property, she was better
which the present Transfer Certificate of Title No. 15856 was
qualified to own said property as opposed to petitioners, who
derived, confirms the fact that Lot No. 2 embraced in said title
did not at all apply to purchase the same.
is bounded practically on all sides by rivers. As held by the
Court of First Instance of Pampanga in Civil Case No. 1247 for
ISSUE: Whether or not the title to the property was
injunction filed by the petitioners' predecessors-in-interest
transferred to petitioners by virtue of the Contract to Sell
against the Municipal Mayor of Lubao and decided in 1916
executed by Miguel Socco.
(Exh. "L"), Lot No. 2 is a branch of the main river that has been
covered with water since time immemorial and, therefore, part
RULING
of the public domain. This finding having been affirmed by the
No. Petitioners cannot derive title to the subject
Supreme Court, there is no longer any doubt that Lot No. 2 of
property by virtue of the Contract to Sell. It was unmistakably
Transfer Certificate of Title No. 15856 of petitioners is a river
stated in the Contract and made clear to both parties thereto

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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
that the vendor, Miguel R. Socco, was not yet the owner of the
subject property and was merely expecting to inherit the same
as his share as a co-heir of Constancias estate. It was also
declared in the Contract itself that Miguel R. Soccos
conveyance of the subject to the buyer, Arturo Reyes, was a
conditional sale. It is, therefore, apparent that the sale of the
subject property in favor of Arturo Reyes was conditioned upon
the event that Miguel Socco would actually inherit and become
the owner of the said property. Absent such occurrence,
Miguel R. Socco never acquired ownership of the subject
property which he could validly transfer to Arturo Reyes.
Under Article 1459 of the Civil Code on contracts of
sale, "The thing must be licit and the vendor must have a right
to transfer ownership thereof at the time it is delivered." The
law specifically requires that the vendor must have ownership
of the property at the time it is delivered. Petitioners claim that
the property was constructively delivered to them in 1954 by
virtue of the Contract to Sell. However, as already pointed out
by this Court, it was explicit in the Contract itself that, at the
time it was executed, Miguel R. Socco was not yet the owner of
the property and was only expecting to inherit it. Hence, there
was no valid sale from which ownership of the subject property
could have transferred from Miguel Socco to Arturo Reyes.
Without acquiring ownership of the subject property, Arturo
Reyes also could not have conveyed the same to his heirs,
herein petitioners.
Frenzel vs. Catito
(July 11, 2003)
FACTS
Petitioner Alfred Fritz Frenzel is an Australian citizen of
German descent. He arrived in the Philippines in 1974 and two
years thereafter, and married Teresita Santos, a Filipino citizen.
In 1981, Alfred and Teresita separated from bed and board
without obtaining a divorce.
Sometime in February 1983, Alfred arrived in Sydney,
Australia for a vacation. He went to King's Cross, a night spot in
Sydney, for a massage where he met Ederlina Catito, a Filipina
and a native of Bajada, Davao City. Unknown to Alfred, she
resided for a time in Germany and was married to Klaus Muller,
a German national.
Alfred was so enamored with Ederlina that he
persuaded her to stop working at King's Cross, return to the
Philippines, and engage in a wholesome business of her own.
He also proposed that they meet in Manila, to which she
assented. Alfred gave her money for her plane fare to the
Philippines. Within two weeks of Ederlina's arrival in Manila,
Alfred joined her. Alfred reiterated his proposal for Ederlina to
stay in the Philippines and engage in business, even offering to
finance her business venture. Ederlina was delighted at the
idea and proposed to put up a beauty parlor. Alfred happily
agreed.
In the meantime, Ederlina's petition for divorce was
denied because Klaus opposed the same. A second petition
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filed by her met the same fate. Klaus wanted half of all the
properties owned by Ederlina in the Philippines before he
would agree to a divorce. Worse, Klaus threatened to file a
bigamy case against Ederlina.
Alfred proposed the creation of a partnership to
Ederlina, or as an alternative, the establishment of a
corporation, with Ederlina owning 30% of the equity thereof.
She initially agreed to put up a corporation and contacted Atty.
Armando Dominguez to prepare the necessary documents.
Ederlina changed her mind at the last minute when she was
advised to insist on claiming ownership over the properties
acquired by them during their coverture.
On October 15, 1985, Alfred wrote to Ederlina's father,
complaining that Ederlina had taken all his life savings and
because of this, he was virtually penniless. He further accused
the Catito family of acquiring for themselves the properties he
had purchased with his own money. He demanded the return
of all the amounts that Ederlina and her family had "stolen"
and turn over all the properties acquired by him and Ederlina
during their coverture.
Shortly thereafter, Alfred filed a Complaint dated
October 28, 1985, against Ederlina, with the Regional Trial
Court of Quezon City, for recovery of real and personal
properties located in Quezon City and Manila. In his complaint,
Alfred alleged, inter alia, that Ederlina, without his knowledge
and consent, managed to transfer funds from their joint
account in HSBC Hong Kong, to her own account with the same
bank. Using the said funds, Ederlina was able to purchase the
properties subject of the complaints. He also alleged that the
beauty parlor in Ermita was established with his own funds,
and that the Quezon City property was likewise acquired by
him with his personal funds.
ISSUE
1) Whether or not the rule of in pari delicto applies
2) Whether or not the intention of petitioner is not to
own real properties in the Philippines but to sell them
at a public auction to be able to recover his money
used in purchasing them.
RULING
1) Section 14, Article XIV of the 1973 Constitution provides, as
follows:
Save in cases of hereditary succession, no private land
shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or
hold lands in the public domain.
Even if, as claimed by the petitioner, the sales in
question were entered into by him as the real vendee, the said
transactions are in violation of the Constitution; hence, are null
and void ab initio. A contract that violates the Constitution and
the law, is null and void and vests no rights and creates no
obligations. It produces no legal effect at all.53 The petitioner,
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
being a party to an illegal contract, cannot come into a court of
law and ask to have his illegal objective carried out. One who
loses his money or property by knowingly engaging in a
contract or transaction which involves his own moral turpitude
may not maintain an action for his losses. To him who moves in
deliberation and premeditation, the law is unyielding.54 The
law will not aid either party to an illegal contract or agreement;
it leaves the parties where it finds them.
The petitioner cannot feign ignorance of the
constitutional proscription, nor claim that he acted in good
faith, let alone assert that he is less guilty than the respondent.
The petitioner is charged with knowledge of the constitutional
prohibition.60 As can be gleaned from the decision of the trial
court, the petitioner was fully aware that he was disqualified
from acquiring and owning lands under Philippine law even
before he purchased the properties in question; and, to skirt
the constitutional prohibition, the petitioner had the deed of
sale placed under the respondent's name as the sole vendee
thereof.
It is evident that the plaintiff was fully aware that as a
non-citizen of the Philippines, he was disqualified from validly
purchasing any land within the country.
2) The petitioner cannot find solace in Article 1416 of the New
Civil Code which reads:
Art. 1416. When the agreement is not illegal per se
but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover
what he has paid or delivered.
The provision applies only to those contracts which
are merely prohibited, in order to benefit private interests. It
does not apply to contracts void ab initio. The sales of three
parcels of land in favor of the petitioner who is a foreigner is
illegal per se. The transactions are void ab initio because they
were entered into in violation of the Constitution. Thus, to
allow the petitioner to recover the properties or the money
used in the purchase of the parcels of land would be subversive
of public policy.
3) DETERMINATE OR AT LEAST DETERMINABLE
Article 1460. 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.
Determinate Subject Matter
A thing is DETERMINATE when it is particularly
designated or physical segregated from all others of the
same class.
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Determinable Subject Matter
2 Requisites:
Capacity to Segregate Test If at the perfection of
the sale, the thing is capable of being made
determinate ; and
No Further Agreement Test Without the necessity
of a new or further agreement between the
parties.
Heirs of Juan San Andres vs. Rodriguez
(May 31, 2000)
FACTS
Juan San Andres was the registered owner of Lot No.
1914-B-2 situated in Liboton, Naga City. On September 28,
1964, he sold a portion thereof, consisting of 345 square
meters, to respondent Vicente S. Rodriguez for P2,415.00. The
sale is evidenced by a Deed of Sale.
Upon the death of Juan San Andres on May 5, 1965,
Ramon San Andres was appointed judicial administrator of the
decedent's estate. Ramon San Andres engaged the services of a
geodetic engineer, Jose Peero, to prepare a consolidated plan
of the estate. From the result of the survey, it was found that
respondent had enlarged the area which he purchased from
the late Juan San Andres by 509 square meters.
Accordingly, the judicial administrator sent a letter,
dated July 27, 1987, to respondent demanding that the latter
vacate the portion allegedly encroached by him. However,
respondent refused to do so, claiming he had purchased the
same from the late Juan San Andres. Thereafter, on November
24, 1987, the judicial administrator brought an action, in behalf
of the estate of Juan San Andres, for recovery of possession of
the 509-square meter lot.
Respondent alleged that apart from the 345-square
meter lot which had been sold to him by Juan San Andres on
September 28, 1964, the latter likewise sold to him the
following day the remaining portion of the lot consisting of 509
square meters, with both parties treating the two lots as one
whole parcel with a total area of 854 square meters.
Respondent alleged that the full payment of the 509-square
meter lot would be effected within five (5) years from the
execution of a formal deed of sale after a survey is conducted
over said property. He further alleged that with the consent of
the former owner, Juan San Andres, he took possession of the
same and introduced improvements thereon as early as 1964.
As proof of the sale to him of 509 square meters, respondent
attached to his answer a receipt (Exh. 2) signed by the late Juan
San Andres. Respondent also attached to his answer a letter of
judicial administrator Ramon San Andres, asking payment of
the balance of the purchase price.
Petitioner contends, however, that the "property subject of the
sale was not described with sufficient certainty such that there
is a necessity of another agreement between the parties to
finally ascertain the identity; size and purchase price of the
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property which is the object of the alleged sale." He argues by the former administrator of the estates, Ramon San Andres,
that the "quantity of the object is not determinate as in fact a who wrote a letter to respondent on March 30, 1966 asking for
survey is needed to determine its exact size and the full P300.00 as partial payment for the subject lot.
purchase price therefor.

ISSUE: Whether or not the document is a Contract to Sell

Atilano vs. Atilano
despite its lacking one of the essential elements of a contract,
(May 21, 1969)
namely, object certain and sufficiently described.
FACTS
In 1916 Eulogio Atilano I acquired, by purchase from
RULING
one Gerardo Villanueva, lot No. 535 of the then municipality of
Petitioner's contention is without merit. There is no
Zamboanga cadastre. The vendee thereafter obtained transfer
dispute that respondent purchased a portion of Lot 1914-B-2
certificate of title No. 1134 in his name. In 1920 he had the
consisting of 345 square meters. This portion is located in the
land subdivided into five parts, identified as lots Nos. 535-A,
middle of Lot 1914-B-2, which has a total area of 854 square
535-B, 535-C, 535-D and 535-E, respectively. On May 18 of the
meters, and is clearly what was referred to in the receipt as the
same year, after the subdivision had been effected, Eulogio
"previously paid lot." Since the lot subsequently sold to
Atilano I, for the sum of P150.00, executed a deed of sale
respondent is said to adjoin the "previously paid lot" on three
covering lot No. 535-E in favor of his brother Eulogio Atilano II,
sides thereof, the subject lot is capable of being determined
who thereupon obtained transfer certificate of title No. 3129 in
without the need of any new contract. The fact that the exact
his name. Three other portions, namely lots Nos. 535-B, 535-C
area of these adjoining residential lots is subject to the result of
and 535-D, were likewise sold to other persons, the original
a survey does not detract from the fact that they are
owner, Eulogio Atilano I, retaining for himself only the
determinate or determinable. As the Court of Appeals
remaining portion of the land, presumably covered by the title
explained:
to lot No. 535-A. Upon his death the title to this lot passed to
Concomitantly, the object of the sale is
Ladislao Atilano, defendant in this case, in whose name the
certain and determinate. Under Article 1460 of the
corresponding certificate (No. T-5056) was issued.
New Civil Code, a thing sold is determinate if at the
On December 6, 1952, Eulogio Atilano II having
time the contract is entered into, the thing is capable
become a widower upon the death of his wife Luisa Bautista,
of being determinate without necessity of a new or
he and his children obtained transfer certificate of title No.
further agreement between the parties. Here, this
4889 over lot No. 535-E in their names as co-owners. Then, on
definition finds realization.
July 16, 1959, desiring to put an end to the co-ownership, they
Appellee's Exhibit "A" affirmingly shows that
had the land resurveyed so that it could properly be
the original 345 sq. m. portion earlier sold lies at the
subdivided; and it was then discovered that the land they were
middle of Lot 1914-B-2 surrounded by the remaining
actually occupying on the strength of the deed of sale executed
portion of the said Lot 1914-B-2 on three (3) sides, in
in 1920 was lot No. 535-A and not lot 535-E, as referred to in
the east, in the west and in the north. The northern
the deed, while the land which remained in the possession of
boundary is a 12 meter road. Conclusively, therefore,
the vendor, Eulogio Atilano I, and which passed to his
this is the only remaining 509 sq. m. portion of Lot
successor, defendant Ladislao Atilano, was lot No. 535-E and
1914-B-2 surrounding the 345 sq. m. lot initially
not lot No. 535-A.
purchased by Rodriguez. It is quite defined,
On January 25, 1960, the heirs of Eulogio Atilano II,
determinate and certain. Withal, this is the same
who was by then also deceased, filed the present action in the
portion adjunctively occupied and possessed by
Court of First Instance of Zamboanga, alleging, inter alia, that
Rodriguez since September 29, 1964, unperturbed by
they had offered to surrender to the defendants the possession
anyone for over twenty (20) years until appellee
of lot No. 535-A and demanded in return the possession of lot
instituted this suit.
No. 535-E, but that the defendants had refused to accept the
Thus, all of the essential elements of a contract of sale
exchange. The plaintiffs' insistence is quite understandable,
are present, i.e., that there was a meeting of the minds
since lot No. 535-E has an area of 2,612 square meters, as
between the parties, by virtue of which the late Juan San
compared to the 1,808 square-meter area of lot No. 535-A.
Andres undertook to transfer ownership of and to deliver a
In their answer to the complaint the defendants
determinate thing for a price certain in money. As Art. 1475 of
alleged that the reference to lot No. 535-E in the deed of sale
the Civil Code provides:
of May 18, 1920 was an involuntary error; that the intention of
The contract of sale is perfected at the
the parties to that sale was to convey the lot correctly
moment there is a meeting of minds upon the thing
identified as lot No. 535-A; that since 1916, when he acquired
which is the object of the contract and upon the price.
the entirety of lot No. 535, and up to the time of his death,
That the contract of sale is perfected was confirmed
Eulogio Atilano I had been possessing and had his house on the

2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito 86
 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
portion designated as lot No. 535-E, after which he was
succeeded in such possession by the defendants herein; and
that as a matter of fact Eulogio Atilano I even increased the
area under his possession when on June 11, 1920 he bought a
portion of an adjoining lot, No. 536, from its owner Fruto del
Carpio. On the basis of the foregoing allegations the defendants
interposed a counterclaim, praying that the plaintiffs be
ordered to execute in their favor the corresponding deed of
transfer with respect to lot No. 535-E.
ISSUE: The real issue here is not adverse possession, but the
real intention of the parties to that sale.
RULING
The logic and common sense of the situation lean
heavily in favor of the defendants' contention. When one sells
or buys real property a piece of land, for example one
sells or buys the property as he sees it, in its actual setting and
by its physical metes and bounds, and not by the mere lot
number assigned to it in the certificate of title. In the particular
case before us, the portion correctly referred to as lot No. 535-
A was already in the possession of the vendee, Eulogio Atilano
II, who had constructed his residence therein, even before the
sale in his favor even before the subdivision of the entire lot
No. 535 at the instance of its owner, Eulogio Atillano I. In like
manner the latter had his house on the portion correctly
identified, after the subdivision, as lot No. 535-E, even adding
to the area thereof by purchasing a portion of an adjoining
property belonging to a different owner. The two brothers
continued in possession of the respective portions the rest of
their lives, obviously ignorant of the initial mistake in the
designation of the lot subject of the 1920 until 1959, when the
mistake was discovered for the first time.
From all the facts and circumstances we are convinced
that the object thereof, as intended and understood by the
parties, was that specific portion where the vendee was then
already residing, where he reconstructed his house at the end
of the war, and where his heirs, the plaintiffs herein, continued
to reside thereafter: namely, lot No. 535-A; and that its
designation as lot No. 535-E in the deed of sale was simple
mistake in the drafting of the document.1wphi1.et The
mistake did not vitiate the consent of the parties, or affect the
validity and binding effect of the contract between them. The
new Civil Code provides a remedy for such a situation by means
of reformation of the instrument. This remedy is available
when, there having been a meeting of the funds of the parties
to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement by reason of
mistake, fraud, inequitable conduct on accident (Art. 1359, et
seq.) In this case, the deed of sale executed in 1920 need no
longer reformed. The parties have retained possession of their
respective properties conformably to the real intention of the
parties to that sale, and all they should do is to execute mutual
deeds of conveyance.
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
Melliza vs. City of Iloilo
(April 30, 1968)
FACTS
Juliana Melliza during her lifetime owned, among
other properties, three parcels of residential land in Iloilo City
registered in her name under Original Certificate of Title No.
3462. Said parcels of land were known as Lots Nos. 2, 5 and
1214. The total area of Lot No. 1214 was 29,073 square meters.
On November 27, 1931 she donated to the then
Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve
as site for the municipal hall. 1 The donation was however
revoked by the parties for the reason that the area donated
was found inadequate to meet the requirements of the
development plan of the municipality, the so-called "Arellano
Plan". Subsequently, Lot No. 1214 was divided by Certeza
Surveying Co., Inc.
On January 14, 1938 Juliana Melliza sold her
remaining interest in Lot 1214 to Remedios Sian Villanueva
who thereafter obtained her own registered title thereto,
under Transfer Certificate of Title No. 18178. Remedios in turn
on November 4, 1946 transferred her rights to said portion of
land to Pio Sian Melliza, who obtained Transfer Certificate of
Title No. 2492 thereover in his name.
On August 24, 1949 the City of Iloilo, which succeeded
to the Municipality of Iloilo, donated the city hall site together
with the building thereon, to the University of the Philippines
(Iloilo branch). The site donated consisted of Lots Nos. 1214-B,
1214-C and 1214-D, with a total area of 15,350 square meters,
more or less.
Sometime in 1952, the University of the Philippines
enclosed the site donated with a wire fence. Pio Sian Melliza
thereupon made representations, thru his lawyer, with the city
authorities for payment of the value of the lot (Lot 1214-B). No
recovery was obtained, because as alleged by plaintiff, the City
did not have funds (p. 9, Appellant's Brief.)
The University of the Philippines, meanwhile, obtained
Transfer Certificate of Title No. 7152 covering the three lots,
Nos. 1214-B, 1214-C and 1214-D.
On December 10, 1955 Pio Sian Melliza filed an action
in the Court of First Instance of Iloilo against Iloilo City and the
University of the Philippines for recovery of Lot 1214-B or of its
value.
ISSUE: Whether or not the conveyance by Juliana Melliza to
Iloilo municipality included that portion of Lot 1214 known as
Lot 1214-B
RULING
The requirement of the law that a sale must have for
its object a determinate thing, is fulfilled as long as, at the time
the contract is entered into, the object of the sale is capable of
being made determinate without the necessity of a new or
further agreement between the parties (Art. 1273, old Civil
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Code; Art. 1460, New Civil Code). The specific mention of some
of the lots plus the statement that the lots object of the sale
are the ones needed for city hall site, avenues and
parks, according to the Arellano plan, sufficiently provides a
basis, as of the time of the execution of the contract, for
rendering determinate said lots without the need of a new and
further agreement of the parties.
The Arellano plan was in existence as early as 1928. As
stated, the previous donation of land for city hall site on
November 27, 1931 was revoked on March 6, 1932 for being
inadequate in area under said Arellano plan. Appellant claims
that although said plan existed, its metes and bounds were not
fixed until 1935, and thus it could not be a basis for
determining the lots sold on November 15, 1932. Appellant
however fails to consider that thearea needed under that plan
for city hall site was then already known; that the specific
mention of some of the lots covered by the sale in effect fixed
the corresponding location of the city hall site under the plan;
that, therefore, considering the said lots specifically mentioned
in the public instrument Exhibit "D", and the projected city hall
site, with its area, as then shown in the Arellano plan (Exhibit
2), it could be determined which, and how much of the
portions of land contiguous to those specifically named, were
needed for the construction of the city hall site.
And, moreover, there is no question either that Lot
1214-B is contiguous to Lots 1214-C and 1214-D, admittedly
covered by the public instrument. It is stipulated that, after
execution of the contract Exhibit "D", the Municipality of Iloilo
possessed it together with the other lots sold. It sits practically
in the heart of the city hall site. Furthermore, Pio Sian Melliza,
from the stipulation of facts, was the notary public of the public
instrument. As such, he was aware of its terms. Said instrument
was also registered with the Register of Deeds and such
registration was annotated at the back of the corresponding
title certificate of Juliana Melliza. From these stipulated facts, it
can be inferred that Pio Sian Melliza knew of the aforesaid
terms of the instrument or is chargeable with knowledge of
them; that knowing so, he should have examined the Arellano
plan in relation to the public instrument Exhibit "D"; that,
furthermore, he should have taken notice of the possession
first by the Municipality of Iloilo, then by the City of Iloilo and
later by the University of the Philippines of Lot 1214-B as part
of the city hall site conveyed under that public instrument, and
raised proper objections thereto if it was his position that the
same was not included in the same. The fact remains
that, instead, for twenty long years, Pio Sian Melliza and his
predecessors-in-interest, did not object to said possession, nor
exercise any act of possession over Lot 1214-B. Applying,
therefore, principles of civil law, as well as laches, estoppel, and
equity, said lot must necessarily be deemed included in the
conveyance in favor of Iloilo municipality, now Iloilo City.
NGA vs. IAC
(March 8, 1989)
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
FACTS
Petitioner National Grains Authority (now National
Food Authority, NFA for short) is a government agency created
under Presidential Decree No. 4. One of its incidental functions
is the buying of palay grains from qualified farmers.
On August 23, 1979, private respondent Leon Soriano
offered to sell palay grains to the NFA, through William Cabal,
the Provincial Manager of NFA stationed at Tuguegarao,
Cagayan. He submitted the documents required by the NFA for
pre-qualifying as a seller, namely: (1) Farmer's Information
Sheet accomplished by Soriano and certified by a Bureau of
Agricultural Extension (BAEX) technician, Napoleon Callangan,
(2) Xerox copies of four (4) tax declarations of the riceland
leased to him and copies of the lease contract between him
and Judge Concepcion Salud, and (3) his Residence Tax
Certificate. Private respondent Soriano's documents were
processed and accordingly, he was given a quota of 2,640
cavans of palay. The quota noted in the Farmer's Information
Sheet represented the maximum number of cavans of palay
that Soriano may sell to the NFA.
In the afternoon of August 23, 1979 and on the
following day, August 24, 1979, Soriano delivered 630 cavans of
palay. The palay delivered during these two days were not
rebagged, classified and weighed. when Soriano demanded
payment of the 630 cavans of palay, he was informed that its
payment will be held in abeyance since Mr. Cabal was still
investigating on an information he received that Soriano was
not a bona tide farmer and the palay delivered by him was not
produced from his farmland but was taken from the warehouse
of a rice trader, Ben de Guzman. On August 28, 1979, Cabal
wrote Soriano advising him to withdraw from the NFA
warehouse the 630 cavans Soriano delivered stating that NFA
cannot legally accept the said delivery on the basis of the
subsequent certification of the BAEX technician, Napoleon
Callangan that Soriano is not a bona fide farmer.
Instead of withdrawing the 630 cavans of palay, private
respondent Soriano insisted that the palay grains delivered be
paid. He then filed a complaint for specific performance and/or
collection of money with damages on November 2, 1979,
against the National Food Authority and Mr. William Cabal,
Provincial Manager of NFA with the Court of First Instance of
Tuguegarao, and docketed as Civil Case No. 2754.
Meanwhile, by agreement of the parties and upon
order of the trial court, the 630 cavans of palay in question
were withdrawn from the warehouse of NFA. An inventory was
made by the sheriff as representative of the Court, a
representative of Soriano and a representative of NFA.
ISSUE
whether or not there was a contract of sale
RULING
Article 1458 of the Civil Code of the Philippines
defines sale as a contract whereby one of the contracting
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parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party to pay
therefore a price certain in money or its equivalent. A contract,
on the other hand, is a meeting of minds between two (2)
persons whereby one binds himself, with respect to the other,
to give something or to render some service (Art. 1305, Civil
Code of the Philippines). The essential requisites of contracts
are: (1) consent of the contracting parties, (2) object certain
which is the subject matter of the contract, and (3) cause of the
obligation which is established (Art. 1318, Civil Code of the
Philippines.
In the case at bar, Soriano initially offered to sell palay
grains produced in his farmland to NFA. When the latter
accepted the offer by noting in Soriano's Farmer's Information
Sheet a quota of 2,640 cavans, there was already a meeting of
the minds between the parties. The object of the contract,
being the palay grains produced in Soriano's farmland and the
NFA was to pay the same depending upon its quality. The fact
that the exact number of cavans of palay to be delivered has
not been determined does not affect the perfection of the
contract. Article 1349 of the New Civil Code provides: ". . .. The
fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible
to determine the same, without the need of a new contract
between the parties." In this case, there was no need for NFA
and Soriano to enter into a new contract to determine the
exact number of cavans of palay to be sold. Soriano can deliver
so much of his produce as long as it does not exceed 2,640
cavans.
Schuback & Sons vs. CA
(November 11, 1993)
FACTS
Sometime in 1981, defendant established contact with
plaintiff through the Philippine Consulate General in Hamburg,
West Germany, because he wanted to purchase MAN bus spare
parts from Germany. Plaintiff communicated with its trading
partner. Johannes Schuback and Sohne Handelsgesellschaft
m.b.n. & Co. (Schuback Hamburg) regarding the spare parts
defendant wanted to order.
On October 16, 1981, defendant submitted to plaintiff
a list of the parts he wanted to purchase with specific part
numbers and description. Plaintiff referred the list to Schuback
Hamburg for quotations. Upon receipt of the quotations,
plaintiff sent to defendant a letter dated 25 November, 1981
enclosing its offer on the items listed by defendant.
On December 17, 1981, plaintiff submitted its formal
offer containing the item number, quantity, part number,
description, unit price and total to defendant. On December,
24, 1981, defendant informed plaintiff of his desire to avail of
the prices of the parts at that time and enclosed Purchase
Order No. 0101 dated 14 December 1981. Said Purchase Order
contained the item number, part number and description.
Defendant promised to submit the quantity per unit he wanted
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
to order on December 28 or 29.
Plaintiff immediately ordered the items needed by
defendant from Schuback Hamburg to enable defendant to
avail of the old prices. Schuback Hamburg in turn ordered
(Order No. 12204) the items from NDK, a supplier of MAN
spare parts in West Germany.
On January 4, 1982, Schuback Hamburg sent plaintiff a
proforma invoice to be used by defendant in applying for a
letter of credit. Said invoice required that the letter of credit be
opened in favor of Schuback Hamburg. Defendant
acknowledged receipt of the invoice.
An order confirmation was later sent by Schuback
Hamburg to plaintiff which was forwarded to and received by
defendant on February 3, 1981.
In the meantime, Schuback Hamburg received invoices
from, NDK for partial deliveries on Order No.12204. Schuback
Hamburg paid NDK. The latter confirmed receipt of payments
made on February 16, 1984.
On October 18, 1982, Plaintiff again reminded
defendant of his order and advised that the case may be
endorsed to its lawyers. Defendant replied that he did not
make any valid Purchase Order and that there was no definite
contract between him and plaintif. Plaintiff sent a rejoinder
explaining that there is a valid Purchase Order and suggesting
that defendant either proceed with the order and open a letter
of credit or cancel the order and pay the cancellation fee of
30% of F.O.B. value, or plaintiff will endorse the case to its
lawyers.
Schuback Hamburg issued a Statement of Account to
plaintiff enclosing therewith Debit Note charging plaintiff 30%
cancellation fee, storage and interest charges in the total
amount of DM 51,917.81. Said amount was deducted from
plaintiff's account with Schuback Hamburg.
Demand letters sent to defendant by plaintiff's
counsel dated March 22, 1983 and June 9, 1983 were to no
avail
ISSUE: Whether or not a contract of sale has been perfected
between the parties.
RULING
Article 1319 of the Civil Code states: "Consent is
manifested by the meeting of the offer and acceptance upon
the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter offer." The facts
presented to us indicate that consent on both sides has been
manifested.
The offer by petitioner was manifested on December
17, 1981 when petitioner submitted its proposal containing the
item number, quantity, part number, description, the unit price
and total to private respondent. On December 24, 1981, private
respondent informed petitioner of his desire to avail of the
prices of the parts at that time and simultaneously enclosed its
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
Purchase Order No. 0l01 dated December 14, 1981. At this
stage, a meeting of the minds between vendor and vendee has
occurred, the object of the contract: being the spare parts and
the consideration, the price stated in petitioner's offer dated
December 17, 1981 and accepted by the respondent on
December 24,1981.
Although said purchase order did not contain the
quantity he wanted to order, private respondent made good,
his promise to communicate the same on December 29, 1981.
At this juncture, it should be pointed out that private
respondent was already in the process of executing the
agreement previously reached between the parties.
Indeed a perfection of contract was reached between
the parties, we differ as to the exact date when it occurred, for
perfection took place, not on December 29, 1981. Although the
quantity to be ordered was made determinate only on
December 29, 1981, quantity is immaterial in the perfection of
a sales contract. What is of importance is the meeting of the
minds as to the object and cause, which from the facts
disclosed, show that as of December 24, 1981, these essential
elements had already occurred.
On the part of the buyer, the situation reveals that
private respondent failed to open an irrevocable letter of credit
without recourse in favor of Johannes Schuback of Hamburg,
Germany. This omission, however. does not prevent the
perfection of the contract between the parties, for the opening
of the letter of credit is not to be deemed a suspensive
condition. The facts herein do not show that petitioner
reserved title to the goods until private respondent had opened
a letter of credit. Petitioner, in the course of its dealings with
private respondent, did not incorporate any provision declaring
their contract of sale without effect until after the fulfillment of
the act of opening a letter of credit.
The opening of a letter of credit in favor of a vendor is
only a mode of payment. It is not among the essential
requirements of a contract of sale enumerated in Article 1305
and 1474 of the Civil Code, the absence of any of which will
prevent the perfection of the contract from taking place.
4) OBLIGATION TO TRANSFER OWNERSHIP
Obligation of the Seller
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.
General Rule (Seller may not be the Owner of the Object)
Article 1505. Subject to the provisions of this Title,
where goods are sold by a person who is not the owner thereof,
and who does not sell them under authority or with the consent
of the owner, the buyer acquires no better title to the goods than
the seller had, unless the owner of the goods is by his conduct
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Ateneo de Davao University College of Law | 1st Sem (2016-2017)
precluded from denying the seller's authority to sell.
Exception (When Seller Must Be the Owner at Time of Sale)
The exception to the rule that ownership by the seller is
not essential at the time of perfection would be in the case of
judicial sale.
Alcantara-Daus vs. De Leon
(June 16, 2003)
FACTS
A parcel of land (Lot No. 4786 of the Cadastral Survey
of San Manuel) situated in the Municipality of San Manuel,
Bounded on the NW., by Lot No. 4785; and on the SE., by Lot
Nos. 11094 & 11096; containing an area of 4,212 sq. m., more
or less. Covered by Original Certificate of Title No. 22134 of the
Land Records of Pangasinan. which [Respondent] Hermoso de
Leon inherited from his father Marcelino de Leon by virtue of a
[D]eed of [E]xtra-judicial [P]artition.
Sometime in the early 1960s, [respondents] engaged
the services of the late Atty. Florencio Juan to take care of the
documents of the properties of his parents. Atty. Juan let them
sign voluminous documents. After the death of Atty. Juan,
some documents surfaced and most revealed that their
properties had been conveyed by sale or quitclaim to
[Respondent] Hermosos brothers and sisters, to Atty. Juan and
his sisters, when in truth and in fact, no such conveyances were
ever intended by them. His signature in the [D]eed of [E]xtra-
judicial [P]artition with [Q]uitclaim made in favor of Rodolfo de
Leon was forged. They discovered that the land in question was
sold by Rodolfo de Leon to [Petitioner] Aurora Alcantara. They
demanded annulment of the document and reconveyance but
defendants refused.
Aurora Alcantara-Daus [averred] that she bought the
land in question in good faith and for value on December 6,
1975. [She] has been in continuous, public, peaceful, open
possession over the same and has been appropriating the
produce thereof without objection from anyone.
ISSUE: Whether or not the Deed of Absolute Sale dated
December 6, 1975 executed by Rodolfo de Leon (deceased)
over the land in question in favor of petitioner was perfected
and binding upon the parties therein?
RULING
Petitioner argues that, having been perfected, the
Contract of Sale executed on December 6, 1975 was thus
binding upon the parties thereto.
A contract of sale is consensual. It is perfected by
mere consent, upon a meeting of the minds on the offer and
the acceptance thereof based on subject matter, price and
terms of payment. At this stage, the sellers ownership of the
thing sold is not an element in the perfection of the contract of
sale.
The contract, however, creates an obligation on the
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

part of the seller to transfer ownership and to deliver the amounts defendants failed to pay, and the same day the said
subject matter of the contract. It is during the delivery that the arrangement 6 was made; another covenant 7 was entered into
law requires the seller to have the right to transfer ownership by the parties, whereby defendants agreed to return to
of the thing sold. In general, a perfected contract of sale cannot plaintiffs the lands in question, at anytime the latter have the
be challenged on the ground of the sellers non-ownership of necessary amount; that plaintiffs asked the defendants to
the thing sold at the time of the perfection of the contract. return the same but despite the intervention of the Barangay
Further, even after the contract of sale has been Captain of their place, defendants refused to return the said
perfected between the parties, its consummation by delivery is parcels of land to plaintiffs; thereby impelling them (plaintiffs)
yet another matter. It is through tradition or delivery that the to come to court for relief.
buyer acquires the real right of ownership over the thing sold. In their Answer, defendants-appellees theorized that
Undisputed is the fact that at the time of the sale, they acquired the lands in question from the Development
Rodolfo de Leon was not the owner of the land he delivered to Bank of the Philippines, through negotiated sale, and were
petitioner. Thus, the consummation of the contract and the misled by plaintiffs when defendant Anacleto Nool signed the
consequent transfer of ownership would depend on whether private writing, agreeing to return subject lands when plaintiffs
he subsequently acquired ownership of the land in accordance have the money to redeem the same; defendant Anacleto
with Article 1434 of the Civil Code. Therefore, we need to having been made to believe, then, that his sister, Conchita, still
resolve the issue of the authenticity and the due execution of had the right to redeem the said properties.
the Extrajudicial Partition and Quitclaim in his favor.
ISSUE: Are Exhibits "C" and "D" Valid and Enforceable?
Nool vs. CA
RULING
(July 24, 1997)
FACTS
Article 1370 of the Civil Code is applicable only to valid
Two (2) parcels of land are in dispute and litigated
and enforceable contracts. The Regional Trial Court and the
upon here. The first has an area of 1 hectare. It was formerly
Court of Appeals ruled that the principal contract of sale
owned by Victorino Nool and covered by Transfer Certificate of
contained in Exhibit C and the auxiliary contract of repurchase
Title No. T-74950. With an area of 3.0880 hectares, the other
in Exhibit D are both void. This conclusion of the two lower
parcel was previously owned by Francisco Nool under Transfer
courts appears to find support in Dignos vs. Court of
Certificate of Title No. T-100945. Both parcel's are situated in
Appeals, 16 where the Court held:
San Manuel, Isabela. The plaintiff spouses, Conchita Nool and
Be that as it may, it is evident that when petitioners
Gaudencio Almojera, now the appellants, seek recovery of the
sold said land to the Cabigas spouses, they were no longer
aforementioned parcels of land from the defendants, Anacleto
owners of the same and the sale is null and void.
Nool, a younger brother of Conchita, and Emilia Nebre, now
In the present case, it is clear that the sellers no longer
the appellees.
had any title to the parcels of land at the time of sale. Since
In their complaint, plaintiff-appellants alleged inter
Exhibit D, the alleged contract of repurchase, was dependent
alia that they are the owners of subject parcels of land, and
on the validity of Exhibit C, it is itself void. A void contract
they bought the same from Conchita's other brothers,
cannot give rise to a valid one. 17 Verily, Article 1422 of the
Victorino Nool and Francisco Nool; that as plaintiffs were in
Civil Code provides that "(a) contract which is the direct result
dire need of money, they obtained a loan from the Ilagan
of a previous illegal contract, is also void and inexistent."
Branch of the Development Bank of the Philippines, in Ilagan,
We should however add that Dignos did not cite its
Isabela, secured by a real estate mortgage on said parcels of
basis for ruling that a "sale is null and void" where the sellers
land, which were still registered in the names of Victorino Nool
"were no longer the owners" of the property. Such a situation
and Francisco Nool, at the time, and for the failure of plaintiffs
(where the sellers were no longer owners) does not appear to
to pay the said loan, including interest and surcharges, totaling
be one of the void contracts enumerated in Article 1409 of the
P56,000.00, the mortgage was foreclosed; that within the
Civil Code. 18 Moreover, the Civil Code 19itself recognizes a
period of redemption, plaintiffs contacted defendant Anacleto
sale where the goods are to be "acquired . . . by the seller after
Nool for the latter to redeem the foreclosed properties from
the perfection of the contract of sale," clearly implying that a
DBP, which the latter did; and as a result, the titles of the two
sale is possible even if the seller was not the owner at the time
(2) parcels of land in question were transferred to Anacleto
of sale, provided he acquires title to the property later on.
Nool; that as part of their arrangement or understanding,
In the present case however, it is likewise clear that
Anacleto Nool agreed to buy from plaintiff Conchita Nool the
the sellers can no longer deliver the object of the sale to the
two (2) parcels of land under controversy, for a total price of
buyers, as the buyers themselves have already acquired title
P100,000.00, P30,000.00 of which price was paid to Conchita,
and delivery thereof from the rightful owner, the DBP. Thus,
and upon payment of the balance of P14,000.00, plaintiffs were
such contract may be deemed to be inoperative 20 and may
to regain possession of the two (2) hectares of land, which

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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA
thus fall, by analogy, under item no. 5 of Article 1409 of the
Civil Code: "Those which contemplate an impossible service."
Article 1459 of the Civil Code provides that "the vendor must
have a right to transfer the ownership thereof [object of the
sale] at the time it is delivered." Here, delivery of ownership is
no longer possible. It has become impossible.
Furthermore, Article 1505 of the Civil Code provides
that "where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with
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." Here, there is no allegation at all that petitioners were
authorized by DBP to sell the property to the private
respondents. Jurisprudence, on the other hand, teaches us that
"a person can sell only what he owns or is authorized to sell;
the buyer can as a consequence acquire no more than what the
seller can legally transfer." 21 No one can give what he does not
have nono dat quod non habet. On the other hand, Exhibit D
presupposes that petitioners could repurchase the property
that they "sold" to private respondents. As petitioners "sold"
nothing, it follows that they can also "repurchase" nothing.
Nothing sold, nothing to repurchase. In this light, the contract
of repurchase is also inoperative and by the same analogy,
void.
Heirs of San Miguel vs. CA
(September 4, 2001)
FACTS
This case involves a parcel of land originally claimed by
Severina San Miguel (petitioners' predecessor-in-interest,
hereafter, "Severina").Without Severina's knowledge,
Dominador managed to cause the subdivision of the land into
three (3) lots.
On July 19, 1977, the Land Registration Commission (hereafter
"LRC") rendered a decision directing the issuance of Original
Certificate of Title No. 0-1816 in the names of Dominador, et al.
On or about August 22, 1978, Severina filed with the Court of
First Instance of Cavite a petition for review of the decision
alleging that the land registration proceedings were
fraudulently concealed by Dominador from her. The trial court
issued an order in favor of Severina's heirs.
On August 6, 1993, Severina's heirs, decided not to
pursue the writs of possession and demolition and entered into
a compromise with Dominador, et al. According to the
compromise, Severina's heirs were to sell the subject lots10 to
Dominador, et al. for P1.5 M with the delivery of Transfer
Certificate of Title No. T-223511 (hereafter, "the certificate of
title") conditioned upon the purchase of another lot 11 which
was not yet titled at an additional sum of P300,000.00. On the
same day, on August 6, 1993, pursuant to the kasunduan,
Severina's heirs and Dominador, et al. executed a deed of sale
designated as "kasulatan sa bilihan ng lupa."
2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito
Ateneo de Davao University College of Law | 1st Sem (2016-2017)
On November 16, 1993, Dominador, et al. filed with
the trial court, Branch 19, Bacoor, Cavite, a motion praying that
Severina's heirs deliver the owner's copy of the certificate of
title to them. In time, Severina's heirs opposed the motion
stressing that under the kasunduan, the certificate of title
would only be surrendered upon Dominador, et al.'s payment
of the amount P300,000.00 within two months from August 6,
1993, which was not complied with.
Dominador, et al. admitted non-payment of
P300,000.00 for the reason that Severina's heirs have not
presented any proof of ownership over the untitled parcel of
land covered by LRC-Psu-1312. Apparently, the parcel of land is
declared in the name of a third party, a certain Emiliano
Eugenio.
ISSUE: Whether Dominador, et al. may be compelled to pay
the P300,000.00 as agreed upon in the kasunduan (as a pre-
requisite for the release of the certificate of title), despite
Severina's heirs' lack of evidence of ownership over the parcel
of land.
RULING
No. Although a contract is the law between the
parties, the provisions of positive law which regulate contracts
are deemed written therein and shall limit and govern the
relations between the parties.
True, in contracts of sale, the vendor need not possess
title to the thing sold at the perfection of the contract.
However, the vendor must possess title and must be able to
transfer title at the time of delivery. In a contract of sale, title
only passes to the vendee upon full payment of the stipulated
consideration, or upon delivery of the thing sold.
Under the facts of the case, Severina's heirs are not in
a position to transfer title. Without passing on the question of
who actually owned the land covered by LRC Psu -1312, we
note that there is no proof of ownership in favor of Severina's
heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax
declaration over the said land in his name. Though tax
declarations do not prove ownership of the property of the
declarant, tax declarations and receipts can be strong evidence
of ownership of land when accompanied by possession for a
period sufficient for prescription. Severina's heirs have nothing
to counter this document.
Therefore, to insist that Dominador, et al. pay the price
under such circumstances would result in Severina's heirs'
unjust enrichment. Basic is the principle in law, "Niguno non
deue enriquecerse tortizamente condano de otro." The
essence of a sale is the transfer of title or an agreement to
transfer it for a price actually paid or promised. In Nool v. Court
of Appeals,43 we held that if the sellers cannot deliver the
object of the sale to the buyers, such contract may be deemed
to be inoperative. By analogy, such a contract may fall under
Article 1405, No. 5 of the Civil Code, to wit:
ARTICLE 1405. The following contracts are inexistent
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University College of Law | 1st Sem (2016-2017)

and void from the beginning: . . .

(5) Those which contemplate an impossible service.
xxx xxx xxx
Severina's heirs insist that delivery of the certificate of
title is predicated on a condition payment of three hundred
thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO
Psu 1312. We find this argument not meritorious. The
condition cannot be honored for reasons afore-discussed.
Article 1183 of the Civil Code provides that,
"Impossible conditions, those contrary to
good customs or public policy and those prohibited by
law shall annul the obligation which depends upon
them. If the obligation is divisible, that part thereof
which is not affected by the impossible or unlawful
condition shall be valid, x x x"
Hence, the non-payment of the three hundred
thousand pesos (P300,000.00) is not a valid justification for
refusal to deliver the certificate of title.

---- END OF 1ST EXAM COVERAGE ----

2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito 93