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● Sales Case Digests

1. Santos vs CA GR NO. 120820 Baril


Case #1
Case Title: Santos vs CA
G.R. No. 120820 August 1, 2000
Case Topic: Definition of a Contract of Sale
Overview of the case:
Contract of Sale Distinguished from a Contract to Sell.·As we earlier pointed out, in a contract to sell, title
remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract
to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is
not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of
the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has
lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a
contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the
condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not rescinding it.

Facts:
The Sps. Fortunato and Rosalinda Santos owned the house and lot consisting of 350 square meters located
at Lot 7, Block 8, Parañaque, as evidenced by TCT 28005. The land together with the house, was mortgaged with the
bank to secure a loan maturing on June 16, 1987.
Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market vendor of hers and became very
good friends. On June 16, 1984, the bank sent the former a demand letter for the payment of unpaid interest of
16,915.84 Php and other charges. Since the Santos had no funds, Rosalinda offered to sell the house and lot to
Carmen and agreed. They signed a document evidencing the receipt of partial payment. They further agreed that the
Sps. Casedas will (1) pay the balance of the mortgage loan with the bank amounting to 138, 385.18; (2) the real
estate taxes; (3) the electric and water bills; and (4) the balance of the cash price to be paid not later than June 16,
1987.
The Casedas took possession of the property and immediately leased out. They also paid in instalments the
mortgage loan in the name of Rosalinda Santos, however, failed to pay the remaining balance of the loan because of
the suffered bankruptcy in 1987.
In January 1989, the Santoses, seeing that the Casedas lacked the means to pay the remaining instalments,
repossessed the property. The former then collected the rentals from the tenants. When the Casedas are ready to
pay the balance of the purchase price for the house and lot, the parties could not agree because the Santoses
wanted a higher price.
The Casedas then filed a civil case to have the Santoses execute the final deed of conveyance over the
property or in default thereof to reimburse the amount paid to the bank plus interest, as well as the rentals plus
damages and costs of suit.

Issue: WON the subject transaction is not a contract of absolute sale but a mere oral contract to sell.

Ruling: No, it is a mere Contract to Sell.

A contract is what the law defines it to be, taking into consideration its essential elements, and not what the
contracting parties call it.

Article 1458 of the Civil Code defines a contract of sale. Note that the said article expressly obliges the
vendor to transfer ownership of the thing sold as an essential element of a contract of sale. This is because the
transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale.

We have carefully examined the contents of the unofficial receipt, Exh. D, with the terms and conditions
informally agreed upon by the parties, as well as the proofs submitted to support their respective contentions. We are
far from persuaded that there was a transfer of ownership simultaneously with the delivery of the property purportedly
sold. The records clearly show that, notwithstanding the fact that the Casedas first took then lost possession of the
disputed house and lot, the title to the property, TCT No. 28005 (S-11029) issued by the Register of Deeds of
Parañaque, has remained always in the name of Rosalinda Santos. Note further that although the parties had agreed
that the Casedas would assume the mortgage, all amortization payments made by Carmen Caseda to the bank were
in the name of Rosalinda Santos. We likewise find that the bank’s cancellation and discharge of mortgage dated
January 20, 1990, was made in favor of Rosalinda Santos.

The foregoing circumstances categorically and clearly show that no valid transfer of ownership was made by
the Santoses to the Casedas. Absent this essential element, their agreement cannot be deemed a contract of sale
but a mere contract to sell.

In contracts to sell, ownership is reserved by the vendor and is not to pass until full payment of the
purchase price. This we find fully applicable and understandable in this case, given that the property involved is a
titled realty under mortgage to a bank and would require notarial and other formalities of law before transfer thereof
could be validly effected.

2. Coronel vs CA 263 SCRA 15 Carino


Case #: 2
Case Title: Coronel vs CA
G.R. No. 103577. October 7, 1996.
Case Topic: Elements of a Contract
Overview of the case:
Contracts; Sales; Essential Elements of a Contract of Sale.—Sale, by its very nature, is a consensual
contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a)
Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate
subject matter; and c) Price certain in money or its equivalent.

Same; Same; Words and Phrases; “Contract to Sell” and “Contract of Sale,” Distinguished; In a contract to
sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the
happening of an event.

Same; Same; Same; Same; In a conditional contract of sale, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the seller’s title thereto.

Same; Same; Same; Same; When the sellers declared in the “Receipt of Down Payment” that they received
an amount as purchase price for their house and lot without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is that they sold their property.

Facts: The petition has its roots in a complaint for specific performance to compel herein petitioners to consummate
the sale of a parcel of land with its improvements entered into by the parties sometime in January 1985 for the price
of P1,240,000.00.

On Januanry 19, 1985, Coronel executed a document entitled “Receipt of Down Payment” in favor of
plaintiff Ramona Alcaraz.

Clearly, the conditions appurtenant to the sale are the following:


1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the
document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property registered in the name of
their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute
sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety
Thousand (P1,190,000.00) Pesos.

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant
Catalina B. Mabanag for P1,580,000.00 after the latter has paid P300,000.00.
For this reason, Coronels canceled and rescinded the contract (Receipt of downpayment) with Ramona by
depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.
February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels.
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property
with the Registry of Deeds of Quezon City
April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina
June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No.
351582

RTC RULING - judgment for specific performance is hereby rendered ordering defendant to execute in favor
of plaintiffs a deed of absolute sale and the plaintiffs are ordered to pay defendants the whole balance of the
purchase price amounting to P1,190,000.00 in cash.
CA RULING - rendered its decision fully agreeing with RTC.

CONTENTION OF THE PARTIES:


*private respondents contends that the “Receipt of Down Payment” embodied a perfected contract of sale,
while petitioners on their part insist that what the document signified was a mere executory contract to sell.

Issue: WON the “Receipt of down payment” embodied a perfected contract of sale.

Ruling: Yes.
when petitioners declared in the said “Receipt of Down Payment” that they—

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase
price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed
is that they sold their property.

When the “Receipt of Down Payment” is considered in its entirety, it becomes more manifest that there was a clear
intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the
name of petitioner’s father, they could not fully effect such transfer although the buyer was then willing and able to
immediately pay the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express reservation of
ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from
entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their
names) and not the full payment of the purchase price.

What is clearly established by the plain language of the subject document is that when the said “Receipt of Down
Payment” was prepared and signed by petitioners Romulo A. Coronel, et al., the parties had agreed to a
conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of
title from the name of petitioners’ father, Constancio P. Coronel, to their names.

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as “Receipt of
Down Payment” (Exh. “A”; Exh. “1”), the parties entered into a contract of sale subject only to the suspensive
condition that the sellers shall effect the issuance of new certificate title from that of their father’s name to
their names and that, on February 6, 1985, this condition was fulfilled (Exh. “D”; Exh. “4”).

We, therefore, hold that, in accordance with Article 1187 which pertinently provides

Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to
the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the
condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and
demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that
point in time, reciprocal obligations of both seller and buyer arose.

3. Mapalo vs Mapalo 17 SCRA 114


CASE #: 3
CASE TITLE: Mapalo VS Mapalo Nos. L-21489 and L-21628. May 19, 1966.
CASE TOPIC: Cause or Price
OVERVIEW OF THE CASE:
Purchase and sale; Contracts without cause or consideration;
Statement of false consideration.—The rule under the Civil Code, be it the
old or the new, is that contracts without a cause or consideration produce no
effect whatsoever. (Art. 1275, Old Civil Code; Art. 1352, New Civil Code.)
Nonetheless, under the Old Civil Code, the statement of a false
consideration renders the contract voidable, unless it is proven that it is
supported by another real and licit consideration. (Art. 1276, Old Civil
Code.)
Same; Contract that states false consideration construed.—A contract
that states a false consideration is one that has in fact a real consideration
but the same is not the one stated in the document. (Manresa, Codigo Civil,
Tomo VIII, Vol. II, p. 354.)
Same; Contract without consideration; Effect of statement of
consideration in the document.—Where there was in fact no consideration,
the statement of one in the deed will not suffice to bring it under the rule of
Article 1276 of the Old Civil Code as stating a false consideration.
Same; Statement that purchase price was paid but in fact never been
paid to the vendor.—A contract of purchase and sale is void and
produces no effect whatsoever where the same is without cause or consideration in
that the purchase price, which appears thereon as paid, has in fact never
been paid by the purchaser to the vendor.

FACTS: The spouses Miguel Mapalo and Candida Quiba, simple illiterate
farmers, were registered owners, with Torrens title certificate O.C.T.
No. 46503, of a 1,635-square-meter residential land in Manaoag,
Pangasinan. Said spousesowners, out of love and affection for
Maximo Mapalo—a brother of Miguel who was about to get married
—decided to donate the eastern half of the land to him. O.C.T. No.
46503 was delivered. As a result, however, they were deceived into
signing, on October 15, 1936, a deed of absolute sale over the entire
land in his favor. Their signatures thereto were procured by fraud,
that is, they were made to believe by Maximo Mapalo and by the
attorney who acted as notary public who “translated” the document,
that the same was a deed of donation in Maximo’s favor covering
one-half (the eastern half) of their land. Although the document of
sale stated a consideration of Five Hundred (P500.00) Pesos,
the aforesaid spouses did not
receive anything of value for the land.
Not known to them, meanwhile, Maximo Mapalo, on March 15,
1938, registered the deed of sale in his favor and obtained in his
name Transfer Certificate of Title No. 12829 over the entire land.
Thirteen years later, on October 20, 1951, he sold for P2,500.00 said
entire land in favor of Evaristo, Petronila, Pacifico and Miguel all
surnamed Narciso. The sale to the Narcisos was in turn registered on
November 5, 1951 and Transfer Certificate of Title No. 11350 was
issued for the whole land in their names.
The Narcisos took possession only of the eastern portion of the
land in 1951, after the sale in their favor was made. On February 7,
1952 they filed suit in the Court of First Instance of Pangasinan
(Civil Case No. 1191) to be declared owners of the entire land, for
possession of its western portion; for damages; and for rentals.

ISSUE: WON there was a cause or consideration to support the existence of a

contract of sale.

RULING: NO.

Starting with fundamentals, under the Civil Code, either the old
or the new, for a contract to exist ‘at all, three essential requisites
must concur: (1) consent, (2) object, and (3) cause or consideration.1
However, as to the third element of cause or consideration, it does
not exist as regards the western portion of the land in relation to the
deed of 1936; that there was no donation with respect to the same.
The rule under the Civil Code, again be it the old or the new, is
that contracts without a cause or consideration produce no effect
whatsoever.2 Nonetheless, under the Old Civil Code, the statement
of a false consideration renders the contract voidable, unless it is
proven that it is supported by another real and licit consideration.3
And it is further provided by the Old Civil Code that the action for
annulment of a contract on the ground of falsity of consideration
shall last four years, the term to run from the date of the consummation of the contract.
A contract of purchase and sale is null and void and
produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as
paid has in fact never been paid by the purchaser to the vendor.
Needless to add, the inexistence of a contract is permanent and
incurable and cannot be the subject of prescription.

4. Abalos vs Macatangay GR NO. 155043 Jaugan


ABALOS vs. MACANTANGAY
Same; Same; In a contract of sale, the seller must consent to transfer ownership in exchange for the price, the subject
matter must be determinate, and the price must be certain in money or its equivalent.—Until the contract is perfected,
it cannot, as an independent source of obligation, serve as a binding juridical relation. In a contract of sale, the seller
must consent to transfer ownership in exchange for the price, the subject matter must be determinate, and the price
must be certain in money or its equivalent. Being essentially consensual, a contract of sale is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the contract and upon the price. However,
ownership of the thing sold shall not be transferred to the vendee until actual or constructive delivery of the property
Same; Same; An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled
with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option.—An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled
with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option. An option merely grants a privilege to buy or sell within an agreed time and at a determined price. It is separate
and distinct from that which the parties may enter into upon the consummation of the option. A perfected contract of
option does not result in the perfection or consummation of the sale; only when the option is exercised may a sale be
perfected. The option must, however, be supported by a consideration distinct from the price.

Same; Same; As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not
bound to buy.—As a rule, the holder of the option, after accepting the promise and before he exercises his option, is
not bound to buy. He is free either to buy or not to buy later. In Sanchez v. Rigos we ruled that in an accepted unilateral
promise to sell, the promissor is not bound by his promise and may, accordingly, withdraw it, since there may be no
valid contract without a cause or consideration. Pending notice of its withdrawal, his accepted promise partakes of the
nature of an offer to sell which, if acceded or consented to, results in a perfected contract of sale.

FACTS: Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with improvements located at
Azucena St., Makati City consisting of about three hundred twenty-seven (327) square meters.

-Armed with a Special Power of Attorney dated June 2, 1988, purportedly issued by his wife, Arturo executed a Receipt
and Memorandum of Agreement (RMOA), in favor of respondent, binding himself to sell to respondent the subject
property and not to offer the same to any other party within thirty (30) days from date

-Arturo acknowledged receipt of a check from respondent in the amount of (P5,000.00), representing earnest money
for the subject property, the amount of which would be deducted from the purchase price of (P1,300,000.00). Further,
the RMOA stated that full payment would be effected as soon as possession of the property shall have been turned
over to respondent.

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

-On November 16, 1989, respondent sent a letter to Arturo and Esther informing them of his readiness and willingness
to pay the full amount of the purchase price. The letter contained a demand upon the spouses to comply with their
obligation to turn over possession of the property to him.

-On the same date, Esther, through her attorney-in-fact, executed in favor of respondent, a Contract to Sell the property
to the extent of her conjugal interest therein for the sum of (P650,000.00) less the sum already received by her and
Arturo. Esther agreed to surrender possession of the property to respondent within (20) days from November 16, 1989,
while the latter promised to pay the balance of the purchase price in the amount of (P1,290,000.00) after being placed
in possession of the property. Esther also obligated herself to execute and deliver to respondent a deed of absolute
sale upon full payment.

-In a letter dated December 7, 1989, respondent informed the spouses that he had set aside the amount of
(P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of the purchase price.

-He reiterated his demand upon them to comply with their obligation to turn over possession of the property. Arturo and
Esther failed to deliver the property which prompted respondent to cause the annotation of another adverse claim on
TCT No. 145316. On January 12, 1990, respondent filed a complaint for specific performance with damages against
petitioners.

RTC
-The Regional Trial Court (RTC) dismissed the complaint for specific performance. It ruled that the Special Power of
Attorney (SPA) ostensibly issued by Esther in favor of Arturo was void as it was falsified. Hence, the court concluded
that the SPA could not have authorized Arturo to sell the property

CA
-It ruled that the SPA in favor of Arturo, assuming that it was void, cannot affect the transaction between Esther and
respondent. The appellate court ratiocinated that it was by virtue of the SPA executed by Esther, in favor of her sister,
that the sale of the property to respondent was effected. On the other hand, the appellate court considered the RMOA
executed by Arturo in favor of respondent valid to effect the sale of Arturo’s conjugal share in the property.

ISSUE: whether petitioner may be compelled to convey the property to respondent under the terms of the RMOA and
the Contract to Sell.

HELD: No. 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 petitioner’s
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. 12 As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not
bound to buy. He is free either to buy or not to buy later.

5. Atilano vs Atilano GR NO. L-22487 Sabornido


Case #: 5
Case Title: Atilano vs. Atilano
Case Topic: Article 1460: DETERMINATE THING - A thing is determinate when it is particularly designated or
physically segregated from all others of the same class.
Overview of the case:

Same; Same; Mistake; When not a ground for annulment of contract of sale.—Where the real intention of the parties
is the sale of a piece of land but there is a mistake in designating the particular lot to be sold in the document, the
mistake does not vitiate the consent of the parties, or affect the validity and binding effect of the contract.

Facts:

In 1961, Eulogio Atilano I owned lot No. 535 in the municipality of Zamboanga cadaster which divided into 5 parts.
Namely as lots Nos. 535-A, 535-B, -C, -D, -E. Lot No. 535- E was sold to Euligio Atilano II,, Euligio Atilano I’s brother,
while 535-b and D were sold to other persons. Upon the death od Eulogio Atiliano I, the remaining portion of the land
which is presumably lot no. 525-A, was passed down to defendant Ladislao Atilano.

When Eulogio Atilano II died, his wife Luisa Bautista and his Children sought the land to be subdivided. It was then
discovered that the land that they were occupying was lot No, 535-A and not 535-E which was covered in the Transfer
Certificate of title, and that the lad occupied by Ladislao Atilano was lot No. 535-E. Lot No. 535-E has an area of 2,612
Square meters area while lot No. 535-A covered 1,808 square-meter.

The heirs of Eulogio Atilano II, who was by then also deceased, filed the present action in the Court of First Instance of
Zamboanga that they had offered to surrender to the defendants the possession of lot No. 535-A and demanded in
return the possession of lot No. 535-E, but that the defendants had refused to accept the exchange.
The complaint the defendants alleged that the reference to lot No. 535-E in the deed of sale of May 18, 1920 was an
involuntary error, that the intention of the parties to that sale was to convey the lot correctly identified as lot No. 535-A;

Eulogio Atilano I had been posses-sing and had his house on the 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 he bought a portion of an adjoining lot.

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. The trial court rendered
judgment for the plain-tiffs on the sole ground that since the property was registered under the Land Registration Act
the defendants could not acquire it through prescription.

Issues:

1.) Whether or not the intention of the parties are the determining factors of the contract of sale; (YES)
2.) (Personal Issue) Whether or not it is necessary that the object of the sale be determinate during the
perfection of the contact? (NO)

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. The portion
correctly re-ferred 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; indeed, even before the subdivision of the entire
lot No. 535 at the instance of its owner, Eulogio Atilano I.

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

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, 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 minds of the parties to a contract, their true intention
is not ex-pressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable
conduct or accident.

When there is a difference between the lot number stated in a certificate of title and the intention of the contracting
parties the latter must be followed. In the case at bar, it was fund that lot No. 535-A was the intended subject of the
contract of sale rather than the lot No. 535-E.

Therefore, the judgement appealed from is reversed. Plaintiffs are to execute a deed of conveyance of lot No. 535-E in
favor of the defendants and that the defendant are to execute a similar document of lot No. 535-A in favor of plaintiffs.

6. National Grains Authority vs IAC GR NO. 74470 Clarion

G.R. No. 74470. March 8, 1989.*

NATIONAL GRAINS AUTHORITY and WILLIAM CABAL, petitioners, vs. THE INTERMEDIATE APPELLATE
COURT and LEON SORIANO, respondents.
Civil Law; Sale; Contract; Definitions; Requisites of Contract.— Article 1458 of the Civil Code of the Philippines
defines sale as a contract whereby one of the contracting 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.

Same; Same; Same; When the offer of Soriano was accepted by the NFA, there was already a meeting of the
minds between the parties.—In 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.

Same; Same; Same; Contention that there was no contract of sale because of the absence of consent not
correct; acceptance referred to is the acceptance of the offer and not of the goods delivered.—The above
contention of petitioner is not correct. Sale is a consensual contract, “x x x, there is perfection when there is
consent upon the subject matter and price, even if neither is delivered.” (Obana vs. C.A., L-36249, March 29,
1985, 135 SCRA 557, 560). This is provided by Article 1475 of the Civil Code which states: “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. “x x x.” The acceptance referred to which determines consent is the
acceptance of the offer of one party by the other and not of the goods delivered as contended by petitioners.

Same; Same; Same; Once the contract is perfected, the parties are bound to comply with their mutual
obligations.—From the moment the contract of sale is perfected, it is incumbent upon the parties to comply
with their mutual obligations or “the parties may reciprocally demand performance” thereof.

FACTS: 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, 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 fide 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.

Petitioners contend that the 630 cavans of palay delivered by Soriano on August 23, 1979 was made only for
purposes of having it offered for sale. When the 630 cavans of palay were brought by Soriano to the Carig
warehouse of NFA they were only offered for sale. Since the same were not rebagged, classified and weighed
in accordance with the palay procurement program of NFA, there was no acceptance of the offer which, to
petitioners’ mind is a clear case of policitation or an unaccepted offer to sell. In its memorandum (pp. 66-71,
Rollo) dated December 4, 1986, petitioners further contend that there was no contract of sale because of the
absence of an essential requisite in contracts, namely, consent. It cited Section 1319 of the Civil Code which
states: “Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause which
are to constitute the contract. x x x.” Following this line, petitioners contend that there was no consent because
there was no acceptance of the 630 cavans of palay in question.

ISSUE: Whether or not there was a contract of sale in the case at bar.

HELD: Yes, Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the
contracting 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: “x x x. 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.

Sale is a consensual contract, “x x x, there is perfection when there is consent upon the subject matter and
price, even if neither is delivered.” (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560) This is
provided by Article 1475 of the Civil Code which states:

“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. “x x x.” The acceptance referred to which determines
consent is the acceptance of the offer of one party by the other and not of the goods delivered as contended
by petitioners. From the moment the contract of sale is perfected, it is incumbent upon the parties to comply
with their mutual obligations or “the parties may reciprocally demand performance” thereof. (Article 1475,
Civil Code, 2nd par.)

7. Sibal vs Valdez GR NO. 26278


LEON SIBAL 1.°, plaintiff and appellant, vs. EMILIANO J. VALDEZ ET AL., defendants. EMILIANO J. VALDEZ,
appellee.

Case No: 7
Case Title: Leon Sibal vs. Emiliano J. Valdez, et.al
Case Topic: ARTICLE 1461 – Future Thing
Overview of the Case:

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 (e.g. pending fruits and
ungathered products), and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes
into existence. Things of this nature are said to have a potential existence. A man may sell property to which he is
potentially and not actually possessed. The thing sold, however, must be specific and identified. They must be also
owned at the time by the vendor.

FACTS:
Vitaliano Mamawal, Deputy sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the CFI of
Pampanga, attached several properties of Leon Sibal including a sugar cane planted by the latter on seven parcels of
land. Mamawal then sold the aforementioned properties at a public auction to Emiliano Valdez.

Within one year from the date of attachment and sale, Sibal offered to redeem the sugar cane and tendered to 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. Valdez however, refused to accept
the money and to return the sugar cane on the ground that the sugar cane in question had the nature of personal
property and was not, hence, subject to redemption.

Sibal prayed in court that a writ of preliminary injunction be issued against Valdez (1) from distributing the lands; (2)
from taking possession of, or harvesting the sugar cane; and (3) from taking possession, or harvesting the palay in said
parcels of land. Plaintiff also prayed that a judgment be rendered in his favor and against the defendants ordering them
to consent to the redemption of the sugar cane.

Lower court issued the preliminary injunction prayed for. By way of counterclaim Valdez, alleged that because of the
preliminary injunction he was unable to gather the sugar cane, sugar-cane shoots and palay in said parcels of land,
representing loss and damages to him.

LC rendered a judgment against the plaintiff and in favor of the defendants, holding that the sugar cane in question was
a personal property and, as such, was not subject to redemption. Plaintiff appealed. Hence, this case.

ISSUES:
1. W/N the sugar cane is classified as personal property?
2. W/N a valid sale may be made of a future thing?

RULING:
1. Generally, sugar cane falls under the classification of “ungathered products” mentioned in par.2 of Art. 334 of the
CC (Now Article 415 of the NCC): “Trees, plants, and ungathered products, while they are annexed to the land or form
an integral part of any immovable property." However, this article has received in recent years an interpretation by the
Tribunal Supremo de España, which holds that, under certain conditions, growing crops may be considered as personal
property.
The immovability provided for is only one in abstracto and without reference to rights on or to the crop
acquired by others than the owners of the property to which the crop is attached. The immovability of a growing
crop is in the order of things temporary, for the crop passes from the state of a growing to that of a gathered
one, from an immovable to a movable. The existence of a right on the growing crop is a mobilization by
anticipation, a gathering as it were in advance, rendering the crop movable quoad the right acquired therein.
Our jurisprudence recognizes the possible mobilization of the growing crop.
For the purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law, "ungathered products"
have the nature of personal property. Hence, it may be a subject matter of sale, and may be dealt with separately
from the land on which they grow. As personal property, they are therefore, not subject to redemption.

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 (e.g. pending fruits
and ungathered products), and then belonging to the vendor, and the title will vest in the buyer the moment the thing
comes into existence. Things of this nature are said to have a potential existence. A man may sell property to which he
is potentially and not actually possessed. The thing sold, however, must be specific and identified. They must be also
owned at the time by the vendor.

8. Bagnas vs CA GR NO. L-38498


CASE # 8
CASE TITLE: BAGNAS VS. COURT OF APPEALS
GR 38498 AUGUST 10, 1989
CASE TOPIC: Price
OVERVIEW OF THE CASE: Civil Law; Sales; Consideration; The apparent gross disproportion between the stipulated
price and the undisputably valuable real estate allegedly sold, demonstrates that the deeds of sale in question state a
false consideration, thereby making them not merely voidable, but void ab initio.
—Without necessarily according all these assertions its full concurrence, but upon the consideration alone that the
apparent gross, not to say enormous, disproportion between the stipulated price (in each deed) of P1.00 plus
unspecified and unquantified services and the undisputably valuable real estate allegedly sold—worth at least
P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of actual
value—plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true
and lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely
voidable, but void ab initio.

FACTS: Hilario Mateum died on March 11, 1964, single, without ascendants or descendants, and survived only by
collateral relatives, of whom petitioners herein, his first cousins, were the nearest. Mateum left no will, no debts, and
an estate consisting of twenty-nine parcels of land in Kawit and Imus, Cavite, ten of which are involved in this appeal.
The private respondents (collateral relatives of Mateum though more remote in degree than the
petitioners),registered with the Registry of Deeds for the Province of Cavite two deeds of sale (in the sum of P 1.00 per
deed plus services rendered for the deceased) purportedly executed by Mateum in their (respondents’) favor covering
ten parcels of land. One deed was dated February 6, 1963 and covered five parcels of land, and the other was dated
March 4, 1963, covering five other parcels, both, therefore, antedating Mateum’s death by more than a year.
Trial Court ordered the exclusion of the nineteen other parcels from the action.6 Of the ten parcels which
remained in litigation, nine were assessed for purposes of taxation at values aggregating P10,500.00. The record does
not disclose the assessed value of the tenth parcel, which has an area of 1,443 square meters.
Petitioners commenced suit against the respondents in the Court of First Instance of Cavite, seeking
annulment of the deeds of sale as fictitious, fraudulent or falsified, or, alternatively, as donations void for want of
acceptance embodied in a public instrument.
The defendants (respondents here) denied the alleged fictitious or fraudulent character of the sales in their
favor, asserting that said sales were made for good and valuable consideration; that while “x x x they may have the
effect of donations, yet the formalities and solemnities of donation are not required for their validity and effectivity.

ISSUE: WON the questioned deed of sales are void ab initio or merely voidable.

HELD: The Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio.
There is an apparent disproportion between the stipulated price (in each deed) of P1.00 plus unspecified and
unquantified services and the undisputably valuable real estate allegedly sold—worth at least P10,500.00 going only
by assessments for tax purposes which, it is well known, are notoriously low indicators of actual value—plainly and
unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful cause
having been shown.
Neither can the validity of said conveyances be defended on the theory that their true causa is the liberality of
the transferor and they may be considered in reality donations, because the law also prescribes that donations of
immovable property, to be valid, must be made and accepted in a public instrument, and it is not denied by the
respondents that there has been no such acceptance which they claim is not required.

9. PUP vs CA GR NO. 143513 Abellanida


Case Title: PUP vs CA
Case topic: Right of First Refusal
Overview of the case: 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. The lessee has a right that the lessor’s first offer shall
be in his favor. 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. The consideration for the right is built into the reciprocal obligations of the
parties. Thus, it is not correct for petitioners 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 making the
consideration for the lease the same as that for the option.

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 NDC’s 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:
Whether or not there is a valid sale between NDC and PUP.

RULING:
The answer is: WELL YES, BUT...

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.

1. consent is manifested by the Memo Order No. 214,


2. the subject matter was the property subject of the dispute.
3. the cancellation of liabilities constituted consideration

But the argument of PUP and NDC was untenable. GOCCs have personalities separate and distinct from the
government. “Sale” brings within its grasp the whole gamut of transfers where ownership of a thing is ceded for
consideration.

Since a sale was involved, the right of first refusal in favor of Firestone must be respected. It forms an integral part of
the lease and is supported by consideration—Firestone having made substantial investments therein.

Only when Firestone fails to exercise such right may the sale to PUP proceed.

So here we see that GOCCs even though ‘government owned & controlled’ has a personality of its own distinct and
separate from that of the government.
And the intervention in a transaction of the Office of the President through the Executive Secretary DOES NOT
CHANGE THE INDEPENDENT EXISTENCE of a government entity as it deals with another government entity.

10. Toyota Shaw vs CA GR NO. L-116650 Caballero-Romano

Case #: 10
Case Title: Toyota Shaw vs CA GR NO. L-116650 May 23, 1995
Case Topic: ARTICLE 1474 – INDETERMINATE PRICE IS INEFFICACIOUS
Overview of the case: Definiteness as to the price is an essential element of a binding agreement to sell personal
property.—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.

Facts: At the heart of the present controversy is the document marked Exhibit "A" for the private respondent, which
was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

4 June 1989

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after,
upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on
the 17th of June at 10 a.m.

Very truly yours,

(Sgd.) POPONG BERNARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding
upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial
court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review on
certiorari.

Issue: Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale,
binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees?

Ruling: We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of
sale.

Article 1458 of the Civil Code 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 of
and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:


Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price.

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

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of
sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative
obligation on the part of the latter to pay therefore a price certain appears therein. The provision on the downpayment
of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only
refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about
the full purchase price and the manner the installments were to be paid.

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.

11. Binan Steel Corp vs CA 391 SCRA 90 Trinidad

Same; Same; Same; Same; Insofar as third person’s interest in real property is the registration of the deed.—The
Garcias claim they acquired the subject property by means of a deed of sale with assumption of mortgage dated June
29, 1998, meaning, they purchased the property ahead of the inscription of the levy on attachment thereon on July 27,
1998. But, even if consensual, not all contracts of sale become automatically and immediately effective. In Ramos vs.
Court of Appeals we held: In sales with assumption of mortgage, the assumption of mortgage is a condition precedent
to the seller’s consent and therefore, without approval of the mortgagee, the sale is not perfected. Apart therefrom,
notwithstanding the approval of the sale by mortgagee FEBTC (BPI), there was yet another step the Garcias had to
take and it was the registration of the sale from the Ngs to them. Insofar as third persons are concerned, what validly
transfers or conveys a person’s interest in real property is the registration of the deed.

FACTS:

On July 22, 1998, Biñan Steel Corporation (BSC) filed with the RTC of Manila a complaint against Joenas Metal
Corporation and spouses Ng Ley Huat and Leticia Dy Ng (the spouses Ng) for collection of a sum of money with
damages. The trial court issued a Writ of Preliminary Attachment, subsequently, the sheriff levied on the property
registered in the names of the spouses Ng. This property was in fact mortgaged to the Far East Bank and Trust
Company (FEBTC), now Bank of the Philippine Islands (BPI).

In the meantime, defendant-spouses Ng sold the property to Mylene and Myla Garcia by means of a deed of sale dated
June 29, 1998. Said transaction was registered only about a month-and-a-half later, on August 12, 1998, after the
mortgagee FEBTC gave its approval to the sale. Then, the latter caused the transfer of title under their names with
annotation of the preliminary attachment made earlier.

ISSUE:

Whether or not there was a perfected contract of sale in view of a deed of sale with assumption of mortgage.

RULING:

NO
In the instant case, the records reveal that the levy on attachment covering the subject property was annotated on July
27, 1998. The deed of sale executed on June 29, 1998 in favor of the Garcias was approved by FEBTC only on August
12, 1998 which was also the date when the sale was registered. From the foregoing, it can be seen that, when the
Garcias purchased the property in question, it was already under a duly registered preliminary attachment. In other
words, there was already notice to said purchasers (and the whole world) of the impending acquisition by BSC, as the
judgment creditor, of a legal lien on the title of the Ng spouses as judgment debtors—in case BSC won its case in the
Manila RTC. The court ruled that but, even if consensual, not all contracts of sale become automatically and
immediately effective. In Ramos vs. Court of Appeals we held: In sales with assumption of mortgage, the assumption
of mortgage is a condition precedent to the seller’s consent and therefore, without approval of the mortgagee, the sale
is not perfected.

The Garcias claim they acquired the subject property by means of a deed of sale with assumption of mortgage dated
June 29, 1998, meaning, they purchased the property ahead of the inscription of the levy on attachment thereon on
July 27, 1998. But, even if consensual, not all contracts of sale become automatically and immediately effective. In
Ramos vs. Court of Appeals we held: In sales with assumption of mortgage, the assumption of mortgage is a condition
precedent to the seller’s consent and therefore, without approval of the mortgagee, the sale is not perfected. Apart
therefrom, notwithstanding the approval of the sale by mortgagee FEBTC (BPI), there was yet another step the Garcias
had to take and it was the registration of the sale from the Ngs to them. Insofar as third persons are concerned, what
validly transfers or conveys a person’s interest in real property is the registration of the deed.

Because of the principle of constructive notice to the whole world, one who deals with registered property which is the
subject of an annotated levy on attachment cannot invoke the rights of a purchaser in good faith. As between two
purchasers who both registered the respective sales in their favor, the one who registered his sale ahead of the other
would have better rights than the other who registered later.

In the instant case, when the disputed property was consequently sold on execution to BSC, this auction sale retroacted
to the date of inscription of BSC’s notice of attachment on July 27, 1998. The earlier registration thus gave BSC superior
and preferential rights over the attached property as against the Garcias who registered their purchase of the property
at a later date. Notably, the Garcias were not purchasers for value in view of the fact that they acquired the property in
payment of the loan earlier obtained from them by the spouses Ng.

12. Manila Metal Container vs PNB 511 SCRA 444 Pendon

CASE# 12
CASE TITLE: Manila Metal Container vs PNB
CASE TOPIC: When perfected
OVERVIEW OF THE CASE
SaSame; Same; Same; To convert an offer into a contract, the acceptance must be absolute and must not qualify the
terms of the offer—it must be plain, unequivocal, unconditional and without variance of any sort from the proposal.—
A negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to the perfection of
the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the
withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without
variance of any sort from the proposal.
Same; Same; Same; A counter-offer is considered in law, a rejection of the original offer and an attempt to end the
negotiation between the parties on a different basis.—A qualified acceptance or one that involves a new proposal
constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the
original offer and an attempt to end the negotiation between the parties on a different basis. Consequently, when
something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from the terms of the offer annuls the offer. The acceptance must be
identical in all respects with that of the offer so as to produce consent or meeting of the minds.
FACTS:

Petitioner was the owner of a parcel of land, to secure a P900,000.00 loan it had obtained from respondent, petitioner
executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation
of P1,000,000.00. Subsequently on March 31, 1981, petitioner secured another loan of P653,000.00 from respondent
PNB.

Respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the
property sold at public auction for P911,532.21. The property was sold at public auction where respondent PNB was
declared the winning bidder the Certificate of Sale issued in its favor was registered, and was annotated at the dorsal
portion of the title on February 17, 1983.

Petitioner sent a letter to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase
the property. In another letter petitioner reiterated its request for a one year extension and reiterated its request to
repurchase the property on installment but was rejected by PNB saying that it is their policy not to accept partial
redemption. Petitioner then failed to redeem the property, and a new title was issued in favor of respondent PNB.

The Special Assets Management Department (SAMD) had prepared a statement of account, and petitioner's
obligation amounted to P1,574,560.47. When apprised of the statement of account, petitioner remitted P725,000.00
to respondent PNB as "deposit to repurchase". The SAMD recommended to the management of respondent PNB
that petitioner be allowed to repurchase the property for P1,574,560.00.

The PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was
suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave
petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and
the property would be sold to other interested buyers.

Petitioner, however, did not agree to respondent PNB's proposal and wrote another letter requesting for a
reconsideration to which Respondent PNB declined. Petitioner, through counsel, requested that PNB reconsider its
letter. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property for P1,574,560.47,
and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse
should PNB insist on the position

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer
to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it. On page two
of the letter petitioner's President, Pablo Gabriel did not conform to the letter but merely indicated therein that he had
received it.

Petitioner rejected respondent's proposal. It maintained that respondent PNB had agreed to sell the property for
P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed
from increasing the purchase price of the property. Respondent PNB, however, rejected petitioner's offer to pay the
balance.

On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage
Foreclosure, Delivery of Title, or Specific Performance with Damages."

The CA rendered judgment affirming the decision of the RTC. It declared that petitioner obviously never agreed to the
selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price
should be lowered to P1,574,560.47..

Issue :
Whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the
property from respondent.
The Ruling of the Court : NO PERFECTION.

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.The absence of any of the
essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the
Philippines v. Manalo:45
A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property
because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a
binding and enforceable contract of sale. 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.46
When there is merely an offer by one party without acceptance of the other, there is no contract.47 When the contract
of sale is not perfected, it cannot, as an independent source

To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties,
Inc. v. Court of Appeals,51 the Court ruled that:
Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of
sale.

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original
offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation
between the parties on a different basis.

The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 was
P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property. The
statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later
agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication
cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer
and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind respondent.

Respondent later approved the recommendation that the property be sold to petitioner. But instead of the
P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the
purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at
most considered as a counter-offer.

13. NHA vs Grace Baptist Church 424 SCRA 147 Tampos


Overview of the case:
Civil Law; Contracts; Estoppel; The principle of estoppel does not operate against the Government for the act
of its agents or their inaction.— Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair
market value, even if it failed to expressly revoke Resolution No. 2126. It is, after all, hornbook law that the principle of
estoppel does not operate against the Government for the act of its agents, or, as in this case, their inaction.
Same; Same; Contracts, once perfected, bind both contracting parties, and obligations arising therefrom have
the force of law between the parties and should be complied with in good faith; However, contracts are not the only
source of law that govern the rights and obligations between the parties.—It is a fundamental rule that contracts, once
perfected, bind both contracting parties, and obligations arising therefrom have the force of law between the parties
and should be complied with in good faith. However, it must be understood that contracts are not the only source of
law that govern the rights and obligations between the parties. More specifically, no contractual stipulation may
contradict law, morals, good customs, public order or public policy. Verily, the mere inexistence of a contract, which
would ordinarily serve as the law between the parties, does not automatically authorize disposing of a controversy
based on equitable principles alone. Notwithstanding the absence of a perfected contract between the parties, their
relationship may be governed by other existing laws which provide for their reciprocal rights and obligations.
Same; Same; When there is absolutely no acceptance of an offer or if the offer is expressly rejected, there is
no meeting of the minds.—In Vda. de Urbano v.Government Service Insurance System, it was ruled that a qualified
acceptance constitutes a counter-offer as expressly stated by Article 1319 of the Civil Code. In said case, petitioners
offered to redeem mortgaged property and requested for an extension of the period of redemption. However, the offer
was not accepted by the GSIS. Instead, it made a counter-offer, which petitioners did not accept. Petitioners again offer
to pay the redemption price on staggered basis. In deciding said case, it was held that when there is absolutely no
acceptance of an offer or if the offer is expressly rejected, there is no meeting of the minds. Since petitioners’ offer was
denied twice by GSIS, it was held that there was clearly no meeting of the minds and, thus, no perfected contract. All
that is established was a counter-offer

FACTS:

On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a letter to petitioner National
Housing Authority (NHA), manifesting its interest in acquiring Lots 4 and 17
of the General Mariano Alvarez Resettlement Project in Cavite. The latter granted request hence respondent entered
into possession of the lots and introduced improvements thereon. On February 22, 1991, NHA passed are solution
approving the sale of the subject lots to respondent Church for 700 per square meter, a total of P430,500. Respondents
were duly informed. On April 8, 1991, respondent church tendered a check amounting to P55,350 contending that this
was the agreed price. NHA avers stating that the price now (1991) is different from before(1986).The trial court rendered
a decision in favour of NHA stating that there was no contract sale,ordering to return the said lots to NHA and to pay
NHA rent of 200 pesos from the time it took possession of the lot. Respondent Church appealed to the CA which affirms
the decision of RTC regarding“no contract of sale” but modifying it by ordering NHA to execute the sale of the said lots
to Church for 700per square, with 6% interest per annum from March1991. Petitioner NHA filed a motion for
reconsideration which was denied. Hence this petition for review on certiorari.

Issue: WON NHA can be compelled to sell the lots under market value?

HELD:No, because the contract has not been perfected. The Church despite knowledge that its intended contract of
sale with the NHA had not been perfected proceeded to introduce improvements on the land. On the other hand, NHA
knowingly granted the Church temporary use of the subject properties and did not prevent the Church from making
improvements thereon. Thus the Church and NHA, whoboth acted in bad faith, shall be treated as if they were both in
good faith. In this connection Art
448provides: “
The owner of the land in which anything has been built, sown or planted in good faith, shall have the right to appropriate
as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to
oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land and if its value is considerably more than that of the building or
trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree, in case of disagreement, the court shall fix.
Note.—There can be no contract in the true sense in the absence of the element of agreement or of mutual assent of
the parties. (Luxuria Homes, Inc. vs. Court of Appeals, 302 SCRA 315 [1999])

14. Cortes vs CA 494 SCRA 570 Lorejo


TOPIC:

OVERVIEW OF THE CASE:

Sales; Rescission; The contract of sale in question gave rise to a reciprocal obligation of the parties.—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.

Contracts; Interpretation of Contracts; The decisive factor in evaluating an agreement is the intention of the
parties as shown not necessarily by the terminology used in the contract but by their conduct, words, actions
and deeds prior to, during and immediately after executing the agreement; Documentary and parol evidence
may be submitted and admitted to prove such intention.—The settled rule is that the decisive factor in
evaluating an agreement is the intention of the parties, as shown not necessarily by the terminology used in
the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing
the agreement. As such, therefore, documentary and parol evidence may be submitted and admitted to prove
such intention.

Same; 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.—By agreeing to
transfer title upon full payment of P2,200,000.00, Cortes’ impliedly agreed to deliver the TCTs to the
Corporation in order to effect said transfer. 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, can not 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.

Reciprocal Obligations; The mutual delay of the parties cancels out the effects of default such that it is as if
no one is guilty of de-lay.—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.

FACTS:
Cortes is the owner of several lots

Cortes and Villa Ezperanza Corporation entered into a contract of absolute sale of the lots owned by Cortes for the
Purchase Price. Upon execution of the said contract, a down-payment amounting to 2,200,000.00 was paid by the
corporation. The balance thereof shall be paid within 1 year from the date of the execution of the sale.

The parties agreed that Cortes shall be liable for the transfer of sale and the balance thereof shall be paid by the
Corporation after Cortes delivers the title to the Corporation.

A year later, after failure of Cortes to deliver the TCTs to the Corporation, a Complaint for Specific Performance was
filed by the Corporation against Cortes. As a defense, Cortes alleged in his counterclaim that it was the Corporation’s
fault since they failed to pay the balance within 1 yr and prayed that the sale be rescinded

ISSUE
WON there was a perfected sale
RULING: No.

The decisive factor in evaluating an Agreement is the intention of the parties is not necessarily by the terminology used
in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the
agreement.

Stipulation in the Deed of Absolute Sale Was that the Corporation shall pay in full the P2,200,000.00 down payment
upon execution of the contract. However, as correctly noted by the Court of Appeals that he agreed that the
Corporation’s full payment of the sum of P2,200,000.00 would depend upon his delivery of the TCTs of the three lots.

By agreeing to transfer title upon full payment of P2,200,000.00, Cortes’ impliedly agreed to deliver the TCTs to the
Corporation in order to effect said transfer.

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

15. Congregation of the RVM vs Orola 553 SCRA 578 Medellin gwapa ko kulba

Case #: 15
Case Title: [ G.R. No. 169790 April 30, 2008 ]

CONGREGATION OF THE RELIGIOUS OF THE VIRGIN MARY and/or THE SUPERIOR GENERAL OF THE
RELIGIOUS OF THE VIRGIN MARY, represented by The REVEREND MOTHER MA. CLARITA BALLEQUE,
petitioner, VS. EMILIO Q. OROLA, JOSEPHINE FATIMA LASERNA OROLA, MYRNA ANGELINE LASERNA
OROLA, MANUEL LASERNA OROLA, MARJORIE MELBA LASERNA OROLA & ANTONIO LASERNA OROLA,
respondents.

Case Topic: Perfected Sale

Overview of the case:

Same; Same; Sales; A contract of sale carries the correlative duty of the seller to deliver the property and the
obligation of the buyer to pay the agreed price.—As uniformly found by the lower courts, we likewise find that
there was a perfected contract of sale between the parties. A contract of sale carries the correlative duty of the
seller to deliver the property and the obligation of the buyer to pay the agreed price. As there was already a
binding contract of sale between the parties, RVM had the corresponding obligation to pay the remaining
balance of the purchase price upon the issuance of the title in the name of respondents. The supposed 2-year
period within which to pay the balance did not affect the nature of the agreement as a perfected contract of
sale. In fact, we note that this 2-year period is neither reflected in any of the drafts to the contract, nor in the
acknowledgment receipt of the downpayment executed by respondents Josephine and Antonio with the
conformity of Sr. Enhenco. In any event, we agree with the CA’s observation that the 2-year period to effect
payment has been mooted by the lapse of time.

FACTS

· Sometime in April 1999, The RVM through Sr. Fe Enhenco, local Superior of the St. Mary’s Academy
of Capiz and respondents met to discuss the sale of the latter’s property adjacent to St. Mary’s Academy
registered in the name of Respondents’ predecessor-in-interest, Manuel Laserna.

· May of 1999, Josephine Orola went to Manila to see the Mother Superior General of the RVM, in the
person of Very Reverend Mother Ma. Clarita Balleque [VRM Balleque] regarding the sale of the property
· A contract to sell dated June 2, 1999 was made with the total consideration of the property at
P5,555,000.00 with 10% of the total consideration payable upon the execution of the contract,

· June 7, 1999, Josephine Orola and Antonio Orola acknowledged receipt of RCBC Check No. 0005188
dated June 7, 1999 bearing the amount of P555,500.00 as 10% down payment for Lot 159-B-2 from the RVM
Congregation with the "conforme" signed by Sister Fe Enginco (sic), Mother Superior, SMAC.

· Respondents executed an extrajudicial settlement of the estate of Trinidad Andrada Laserna dated
June 21, 1999

· Respondents, armed with an undated Deed of Absolute Sale scheduled a meeting with VRM Balleque
to finalize the sale, specifically, to obtain payment of the remaining balance of the purchase price in the
amount of P4,999,500.00.

· VRM Balleque did not meet with respondents.

· attempts by respondents to schedule an appointment with VRM Balleque in order to conclude the
sale were likewise rebuffed.

· RVM denied respondents’ demand for payment because: (1) the purported Contract to Sell was
merely signed by Sr. Enhenco as witness, and not by VRM Balleque, head of the corporation sole; and (2)
RVM will only be in a financial position to pay the balance of the purchase price in two years time.

· Respondents filed with the RTC a complaint with alternative causes of action of specific performance
or rescission.

· RTC ruled that there was indeed a perfected contract of sale between the parties, and granted
respondents’ prayer for rescission thereof.

· Passed to the CA

· the CA rendered judgment setting aside the RTC Decision

· Appellate court then resolved the matter in favor of the greatest reciprocity of interest pursuant to
Article 13787of the Civil Code. It found that the 2-year period to purchase the property, which RVM insisted
on, had been mooted considering the time elapsed from the commencement of this case.

ISSUE:

W/N there was a perfected contract

HELD:

As uniformly found by the lower courts, we likewise find that there was a perfected contract of sale between
the parties. A contract of sale carries the correlative duty of the seller to deliver the property and the obligation
of the buyer to pay the agreed price.10 As there was already a binding contract of sale between the parties,
RVM had the corresponding obligation to pay the remaining balance of the purchase price upon the issuance
of the title in the name of respondents. The supposed 2-year period within which to pay the balance did not
affect the nature of the agreement as a perfected contract of sale. 11 In fact, we note that this 2-year period is
neither reflected in any of the drafts to the contract,12 nor in the acknowledgment receipt of the downpayment
executed by respondents Josephine and Antonio with the conformity of Sr. Enhenco.13 In any event, we agree
with the CA’s observation that the 2-year period to effect payment has been mooted by the lapse of time.
However, the CA mistakenly applied Articles 1383 and 1384 of the Civil Code to this case because respondents’
cause of action against RVM is predicated on Article 1191 of the same code for breach of the reciprocal
obligation. It is evident from the allegations in respondents’ Complaint 14 that the instant case does not fall
within the enumerated instances in Article 1381 of the Civil Code. Certainly, the Complaint did not pray for
rescission of the contract based on economic prejudice.

Moreover, contrary to the CA’s finding that the evidence did not preponderate for either party, the records
reveal, as embodied in the trial court’s exhaustive disquisition, that RVM committed a breach of the obligation
when it suddenly refused to execute and sign the agreement and pay the balance of the purchase price.15 Thus,
when RVM refused to pay the balance and thereby breached the contract, respondents rightfully availed of the
alternative remedies provided in Article 1191. Accordingly, respondents are entitled to damages regardless of
whichever relief, rescission or specific performance, would be granted by the lower courts. 16

Lastly, to obviate confusion, the clear language of Article 1191 mandates that damages shall be awarded in
either case of fulfillment or rescission of the obligation.17 In this regard, Article 2210 of the Civil Code is explicit
that "interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract."
The ineluctable conclusion is that the CA correctly imposed interest on the remaining balance of the purchase
price to cover the damages caused the respondents by RVM’s breach.

WHEREFORE, premises considered, the petition is DENIED. The order granting specific performance and
payment of the balance of the purchase price plus six percent (6%) interest per annum from June 7, 2000 until
complete satisfaction is hereby AFFIRMED. Costs against petitioner.

ARTICLES MENTIONED WHICH MAY BE OF GREAT IMPORTANCE (CHER LENG):

Art. 1191. The power to rescind obligations is impled in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

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

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

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

Art. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion
by more than one fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion state in the
preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without
the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.


16. Macasaet vs R. Transport Corp GR NO. 172446 Carrillo

Case #: 16
Case Title: [ G.R. NO. 172446, October 10, 2007 ]
ALEXANDER "ALEX" MACASAET, PETITIONER, VS. R. TRANSPORT CORPORATION, RESPONDENT.
CARRILLO
Case Topic: Article 1475 – When Perfected
Overview of the case:

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

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

Facts:

On 3 January 1996, a Complaint for Recovery of Possession and Damages was filed by R. Transport Corporation
against Alexander Macasaet at the Regional Trial Court (RTC) of Makati, Branch 147. The complaint stated that R.
Transport was a holder of Certificates of Public Convenience (CPC) to operate a public utility bus service within Metro
Manila and the provinces whereas New Mindoro Transport Classic (NMTC), operates a transportation company in
Oriental Mindoro.

On 11 October 1995, R. Transport and Macasaet entered into a "Deed of Sale with Assumption of Mortgage" (deed
of sale) over four (4) passenger buses where Macasaet agreed to pay the consideration of twelve million pesos
(P12,000,000.00) and assume the existing mortgage obligation on the said buses in favor of Phil. Hino Sales
Corporation.

R. Transport delivered to Macasaet two (2) passenger buses.

However, despite repeated demands, Macasaet failed to pay the stipulated purchase price. This impelled R.
Transport to file a complaint seeking the issuance of a writ of replevin, praying for judgment declaring R. Transport as
the lawful owner and possessor of the passenger buses and regulating Macasaet to remit the amount of P660,000.00
representing the income generated by the two buses from 16 October 1995 to 2 January 1996.

On 8 October 1995, "Special Trip Contract" was entered into by the parties. This contract stipulated that R. Transport
would lease the four buses subject of the deed of sale to Macasaet for the sum of P10,000.00 a day per bus or a total
of P280,000.00 for the duration of one week, from 15-22 October 1995. Respondent's finance officer testified that the
purpose of the contract was to support the delivery of the first two buses pending formal execution of the deed of
sale.
On 8 January 1996, on R. Transport's motion, the trial court issued a writ of seizure ordering the sheriff to take
possession of the two buses in NMTC subject to R. Transport's filing of a bond in the amount of P12,000,000.00. The
sheriff recovered the two buses and delivered them to R. Transport on 16 January 1996.

The petitioner defended that he had paid respondent the full consideration of P12,000,000.00 and had agreed to
assume the mortgage obligation in favor of Phil. Hino Sales Corporation. He also claimed ownership over the four
passenger buses, including the two buses already delivered to him. He further contended that he had already
remitted P120,000.00 to respondent as partial payment of the mortgage obligation. Petitioner admitted that he had
been earning at least P7,000.00 per day on each of the buses. For his counterclaim, he demanded for the return of
the bus units seized and the immediate delivery of the other two units, as well as for payment of damages.

ISSUE: Whether or not there is perfected contract of sale in the case at bar?

Ruling:

The court declared that the non-perfection of the deed of sale precluded petitioner from possessing the buses. In
accordance with Article 1318 of the New Civil Code, the requisites of a contract are as follows: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which
is established. Thus, contracts, other than real contracts are perfected by mere consent which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Once
perfected, they bind other contracting parties and the obligations that arise have the force of law between the parties
and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith,
usage and law.

The Court of Appeals relied on the text of the deed of sale which adverts to payment of the purchase price, the non-
payment of the purchase price was no longer an issue. Respondent presented strong evidence that petitioner did not
pay the purchase price, and that paved the way for the issuance of a writ of replevin. Petitioner did not challenge the
finding of the trial court before the Court of Appeals and this Court. He did not also controvert the non-consummation
of the assumption of mortgage at any level of the proceedings.

The result of the rescission of the contract of sale is the recovery of possession of the object thereof. Thus, petitioner’s
possession over the passenger buses became unlawful when upon demand for return, he wrongfully retained
possession over the same.

17. Platinum Plans vs Cucueco GR NO 147405 Sandoval


Case Title: PLATINUM PLANS PHIL., INC. vs. CUCUECO GR NO. 147405
 Case Topic: Formation of a contract of
sale (Perfection)

 Overview of the case:

Same; Contract to Sell; Words and Phrases; A contract to sell is defined as a bilateral contract whereby a prospective
seller, while expressly reserving the ownership of the subject property despite its delivery to the prospective buyer,
commits to sell the property exclusively to the prospective buyer upon the fulfillment of the condition agreed upon,
that is, full payment of the purchase price.—A contract to sell is defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property despite its delivery to the
prospective buyer, commits to sell the property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price. Full payment in this context is deemed a positive suspensive
condition. It bears stressing that ownership of the property offered for sale is reserved in the seller and is not to pass
to the buyer until such condition has been fulfilled. As a result, if the party contracting to sell, because of non-
compliance with the suspensive condition stipulated, seeks to eject the would-be buyer from the land object of the
agreement, the former is enforcing the contract and not resolving it. The failure to make payment is not a breach of
the contract but an event that prevented the obligation to convey the title from materializing.


 Same; Same; A contract to sell may not be considered a contract of sale because of its first essential element of
consent to transfer ownership is lacking in the former.—A contract to sell may not be considered as a contract of sale
because the first essential element of consent to a transfer of ownership is lacking in the former. Since the
prospective seller in a contract to sell explicitly reserves the transfer of title to the prospective buyer, the prospective
seller does not as yet unequivocally agree or consent to a transfer ownership of the property subject of the contract to
sell. On the happening of an event, that is, the full payment of the purchase price, the obligation then arises to
execute a contract of sale
 that alone will transfer such ownership.


 Same; Same; It is the proof of concurrence of all the essential elements of the contract of sale, and not by giving of
earnest money, which establishes the existence of a perfected sale.—In the present case, it was
 unnecessary for
the CA to distinguish whether the transaction between the parties was an installment sale or a straight sale. In the
first place, there is no valid and enforceable contract to speak of. It was error for the appellate court to rely upon
Article 1482 of the Civil Code in concluding that the earnest money given “would be considered as part of the
purchase price and proof of the perfection of the contract.” This Court has emphasized that it is the proof of the
concurrence of all the essential elements of the contract of
 sale, and not the giving of earnest money, which
establishes the existence of a perfected sale.


 Same; Same; Before a valid and binding contract of sale can exist, the manner of payment of the purchase price
must first be established.—In a number of cases, this Court has held that before a valid and binding contract of sale
can exist, the manner of payment of the purchase price must first be
 established. The manner of payment affects the
essential validity of the sale notwithstanding that the object and purchase price may have previously been agreed
upon. Although not an express statutory requirement, the minds of the parties must meet on the terms or manner of
payment of the price,
 otherwise, there is no sale. An agreement on 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.


 Same; Same; The intention of the parties to enter into a contract to sell does not effectively translate to an
enforceable obligation where there is failure to agree on the contract’s actual terms.—The intention of the parties to
enter into a contract to sell did not effectively translate into an enforceable obligation in view of their failure to agree
on the contract’s actual terms. As in a contract of sale, it is important that there be a stipulation on the period within
which the payment would become due and demandable, the absence of which would justify the conclusion that there
was no consent to the contract proposed. The Court, in this instance, cannot step in to cure the deficiency by fixing
the period of the obligation pursuant
 to either Article 1191 [which, incidentally, applies only to contracts of sale] or
Article 1197 of the Civil Code. In the first place, respondent did not pray for this relief when he filed his complaint for
specific performance seeking to compel petitioners to receive the balance of the purchase price and to
 transfer title
of the property in his name. He instead claimed that the parties had previously fixed the period of the obligation on
December 31, 1993.

FACTS:
Plaintiff-appellant (Respondent) being the lessee and present occupant of the said condominium unit, he verbally
offered to buy the same from the defendants appellants [herein petitioners], free from any lien or encumbrance in two
(2) installments of P2,000,000.00. This was made into a formal offer in writing, the salient conditions of which are: (1)
Plaintiff-appellant will issue a check for P100,000.00 as earnest money; (2) Plaintiff will also issue a post-dated check
for P1,900,000.00 encashable on 30 September 1993 on the condition that he will stop paying rental(s) for the said
unit after 30 September 1993; and (3) That in the case the defendants appellants still had an outstanding loan (with
the said unit as collateral/security) with the bank of less than P2,000,000.00, as of 31 December 1993, plaintiff-
appellant shall assume the said loan and pay the defendants-appellants the difference from the remaining
P2,000,000.00. Plaintiff-appellant claims that the defendants-appellants duly accepted his offer—the checks he
issued in favor of the defendants-appellants were accepted and encashed.
However, he was surprised to receive a letter from defendants-appellants where the due date for the second
installment was changed to 23 September 1993. Despite earnest efforts, both parties failed to settle the said
difference amicably. Apparently, the plaintiff-appellant felt he was on the shot end of the bargain since he stood to
forfeit the initial P2,000,000.00 he has paid in favor of the defendants-appellants as provided in their agreement. The
refusal of the defendants-appellants to return the said initial payment thus prompted the plaintiff-appellant to file a
case for specific performance of the said sale and claim of damages for the injury he suffered as a result of the
defendants-appellants’ unjust refusal to comply
 with their obligation.

ISSUE: Whether or not there was a perfected contract of sale

RULING:
No. The court found that under the circumstances, the essential element of consent to the contract was lacking as
indicated by the failure of the parties to agree on a definite date when full payment of the purchase price should be
made by respondent. Neither side has been able to produce any written evidence documenting the actual terms of
their agreement, specifically the date of full payment of the purchase price. The evidence adduced during the trial
showed that the respective offers and counter-offers made by the parties were not accepted by the other party. The
trial court properly found that there was no meeting of the minds in this case considering the acceptance of the offer
was not absolute and unconditional. This further confirmed the absence of the contractual element of consent.
In a contract of sale, it is important that there be a stipulation on the period within which the payment would become
due and demandable, the absence of which would justify the conclusion that there was no consent to the contract
proposed. Considering that the agreement of the parties did not ripen into a binding and enforceable contract
meaning it did not acquire any obligatory force either for the transfer of the ownership of the property or the rendition
of payments as part of the purchase price due to the absence of the essential element of consent, the Court is
precluded from finding any cause of action that would warrant the granting of the reliefs prayed for in respondent’s
complaint. Accordingly, the initial payment of Two Million Pesos (P2,000,000) advanced by respondent should be
returned by petitioners lest the latter unjustly enrich themselves at the expense of the former. In the same vein,
considering that respondent has been in continuous possession of the subject unit beginning July of 1993, the award
of
 back rentals in favor of petitioners is likewise proper, but the award of moral damages and attorney’s fees should
be deleted for lack of sufficient basis.

18. DBP vs Ong GR 144661 and 144797 Baril


Case #18
Case Title: DBP vs Ong
GR NO. 144661 and 144797 June 15, 2005
Case Topic: Formation of a Contract of Sale (Perfection)
Overview of the Case:

A clerk is not among the bank officers upon whom such putative authority may be reposed by a third party.
There is, thus, no legal basis to bind petitioner into any valid contract of sale with the respondents, given the
absolute absence of any approval or consent by any responsible officer of petitioner bank. And because there
is no perfected contract of sale between the parties, respondents’ action for breach of contract and/or specific
performance is simply without any leg to stand on and must therefore fall.—The representation of Roy Palasan,
a mere clerk at petitioner’s Cagayan de Oro City branch, that the manager had already approved the sale, even if true,
cannot bind the petitioner bank to a contract of sale with respondents, it being obvious to us that such a clerk is not
among the bank officers upon whom such putative authority may be reposed by a third party. There is, thus, no legal
basis to bind petitioner into any valid contract of sale with the respondents, given the absolute absence of any approval
or consent by any responsible officer of petitioner bank. And because there is here no perfected contract of sale
between the parties, respondents’ action for breach of contract and/or specific performance is simply without any leg
to stand on and must therefore fall.

Since there was never any approval or acceptance by the higher authorities of petitioner of respondents’ offer
to purchase, the encashment of the check cannot in any way represent partial payment of any purchase
price.—We also disagree with the Court of Appeals that the encashment of the check representing the P14, 000.00
deposit in relation to respondents’ offer to purchase is an indication or proof of perfection of a contract of sale. It must
be noted that the very documents signed by the respondents as their offer to purchase unmistakably state that the
deposit shall only form part of the purchase price if the offer to purchase is approved, “it being expressly understood x
x x that the same (i.e., the deposit) does not bind DBP to the offer until my/our receipt of its approval by higher authorities
of the bank.” It may be so that the official receipt issued therefor by the petitioner termed such deposit as a “down
payment.” But the very written offers of the respondents unequivocably and invariably speak of such amount as
“deposit,” “above deposit,” “we are depositing the amount of P14, 000.00.” Since there never was any approval or
acceptance by the higher authorities of petitioner of respondents’ offer to purchase, the encashment of the check cannot
in any way represent partial payment of any purchase price.

Facts:

Petitioner’s foreclosed asset, formerly owned by one Enrique Abada under TCT No. T-4786 and located at
Corrales Extension, Cagayan de Oro City is the subject of this controversy. On May 25, 1988, respondent Francisco
Ong with the conformity of his wife Leticia Ong, addressed a written offer to petitioner thru its branch manager at
Cagayan de Oro City to buy the subject property on a negotiated sale basis and submitted his “best and last offer” to
purchase2 under the following terms:

PURCHASE PRICE ................................................P136,000.00

DOWNPAYMENT....................................................14,000.00 BALANCE................................................................
P122,000.00

TERM: C A S H MODE OF PAYMENT:

Payable upon ejection of occupants on the property subject of my offer.

I/We am/are depositing the amount of P14,000.00 in cash/check to accompany my/our offer, it being
expressly understood, however, that the same does not bind the DBP to the offer until after my/our receipt of
its approval by the higher authorities of the bank. Should the bank receive an offer from a third-party buyer
higher by more than 5% or at more advantageous term accompanied by a deposit of at least 10% of the
offered price, or a higher offer from the former-owner for at least the updated Total Claim of the Bank
accompanied by a minimum deposit of 20% of the purchase price, the Bank may favorably consider the higher
offer and thereafter refund my/our deposit within three (3) working days after the determination of the most
advantageous offer.

The foregoing offer was duly “NOTED” by petitioner’s branch head at its Cagayan de Oro City Branch, Jose
Z. Lagrito (Lagrito, for brevity), and Official Receipt No. 3081947 was issued for the amount of P14,000.00 as
respondents’ deposit.

In a letter dated October 21, 19883, sent to respondents via registered mail, Lagrito informed the spouses that
the bank recently received an offer from another interested third-party-buyer of the same property at the same price
and term, “but better and more advantageous to the Bank considering that the buyer will assume the responsibility at
her expense for the ejectment of present occupants in the said property”. Nonetheless, respondents were given in the
same letter three (3) days within which “to match the said offer”, failing in which the Bank “will immediately award the
said property to the other buyer”, in which event respondents’ deposit of P14,000.00 shall be refunded to them upon
surrender of O.R. No. 3081947.

In yet another written offer dated October 28, 19884, respondents matched the said offer of the second
interested buyer by assuming the responsibility “at my/our own expense for the ejection of squatters/occupants, if any,
on the property.”
On April 7, 1989, there was a conference between respondents, together with their counsel, and the bank
whereat respondents were informed why the sale could not be awarded to them. Thereafter, in a letter dated September
6, 19905, respondents were notified that the property would instead be offered for public bidding on September 24,
1990 at ten 10:00 o’clock in the morning.

Feeling aggrieved by such turn of events, respondents filed with the Regional Trial Court at Cagayan de Oro
City a complaint for breach of contract and/or specific performance against petitioner.

In his testimony, Ong gave the respondents’ version of what supposedly transpired in their transaction with
petitioner. According to him, he and his wife went to the bank branch at Cabayan de Oro City and looked for Roy
Palasan, a bank clerk thereat and told the latter that they were interested to buy two (2) lots. Palasan went to talk to
Lagrito, the branch manager. Palasan returned to the spouses and informed them that the branch manager agreed to
sell the property to them. Palasan further told them that they will be required to pay ten (10%) percent of the purchase
price as downpayment, adding that if they were to pay the purchase price in cash, they would be entitled to a ten (10%)
percent discount. After some computations, respondents rounded up the purchase price at P136,000.00 and pegged
the downpayment therefor at P14,000.00. They were then required by Palasan to sign a bank form supposedly to
express their firm offer to purchase the subject property. But since the form signed by them contains the statement that
the approval of higher authorities of the bank is required to close the deal, respondents queried Palasan about it.
Palasan, however, told them that the documents were only for formality purposes, and further assured them that the
branch manager has already agreed to sell the subject property to them.

Issue:

Whether or not there actually was a perfected contract of sale between petitioner and respondents, for which the Court
may compel petitioner to issue a board resolution approving the sale and to execute the final deed of sale in
respondents’ favor, and/or hold petitioner liable for a breach thereof.

Ruling: No perfected contract of sale between petitioner and respondents.

The representation of Roy Palasan, a mere clerk at petitioner’s Cagayan de Oro City branch, that the manager
had already approved the sale, even if true, cannot bind the petitioner bank to a contract of sale with respondents, it
being obvious to us that such a clerk is not among the bank officers upon whom such putative authority may be reposed
by a third party. There is, thus, no legal basis to bind petitioner into any valid contract of sale with the respondents,
given the absolute absence of any approval or consent by any responsible officer of petitioner bank.

And because there is here no perfected contract of sale between the parties, respondents’ action for breach
of contract and/or specific performance is simply without any leg to stand on and must therefore fall.

We also disagree with the Court of Appeals that the encashment of the check representing the P14,000.00
deposit in relation to respondents’ offer to purchase is an indication or proof of perfection of a contract of sale. It must
be noted that the very documents signed by the respondents as their offer to purchase unmistakably state that the
deposit shall only form part of the purchase price if the offer to purchase is approved, “it being expressly understood x
x x that the same (i.e., the deposit) does not bind DBP to the offer until my/our receipt of its approval by higher authorities
of the bank.” It may be so that the official receipt issued therefor by the petitioner termed such deposit as a
“downpayment.” But the very written offers of the respondents unequivocably and invariably speak of such amount as
“deposit,” “above deposit,” “we are depositing the amount of P14,000.00.”

Since there never was any approval or acceptance by the higher authorities of petitioner of respondents’ offer
to purchase, the encashment of the check can not in any way represent partial payment of any purchase price. With
the hard reality that no approval or acceptance of respondents’ offer to buy exists in this case, any independent
transaction between petitioner and another third-party, like the one involving respondents’ sister, would be irrelevant
and immaterial insofar as respondents’ own transaction with the petitioner is concerned.
19. Villamor vs CA GR NO. 97332 Carino
Topic: Option Contracts

Overview of the Case:


● Civil Law; Contracts; Sales; As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of
the contracts, the essential reason which moves the contracting parties to enter into the contract."—As
expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential
reason which moves the contracting parties to enter into the contract." The cause or the impelling reason on
the part of private respondent in executing the deed of option as appearing in the deed itself is the
petitioners' having agreed to buy the 300 square meter portion of private respondents' land at P70.00 per
square meter "which was greatly higher than the actual reasonable prevailing price."
● Same; Same; Same; The acceptance of an offer to sell for a price certain created a bilateral contract to sell
and buy and upon acceptance, the offeree, ipso facto assumes obligations of a vendee.—In the instant
case, the option offered by private respondents had been accepted by the petitioner, the promisee, in the
same document. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and
buy and upon acceptance, the offeree, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co.
v. Cua Mian Tek, 102 Phil. 948). Demandability may be exercised at any time after the execution of the
deed.
● Same; Same; Same; Prescription; Failure of either parties to demand performance of the obligation of the
other for an unreasonable length of time renders the contract ineffective.—However, the Deed of Option did
not provide for the period within which the parties may demand the performance of their respective
undertakings in the instrument. The parties could not have contemplated that the delivery of the property
and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure
of either parties to demand performance of the obligation of the other for an unreasonable length of time
renders the contract ineffective.
● Same; Same; Same; Same; Actions upon a written contract must be brought within ten (10) years.—Under
Article 1144 (1) of the Civil Code, actions upon a written contract must be brought within ten (10) years. The
Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also
accepted in the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987,
seventeen (17) years from the time of the execution of the contract. Hence, the right of action had
prescribed.
Facts:
PETITIONER - Spouses Villamors (Buyer, Offeree)
RESPONDENT - Spouses Reyeses (Seller, Oferror)

● Reyes (Petitioner) was the owner of a 600 sqm lot.


● In July 1971, Macaria sold 300 sqm of the said lot to Villamor (Respondent) for P21,000 (P70 per sqm).
● Nov. 11, 1971 - Reyes executed a "DEED OF OPTION" in favor of Villamor in which the remaining 300 sqm
lot would be sold to Villamor under the conditions sated therein.
○ "That the only reason why Villamor spouses agreed to buy the said lot at a much higher price is
because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 sqm
of land.
○ That the sale of the other half would be made "whenever the need of such sale arises, either on the
part of the spouses Reyeses or on the part of t he spouses Villamors."
● In 1984 - Reyeses offered to repurchase the lot sold by them to Villamor spouses but the latter refused and
reminded them instead that the Deed of option in fact game them the option to purchase the remaining
portion of the lot.
● The Villamors, claimed that they had expressed their desire to purchase the remaining portion of the lot but
the Reyeses ignored them.
● July 13, 1987 - Villamor filed a complaint for specific performance against the Reyeses.
● RTC Ruling - In favor of Villamor, ordering Reyeses to sell the land.
● CA Ruling - Reversed the RTC’s decision. It was premised on the finding that the DEED OF OPTION is
VOID for LACK OF CONSIDERATION.
ISSUE:
1. WON the deed of option is void for lack of consideration.
No. Deed of option is valid.
2. WON the spouses can demand the performance of their respective undertakings in the instrument (DEED OF
OPTION).
No. The right of action had prescribed.

Held:
1. No.
● consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter
into the contract." The cause or the impelling reason on the part of private respondent in executing the deed
of option as appearing in the deed itself is the petitioners' having agreed to buy the 300 square meter portion
of private respondents' land at P70.00 per square meter "which was greatly higher than the actual
reasonable prevailing price."
● The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in
1969 the Villamor spouses bought an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per
square meter which the private respondents did not rebut.
● Thus, expressed in terms of money, the consideration for the deed of option is the difference between
the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per sq. m.) and the
prevailing reasonable price of the same lot in 1971.
● Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option, was ascertainable.
Petitioners' allegedly paying P52.00 per square meter for the option may, as opined by the appellate court,
be improbable but improbabilities does not invalidate a contract freely entered into by the parties.
2. No.
● The Deed of Option did not provide for the period within which the parties may demand the performance of
their respective undertakings in the instrument. The parties could not have contemplated that the delivery of
the property and the payment thereof could be made indefinitely and render uncertain the status of the land.
The failure of either parties to demand performance of the obligation of the other for an
unreasonable length of time renders the contract ineffective.
● Under Article 1144 (1) of the Civil Code, actions upon a written contract must be brought within ten
(10) years.
● The Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also
accepted in the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987,
seventeen (17) years from the time of the execution of the contract. Hence, the right of action had
prescribed.
● There were allegations by the petitioners that they demanded from the private respondents as early as 1984
the enforcement of their rights under the contract. Still, it was beyond the ten (10) year period prescribed by
the Civil Code.

20. Nietes vs CA GR NO. 32873


CASE #: 20
CASE TITLE: Nietes vs. Court of Appeals No. L-32873. August 18, 1972.
CASE TOPIC: Option Contract
OVERVIEW OF THE CASE:
Civil law; Sales; Option to buy is governed by provision on reciprocal
obligations.—In the case of an option to buy, the creditor may validly and
effectively exercise his right by merely advising the debtor of the former’s
decision to buy and expressing his readiness to pay the stipulated price,
provided that the same is available and actually delivered to the debtor upon
execution and delivery by him of the corresponding deed of sale. Unless and
until the debtor shall have done this, the creditor is not and cannot be in
default in the discharge of his obligation to pay. In other words, notice of the
creditor’s decision to exercise his option to buy need not be coupled with
actual payment of the price, so long as this is delivered to the owner of the
property upon performance of his part of the agreement.
Same; Same; Option to buy exercised by payment of sum in excess of
rental.—There is a valid and effective exercise of the option to buy a
property leased where the lessor acknowl-edges receipt from the lessee of
sum in excess of the monthly rentals due and describes such payment as
“partial payment on the purchase of the property” described in the contract
of lease with option to buy.
FACTS: Petitioner Aquilino Nietes seeks a review on certiorari of a decision
of the Court of Appeals,
It appears that, on October 19, 1959, -said petitioner and
respondent Dr. Pablo C. Garcia entered into a “Contract of Lease
with Option to Buy’ pursuant to the terms and conditions set forth
in the deed. The rent is set to P5000 per year up to 5 years and that the LESSOR agrees to give the LESSEE an
option to buy the land and the school building, for P100,000 within the period of the Contract of Lease.
On or about July 31, 1964, Dr. Garcia’s counsel wrote to Nietes a letter to rescind the contract. To which counsel for
Nietes replied, that
Nietes has not violated any provision of the CONTRACT
OF LEASE WITH OPTION TO BUY and there is no basis for rescission of the contract. Also, that Mr.
AQUILINO T. NIETES will exercise his OPTION to buy the
land and building subject matter of the lease and that my said
client is ready to pay the balance of the purchase price in
accordance with the contract. Nietes also deposited 84K to a bank corresponding to the balance for the purchase of
the property.

ISSUE: WON Nietes can avail of his option to buy the property.
RULING: YES.
Nietes can avail of the option to buy because he already express his intention to buy the property before the
termination of the contract. The contention of the respondent that the full price of the property should first be paid
before the option could be exercised is of no merit.
Nietes had validly and effectively exercised his option to buy the property of
Dr. Garcia, at least, on December 13, 1962, when he acknowledged
receipt from Mrs. Nietes of the sum of P2,200 then delivered by her
“in partial payment on the purchase of the property” described in the
“Contract of Lease with Option to Buy”.
Notice of the creditor's decision to exercise his option to buy need not be coupled with actual payment of the price,
so long as this is delivered to the owner of the property upon performance of his part of the agreement.

Notes.—Characteristics of Reciprocal Obligations.—Under


Article 1191 of the Civil Code, in case of reciprocal obligations, the
power to rescind the contract where a party incur in default, is
impliedly given to the injured party. Froilan vs. Pan Oriental
Shipping Co,, L-11897, October 31, 1964, 12 SCRA 276.

In reciprocal contracts, the obligation or promise of each party is


the consideration for that of the other. Vda. de Qidrino vs. Palarca,
L-28269, August 15, 1969, 29 SCRA 1.

A rescission for breach of contract under Article 1191 of the


Civil Code is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the defendant, that
violates the reciprocity between the parties. Universal Food
Corporation vs. Court of Appeals, L-29155, May 13, 1970, 33
SCRA 1,

Where the obligation is reciprocal and with a period, neither


party could demand performance nor incur delay before the
expiration of the period. Abesamis vs. Woodcraft Works, Ltd., L-
18916, November 28, 1969 30 SCRA 372.

21. Carceller vs. CA GR NO. 124791 Jaugan


Civil Law; Contracts; An option is a separate agreement distinct from the contract which the parties may enter into
upon the consummation of the option.—An option is a preparatory contract in which one party grants to the other, for
a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. It
binds the party who has given the option, not to enter into the principal contract with any other person during the
period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if
the latter should decide to use the option. It is a separate agreement distinct from the contract which the parties may
enter into upon the consummation of the option.
Same; Same; Same; Court found the delay neither “substantial” nor “fundamental” and did not amount to a breach
that would defeat the intention of the parties when they executed the lease contract with option to purchase.—The
lease contract provided that to exercise the option, petitioner had to send a letter to SIHI, manifesting his intent to
exercise said option within the lease period ending January 30, 1986. However, what petitioner did was to request on
January 15, 1986, for a six-month extension of the lease contract, for the alleged purpose of raising funds intended to
purchase the property subject of the option. It was only after the request was denied on February 14, 1986, that
petitioner notified SIHI of his desire to exercise the option formally. This was by letter dated February 18, 1986. In
private respondent’s view, there was already a delay of 18 days, fatal to petitioner’s cause. But respondent court
found the delay neither “substantial” nor “fundamental” and did not amount to a breach that would defeat the intention
of the parties when they executed the lease contract with option to purchase.
Facts:Private respondent State Investment Houses, Inc. (SIHI) is the
registered owner of two (2) parcels of land located at Bulacao, Cebu City. On January 10, 1985, petitioner and SIHI
entered into a lease contract with option to purchase over said two parcels of land, at a monthly rental of P10,000.00
for a period of 18 months, beginning on August 1, 1984 until January 30, 1986. The pertinent portion of the lease
contract subject of the dispute reads in part:
LESSOR hereby grants unto the LESSEE the exclusive right, option and privilege to purchase, within the lease
period, the leased premises thereon for the aggregate amount of P1,800,000.00 payable as follows:
a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.00.
b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over sixty (60) consecutive months
computed with interest at 24% per annum on the diminishing balance; Provided, that the LESSEE shall have the right
to accelerate payments at anytime in which event the stipulated interest for the remaining installments shall no longer
be imposed.
Which shall be exercised within the period of the lease through a written notice. 3 weeks before it lapse SIHI
reminded carceller about the option but instead carceller requested for 6 months extension to accumulate funds for
the payment. Sihi rejected the request. Again carceller asked for extension but with a downpayment of 360k,still SIHI
rejected it. Hence, carceller sought for specific performance against SIHI. Rtc favored carceller,ordering sihi to
execute a deed of sale for carceller while the latter to pay 1.8m to sihi. Unsatisfied with the result sihi appealed to CA.
CA modified rtc’s decision, agreeing with the appellee to buy the property but with the prevailing market price.

Issue: should petitioner be allowed to exercise the option to purchase the leased property, despite the
alleged delay in giving the required notice to private respondent?

Held: Yes.petitioner’s letter to SIHI, dated January 15, 1986, was fair notice to the latter of the former’s intent to
exercise the option, despite the request for the extension of the lease contract. As stated in said letter to SIHI,
petitioner was requesting for an extension (of the contract) for six months “to allow us to generate sufficient funds in
order to exercise our option to buy the subject property.”The analysis by the Court of Appeals of the evidence on
record and the process by which it arrived at its findings on the basis thereof, impel this Court’s assent to said
findings.
The lease contract provided that to exercise the option, petitioner had to send a letter to SIHI, manifesting his intent to
exercise said option within the lease period ending January 30, 1986. However, what petitioner did was to request on
January 15, 1986, for a six- month extension of the lease contract, for the alleged purpose of raising funds intended
to purchase the property subject of the option. It was only after the request was denied on February 14, 1986, that
petitioner notified SIHI of his desire to exercise the option formally. This was by letter dated February 18, 1986. In
private respondent’s view, there was already a delay of 18 days, fatal to petitioner’s cause. But respondent court
found the delay neither “substantial” nor “fundamental” and did not amount to a breach that would defeat the intention
of the parties when they executed the lease contract with option to purchase.
22. Ang Yu Asuncion vs CA GR NO. 109125 Sabornido
Case #: 22
Case Title: Ang Yu Asuncion vs. CA
Case Topic: Article 1479: OPTION CONTRACTS - A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.

Overview of the case:


Same; Same; Same; Options; An accepted unilateral promise which specifies the thing to be sold and the price to be
paid, when coupled with a valuable consideration distinct and separate from the price, may be termed a perfected
contract of option.—An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected
contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479
of the Civil Code. Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not
the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective
undertakings.

Facts:

July 29, 1987: An amended Complaint for Specific Performance was filed by petitioners Ang Yu Asuncion and others
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before RTC.

Petitioners (Ang Yu) alleged that they are the tenants or lessees of residential and commercial spaces owned by Bobby
Unijeng and others located in Binondo, Manila (since 1935).

That on several occasions before October 9, 1986, the lessors informed the lessees (petitioners) that they are offering
to sell the premises and are giving them priority to acquire the same.

That during the negotiations, Bobby Cu Unjieng offered a price of P6-million while they made a counter offer of P5-
million;

That they wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that
when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; The
RTC found that Cu Unjiengs’ offer to sell was never accepted by the petitioners (Ang Yu) for the reason that they did
not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. The Court of
Appeals affirmed the decision of the lower court. This decision was brought to the Supreme Court by petition for review
on certiorari which subsequently denied the appeal on May 6, 1991 “for insufficiency in form and substance”. (Referring
to the first case filed by Ang Yu); November 15, 1990: While the case was pending consideration by this Court, the Cu
Unjieng spouses executed a Deed of Sale transferring the subject petitioner to petitioner Buen Realty and Development
Corporation; Petitioner Buen Realty and Development Corporation, as the new owner of the subject property, wrote a
letter to the lessees demanding that the latter vacate the premises; August 30, 1991: the RTC ordered the Cu Unjiengs
to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15 Million pesos in recognition of petitioners’ right of first refusal and that a new
Transfer Certificate of Title be issued in favor of the buyer. The court also set aside the title issued to Buen Realty
Corporation for having been executed in bad faith. On September 22, 1991, the Judge issued a writ of execution. The
CA reversed the RTC ruling.
Issues:

Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal. (NO)

Ruling:

A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an option under Par. 2 Art 1479 or an
offer under Art. 1319. In a Right of First Refusal, only the object of the contract is determinate. This means that
novinculum juris is created between the seller-offeror and the buyer-offeree.
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can
be obligatory on the parties, and compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of
option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil
Code, viz:
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.
Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the obligation, to
buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to
sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings.

23. Paranaque Kings vs CA GR NO. 111538 Clarion


Topic: Right of First Refusal

PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF APPEALS, CATALINA L. SANTOS, represented by
her attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents. G.R. No. 111538. February 26, 1997.*

Contracts; Sales; Right of First Refusal; In order to have full compliance with the contractual right granting a party the first
option to purchase, the sale of the properties for the price for which they were finally sold to a third person should have
likewise been first offered to the former. —We hold, however, that in order to have full compliance with the contractual right
granting petitioner the first option to purchase, the sale of the properties for the amount of P9 million, the price for which
they were finally sold to respondent Raymundo, should have likewise been first offered to petitioner.

Same; Same; Same; There should be identity of terms and conditions to be offered to the buyer holding a right of first refusal
(or the first option to buy) if such right is not to be rendered illusory.—Of course, under their contract, they specifically
stipulated that the Bonnevies could exercise the right of first priority, “all things and conditions being equal.” This Court
interpreted this proviso to mean that there should be identity of terms and conditions to be offered to the Bonnevies and all
other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even
without the same proviso if the right of first refusal (or the first option to buy) is not to be rendered illusory.

Same; Same; Same; The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of
any prospective buyer.—From the foregoing, the basis of the right of first refusal must be the current offer to sell of the seller
or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same
terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under
the same terms as offered to the optionee.

FACTS: Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Parañaque, Metro Manila with transfer
certificate of title Nos. S-19637, S-19638 and S-19643 to S-19648. On November 28, 1977, a certain Frederick Chua leased the
above described property from defendant Catalina L. Santos, the said lease was registered in the Register of Deeds. On
February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing,
by virtue of a deed of assignment and with the conformity of defendant Santos, the said assignment was also registered. On
August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque Kings Enterprises,
Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos, the same was duly registered.
Paragraph 9 of the assigned leased (sic) contract provides among others that:

That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that
the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall
respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority
to buy the properties subject of the lease’.

On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for
a consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the contract of lease, for the
first option or priority to buy was not offered by defendant Santos to the plaintiff. On March 5, 1989, Defendant Santos wrote
a letter to the plaintiff informing the same of the sale of the properties to defendant Raymundo, the said letter was personally
handed by the attorneyin-fact of defendant Santos, Luz B. Protacio. On May 8, 1989, before the period given in the letter
offering the properties for sale expired, plaintiff’s counsel wrote counsel of defendant Santos offering to buy the properties
for FIVE MILLION (P5,000,000.00) PESOS. On May 15, 1989, before they replied to the offer to purchase, another deed of sale
was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION (P9,000,000.00)
PESOS. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to defendant
Raymundo. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiff’s offer to buy or two days
after she sold her properties. In her reply she stated among others that the period has lapsed and the plaintiff is not a privy
(sic) to the contract.

RTC: September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action.

CA: Affirmed the decision of CA (Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that
petitioner’s payment of rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an
acknowledgment of the latter’s status as new ownerlessor of said property, by virtue of which petitioner is deemed to have
waived or abandoned its first option to purchase.)

Issue: Whether or not there was definite refusal on the part of the plaintiff to accept the offer of defendant Santos and had
verily complied with paragraph 9 of the Lease Agreement by twice offering the properties for sale to the plaintiff for P15 M.

(Whether the aforequoted complaint alleging breach of the contractual right of “first option or priority to buy” states a valid
cause of action.)

Held: A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of
private respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was
granted the “first option or priority” to purchase the leased properties in case Santos decided to sell. If Santos never decided
to sell at all, there can never be a breach, much less an enforcement of such “right.” But on September 21, 1988, Santos sold
said properties to Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she
repurchased the properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15
million, which petitioner, however, rejected because of the “ridiculous” price. But Santos again appeared to have violated the
same provision of the lease contract when she finally resold the properties to respondent Raymundo for only P9 million
without first offering them to petitioner at such price.

Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question
which can better be resolved after trial on the merits where each party can present evidence to prove their respective
allegations and defenses.15 The trial and appellate courts based their decision to sustain respondents’ motion to dismiss on
the allegations of Parañaque Kings Enterprises that Santos had actually offered the subject properties for sale to it prior to the
final sale in favor of Raymundo, but that the offer was rejected. According to said courts, with such offer, Santos had verily
complied with her obligation to grant the right of first refusal to petitioner.

We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to
purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent
Raymundo, should have likewise been first offered to petitioner.

24. Ventura vs Sps Endaya GR. NO. 190016

Case #: 24
Case Title: Ventura vs. Heirs of Sps. Endaya; G.R. No. 190016. October 2, 2013.
Case Topic: Contract to Sell
Overview of the case:

Contract to Sell; Words and Phrases; A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell
the said property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase
price and/or compliance with the other obligations stated in the contract to sell.—A contract to sell is defined as a bilateral
contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof
to the prospective buyer, binds himself to sell the said property exclusively to the latter upon his fulfillment of the conditions
agreed upon, i.e., the full payment of the purchase price and/or compliance with the other obligations stated in the contract to
sell. Given its contingent nature, the failure of the prospective buyer to make full payment and/or abide by his commitments
stated in the contract to sell prevents the obligation of the prospective seller to execute the corresponding deed of sale to effect
the transfer of ownership to the buyer from arising. As discussed in Sps. Serrano and Herrera v. Caguiat, 517 SCRA 57 (2007): 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.

Same; Same; “Contract to Sell” and “Conditional Contract of Sale,” Distinguished.—To note, while the quality of contingency
inheres in a contract to sell, the same should not be confused with a conditional contract of sale. In a contract to sell, the
fulfillment of the suspensive condition will not automatically transfer ownership to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive condition renders
the sale absolute and the previous delivery of the property has the effect of automatically transferring the seller’s ownership or
title to the property to the buyer.

Facts:
1. Dolores Ventura entered into a Contract to sell with spouses Euatacio and Trinidad Endaya for the purchase of the 2 parcels
of land.
2. The Contract to Sell provides that the purchase price of P347,760.00 shall be paid by Dolores in the ff. manner:
a. DP of P103,284.00 upon execution of the contract;
b. The balance of P244,476.00 w/in a 15-year payment period plus 12% interest per annum on the
outstanding balance and 12% interest per annum on arrearages.
c. Application of Payments:
i. Reimbursement of real estate taxes and other charges;
ii. Interest accrued to the date of payment;
iii. Amortization of the principal obligation;
iv. Payment of any other accessory obligation subsequently incurred
by the owner in favor of the buyer,
d. Upon full paymet, Sps. Endaya shall execute a final deed of sale and transfer the ownership in favor
of Dolores.
3. Meanwhile, Dolores was placed in possession of the properties and allowed to erect a building thereon. However, Dolores
died before the payment period expired.
4. The Heirs of Dolores filed a complaint for specific performance seeking to compel sps. Endaya to execute a deed of sale
over the subject properties. They averred that due to the close friendship between their parents and Sps. Endaya, the latter did
not require the then widowed Dolores to pay the downpayment stated in the contract to sell and, instead, allowed her to pay
amounts as her means would permit. The payments were made in cash as well as in kind.
5. the total payments made by Dolores and petitioners amounted to P952,152.00, which is more than the agreed purchase
price of P347,760.00, including the 12% interest p.a. thereon computed on the outstanding balance. However, when petitioners
demanded the execution of the corresponding deed of sale, Sps. Endaya refused and countered that Dolores did not pay the
stipulated downpayment and remitted only a total of 22 installments. After her death in 1992, petitioners no longer remitted any
installment. Sps. Endaya pointed out that the automatic cancellation clause under the foregoing contract rendered the same
cancelled as early as 1981 with Dolores’ failure to make a downpayment and to faithfully pay the installments; hence, petitioners’
complaint for specific performance must fail.

RTC RULING - the RTC found that petitioners were able to prove by a preponderance of evidence the fact of full payment of the
purchase price for the subject properties. As such, it ordered Sps. Endaya to execute a deed of absolute sale covering the sale of
the subject properties in petitioners’ favor and to pay them attorney’s fees and costs of suit. Dissatisfied, Sps. Endaya elevated
the matter to the CA.

CA RULING - CA reversed and set aside the RTC ruling. It found that petitioners were not able to show that they fully complied
with their obligations under the contract to sell. It observed that aside from the payment of the purchase price and 12% interest
p.a. on the outstanding balance, the contract to sell imposed upon petitioners the obligations to pay 12% interest p.a. on the
arrears and to reimburse Sps. Endaya the amount of the pertinent real estate taxes due on the subject properties, which the
former, however, totally disregarded as shown in their summary of payments.

Hence, this petition.

CONTENTION OF THE PARTIES:


*petitioners contend that they have proven full payment of the purchase price within the payment period as required by the
Contract to sell.

*respondents countered that the CA correctly held that petitioners failed to comply with their obligations under the contract to
sell. Thus, respondents are under no obligation to execute any deed of sale over the subject properties in favor of petitioner.

Issue: WON petitioners complied with their obligations under the contract to sell.

Ruling: NO.

A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the latter
upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or compliance with the other
obligations stated in the contract to sell. Given its contingent nature, the failure of the prospective buyer to make full payment
and/or abide by his commitments stated in the contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale to effect the transfer of ownership to the buyer from arising. As discussed in Sps. Serrano and Herrera
v. Caguiat:

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. x x
x.

To note, while the quality of contingency inheres in a contract to sell, the same should not be confused with a conditional contract
of sale. In a contract to sell, the fulfillment of the suspensive condition will not automatically transfer ownership to the buyer
although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective
buyer by entering into a contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the
suspensive condition renders the sale absolute and the previous delivery of the property has the effect of automatically
transferring the seller’s ownership or title to the property to the buyer. Keeping with these principles, the Court finds that
respondents had no obligation to petitioners to execute a deed of sale over the subject properties. petitioners failed to comply
with all their obligations under the contract to sell and, as such, have no right to enforce the same.
Case #: 24
Case Title: Ventura vs. Heirs of Sps. Endaya; G.R. No. 190016. October 2, 2013.
Case Topic: Contract to Sell
Overview of the case:

Contract to Sell; Words and Phrases; A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell
the said property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase
price and/or compliance with the other obligations stated in the contract to sell.—A contract to sell is defined as a bilateral
contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof
to the prospective buyer, binds himself to sell the said property exclusively to the latter upon his fulfillment of the conditions
agreed upon, i.e., the full payment of the purchase price and/or compliance with the other obligations stated in the contract to
sell. Given its contingent nature, the failure of the prospective buyer to make full payment and/or abide by his commitments
stated in the contract to sell prevents the obligation of the prospective seller to execute the corresponding deed of sale to effect
the transfer of ownership to the buyer from arising. As discussed in Sps. Serrano and Herrera v. Caguiat, 517 SCRA 57 (2007): 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.

Same; Same; “Contract to Sell” and “Conditional Contract of Sale,” Distinguished.—To note, while the quality of contingency
inheres in a contract to sell, the same should not be confused with a conditional contract of sale. In a contract to sell, the
fulfillment of the suspensive condition will not automatically transfer ownership to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive condition renders
the sale absolute and the previous delivery of the property has the effect of automatically transferring the seller’s ownership or
title to the property to the buyer.

Facts:
1. Dolores Ventura entered into a Contract to sell with spouses Euatacio and Trinidad Endaya for the purchase of the 2
parcels of land.
2. The Contract to Sell provides that the purchase price of P347,760.00 shall be paid by Dolores in the ff. manner:
a. DP of P103,284.00 upon execution of the contract;
b. The balance of P244,476.00 w/in a 15-year payment period plus 12% interest per annum on the outstanding
balance and 12% interest per annum on arrearages.
c. Application of Payments:
i. Reimbursement of real estate taxes and other charges;
ii. Interest accrued to the date of payment;
iii. Amortization of the principal obligation;
iv. Payment of any other accessory obligation subsequently incurred by the owner in favor of the
buyer,
d. Upon full paymet, Sps. Endaya shall execute a final deed of sale and transfer the ownership in favor of Dolores.
3. Meanwhile, Dolores was placed in possession of the properties and allowed to erect a building thereon. However,
Dolores died before the payment period expired.
4. The Heirs of Dolores filed a complaint for specific performance seeking to compel sps. Endaya to execute a deed of sale
over the subject properties. They averred that due to the close friendship between their parents and Sps. Endaya, the
latter did not require the then widowed Dolores to pay the downpayment stated in the contract to sell and, instead,
allowed her to pay amounts as her means would permit. The payments were made in cash as well as in kind.
5. the total payments made by Dolores and petitioners amounted to P952,152.00, which is more than the agreed purchase
price of P347,760.00, including the 12% interest p.a. thereon computed on the outstanding balance. However, when
petitioners demanded the execution of the corresponding deed of sale, Sps. Endaya refused and countered that Dolores
did not pay the stipulated downpayment and remitted only a total of 22 installments. After her death in 1992,
petitioners no longer remitted any installment. Sps. Endaya pointed out that the automatic cancellation clause under
the foregoing contract rendered the same cancelled as early as 1981 with Dolores’ failure to make a downpayment and
to faithfully pay the installments; hence, petitioners’ complaint for specific performance must fail.
RTC RULING - the RTC found that petitioners were able to prove by a preponderance of evidence the fact of full payment of the
purchase price for the subject properties. As such, it ordered Sps. Endaya to execute a deed of absolute sale covering the sale of
the subject properties in petitioners’ favor and to pay them attorney’s fees and costs of suit. Dissatisfied, Sps. Endaya elevated
the matter to the CA.

CA RULING - CA reversed and set aside the RTC ruling. It found that petitioners were not able to show that they fully complied
with their obligations under the contract to sell. It observed that aside from the payment of the purchase price and 12% interest
p.a. on the outstanding balance, the contract to sell imposed upon petitioners the obligations to pay 12% interest p.a. on the
arrears and to reimburse Sps. Endaya the amount of the pertinent real estate taxes due on the subject properties, which the
former, however, totally disregarded as shown in their summary of payments.

Hence, this petition.

CONTENTION OF THE PARTIES:


*petitioners contend that they have proven full payment of the purchase price within the payment period as required by the
Contract to sell.

*respondents countered that the CA correctly held that petitioners failed to comply with their obligations under the contract to
sell. Thus, respondents are under no obligation to execute any deed of sale over the subject properties in favor of petitioner.

Issue: WON petitioners complied with their obligations under the contract to sell.

Ruling: NO.

A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the latter
upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or compliance with the other
obligations stated in the contract to sell. Given its contingent nature, the failure of the prospective buyer to make full payment
and/or abide by his commitments stated in the contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale to effect the transfer of ownership to the buyer from arising. As discussed in Sps. Serrano and Herrera
v. Caguiat:

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. x x
x.

To note, while the quality of contingency inheres in a contract to sell, the same should not be confused with a conditional contract
of sale. In a contract to sell, the fulfillment of the suspensive condition will not automatically transfer ownership to the buyer
although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective
buyer by entering into a contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the
suspensive condition renders the sale absolute and the previous delivery of the property has the effect of automatically
transferring the seller’s ownership or title to the property to the buyer. Keeping with these principles, the Court finds that
respondents had no obligation to petitioners to execute a deed of sale over the subject properties. petitioners failed to comply
with all their obligations under the contract to sell and, as such, have no right to enforce the same.

25. Adelfa Properties vs CA GR NO. 111238 Astronomo


ADELFA PROPERTIES, INC., petitioner, vs. COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑ EDA and
SALUD JIMENEZ, respondents.
Same; Same; Same; An implied agreement that ownership shall not pass to the purchaser until he had fully paid the
price is valid and therefore, binding and enforceable between the parties. A contract which contains this kind of
stipulation is considered a contract to sell.—In effect, there was an implied agreement that ownership shall not pass
to the purchaser until he had fully paid the price. Article 1478 of the Civil Code does not require that such a stipulation
be expressly made. Consequently, an implied stipulation to that effect is considered valid and. therefore, binding and
enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains
this kind of stipulation is considered a contract to sell.

Same; Same; Same; Same; An agreement is only an “option” when no obligation rests on the party to make any
payment except such as may be agreed on between the parties as consideration to support the option until he has
made up his mind within the time specified.—This is not a case where no right is as yet created nor an obligation
declared, as where something further remains to be done before the buyer and seller obligate themselves, An
agreement is only an “option” when no obligation rests on the party to make any payment except such as may be
agreed on between the parties as consideration to support the option until he has made up his mind within the time
specified. An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to
be made within a specified time and providing for forfeiture of money paid upon failure to make payment, where the
purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the
payments made. As hereinbefore discussed, this is not the situation obtaining in the case at bar.

Same; Same; Same; Same; Earnest Money; It is a statutory rule that 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 It constitutes an
advance payment and must, therefore be deducted from the total price.—In other words, the alleged option money of
P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of
P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof.
It is a statutory rule that 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. lt constitutes an advance payment and must, therefore, be
deducted from the total price; Also, earnest money is given by the buyer to the seller to bind the bargain.

Same; Same; Earnest Money; Option Money; Distinctions Between Earnest Money and Option Money.—There are
clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price,
while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given
only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest
money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not
required to buy.

Facts: private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a
parcel of land in Las Piñas, Metro Manila. Jose and Dominador Jimenez sold their share consisting of one-half of said
parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a “Kasulatan sa Bilihan ng
Lupa.” Subsequently, a “Confirmatory Extrajudicial Partition Agreement”,was executed by the Jimenezes. wherein the
eastern portion of the subject lot was adjudicated to Jose and Dominador Jimenez, while the western portion was
allocated to herein private respondents.

Thereafter, herein adelfa expressed interest in buying the western portion of the property from private respondents.
Accordingly, on November 25, 1989, an “Exclusive Option to Purchase” was executed between petitioner and private
respondents, under the following terms and conditions:
The selling price of the subject property is P2,856,150.00 and the sum of P50,000.00 which they received from
ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the
sale and the balance (P2,806, 150.00) to be paid on or
before November 30, 1989.

Before adelfa could make payment, it received summons together with a copy of a complaint filed by the nephews
and nieces of private respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the RTC
Makati, for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the
property.

As a consequence,adelfa informed private respondents that it would hold payment of the full purchase price and
suggested that private respondents settle the case with their nephews and nieces,respondent Jimenez refused the
suggestion of petitioner and attributed the suspension of payment of the purchase price to “lack of word of honor.”
On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private
respondents, and its contract of sale with Jose and Dominador Jimenez.

On December 14,1989, private respondents informed atty bernardo,petitioner’s counsel, that they were cancelling the
transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case but was rejected by private respondents. On December 22, 1989, Atty.
Bernardo wrote private respondents on the same matter but this time reduced to P300,000.00, and was also rejected.

On February 23, 1990, the RTC Makati dismissed the Civil Case Thus, on February 28, 1990, petitioner caused to be
annotated anew on TCT No. 309773 the exclusive option to purchase.
However, private respondents executed a Deed of Conditional Sale in favor of Emylene Chua over the same parcel
of land for P3,029,250.00, of which P1,500,000.00 was paid to private respondents on said date, with the balance to
be paid upon the transfer of title to the specified one-half portion.

On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the
case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of
absolute sale be executed. This was ignored by private respondents. Atty. bernardo sent a letter to petitioner
enclosing therein a check for P25,000.00 representing the refund of fifty percent of the option money paid under the
exclusive option to purchase. Respondents requested the return of the title but adelfa failed to comply. Hence, a case
was filed in the RTC for the annulment of contract with damages, praying, among others, that the exclusive option to
purchase be declared null and void. Rtc held that their contract was only an option contract. CA affirmed.

ISSUE:
1.whether or not the “Exclusive Option to Purchase” executed between Adelfa Properties, Inc. and Rosario Jimenez-
̃ da and Salud Jimenez is an option contract.
Castane

2 if not an option contract, what about the option money?

HELD: the agreement between the parties is a contract to sell, and not an option contract or a contract of
sale;in a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to
sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of price.There are
two features which convince us that the parties never intended to transfer ownership to petitioner except upon full
payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission
of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is
obliged to return possession or ownership of the property as a consequence of nonpayment. There is no stipulation
anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not
comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies
available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer
ownership to the petitioner prior to completion of payment of the purchase price.Moreover, judging from the
subsequent acts of the parties, it is undeniable that the intention of the parties was to enter into a contract to sell.In
addition, the title of a contract does not necessarily determine its true nature.Secondly, it has not been shown that
there was delivery of the property, actual or constructive, made to herein petitioner. The exclusive option to purchase
is not contained in a public instrument the execution of which would have been considered equivalent to
delivery.Neither did petitioner take actual, physical possession of the property at any given time. It is true that after
the reconstitution of private respondents’ certificate of title, it remained in the possession of petitioner’s counsel, Atty.
Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession
by the vendee is to be understood as a delivery.However, private respondents explained that there was really no
intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim
that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We
have no reason not to believe this explanation of private respondents, aside from the fact that such contention was
never refuted or contradicted by petitioner. Hence, the fact that the document under discussion is entitled “Exclusive
Option to Purchase” is not controlling where the text thereof shows that it is a contract to sell.An option is not of itself
a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase.The
distinction between an “option” and a contract of sale is that an option is an unaccepted offer. It states the terms and
conditions on which the owner is willing to sell his land, if the holder elects to accept them within the time limited.

The alleged option money of P50,000.00 was actually earnest money which was intended to form part of the
purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the
property, but was itself a part thereof. It is a statutory rule that 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.It constitutes an advance
payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller
to bind the bargain.
There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the
purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest
money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c)
when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy.
The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even
though it was called “option money” by the parties. In addition, private respondents failed to show that the payment of
the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of
the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioner’s obligation under the contract to sell.

26. Quiroga vs Parsons GR NO. L-11491 Abellanida


Case Title: Andres Quiroga v. Parsons Hardware Co.
Topic: Contract to sell vs Contract to Sale
Overview of the Topic: In the contract in the instant case, what was essential, constituting its cause and subject
matter, was that the plaintiff was to furnish the defendant with the beds which the latter might order, at the stipulated
price, and that the defendant was to pay this price in the manner agreed upon. These are precisely the essential
features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and,
on that of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell
whereby the mandatary or agent receives the thing to sell it, and does not pay its price, but delivers to the principal the
price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it.

Facts:

On Jan 24, 1911, plaintiff and the respondent entered into a contract making the latter an “agent” of the former. The
contract stipulates that Don Andres Quiroga, here in petitioner, grants exclusive rights to sell his beds in the Visayan
region to J. Parsons. The contract only stipulates that J.Parsons should pay Quiroga within 60 days upon the delivery
of beds.

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

Issue:

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


Held:

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

In respect to the defendant’s obligation to order by the dozen, the only one expressly imposed by the contract, the
effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his
own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one
of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon
the defendant, either by agreement or by law.

27. Gonzalo Puyat vs Arco GR NO. L-47538 Caballero

Case #: 27

Case Title: Gonzalo Puyat vs Arco G.R. No. L-47538 June 20, 1941

Case Topic: DISTINCTION OF CONTRACT OF SALE WITH OTHER CONTRACTS

a. Agency to Sell or Buy - ARTICLE 1466 - In construing a contract containing provisions


characteristic of both the contract of sale and of the contract of agency to sell, the essential
clauses of the whole instrument shall be considered.

Overview of the case: CONTRACTS; PURCHASE AND SALE; INTERPRETATION. - The contract is the law between
the parties and should include all thethings 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, by which the respondent accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing
equipment subject of its contract with the petitioner, are clear in their terms and admit of no other interpretation than
that the respondent agreed to purchase from the petitioner the equipment in question at the prices indicated which are
fixed and determinate. The respondent admitted in its complaint filed with the Court of First Instance of Manila that the
petitioner agreed to sell to it the first sound reproducing equipment and machinery.

Facts: The "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands, was engaged in the
business of operating cinematographs. Gonzalo Puyat & Sons, Inc., another corporation doing business in the
Philippine Islands, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana,
U.S. A. It would seem that this last company dealt in cinematographer equipment and machinery, and the Arco
Amusement Company desiring to equip its cinematograph with sound reproducing devices, approached Gonzalo Puyat
& Sons, Inc., and it was agreed between the parties, that the latter would, on behalf of the plaintiff (Arco), order sound
reproducing equipment from the Starr Piano Company and that the plaintiff would pay the defendant (Puyat), in addition
to the price of the equipment, a 10 per cent commission, plus all expenses, such as, freight, insurance, banking charges,
cables, etc. At the expense of the plaintiff, the defendant sent a cable, to the Starr Piano Company, inquiring about the
equipment desired and making the said company to quote its price without discount.
Sometime the following year, and after some negotiations between the same parties, another order for sound
reproducing equipment was placed by the plaintiff with the defendant, on the same terms as the first order.

About three years later, the officials of the Arco Amusement Company discovered that the price quoted to them by the
defendant with regard to their two orders mentioned was not the net price but rather the list price, and that the
defendants had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on
prices of machinery and cinematograph equipment, said officials of the plaintiff were convinced that the prices charged
them by the defendant were much too high including the charges for out-of-pocket expense. For these reasons, they
sought to obtain a reduction from the defendant or rather a reimbursement, and failing in this they brought the present
action.

The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale.
The appellate court, however, held that the relation between petitioner and respondent was that of agent and principal,
the petitioner acting as agent of the respondent in the purchase of the equipment in question.

Issue: W/N the contract between the petitioner and the respondent was one of contract of sale or of contract agency
to sell or buy.

Ruling: We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of
purchase and sale, and not one of agency, for the reasons now to be stated.

In the first place, 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, by which the respondent accepted the prices of $1,700 and
$1,600, respectively, for the sound reproducing equipment subject of its contract with the petitioner, are clear in their
terms and admit no other interpretation than that the respondent agreed to purchase from the petitioner the equipment
in question at the prices indicated which are fixed and determinate.

We agree with the trial judge that "whatever unforeseen events might have taken place unfavorable to the defendant
(petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure
of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might still legally
hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation
of agency between the petitioner and the respondent, 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.

While the letters state that the petitioner was to receive ten per cent (10%) commission, this does not necessarily make
the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself
to pay, and which stipulation is not incompatible with the contract of purchase and sale.

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery
from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner 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. The facts and circumstances indicated do not point to anything but plain ordinary transaction
where the respondent enters into a contract of purchase and sale with the petitioner, the latter as exclusive agent of
the Starr Piano Company in the United States.

It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference between
the cost price and the sales price which represents the profit realized by the vendor out of the transaction.

28. Dino vs CA June 20,2001 Trinidad

Civil Law; Contracts; The contract executed by and between the petitioners and the respondents was a contract for a
piece of work.—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.

FACTS:

Petitioners spouses Dino, doing business under the trade name “Candy Claire Fashion Garment” are engaged in the
business of manufacturing and selling shirts. Respondent Sio is part owner and general manager of a manufacturing
corporation doing business under the trade name “Universal Toy Master Manufacturing.”

Petitioners and respondent Sio entered into a contract whereby the latter would manufacture for the petitioners 20,000
pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads 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. 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. 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.

ISSUE:

Whether or not the contract entered by the parties is a contract for a piece of work.

RULING:

YES

The following provisions of the New Civil Code are apropos:

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

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

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. 14 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.
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.”

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. Further, as a rule, the defense of
prescription cannot be raised for the first time on appeal. However, jurisprudence provides that this is not a hard and
fast rule. Thus, prescription applies.

29. CIR vs ADMU GR NO. 115349 Pendon

Case Topic: Contract for a piece of work

F A C T S:

Private respondent, Ateneo de Manila University, is a non-stock, non-profit educational


institution with auxiliary units and branches all over the country. The Institute of Philippine
Culture (IPC) is an auxiliary unit with no legal personality separate and distinct from 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 8 July 1983, private respondent received from CIR a demand letter dated 3 June 1983,
assessing private respondent the sum of P174,043.97 for alleged deficiency contractor’s tax, and
an assessment dated 27 June 1983 in the sum of P1,141,837 for alleged deficiency income tax, both
for the fiscal year ended 31 March 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.

After some time petitioner issued a final decision dated 3 August 1988 reducing the assessment
for deficiency contractor’s tax from P193,475.55 to P46,516.41, exclusive of surcharge and interest.

The lower courts ruled in favor of respondent. Hence this petition.

Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de


Manila University "falls within the definition" of an independent contractor and "is not one of
those mentioned as excepted"; hence, it is properly a subject of the three percent contractor's tax
levied by the foregoing provision of law. Petitioner states that the "term 'independent contractor'
is not specifically defined so as to delimit the scope thereof, so much so that any person who . . .
renders physical and mental service for a fee, is now indubitably considered an independent
contractor liable to 3% contractor's tax."

I S S U E:

Whether or not the transaction of IPC is a contract of sale or a contract for a piece of work

H E LD:
Transaction of IPC not a contract of sale nor a contract for a piece of work. The transactions of
Ateneo’s Institute of Philippine Culture cannot be deemed either as a contract of sale or a contract
for 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. 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. . . .” 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
businessof selling such research with profit in mind.

30. Inchausti vs Cromwell GR NO. L-6584 Medellin

Inchausti & Co. is engaged in the business of buying and selling at wholesale hemp, both for its own account and on
commission. The operation of of baling hemp is designated among merchants by the word ‘prensaje.’ Inchausti, in all
its sales of hemp, quoted the price to the buyer at so much per picul, no mention being made of baling. The company
in accordance with the custom mentioned in paragraph V hereof, collected and received, under the denomination of
‘prensaje,’ from purchasers of hemp sold by the said firm for its own account, in addition to the price expressly agreed
upon for the said hemp, sums aggregating P380,124.35 and collected for the account of the owners of hemp sold by
the plaintiff firm in Manila on commission, and under the said denomination of ‘prensaje,’ in addition to the price
expressly agreed upon for said hemp, sums aggregating P31,080. Inchausti has always paid to Ellis Cromwell, in the
office of the Collector of Internal Revenue the tax collectible upon the selling price expressly agreed upon for all hemp
sold but has not, until compelled to do so, paid the said tax upon sums received from the purchaser of such hemp under
the denomination of ‘prensaje.’ Ellis Cromwell, in his capacity as Collector of Internal Revenue, made demand in writing
upon the plaintiff firm for the payment within the period of five (5) days of the sum of P1,370.68, the amount collected
from purchasers of hemp under the denomination of ‘prensaje.’ Inchausti paid for such demand under protest but
Cromwell still refuses to return such amount.

The contention of the defendant was 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 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

Ruling:
Yes, the baled hemp constitutes a contract of sale. In the case at bar, the baled form before the agreement of sale
were made and would have been in existence even if none of the individual sales in question had been consummated.
The hemp, even if sold to someone else, will be sold in bales. When a person stipulates for the future sale of articles
which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not
a contract for piece of work. It is otherwise when the article is made pursuant to agreement. If the article ordered by the
purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification
of it is made at the defendant’s request, it is a contract of sale, even though it may be entirely made after, and in
consequence of, the defendant’s order for it.

31. Celestino vs Collector 99 PHIL 841 Lorejo

TOPIC:

Contract for a Piece of Work


OVERVIEW OF THE CASE:

MANUFACTURER; FILING ORDERS ACCORDING TO SPECIPICATIONS DOES NOT ALTER


CHARACTER OF ESTABLISHMENT.—A factory which habitually makes sash, windows and doors, and sells
the goods to the public is a manufacturer. The fact that the windows and doors are made by it only when
customers place their orders and according to such form or combination. as suit the fancy of the purchasers
does not alter the nature of the establishment.

FACTS:
Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental
Sash Factory".

It paid percentage taxes in accordance with section one hundred eighty-six of the National Revenue Code imposing
taxes on sales. 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;

Accordingly, Oriental Sash Factory does not manufacture ready-made doors, sash and windows for the public but only
upon special order of its select customers. Hence it cannot be considered as a manufacturer. Thus making it liable only
for the 3% tax of sales made for a contract for a piece of work and not for 7% as a manufacturer.

Company 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”.
Said article reads as follows:

"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 hi* special order, and not
for the general market, it is contract for a piece of work."

ISSUE
WON sales made by the Company is for a piece of work

RULING: NO.

A factory which habitually makes sash, windows and doors, and sells the goods to the public is a manufacturer. The
fact that the windows and doors are made by it only when customers place their orders and according to such form or
combination. as suit the fancy of the purchasers does not alter the nature of the establishment.

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

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”.
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 shown to be special. They were merely orders for work — nothing
is shown to call them special requiring extraordinary service of the factory. The thought occurs to us that if, as alleged-
all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular
work. Hence, the company is a Manufacturer and not a Contractor for a Piece of Work
32. Engineering vs. CA 252 SCRA 156 Medellin

Case #: 32

Case Title: Engineering Versus

CA (252 SCRA 156).

Case Topic: Elements of a Contract

Overview of the case:

Contracts; Contract for a Piece of Work; Sales; 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.— 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.

Same; Same; Same; A contract for the fabrication and installation of a central air-conditioning system is one
for a piece of work where it is not the contractor’s line of business to manufacture airconditioning systems to
be sold “of -the-shelf.”—Clearly, the contract in question is one for a piece of work. It is not petitioner’s line of
business to manufacture air-conditioning systems to be sold “off-the-shelf.” Its business and particular field
of expertise is the fabrication and installation of such systems as ordered by customers and in accordance
with the particular plans and specifications provided by the customers. Naturally, the price or compensation
for the system manufactured and installed will depend greatly on the particular plans and specifications agreed
upon with the customers.

Same; Same; Same; Remedies against violations of the warranty against hidden defects.—The remedy against
violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or
to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case

Same; Same; Actions; Prescription; Rescission; Redhibitory action prescribes in six months, and where there
is an express warranty in the contract, the prescriptive period is the one specified in the warranty, and in the
absence of such period, the general rule on rescission of contracts, which is four years, shall apply.—In
Villostas vs. Court of Appeals, we held that, “while it is true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to
which it refers will reveal that said rule may be applied only in case of implied warranties”; and where there is
an express warranty in the contract, as in the case at bench, the prescriptive period is the one specified in the
express warranty, and in the absence of such period, “the general rule on rescission of contract, which is four
years (Article 1389, Civil Code) shall apply.”

Same; Same; Same; Same; Where the complaint is one for damages arising from breach of a written contract—
and not a suit to enforce warranties against hidden defects—the governing law is Article 1715 of the Civil Code,
but since this provision does not contain a specific prescriptive period, the general law on prescription, Article
1144, will apply.—Having concluded that the original complaint is one for damages arising from breach of a
written contract—and not a suit to enforce warranties against hidden defects—we herewith declare that the
governing law is Article 1715. However, inasmuch as this provision does not contain a specific prescriptive
period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states,
inter alia, that actions “upon a written contract” prescribe in ten (10) years. Since the governing contract was
executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not
prescribed.

Same; Same; Same; Same; The mere fact that the employer accepted the work does not, ipso facto, relieve the
contractor from liability for deviations from and violations of the written contract, as the law gives him 10 years
within which to file an action based on breach thereof.—Verily, the mere fact that the private respondent
accepted the work does not, ipso facto, relieve the petitioner from liability for deviations from and violations
of the written contract, as the law gives him ten (10) years within which to file an action based on breach
thereof.

FACTS

· A contract dated September 10, 1962 was entered by the petitioner and private respondent, whereby the former
undertook to fabricate, furnish and install the air-conditioning system in the latter's building in consideration of
P210,000.00.

· Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install
said system.

· The system was completed in 1963 and accepted by private respondent, who paid in full the contract price.

· September 2, 1965, private respondent sold the building to the National Investment and Development Corporation
(NIDC).

· The NIDC took possession of the building but due to noncompliance with the terms and conditions of the deed of
sale, private respondent was able to secure judicial rescission thereof.

· After re-acquiring the possession of said property,private respondent learned from some NIDC employees of the
defects of the air-conditioning system of the building.

· Private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the system
wherein it was found that there are defects in the system and concluded that it was "not capable of maintaining the
desired room temperature of 76ºF - 2ºF (Exhibit C)"5 .

· Private respondent filed on May 8, 1971 an action for damages against petitioner with the then Court of First Instance
of Rizal (Civil Case No. 14712) alleging that the air-conditioning system installed by petitioner did not comply with the
agreed plans and specifications.

· Private respondent prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as
damages and P15,000.00 as attorney's fees.

· Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant
to Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any
hidden faults or defects in the thing sold.

· Private respondent countered that the contract was not a contract for sale but a contract for a piece of work under
Article 1713 of the Civil Code which has a ten-year prescriptive period.

· Petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a
contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by the
pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale6 .

·RTC denied motion to dismiss

· Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court.

ISSUES

1. W/N said contract entered into by the parties are that of a Contract of sale or that of a Contract of a
piece of work
2. W/N they may claim damages due to the defects
3. W/N acceptance of the work by the employer relieves the contractor of liability for any defect in the
work.

HELD
1. It was a Contract of a Piece of work. According to article 1713 of the Civil Code, a contract of a piece of work
defines a contract for a piece of work thus:

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

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 it10 . 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 sale11 .

Thus, Mr. Justice Vitug12 explains that - A contract for the delivery at a certain price of an article which the vendor in
the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at
the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his
special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code).

To Tolentino, 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 13 .

The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code, which
provide:

Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles
as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a
contract of sale.

Art. 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its ordinary 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 contractor fails
or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the
contractor's cost.

2. No, this contract cannot claim warranties against hidden defects since the original action is not really for
enforcement of the warranties against hidden defects, but one for breach of the contract itself.

It alleged17 that the petitioner, "in the installation of the air conditioning system did not comply with the specifications
provided" in the written agreement between the parties, "and an evaluation of the air-conditioning system as installed
by the defendant showed the following defects and violations of the specifications of the agreement.

Having concluded that the original complaint is one for damages arising from breach of a written contract - and not a
suit to enforce warranties against hidden defects - we here - with declare that the governing law is Article 1715 (supra).
However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription,
which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions "upon a written contract"
prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was
filed on May 8, 1971, it is clear that the action has not prescribed.

(these are the provisions as to the claim in terms of warranty against hidden defects pero namali man sila kay
dili man mao ang original action pero ibutang lang nako ni diri basin ganahan mo mubasa sa ilahang defense
something)

The provisions on warranty against hidden defects, referred to in Art. 1714 above-quoted, are found in Articles
1561 and 1566, which read as follows:

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

xxx xxx xxx

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even
though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold. The remedy against violations of the warranty against hidden defects is
either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price
(accion quanti manoris), with damages in either case14 .

In Villostas vs. Court of Appeals15 , we held that, "while it is true that Article 1571 of the Civil Code provides for
a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to
which it refers will reveal that said rule may be applied only in case of implied warranties"; and where there is
an express warranty in the contract, as in the case at bench, the prescriptive period is the one specified in the
express warranty, and in the absence of such period, "the general rule on rescission of contract, which is four
years (Article 1389, Civil Code) shall apply"16 .

Consistent with the above discussion, it would appear that this suit is barred by prescription because the
complaint was filed more than four years after the execution of the contract and the completion of the air-
conditioning system.

3. No, the acceptance of the work by the private respondent does not ipso facto, relieve the petitioner from
liability for deviations from and violations of the written contract, as the law gives him ten (10) years within
which to file an action based on breach thereof.

As the breach of contract which gave rise to the instant case consisted in appellant's omission to install the equipments
(sic), parts and accessories not in accordance with the plan and specifications provided for in the contract and the
deviations made in putting into the air conditioning system parts and accessories not in accordance with the contract
specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance
of the work, considering further that plaintiff is not an expert to recognize the same. From the very nature of things, it is
impossible to determine by the simple inspection of air conditioning system installed in an 8-floor building whether it
has been furnished and installed as per agreed specifications.

33. DMPI vs Aragones June 23, 2005 Carillo

Case #: 33
Case Title: 2) DEL MONTE PHILIPPINES, INC. VS. NAPOLEON N. ARAGONES
G.R. NO. 153033, June 23, 2005 CARRILLO

Case Topic: Contract for Piece of Work


Overview of the case:

Contracts; Sales; Contract for a Piece of Work; Words and Phrases; 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.—Under
Art. 1467 then of the Civil Code which provides: ART. 1467.

A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of
sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the
general market, it is a contract for a piece of work. (Emphasis and italics supplied), the “Supply Agreement” was
decidedly a contract for a piece of work. Following Art. 1729 of the Civil Code which provides: ART. 1729. Those who
put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the
owner up to the amount owing from the latter to the contractor at the time the claim is made.
Same; Same; Same; The intention of Art. 1729 of the Civil Code is to protect the laborers and materialmen from
being taken advantage of by unscrupulous contractors and from possible connivance between owners and
contractors.—As Velasco v. CA explains, the intention of Art. 1729 is to protect the laborers and materialmen from
being taken advantage of by unscrupulous contractors and from possible connivance between owners and
contractors. Thus, a constructive vinculum or contractual privity is created by this provision, by way of exception to
the principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or
materials, on the other.

FACTS: Del Monte Philippines Inc. (DMPI) entered into an agreement with Mega-Engineering Services in joint
venture with WAFF Construction System Corporation (MEGA-WAFF) represented by Edilberto Garcia (Garcia),
wherein Garcia will supply the installation of modular pavement in DMPI‘s warehouse. In this regard, Garcia as a
contractor entered into a supply agreement with Dynablock Enterprises represented by respondent Aragones, to
supply labor, materials, equipment and the like.

Thereafter, Aragones started to do his obligation. The deadline however was not met. After the installation, Aragones
failed to collect the payment from Garcia. Then, Aragones sent a letter to DMPI saying that instead of paying Garcia,
DMPI should directly pay him. But this did not happen. Hence Aragones filed a complaint for sum of money with
damages against Garcia and DMPI before RTC.

RTC ruled in favor of Aragones, it held that DMPI and Garcia are jointly and severally liable. DMPI appealed to Court
of Appeal (CA). However at CA, the court affirmed RTC‘s decision. Hence, DMPI filed this petition. It contends that the
supply agreement between Garcia and Aragones is a contract of sale to which DMPI was not privy, hence DMPI cannot
be held liable.

ISSUE: Whether or not Supply Agreement between Aragones and Garcia is a contract of sale or for a piece of work?

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

As reflected in the highlighted and underscored above-quoted provisions of the ―Supply Agreement,‖ as well as other
evidence on record, the machines Aragones was obliged to fabricate were those for casting the concrete blocks
specified by Garcia. Aragones did not have those kind of machines in his usual business, hence, the special order.
Under Article 1467 then of the Civil Code, 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. The ―Supply Agreement‖ was
decidedly a contract for a piece of work.

At this juncture it is well to note that the Supply Agreement was in the nature of a contract for a piece of work. The
distinction between a contract of sale and one for work, labor and materials is tested by inquiry 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 but has been the subject of sale to some other persons even if the order had
not been given. If the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for sale
to anyone, and no change or modification of it is made at purchasers request, it is a contract of sale even though it may
be entirely made after, and in consequence of the purchasers order for it. [Commissioner of Internal Revenue vs.
Engineering Equipment and Supply Company, G.R. No. L-27044, June 30, 1975]

Following Art. 1729 of the Civil Code which provides that those who put their labor upon or furnish materials for a piece
of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the
contractor at the time the claim is made.
Aragones having specially fabricated three casting machines and furnished some materials for the production of the
concrete blocks specially ordered and specified by MEGA-WAFF which were to be and indeed they were for the
exclusive use of MEGA-WAFF, he has a cause of action upon DMPI up to the amount it owed MEGA-WAFF at the time
Aragones made his claim to DMPI.

In the case at bench, the modular paving blocks are not exactly what the plaintiff-appellee makes and keeps on hand
for sale to anyone, but with a modification that the same be S in shape. Hence, the agreement falls within the ambit of
Article 1467 making Article 1729 likewise applicable in the instant case. As can be clearly seen from the wordings of
Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured
specially for the customer and upon his special order. Thus, if the thing is specially done on the order of another, this
is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in
the ordinary course of one’s business, it is a contract of sale. The authorities petitioner cited in fact show that the nature
of the Supply Agreement between Aragones and MEGA-WAFF was one for a piece of work.

34. CIR vs. Engineering Equipment 64 SCRA 590 Sandoval


Case Title: CIR vs. ENGINEERING EQUIPMENT 64 SCRA 590
 Case
Topic: Contract for a Piece of Work – Art. 1467

 Overview of the case:
Same; Same; Distinction between a contract of sale and a contract for furnishing services; labor and materials.—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 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 has been the subject of sale to some other persons even if the
order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on
hand for sale to anyone, and no change or modification of it is made at defendant’s request, it is a contract of sale,
even though it may be entirely
 made after, and in consequence of, the defendants order for it.

 Same; Same; Test to determine whether a person a contractor or not.— The word “contractor” has come to be used
with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or
piece of work for other persons, using his own means and methods without submitting himself to control as to the
petty details. The true test of a contractor would seem to be that he renders service in the course of an independent
occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it
is accomplished.

FACTS:
Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering and
machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the design and
installation of central type air conditioning system, pumping plants and steel fabrications. On July 27, 1956, one Juan
de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing Engineering for tax evasion
by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its
foreign suppliers.
The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and parts or
accessories thereof and, therefore, it is subject to the 30% advance sales tax prescribed by Section 185(m) of the
Tax Code, in relation to Section 194 of the same, which defines a manufacturer as follows: 
 (x) “Manufacturer”
includes every person who by physical or chemical process alters the exterior texture or form or inner substance of
any raw material or manufactured or partially manufactured products in such manner as to prepare it for a special use
or uses to which it could not have been put in its original condition, or who by any such process alters the quality of
any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or
prepare it for any of the uses of industry, or who by any such process combines any such raw material or
manufactured or partially manufactured products with other materials or products of the same or of different kinds and
in such manner that the finished product of such process of manufacture can be put to special use or uses to which
such raw material or manufactured or partially manufactured products in their original condition could not have been
put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines
the same to produce such finished products for the purpose of their sale or distribution to others and not for his own
use or consumption.
Engineering appealed to the Court of Tax Appeals.

ISSUE: Whether or not Engineering is a manufacturer of air conditioning units under Section 185(m), supra, in
relation to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same Code

RULING:
Engineering is a contractor and not a manufacturer. 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 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 has been the
subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is
exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made
at defendant’s request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the
defendants order for it. The true test of a contractor would seem to be that he renders service in the course of an
independent occupation, representing the will of his employer only as to the result of his work, and not as to the
means by which it is accomplished.

The New Civil Code provides that “Art. 1467. A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is
on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer
and upon his special order and not for the general market, it is a
 contract for a piece of work.”

The supply of air conditioning units to Engineer's various customers, whether the said machineries were in hand or
not, was especially made for each customer and installed in his building upon his special order. The air conditioning
units installed in a central type of air conditioning system would not have existed but for the order of the party desiring
to acquire it and if it existed without the special order of Engineering's customer, the said air conditioning units were
not intended for sale to the general public. Therefore, We have but to affirm the conclusion of the Court of Tax
Appeals that Engineering is a contractor rather than a manufacturer, subject to the contractors tax prescribed by
Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the
same Code. Since it has been proved to Our satisfaction that Engineering imported air conditioning units, parts or
accessories thereof for use in its construction business and these items were never sold, resold, bartered or
exchanged, Engineering should be held liable to pay taxes prescribed under Section 190 of the Code. This
compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales
tax. Engineering, therefore, should be held liable to the payment of 30% compensating tax in accordance with
Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in
Section 183(b).

The Supreme Court adopt the ruling by the lower court which provides: “Engineering, in a nutshell, fabricates,
assembles, supplies and installs in the buildings of its various customers the central type air conditioning system;
prepares the plans and specifications therefore which are distinct and different from each other; the air conditioning
units and spare parts or accessories thereof used by petitioner are not the window type of air conditioner which are
manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units
and spare parts or accessories thereof are supplied and installed by petitioner upon previous orders of its customers
conformably with their needs and requirements.” The facts and circumstances aforequoted support the theory that
Engineering is a contractor rather than a manufacturer.

35. Lo vs KJS Eco-Framework System GR no. 149420 Baril


Lo vs. KJS Eco-Formwork System Phil., Inc (2003) –

“Dacion en pago case” Lo is building contractor doing business under the name “San’s Enterprises”. On February
1990, Lo ordered P540,425.80 worth of scaffolding equipments from KJS. Lo paid P150,000 as downpayment and
the balance was made payable in 10 monthly installments. KJS delivered the scaffoldings to the Lo, but Lo was only
able to pay the first 2 monthly installments as his business encountered financial difficulties and he was unable to
settle his obligation to respondent despite oral and written demands made against him. On, October 1990 petitioner
and respondent executed a Deed of Assignment where Lo assigned to KJS his receivables in the amount of
P335,462.14 from Jomero Realty Corporation. However, when KJS tried to collect the credit from Jomero Realty, the
latter refused to honor the DOA because it claimed that petitioner was also indebted to it. When KJS demanded from
Lo the payment of his obligation, Lo refused to pay claiming that his obligation have been extinguished when they
executed the DOA.

Was the obligation to pay extinguished by the DOA?

NO. The assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in
payment which may extinguish the obligation. However, as in any contract of sale, the vendor or assignor is bound by
certain warranties. The petitioner, as vendor/assignor, is bound to warrant the existence and legality of the credit at
the time of the sale or assignment. When Jomero claimed that it was no longer indebted to Lo because of debt
compensation, Lo have breached his obligation under the DOA in warranting the existence of the credit.

NOTES
An assignment by virtue of which the owner of a credit, known as the assignor, by 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 as the assignor could enforce it
against the debtor.

Dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as
equivalent payment of an outstanding debt. The undertaking really partakes in one sense the nature of sale, that is,
the creditor is really buying the thing or property of the debtor as payment for which to be charged against the
debtor’s debt.

Requisites of a valid dation in payment there must be:


1. 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. some difference between the prestation due and that which is given in substitution (aliud pro alio)
3. an agreement between the creditor that the obligation is immediately extinguished by reason of a prestation
different from that due.

36. Filinvest vs Phil. Acetylene GR NO. L-50449 Carino


Filinvest Credit Corp. v. Philippine Acetylene (1982)
Petitioners: FILINVEST CREDIT CORPORATION, PLAINTIFF-APPELLEE
Respondents: PHILIPPINE ACETYLENE, CO., INC., DEFENDANT-APPELLANT
Ponente: De Castro
Topic: Dation in payment, 1245
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)

FACTS:
Acetylene Co. purchased a Chevrolet 1969 model from Alexander Lim evidenced by a Deed of Sale, with a P20,000-
downpayment and a P35,247.80-balance, payable under the terms and conditions of the promissory note at a
monthly installment of P1,036.70 for 34 months, due and payable on the first day of each month starting December
1971 through and inclusive September 1, 1974 with 12% interest per annum on each unpaid installment, and
attorney's fees equivalent to 25% of the total of the outstanding unpaid amount.
Acetylene Co. executed a chattel mortgage over the same motor vehicle in favor of Lim as security for the payment of
said promissory note.
Lim assigned all his rights, title, and interests in the promissory note and chattel mortgage to the Filinvest Finance
Corporation by virtue of a Deed of Assignment. Filinvest Finance Corporation assigned all its rights, title, and
interests on the aforesaid promissory note and chattel mortgage to the new corporation, Filinvest Credit Corporation
which, which, in effect, the payment of the unpaid balance owed by Acetylene Co. to Alexander Lim was financed by
Filinvest Credit.
Acetylene Co. failed to comply with the terms and conditions set forth in the promissory note and chattel mortgage
since it had defaulted in the payment of nine successive installments.
Filinvest sent a demand letter to Acetylene to remit the amount in full including interests and charges or return the
mortgaged property to Lim within five days from date of the letter.
Acetylene wrote back, advising Filinvest of its decision to return the mortgaged property, which return shall be in full
satisfaction of its indebtedness pursuant to Art. 1484.
The mortgaged vehicle was returned to Filinvest with the document "Voluntary Surrender with Special Power of
Attorney to Sell" executed by Acetylene.
Filinvest, however, could not sell the vehicle as there were unpaid taxes on it, and thus requested Acetylene to settle
the installments in arrears and accruing interest of P4,232.21 on or before April 9, 1973.
Filinvest offered to deliver back the motor vehicle but Acetylene refused to accept it.
Thus, Filinvest instituted an action for collection of a sum of money with damages in the CFI of Manila.
Acetylene Co. avers that Filinvest has no cause of action against it since its obligation towards Filinvest was
extinguished when in compliance with Filinvest’s demand letter, it returned the mortgaged property to the Filinvest,
and that assuming arguendo that the return of the property did not extinguish its obligation, it was nonetheless
justified in refusing payment since the Filinvest is not entitled to recover the same due to the breach of warranty
committed by the original vendor-assignor Lim.
The CFI ruled in favor of Filinvest. Hence, this appeal, certified by the CA to SC due to only questions of law, by
Acetylene Co.
Consistent with its stand in the CFI, Acetylene Co. reiterates its main contention that Filinvest, after giving Acetylene
Co. an option either to remit payment in full plus stipulated interests and charges or return the mortgaged motor
vehicle, had elected the alternative remedy of exacting fulfillment of the obligation, thus, precluding the exercise of
any other remedy provided for under Article 1484 of the Civil Code of the Philippines:
"Article 1484. Civil Code In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments.
In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void."
In support of the above contention, Acetylene Co. maintains that when it opted to return, as in fact it did return, the
mortgaged motor vehicle to the Filinvest, said return necessarily had the effect of extinguishing Acetylene Co.'s
obligation for the unpaid price to the Filinvest, construing the return to and acceptance by the Filinvest of the
mortgaged motor vehicle as a mode of payment, specifically, dation in payment or dacion en pago which according to
Acetylene Co., virtually made Filinvest the owner of the mortgaged motor vehicle by the mere delivery thereof, citing
Articles 1232, 1245, and 1497 of the Civil Code.
"Article 1232. Payment means not only the delivery of money but also the performance, in any manner, of an
obligation.
xxx
"Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall
be governed by the law of sales.
xxx
"Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the
vendee."

ISSUE/S:
• WoN the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary surrender by the appellant
totally extinguished and/or cancelled its obligation to the appellee (dation in payment)
o NO. The mere return of the mortgaged motor vehicle by the mortgagor, Acetylene Co., to the mortgagee, Filinvest,
does not constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the
parties.
o [Sacion en pago] really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtor's debt. 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.
o The evidence on the record fails to show that the mortgagee, Filinvest, consented, or at least intended, that the
mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more
specifically dation in payment or dacion en pago.
o If at all, only transfer of possession of the mortgaged motor vehicle took place.
o An examination of the language of the "Voluntary Surrender with Special Power of Attorney To Sell" reveals that the
possession of the mortgaged motor vehicle was voluntarily surrendered by the Acetylene Co. to the Filinvest
authorizing the latter to look for a buyer and sell the vehicle in behalf of the Acetylene Co. who retains ownership
thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the Acetylene
Co. to pay the difference, if any, between the selling price and the mortgage obligation. With the stipulated conditions
as stated, the Filinvest, in essence was constituted as a mere agent to sell the motor vehicle which was delivered to
the Filinvest, not as its property, for if it were, he would have full power of disposition of the property, not only to sell it
as is the limited authority given him in the special power of attorney.
• WoN, as Acetylene Co. argued, by accepting the delivery of the mortgaged motor vehicle, Filinvest is estopped from
demanding payment of the unpaid obligation.
o NO. Filinvest never accepted the mortgaged motor vehicle in full satisfaction of the mortgaged debt. Under the law,
the delivery of possession of the mortgaged property to the mortgagee, Filinvest, can only operate to extinguish
appellant's liability if the appellee had actually caused the foreclosure sale of the mortgaged property when it
recovered possession thereof.
o The fact of foreclosure and actual sale of the mortgaged chattel that bar the recovery by the vendor of any balance
of the purchaser's outstanding obligation not satisfied by the sale. As held by [the SC], if the vendor desisted, on his
own initiative, from consummating the auction sale, such desistance was a timely disavowal of the remedy of
foreclosure, and the vendor can still sue for specific performance. This is exactly what happened here.
• WoN the warranty for the unpaid taxes on the mortgaged motor vehicle may be properly raised and imputed to or
passed over to Filinvest
o NO. The Deed of Sale between Alexander Lim and appellant and the Deed of Assignment between Alexander Lim
and appellee are very clear on this point….If it appears subsequently that "there are such counterclaims, offsets or
defenses that may be interposed by the debtor at the time of the assignment, such counterclaims, offsets or defenses
shall not prejudice the FILINVEST FINANCE CORPORATION and I (Alexander Lim) further warrant and hold the said
corporation free and harmless from any such claims, offsets, or defenses that may be availed of."

37. Tan Shuy vs Maulawin GR NO. 190375


CASE #: 37
CASE TITLE: Tan Shuy vs. Maulawin G.R. No. 190375. February 8, 2012.*
CASE TOPIC: Dacion en pago/Dation in payment
OVERVIEW OF THE CASE:
Civil Law; Obligations; Dation in Payment; There is dation in payment
when property is alienated to the creditor in satisfaction of a debt in money;
Dation in payment extinguishes the obligation to the extent of the value of
the thing delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement—express or implied, or by their
silence—consider the thing as equivalent to the obligation, in which case
the obligation is totally extinguished.—Pursuant to Article 1232 of the Civil
Code, an obligation is extinguished by payment or performance. There is
payment when there is delivery of money or performance of an obligation.
Article 1245 of the Civil Code provides for a special mode of payment
called dation in payment (dación en pago). There is dation in payment when
property is alienated to the creditor in satisfaction of a debt in money. Here,
the debtor delivers and transmits to the creditor the former’s ownership over
a thing as an accepted equivalent of the payment or performance of an
outstanding debt. In such cases, Article 1245 provides that the law on sales
shall apply, since 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, the payment for which is to be charged against the debtor’s
obligation. Dation in payment extinguishes the obligation to the extent of
the value of the thing delivered, either as agreed upon by the parties or as
may be proved, unless the parties by agreement—express or implied, or by
their silence—consider the thing as equivalent to the obligation, in which
case the obligation is totally extinguished.
Same; Same; Same; Dation in payment exists when there was partial
payment every time Guillermo delivered copra to petitioner, chose not to
collect the net proceeds of his copra deliveries, and instead applied the
collectible as installment payments for his loan from Tan Shuy.—The
subsequent arrangement between Tan Shuy and Guillermo can thus be
considered as one in the nature of dation in payment. There was partial
payment every time Guillermo delivered copra to petitioner, chose not to
collect the net proceeds of his copra deliveries, and instead applied the
collectible as installment payments for his loan from Tan Shuy. We therefore
uphold the findings of the trial court, as affirmed by the CA, that the net
proceeds from Guillermo’s copra deliveries amounted to P378,952.43. With
this partial payment, respondent remains liable for the balance totaling
P1,047.57.
FACTS: Petitioner Tan Shuy is engaged in the business of buying copra
and corn in the Fourth District of Quezon Province. According to
Vicente Tan, son of petitioner, whenever they would buy
copra or corn from crop sellers, they would prepare and issue a
pesada in their favor. A pesada is a document containing details of
the transaction, including the date of sale, the weight of the crop
delivered, the trucking cost, and the net price of the crop. He then
explained that when a pesada contained the annotation “pd” on the
total amount of the purchase price, it meant that the crop delivered
had already been paid for by petitioner.
Guillermo Maulawin, respondent in this case, is a
farmer-businessman engaged in the buying and selling of copra and
corn. On 10 July 1997, Tan Shuy extended a loan to Guillermo in the
amount of P420,000. In consideration thereof, Maulawin obligated
himself to pay the loan and to sell lucad or copra to petitioner.
ISSUE: 1. WON the delivery of copra amounted to installment
payments for the loan obtained by respondents from petitioner.
2. WON the arrangement between Tan Shuy and Guillermo
can thus be considered as one in the nature of dation in payment
RULING: 1. YES.
Petitioner argues that respondent
undertook two separate obligations—(1) to pay for the loan in cash
and (2) to sell the latter’s lucad or copra. Since their written
agreement did not specifically provide for the application of the net
proceeds from the deliveries of copra for the loan, petitioner
contends that he cannot be compelled to accept copra as payment for
the loan. He emphasizes that the pesadas did not specifically
indicate that the net proceeds from the copra deliveries were to be
used as installment payments for the loan. He also claims that
respondent’s copra deliveries were duly paid for in cash, and that the
pesadas were in fact documentary receipts for those payments.
We reiterate our ruling in a line of cases that the jurisdiction of
this Court, in cases brought before it from the CA, is limited to
reviewing or revising errors of law.10 Factual findings of courts,
when adopted and confirmed by the CA, are final and conclusive on
this Court except if unsupported by the evidence on record.11 There
is a question of fact when doubt arises as to the truth or falsehood of
facts; or when there is a need to calibrate the whole evidence,
considering mainly the credibility of the witnesses and the probative
weight thereof, the existence and relevancy of specific surrounding
circumstances, as well as their relation to one another and to the
whole, and the probability of the situation.
2. YES. The subsequent arrangement between Tan Shuy and Guillermo
can thus be considered as one in the nature of dation in payment.
There was partial payment every time Guillermo delivered copra to
petitioner, chose not to collect the net proceeds of his copra
deliveries, and instead applied the collectible as installment
payments for his loan from Tan Shuy. We therefore uphold the
findings of the trial court, as affirmed by the CA, that the net
proceeds from Guillermo’s copra deliveries amounted to
P378,952.43. With this partial payment, respondent remains liable
for the balance totaling P41,047.57.27

38. SSS vs. AGP April 30, 2008 Jaugan

SSS vs AGP

Facts:

Atlantic Gulf and Pacific Company of Manila, Inc. (AG & P) and Semirara Coal Corporation filed a complaint for
specific performance and damages against SSS. It appeared that SSS offered AGP two ways to settle its
delinquencies. First, to pay by installment and second, by Dacion en Pago. AGP chose payment through dacion en
pago consisting of a lot they owned in Batangas.

On April 2001, SSS finally approved AGP’s proposal of dacion en pago to sette its delinquencies which amounted to
about 29 million pesos. To effect immediate transfer, both parties had to come up with a Deed of Assignment. SSS
failed to come up with it, and as such, AGP sent a draft of the Deed to SSS. It took almost two years for SSS to
respond to AGP’s draft. And on such a time, the delinquencies ballooned to about 40 million pesos due to interest.
AGP was willing to settle the 29 million deficiency but they believed that the 10 million debt due to interest was
inequitable as they believed that the principal debt had been extinguished through dacion. They are now asking that
SSS implement the dacion en pago.

SSS moved for dismissal. It was granted. CA reversed such a decision.

Issue: WON dacion en pago should be implemented

Held:

Yes. The Supreme Court absolutely adopted the CA decision.

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 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.

From the averments in their complaint, the appellate court observed that private respondents are seeking to
implement the Deed of Assignment which they had drafted and submitted to SSS pursuant to the approval by SSS.
The appellate court thus held that 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.
Thus, the trial court was ordered to settle the controversy.

39. Filinvest Credit vs CA 178 SCRA 188 Sabornido


Case #: 39
Case Title: Filinvest Credit vs. CA
Case Topic: LEASE: Article 1484 - In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure
to pay cover two or more installments. In this case, he shall have no further action against the purchaser to
recover any unpaid balance of the price. Any agreement to the contrary shall be void. (1454-A-a)
Article 1485 - The preceding article shall be applied to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
Article 1643 - In the lease of things, one of the parties binds himself to give to another the enjoyment or use
of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more
than ninety-nine years shall be valid.

Overview of the case:


Same; Same; Sales; Contracts in the form of lease either with an option to the buyer to purchase for a small
consideration at the end of the term provided all installments are paid or with stipulation that if the rent throughout the
term is paid, title shall vest in the lessee, are leases in name only; Contracts of this nature are actually contracts of
sale.—It is apparent here that the intent of the parties to the subject contract is for the so-called rentals to be the
installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract,
would become the property of the private respondents. This form of agreement has been criticized as a lease only in
name. Thus in Vda. de Jose v. Barrueco, we stated: Sellers desirous of making conditional sales of their goods, but
who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device
of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the
end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is
paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called
rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount
results, by the terms of bargain, in the transfer of title to the lessee.

Same; Same; Same; Same; Sale of Movables in Installments; Remedies of Seller; The remedies of a seller provided
for in Art. 1484 are alternative and not cumulative, hence, the exercise of one precludes the exercise of the others; and
this limitation applies likewise to contracts purporting to be leases of personal property with option to buy.—The seller
of movables in installments, in case the buyer fails to pay two or more installments, may elect to pursue either of the
following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the
mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are
alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. Indubitably, the
device—contract of lease with option to buy—is at times
resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. 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
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-cumrentals already paid.

Facts:

Spouses Sy Bang were engaged in the sale of gravel produced from crushed rocks and used for construction purposes.
In order to increase their production, they looked for a rock crusher which Rizal Consolidated Corporation then had for
sale. A brother of Sy Bang, went to inspect the machine at the Rizal Consolidated’s plant site. Apparently satisfied with
the machine, the private respondents signified their intent to purchase the same.

Since he does not have the financing capability, Sy Bang applied for financial assistance from Filinvest Credit
Corporation. Filinvest agreed to extend financial aid 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; and (3)
that Sy Bang execute a real estate mortgage as security for the amount advanced by Filinvest. A contract of lease of
machinery (with option to purchase) was entered into by the parties whereby they to lease from the petitioner the rock
crusher for two years. The contract likewise stipulated that at the end of the two-year period, the machine would be
owned by Sy Bang.

3 months from the date of delivery, Sy Bang claiming that they had only tested the machine that month, sent a letter-
complaint to the petitioner, 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. Sy Bang stopped payment on the remaining checks they had
issued to the petitioner.

As a consequence of the non-payment, Filinvest extrajudicially foreclosed the real estate mortgage.

Issues:

Whether or not the nature of the contract is one of a contract of lease? (NO) It’s a Contract of Sale on
Installments.

Ruling:

The real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence,
i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it
is called by the parties. It is apparent here that the intent of the parties to the subject contract is for the so-called rentals
to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the
contract, would become the property of the private respondents. This form of agreement has been criticized as a lease
only in name.

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

The seller of movables in installments, in case the buyer fails to pay two or more installments, may elect to pursue
either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3)
foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies
are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. Indubitably, the
device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly
paragraph (3) thereof. 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 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.

Even if there was a contract of sale, Filinvest is still not liable because Sy Bang is presumed to be more knowledgeable,
if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any
alleged deficiency of the said machinery. It was Sy Bang who was negligent, not Filinvest. Further, Sy Bang is precluded
to complain because he signed a Waiver of Warranty.

40. Rillo vs CA GR NO. 125347 Clarion


Emiliano Rillo v CA, CORB Realty Investment Corp
June 19, 1997, Puno

Moral:
The Maceda Law recognizes in conditional sales of all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer

Facts
• Rillo signed a Contract to Sell of Condominium Unit with respondent for a 61.5 sqm unit condominium in
Mandaluyong for 150K, 75K upon the execution of the contract and the remainder in 12 equal monthly installments of
7,092 beginning July 18, 1985. All outstanding balanced would bear 24% interest/annum and the installment in
arrears would be subject to liquidated penalty of 1.5% for every month of default from due date. Furthermore if there
would be 3 or more installments defaulted, forfeiture proceedings would be governed by existing laws, particularly the
condominium act.
• Rillo failed to pay the initial installment on July and the one for August. On September he paid his first amortization
on September (7092), 2nd on October (7092) and third on February of the next year(1986) and only 5000. On July
20, 1987, 17 months after his last payment CORB Realty informed him by letter of cancellation of the contract due to
his failure to settle his accounts on time, with the willingness to refund the payments.
• Such cancellation did not occur after receiving 60K from Rillo. But petitioner defaulted again resulting in CORB
again warning him of the rescission and instructions to accept from their office the payments which was 102,459 after
deducting rentals. Such also did not push through instead they entered into a compromise.
o Restructure outstanding balance to 50K
o To be paid 2k/mos at 18% interest
o To pay taxes due
o Installments would start on apr 15, 1989
• Rillo paid 2k on April and May but failed to pay the rest.
• On April 3 CORB sent a letter fixing all the arrears at 155,129 and failure to pay such amount lead to it filing a
cmpalint for cancellation of the contract with RTC Pasig
• Rillo answered stating that as a personal title had still to be delivered to him even after he had paid 159K in total and
that CORB could not claim against the old agreement which has been novated to pay 50K.
• They stipulated on pre-trial that the outstanding amount is 50K and only 4k had been paid therefore.
• RTC: found that due to the paid amounts CORB could not rescind as such had been substantially complied with.
• CA: Reversed. Rescission does not apply as the contract is not an absolute conveyance of real property and that
the Condominium Act has nothing to say on forfeiture in sales by installment. That what is applicable is PD 957 which
states that RA 6552 should be applied which means the contract to sell is thus declared cancelled and rendered
ineffective.

Issues
• WoN CA erred in not applying rescission under Art 1191 and 1592? No
• WoN the CA erred in applying the Maceda Law (6552)? No
Ruling
• The contract between the parties is not an absolute conveyance of real property but a contract to sell. In a contract
to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the
failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation of
the vendor to convey title from acquiring any obligatory force.”
• The transfer of ownership and title would occur after full payment of the purchase price.
• R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right
of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title R.A. No. 6552 recognizes in conditional sales of all kinds of real
estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title
• Rights of a buyer in the case of his fault:
o (1) Where he has paid at least two years of installments,
▪ “(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him,
which is hereby fixed at the rate of one month grace period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.
▪ (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the
property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five
per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on
the contract shall be included in the computation of the total number of installments made.”
o (2) Where he has paid less than two years in installments,
▪ “Sec. 4. x x x the seller shall give the buyer a grace period of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act.
• Having paid for less than 2 years buyer had a grace period to pay of not less than 60 days and Seller had a right to
cancel after 30 days from the receipt by rillo of the notice of cancellation.
• No Novation; Parties to a contract must expressly agree that they are abrogating their old contract in favor of a new
one.18 In the absence of an express agreement, novation takes place only when the old and the new obligations are
incompatible on every point.
• In the case at bar, the parties executed their May 12, 1989 “compromise agreement” precisely to give life to their
“Contract to Sell.” It merely clarified the total sum owed by petitioner RILLO to private respondent CORB REALTY
with the view that the former would find it easier to comply with his obligations under the Contract to Sell. In fine, the
“compromise agreement” can stand together with the Contract to Sell.
• Modification: no refund
o Under Republic Act No. 6552, the right of the buyer to a refund accrues only when he has paid at least two (2)
years of installments. In the case at bar, RILLO has paid less than two (2) years in installments, hence, he is not
entitled to a refund.
• DENIED, CA Affirmed

41. Ainza vs Padua GR NO. 165420 Comaling

AINZA VS. SPOUSES ANTONIO PADUA and EUGENIA PADUA


G.R. No. 165420 June 30, 2005

FACTS:
In her complaint for partition of real property, annulment of titles with damages, Concepcion Ainza (Concepcion)
alleged that respondent-spouses Eugenia (Eugenia) and Antonio Padua (Antonio) owned a lot with an unfinished
residential house located at Quezon City. Sometime in April 1987, she bought one-half of an undivided portion of the
property from her daughter, Eugenia and the latter’s husband, Antonio, for P100,000.00.
No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by the
respondents, and ownership was transferred to Concepcion through physical delivery to her attorney-in-fact and
daughter, Natividad Tuliao (Natividad). Concepcion authorized Natividad and the latter’s husband, Ceferino Tuliao
(Ceferino) to occupy the premises, and make improvements on the unfinished building.
Thereafter, Concepcion alleged that without her consent, respondents caused the subdivision of the property into
three portions and registered it in their names in violation of the restrictions annotated at the back of the title.
On the other hand, Antonio averred that he bought the property in 1980 and introduced improvements thereon.
Between 1989 and 1990, he and his wife, Eugenia, allowed Natividad and Ceferino to occupy the premises
temporarily. In 1994, they caused the subdivision of the property and three (3) separate titles were issued.
The trial court upheld the sale between Eugenia and Concepcion. It ruled that the sale was consummated when both
contracting parties complied with their respective obligations. Eugenia transferred possession by delivering the
property to Concepcion who in turn paid the purchase price. It also declared that the transfer of the property did not
violate the Statute of Frauds because a fully executed contract does not fall within its coverage.
On appeal by the respondents, decision of the trial court, and declared the sale null and void. Applying Article 124 of
the Family Code, the Court of Appeals ruled that since the subject property is conjugal, the written consent of Antonio
must be obtained for the sale to be valid. It also ordered the spouses Padua to return the amount of P100,000.00 to
petitioners plus interest.

ISSUE:
The sole issue for resolution in this petition for review is whether there was a valid contract of sale between Eugenia
and Concepcion even without the consent of Antonio.

HELD:
A contract of sale 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.
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 One
Hundred Thousand Pesos (P100,000.00.
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.
It is undisputed that the subject property was conjugal and sold by Eugenia in April 1987 or prior to the effectivity of
the Family Code on August 3, 1988, Article 254 of which repealed Title V, Book I of the Civil Code provisions on the
property relations between husband and wife. However, Article 256 thereof limited its retroactive effect only to cases
where it would not prejudice or impair vested or acquired rights in accordance with the Civil Code or other laws. In the
case at bar, vested rights of Concepcion will be impaired or prejudiced by the application of the Family Code; hence,
the provisions of the Civil Code should be applied.
The consent of both Eugenia and Antonio is necessary for the sale of the conjugal property to be valid. Antonio’s
consent cannot be presumed. Except for the self-serving testimony of 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 Antonio’s consent, the disposition made by Eugenia is voidable.
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, more than ten (10)
years had already lapsed without any such action being filed.
In sum, the sale of the conjugal property by Eugenia without the consent of her husband is voidable. It is binding
unless annulled. Antonio failed to exercise his right to ask for the annulment within the prescribed period, hence, he is
now barred from questioning the validity of the sale between his wife and Concepcion.

42. Guiang vs CA 291 SCRA 372 Astronomo

PETITIONER: Spouses Antonio and Luzviminda Guiang


RESPONDENT: Court of Appeals and Gilda Corpuz
SUMMARY: Judie Corpuz sold their conjugal house to the Sps. Guiang without the consent of his wife, Gilda,
who was then in Manila. Upon Gilda’s return, she found her children living in different households, while her
husband was nowhere to be found. Gilda challenged the validity of the sale. PETs averred that without
Gilda’s consent the sale was merely voidable, incorrectly applying CC1390. Court held that consent wasn’t
vitiated as provided by 1390 but was completely absent and the contract, falling within the ambit of FC 124
and was therefore void.
DOCTRINE: Art. 1390, par. 2, refers to contracts with vices of consent, entered into by a person whose
consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud.

FACTS:
1. Spouses Gilda (private RESP) and Judie Corpuz bought a
parcel of land Koranodal, South Cotabato, where they established their conjugal dwelling. A few years later, they sold
one-half of said land to petitioners, spouses Antonio and Luzviminda Guiang.
2. Gilda went to Manila to look for work. After her departure, Judie rarely went home.
3. Harriet Corpuz informed her mother that her father was going to sell their portion of the lot, including the house, to
the Guiangs. Gilda replied that she was objecting to the sale but Harriet only informed Luzviminda about it.
4. On March 1, 1990, in the absence of his wife, Judie sold their one-half portion, and the house, for P30,000, and
executed a Deed of Transfer of Rights in favor of spouses Guiang.
5. When Gilda returned, her husband was nowhere to be found.
6. Luzviminda filed a complaint before the Barangay authorities against Gilda and her children, who continued to stay
in the house. The parties eventually signed an amicable settlement, wherein Gilda and her children agreed to leave
on or before April 7, 1990.
7. Later on, Gilda approached the Barangay Captain questioning her signature and requesting for the annulment of
the settlement, but it was unheeded.
8. She filed a complaint against her husband and spouses Guiang and the RTC held that the Deed of Transfer of
Rights and the amicable settlement are null and void. Gilda is the rightful owner of the remaining one-half portion of
the lot. This was affirmed by the CA.

ISSUE:
I. WON the contract of sale (Deed of Transfer of Rights) is merely voidable? NO, the contract was void and
could not have been ratified.

HELD:
NO, the contract was void and could not have been ratified.
• Guiangs’ defense that the contract was merely voidable cannot hold due to an erroneous application of Art. 1390 of
the Civil Code, which enumerates voidable contracts.
• A1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by a person
whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. Gilda’s
consent to the contract of sale of their conjugal property was totally inexistent or absent.
• The contract falls properly within Art. 124 of the Family Code.
• “In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal
properties, the other spouse may assume sole powers of administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent of the other spouse. In the absence of such
authority or consent, the disposition or encumbrance shall be void.”
• The fraud and the intimidation referred to by PETs were perpetrated in the execution of the amicable settlement.
(Gilda testified that brgy. authorities made her sign said document through misrepresentation and coercion)
• Thus the amicable settlement couldn’t actually ratify anything. Art 1422 provides that a contract directly resulting
from a previous illegal contract is void. Doctrinally, Void contracts can’t be ratified.
• The Civil Code supports the decision upon comparison with the Family Code. Art.166, CC provides that the contract
above would be only voidable, but Art 173, CC allows the wife to annul it. On the other hand, the fraud and
intimidation that could vitiate consent was present in the amicable settlement agreement.
Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners, vs.
COURT OF APPEALS and GILDA CORPUZ, respondents.
Contracts; Sales; Husband and Wife; Conjugal Partnerships; The absence of the consent of one spouse in the sale of
a conjugal property renders the sale null and void, while the vitiation thereof makes it merely voidable.—The sale of a
conjugal property requires the consent of both the husband and the wife. The absence of the consent of one renders
the sale null and void, while the vitiation thereof makes it merely voidable. Only in the latter case can ratification cure
the defect.
Same; Same; Same; Same; Family Code; Article 1390, paragraph 2, of the Civil Code refers to contracts visited by
vices of consent, but where a spouse’s consent to the contract of sale of the conjugal property is totally inexistent or
absent, the contract falls within the ambit of Article 124 of the Family Code.—The error in petitioners’ contention is
evident. Article 1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by
a person whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud.
In this instance, private respondent’s consent to the contract of sale of their conjugal property was totally inexistent or
absent. x x x This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which
was correctly applied by the two lower courts. x x x In the event that one spouse is incapacitated or otherwise unable
to participate in the administration of the conjugal properties, the other spouse may assume sole powers of
administration. These powers do not include the powers of disposition or encumbrance which must have the authority
of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the
other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (165a)” (Italics
supplied).

The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the consent of
one renders the sale null and void, while the vitiation thereof makes it merely voidable. Only in the latter case can
ratification cure the defect.

FACTS: Private Respondent Gilda Corpuz filed an Amended Complaint against her husband Judie Corpuz and
Petitioners-Spouses Antonio and Luzviminda Guiang. The said Complaint sought the declaration of a certain deed of
sale, which involved the conjugal property of private respondent and her husband, null and void. Because 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. Formerly, Corpuz’s sold to Guiang spouses half of their
lot,when the wife went to manila the husband sold the other half to Guiangs’ without the consent and signature of the
wife. To cure whatever defect in defendant Judie Corpuz’s title over the lot transferred, defendant Luzviminda Guiang
as vendee executed another agreement over the Lot, this time with Manuela Jimenez Callejo, a widow of the original
registered owner from whom the couple Judie and Gilda Corpuz originally bought the lot, who signed as vendor for a
consideration of P9,000.00. Defendant Judie Corpuz signed as a witness to the sale

43. Abalos vs Macatangay Jr. 439 SCRA 64 Abellanida


Case Title: Abalos vs. Macatangay
Case Topic: Sale of Conjugal Property
Overview of the Case: We ruled that the sale by the husband of property belonging to the conjugal partnership
without the consent of the wife when there is no showing that the latter is incapacitated is void ab initio because it is in
contravention of the mandatory requirements of Article 166 of the Civil Code. Since Article 166 of the Civil Code requires
the consent of the wife before the husband may alienate or encumber any real property of the conjugal partnership, it
follows that acts or transactions executed against this mandatory provision are void except when the law itself
authorizes their validity.

As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not bound to
buy.—As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not bound
to buy. He is free either to buy or not to buy later. In Sanchez v. Rigos we ruled that in an accepted unilateral promise
to sell, the promissor is not bound by his promise and may, accordingly, withdraw it, since there may be no valid contract
without a cause or consideration. Pending notice of its withdrawal, his accepted promise partakes of the nature of an
offer to sell which, if acceded or consented to, results in a perfected contract of sale.
Under the law, a void contract cannot be ratified and the action or defense for the declaration of the inexistence of a
contract does not prescribe.—The nullity of the RMOA as a contract of sale emanates not only from lack of Esther’s
consent thereto but also from want of consideration and absence of respondent’s signature thereon. Such nullity cannot
be obliterated by Esther’s subsequent confirmation of the putative transaction as expressed in the Contract to Sell.

FACTS:

Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with improvements. Arturo made a
Receipt and Memorandum of Agreement in favor of Macatangay, binding himself to sell to latter the subject property
and not to offer the same to any other party within 30 days from date. Full payment would also be effected as soon as
possession of the property shall have been turned over to Macatangay. Macatangay gave an earnest money amounting
to P5,000.00 to be deducted from the purchase price of P1,300,000.00 in favor of the spouses.

Subsequently, Arturo and Esther had a marital squabble brewing at that time and Macatangay, to protect his interest,
made an annotation in the title of the property. He then sent a letter informing them of his readiness to pay the full
amount of the purchase price. Esther, through her SPA, executed in favor of Macatangay, a Contract to sell the property
to the extent of her conjugal interest for the sum of P650,000 less the sum already received by her and Arturo. She
agreed to surrender the property to Macatangay within 20 days along with the deed of absolute sale upon full payment,
while he promised to pay the balance of the purchase price for P1, 290,000.00 after being placed in possession of the
property. Macatangay informed them that he was ready to pay the amount in full. The couple failed to deliver the
property so he sued the spouses.

RTC dismissed the complaint, because the SPA could not have authorized Arturo to sell the property to Macatangay
as it was falsified. CA reversed the decision, ruling the SPA in favor of Arturo, assuming it was void, cannot affect the
transaction between Esther and Macatangay. On the other hand, the CA considered the RMOA executed by Arturo
valid to effect the sale of his conjugal share in the property.

ISSUE:

Whether or not the sale of property is valid.

RULING:

No. Arturo and Esther appear to have been married before the effectivity of the Family Code. There being no indication
that they have adopted a different property regime, their property relations would automatically be governed by the
regime of conjugal partnership of gains. The subject land which had been admittedly acquired during the marriage of
the spouses forms part of their conjugal partnership.

Under the Civil Code, the husband is the administrator of the conjugal partnership. This right is clearly granted to him
by law. More, the husband is the sole administrator. The wife is not entitled as of right to joint administration.

The husband, even if he is statutorily designated as administrator of the conjugal partnership, cannot validly alienate
or encumber any real property of the conjugal partnership without the wife’s consent. Similarly, the wife cannot dispose
of any property belonging to the conjugal partnership without the conformity of the husband. The law is explicit that the
wife cannot bind the conjugal partnership without the husband’s consent, except in cases provided by law.

More significantly, 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. The interest of each spouse is limited to the net remainder or “remanente liquido” (haber ganancial)
resulting from the liquidation of the affairs of the partnership after its dissolution. 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.

The Family Code has introduced some changes particularly on the aspect of the administration of the conjugal
partnership. The new law provides that the administration of the conjugal partnership is now a joint undertaking of the
husband and the wife. In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal partnership, the other spouse may assume sole powers of administration. However, the
power of administration does not include the power to dispose or encumber property belonging to the conjugal
partnership. In all instances, the present law specifically requires the written consent of the other spouse, or authority
of the court for the disposition or encumbrance of conjugal partnership property without which, the disposition or
encumbrance shall be void.

Inescapably, herein Arturo’s action for specific performance must fail. Even on the supposition that the parties only
disposed of their respective shares in the property, the sale, assuming that it exists, is still void for as previously stated,
the right of the husband or the wife to one-half of the conjugal assets does not vest until the liquidation of the conjugal
partnership. Nemo dat qui non habet. No one can give what he has not.

44 GR No. 178902 Caballero

MANUEL O. FUENTES and LETICIA L. FUENTES, Petitioners,


vs.
CONRADO G. ROCA, ANNABELLE R. JOSON, ROSE MARIE R. CRISTOBAL and PILAR
MALCAMPO, Respondents.

Topic: Art 1490 Sale between spouses

This case is about a husband’s sale of conjugal real property, employing a challenged affidavit
of consent from an estranged wife. The buyers claim valid consent, loss of right to declare nullity
of sale, and prescription.

The Facts and the Case

In 1998, Tarciano T. Roca (Tarciano) offered to sell 358-square meter lot in Canelar,
Zamboanga City to petitioners Manuel and Leticia Fuentes (the Fuentes spouses).

They agreed that Fuentes spouses will pay Tarciano a down payment of ₱60,000.00 for the
transfer of the lot’s title to him. And, within six months, Tarciano was to clear the lot of structures
and occupants and secure the consent of his estranged wife, Rosario Gabriel Roca (Rosario), to
the sale. Upon Tarciano’s compliance with these conditions, the Fuentes spouses were to take
possession of the lot and pay him an additional ₱140,000.00 or ₱160,000.00, depending on
whether or not he succeeded in demolishing the house standing on it. If Tarciano was unable to
comply with these conditions, the Fuentes spouses would become owners of the lot without any
further formality and payment.

The parties left their signed agreement with Atty. Plagata who then worked on the other
requirements of the sale. According to the lawyer, he went to see Rosario in one of his trips to
Manila and had her sign an affidavit of consent. As soon as Tarciano met the other conditions,
Atty. Plagata notarized Rosario’s affidavit in Zamboanga City. On January 11, 1989 Tarciano
executed a deed of absolute sale in favor of the Fuentes spouses. They then paid him the
additional ₱140,000.00 mentioned in their agreement. A new title was issued in the name of the
spouses who immediately constructed a building on the lot. On January 28, 1990 Tarciano
passed away, followed by his wife Rosario who died nine months afterwards.

Eight years later in 1997, the children of Tarciano and Rosario, the respondents in this case,
filed an action for annulment of sale and reconveyance of the land against the Fuentes spouses
before the Regional Trial Court (RTC) of Zamboanga City. The Rocas claimed that the sale to
the spouses was void since Tarciano’s wife, Rosario, did not give her consent to it. Her
signature on the affidavit of consent had been forged. They thus prayed that the property be
reconveyed to them upon reimbursement of the price that the Fuentes spouses paid Tarciano.

The spouses denied the Rocas’ allegations. They presented Atty. Plagata who testified that he
personally saw Rosario sign the affidavit at her residence in Paco, Manila, on September 15,
1988. He admitted, however, that he notarized the document in Zamboanga City four months
later on January 11, 1989. All the same, the Fuentes spouses pointed out that the claim of
forgery was personal to Rosario and she alone could invoke it. Besides, the four-year
prescriptive period for nullifying the sale on ground of fraud had already lapsed.

Both the Rocas and the Fuentes spouses presented handwriting experts at the trial. Comparing
Rosario’s standard signature on the affidavit with those on various documents she signed, the
Rocas’ expert testified that the signatures were not written by the same person. Making the
same comparison, the spouses’ expert concluded that they were.

RTC’s Ruling: On February 1, 2005 the RTC rendered judgment, dismissing the case. It ruled
that the action had already prescribed since the ground cited by the Rocas for annulling the
sale, forgery or fraud, already prescribed under Article 1391 of the Civil Code four years after its
discovery. In this case, the Rocas may be deemed to have notice of the fraud from the date the
deed of sale was registered with the Registry of Deeds and the new title was issued. Here, the
Rocas filed their action in 1997, almost nine years after the title was issued to the Fuentes
spouses on January 18, 1989.

Moreover, the Rocas failed to present clear and convincing evidence of the fraud. Mere
variance in the signatures of Rosario was not conclusive proof of forgery. The RTC ruled that,
although the Rocas presented a handwriting expert, the trial court could not be bound by his
opinion since the opposing expert witness contradicted the same. Atty. Plagata’s testimony
remained technically unrebutted.

Finally, the RTC noted that Atty. Plagata’s defective notarization of the affidavit of consent did
not invalidate the sale. The law does not require spousal consent to be on the deed of sale to be
valid. Neither does the irregularity vitiate Rosario’s consent. She personally signed the affidavit
in the presence of Atty. Plagata.
CA’s Ruling: On appeal, the Court of Appeals (CA) reversed the RTC decision. The CA found
sufficient evidence of forgery and did not give credence to Atty. Plagata’s testimony that he saw
Rosario sign the document in Quezon City. Its jurat said differently. Also, upon comparing the
questioned signature with the specimen signatures, the CA noted significant variance between
them. That Tarciano and Rosario had been living separately for 30 years since 1958 also
reinforced the conclusion that her signature had been forged.

Since Tarciano and Rosario were married in 1950, the CA concluded that their property
relations were governed by the Civil Code under which an action for annulment of sale on the
ground of lack of spousal consent may be brought by the wife during the marriage within 10
years from the transaction. Consequently, the action that the Rocas, her heirs, brought in 1997
fell within 10 years of the January 11, 1989 sale.

Considering, however, that the sale between the Fuentes spouses and Tarciano was merely
voidable, the CA held that its annulment entitled the spouses to reimbursement of what they
paid him plus legal interest computed from the filing of the complaint until actual payment. Since
the Fuentes spouses were also builders in good faith, they were entitled under Article 448 of the
Civil Code to payment of the value of the improvements they introduced on the lot. The CA did
not award damages in favor of the Rocas and deleted the award of attorney’s fees to the
Fuentes spouses.

Unsatisfied with the CA decision, the Fuentes spouses came to this court by petition for review.

The Issues Presented

1. Whether or not Rosario’s signature on the document of consent to her husband Tarciano’s
sale of their conjugal land to the Fuentes spouses was forged; YES

2. Whether or not the Rocas’ action for the declaration of nullity of that sale to the spouses
already prescribed; NO, and

3. Whether or not only Rosario, the wife whose consent was not had, could bring the action to
annul that sale. NO.

The Court’s Rulings

First. The CA found that Rosario’s signature had been forged. The CA observed a marked
difference between her signature on the affidavit of consent and her specimen signatures. The
CA gave no weight to Atty. Plagata’s testimony that he saw Rosario sign the document in
Manila on September 15, 1988 since this clashed with his declaration in the jurat that Rosario
signed the affidavit in Zamboanga City on January 11, 1989.
The Court agrees with the CA’s observation that Rosario’s 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.

Second. 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, a few months after the
Family Code took effect on August 3, 1988.

Article 124 of the Family Code does not provide a period within which the wife who gave no
consent may assail her husband’s sale of the real property. It simply provides that without the
other spouse’s written consent or a court order allowing the sale, the same would be void.
Article 124 thus provides:

Art. 124. x x x In the event that one spouse is incapacitated or otherwise unable to participate in
the administration of the conjugal properties, the other spouse may assume sole powers of
administration. These powers do not include the powers of disposition or encumbrance which
must have the authority of the court or the written consent of the other spouse. In the absence
of such authority or consent, the disposition or encumbrance shall be void. x x x

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
spouse’s 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. Thus:

Art. 1410. The action or defense for the declaration of the inexistence of a contract does not
prescribe.

Here, the Rocas filed an action against the Fuentes spouses in 1997 for annulment of sale and
reconveyance of the real property that Tarciano sold without their mother’s (his wife’s) written
consent. The passage of time did not erode the right to bring such an action.

Third. The Fuentes spouses point out that it was to Rosario, whose consent was not obtained,
that the law gave the right to bring an action to declare void her husband’s sale of conjugal land.
But here, Rosario died in 1990, the year after the sale. Does this mean that the right to have the
sale declared void is forever lost?

The answer is no. As stated above, that sale was void from the beginning. Consequently, the
land remained the property of Tarciano and Rosario despite that sale. When the two died, they
passed on the ownership of the property to their heirs, namely, the Rocas. As lawful owners,
the Rocas had the right, under Article 429 of the Civil Code, to exclude any person from its
enjoyment and disposal.

45. Rodriguez vs Mactal GR NO. L-39720 Trinidad

Rodriguez vs. Mactal

Nature: This is an appeal from an order of the Court of First Instance of Nueva Ecija, issued in the
intestate proceeding of Mauricia de Guzman, deceased, denying the motion of the appellants in
which they sought to annul a sale, executed January 23, 1926, by the administratrix Trinidad Mactal,
of a parcel of land to Silverio Choco and a resale of the same land on March 10, 1928, to the
administratrix Trinidad Mactal.

Facts:

1. The appellants Catalina and Rodriguez, and the appellee Mactal, are all heirs of Mauricia de
Guzman whose estate is under administration in CFI.

2. Appellee Mactal was appointed as administratrix. The committee of claims submitted a report in
which various claims against the estate were allowed. The report was approved by the court.

3. The administratrix prayed that she be allowed to sell the only parcel of land belonging to the estate
with an area of 19 hectares for the purpose of paying debts. This land was a part of a parcel of land of
23 hectares of which belonged to Rodriguez."

4. The court authorized the administratrix to sell the land. The latter then sold it to Silverio Choco.
Thereafter, the administratrix paid the approved claims against the estate. These payments, all of which
were made after the sale in favor of Silverio Choco, conclusively prove that sale was not fictitious as
alleged by the appellants.

5. More than two years later, Choco sold the same land to the spouses Pio Villar and Trinidad Mactal
for the sum of P4,500, who in turn mortgaged it to PNB for the same amount.

Petitioners-appellant’s contention: they alleged that this sale was fictitious, that there was collusion between
Choco and Mactal and that the former never paid the latter.

The appellants relied on article 1459 of the Civil Code, which enumerates persons who cannot take by
purchase, i.e. agents and executors.
They insisted that the administratrix bought the land indirectly through the mediation of Choco and that both
sales should be annulled under the provisions of the article cited above.

Issue:

· WON the sale in question should be annulled due to the fact that it falls under the prohibition
under article 1459 with respect to purchase by executors/ administrators.

Held:

· No. The proofs in this case do not substantiate this claim of the appellants. The SC declared that
In order to bring the sale in this case within the part of article 1459, quoted above, it is essential that
the proof submitted establish some agreement between Silverio Choco and Mactal to the effect that
Choco should buy the property for the benefit of Mactal. If there was no such agreement, either express
or implied, then the sale cannot be set aside. The evidence before this court does not establish such
agreement.

Note: (Additional contention of the appellants)

The appellants also alleged that the order of the court authorizing the administrator to sell the land in
question is null and void due to the fact the motion of Trinidad Mactal, praying that she be authorized to
sell, was not accompanied by the written consent of the heirs or their duly authorized guardian.

The SC applied Act No. 3882, sec 714 provides that: Realty may be sold or encumbered. — When there
is no personal estate of the deceased or when, though there be such, its sale would redound to the
detriment of the interests of the participants in the estate and the deceased has left no testamentary
disposition for the payment of his debts and charges of administration, the court, on application of the
executor or administrator, and on written notice to the heirs, devisees, and other persons interested, may
grant him a license to sell, mortgage, or otherwise encumber for that purpose real estate, if it clearly appears
that such sale, mortgaging or encumbrance would be beneficial to the persons interested and will not defeat
any devise of land; in which case the assent of the devisee shall be required.

The appealed order of the lower court is affirmed with costs against the appellants.

46. Philippine Trust Company vs Roldan GR NO. 8477 Pendon

THE PHILIPPINE TRUST COMPANY, AS GUARDIAN OF THE PROPERTY OF THE


MINOR, MARIANO L. BERNARDO, PETITIONER, VS. SOCORRO ROLDAN,
FRANCISCO HERMOSO, FIDEL C. RAMOS AND EMILIO CRUZ, RESPONDENTS. [
G.R. No. L-8477, May 31, 1956 ]

FACTS:

Mariano L Bernardo, a minor, inherited from his father, Marcelo Bernardo 17 parcels of land located in Guiguinto,
Bulacan. In view of his minority, guardianship proceedings were instituted on July 27, 1947, where Socorro Roland,
surviving spouse of Marcelo and step-mother of Mariano, was appointed as guardian of the latter. Also, Socorro filed a
motion asking authority to sell as guardian the 17 parcels for the sum of P14,700 to his brother-in-law, Dr. Fidel C.
Ramos, the purpose of the sale being allegedly to invest money in a residential house, which the minor desired to have
on Tindalo St., Manila. The motion was granted.

On August 5, 1947 Socorro, as guardian, then executed the proper deed of sale in favor of Fidel Ramos and on August
12, 1947, she asked for and obtained judicial confirmation of the sale. However, on August 13, 1947, Fidel Ramos
executed in favor of Socorro personally, a deed of conveyance covering the same 17 parcels for the sum of P15,000.
And on October 21, 1947 Socorro sold 4 out of the 17 parcels to Emilio Cruz for P3,000, reserving herself the right to
repurchase.

On August 10, 1948, petitioner Phil. Trust Co. replaced Socorro as guardian. Petitioner filed a complaint to annul two
contracts regarding the 17 parcels of land: a) the sale thereof by Socorro, as guardian, to Fidel Ramos; and b) sale
thereof by Fidel Ramos to Socorro personally. Petitioner contends that the step-mother in effect, sold to herself, the
properties of her ward thus should be annulled as it violates Art. 1459 of the Civil Code prohibiting the guardian from
purchasing “either in person or through the mediation of another” the property of her ward. As to the third conveyance,
that Socorro had acquired no valid title to convey to Cruz.

The trial court held that Art 1459 was not controlling as there was no proof that Ramos was a mere intermediary or that
the latter agreed with Socorro to but the parcels of land for her benefit.

The Court of Appeals affirmed the judgment, adding that the minor new the particulars of, and approved the
transactions, and that ‘only clear and positive evidence of fraud and bad faith, and not mere insinuations and
interferences will overcome the presumptions that a sale was concluded in all good faith for value. Hence, this petition.

ISSUE: Whether the two contracts of sale made by Socorro was valid.

HELD: No. The court held that even without proof that Socorro had connived with Fidel 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 ward's interest and in line with the court's suspicion whenever the guardian acquires the
ward's property we have no hesitation to declare that in this case, in the eyes of the law, Socorro Roldan took by
purchase her ward's parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies. 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. 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
Emilio Cruz. The annulment carries with it (Article 1303 Civil Code) the obligation of Socorro Roldan to return the 17
parcels together with their fruits and the duty of the minor, through his guardian to repay P14,700 with legal interest.

47. Maharlika vs. Spouses Tagle GR NO. L-65594 Tampos

TICKLER: Void and Inexistent Contracts, Definition and Classes

G.R. No. L-65594 July 9, 1986

MAHARLIKA PUBLISHING CORPORATION, ANGELA CALICA, ADOLFO CALICA and the HEIRS OF THE LATE
PIO CALICA, petitioners,

vs.

SPOUSES LUZ R. TAGLE and EDILBERTO TAGLE and the GOVERNMENT SERVICE INSURANCE SYSTEM and
the HONORABLE INTERMEDIATE APPELLATE COURT, respondents.
DOCTRINE:

Under Article 1475 of the Civil Code, states that "the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the
parties may reciprocally demand performance, subject to the law governing the form of contracts. "

FACTS

The Respondent, Government Service Insurance System (GSIS) owned a parcel of land with a building and printing
equipment in Paco, Manila. The land was sold to Maharlika in a Conditional Contract of Sale with the stipulation that if
Maharlika failed to pay monthly installments in 90 days, the GSIS would automatically cancel the contract. Because
Maharlika failed to pay several monthly installments, GSIS demanded that Maharlika vacate the premises. Even though
Maharlika refused to do so, the GSIS published an advertisement inviting the public to bid in a public auction.

A day before the scheduled bidding, Adolfo Calica, the President of Maharlika, gave the GSIS head office 2 checks
worth 11,000 and a proposal for a compromise agreement. The GSIS General Manager Roman Cruz gave a not to
Maharlika saying “Hold Bidding. Discuss with me.” However, the public bidding took place as scheduled and the
property was subsequently awarded to Luz Tagle, the wife of the GSIS Retirement Division Chief. Maharlika demanded
that the sale be considered null and void, as Mrs. Tagle should have been disqualified from bidding for the GSIS
property. RTC and CA both ruled that the Tagles were entitled to the property and Maharlika should vacate the
premises. Hence, this petition.

ISSUE

Whether or not the contract is perfected between the parties

HELD

Yes, there was an earlier contract to sell the same properties to the petitioners and the contract was perfected and
there had been partial compliance with its terms. The petitioners are not complete strangers entering into a contract
with respondent GSIS for the first time. The transaction now under question in this case merely referred to the curing
of certain defects which led to the cancellation of the earlier contract by GSIS. The acceptance of the petitioners' letter-
proposal by Mr. Roman Cruz, Jr., the person with authority to do so, and his order to his subordinates to stop the
bidding so that they could first discuss the matter with him, created an agreement of binding nature with the petitioners.
The decision and resolution of the Intermediate Appellate Court subject of the instant petition for review on certiorari
are hereby SET ASIDE. The conditional sale entered into between public respondent GSIS and private respondents
Luz and Edilberto Tagle is declared NULL and VOID for being contrary to public policy. The prayer of petitioners for
the repurchase of the subject property in an amount equal to the amount offered by private respondents and to retain
ownership and possession of the disputed property is GRANTED.

48. Gan Tiangco vs Pabinguit GR NO. L-10439 Bonilla

Doctrine:

Article 1459, No. 5, of the Civil Code, prohibits judges from acquiring by purchase, even at public or judicial sale, either
in person or by an agent, any property or rights litigated in the court in the jurisdiction or territory within which they
exercise their respective duties; this prohibition includestaking of property by assignment.

Facts:
On 1907 Silvestre Abastos allegedly filed a complaint against Candida Acabo for non-payment of 150cavanes of corns,
Judge Henry Gardner being the presiding justice of peace at that time ordered thesheriff to levy six parcels of lands
belonging to Candida Acabo. An auction was held for the said propertyand Judge Henry Gardner was the highest
bidder. When he realized that he cannot validly obtainownership through the auction because of the laws prohibiting
him to do so, he sold the six parcels ofland to Faustino Abad, son of Silvestre Abastos. Abad then sold land to Silvino
Pabinguit who has thepossession of the land at the time this action was filed.On June 12 1911 Candida Acabo sold the
land to Gan Tiangco, however he was not able to takepossession of the land for the reason that they were in the
possession of Silvino Pabinguit.Gan Tiangco then filed a complaint to the CFI praying that the land to be declared as
the rightful ownerof the said property. The lower court ruled in favour of Tiangco, ordering Silvino to surrender the land
tohim. Thus the instant case filed to the Supreme Court having been brought by bill of exceptions.The appellant states
that the lower court erred in holding that Candida Acabo remains to be the ownerof the land because of certain
irregularities and defects in the said auction specifically among others theright of Henry Gardner to purchase such
property.

Held:No,

Article 1459, No. 5, of the Civil Code, prohibits judges from acquiring by purchase, even at public or judicial sale, either
in person or by an agent, any property or rights litigated in the court in the jurisdiction or territory within which they
exercise their respective duties; this prohibition includestaking of property by assignment.

Therefore, if under the law Gardner was prohibited from acquiring the ownership of Acabo's lands, thenhe could not
have transmitted to Faustino Abad the right of ownership that he did not possess; norcould Abad, to whom this alleged
ownership had not been transmitted, have conveyed the same toPabinguit. 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 ofGuijulngan should have declared the auction void and have ordered a new sale to be held,
besidescorrecting the errors that had been committed in the proceedings.

49. Fornilda vs. RTC GR NO. L-72306 Medellin


Case #: 49
Case Title: Fornilda Versus RTC GR No. L-72306
Case Topic: Article 1491
Overview of the case:

Sales; Public Policy; Attorneys; Under Art. 1491, a lawyer is prohibited from acquiring either by purchase or
assignment of the property or rights involved which are object of the litigation in which they intervene by
virtue of their profession; Rationale for the prohibition.—Under the aforequoted provision, a lawyer is
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 (Padilla, Vol. II Civil Law, 1974 Ed.,
p. 230 citing Hernandez vs. Villanueva, 40 Phil. 773 and Rubias vs. Batiller; 51 SCRA 130). The prohibition on
purchase is all embracing to include not only sales to private individuals but also public or judicial sales. (ibid.,
p. 221). 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 (Paras, Civil Code, Vol. V, 1973 ed., p. 70).

Same; Same; Same; The fact that the properties were first mortgaged and only subsequently acquired in an
auction sale will not remove it from the scope of the prohibition; Reason.—The fact that the properties were
first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate
proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance
indirectly what cannot be done directly.

Same; Same; Same; The action or defense for the declaration of the inexistence of a void contract is
imprescriptible.—Being a void contract, the action or defense for the declaration of its inexistence is
imprescriptible (Article 1410, Civil Code). The defect of a void or inexistent contract is permanent. Mere lapse
of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived (Article 1409,
Civil Code).

FACTS

· Deceased, Julio M. Catolos, formerly owned six (6) parcels of land which was the subject of a
settlement in Special Proceedings No. 3103 of the Court of First Instance represented in the case by
Atty. Sergio Amonoy.

· Court approved the Project of Partition.

· Estate was declared closed and terminated after estate and inheritance taxes had been paid, the
claims against the estate settled and all properties adjudicated.

· Alfonso I. Fornilda and Asuncion M. Pasamba (legal heirs of the deceased) executed a Contract
of Mortgage wherein they mortgaged the Controverted Parcels to Respondent Amonoy as security for
the payment of his attorney’s fees.

· Fornilda and Pasamba died

· Since the mortgage indebtedness was not paid, on 21 January 1970, Respondent Amonoy
instituted foreclosure proceedings before the Court of First Instance

· Petitioners (heirs of Fornilda and Pasamba), as defendants therein, alleged that the amount
agreed upon as attorney’s fees was only P11,695.92 and that the sum of P27,600.00 was
unconscionable and unreasonable.

· Trial Court rendered judgment in the Foreclosure Case ordering the Pasamba and Fornilda heirs
to pay within 90 days P27,600.00.

· Controverted Parcels were foreclosed

· 2 Auction sales were held with Respondent Amonoy as the sole bidder for P23,760.00 and
P12,137.50.

· A year after the judgment in the Foreclosure Case, an action for Annulment of Judgment was
filed before the then Court of First Instance

· the Trial Court dismissed the Annulment Case holding that the particular disqualification in
Article 1491 of the Civil Code is not of general application nor of universal effect but must be
reconciled with the rule that permits judgment creditors to be bidders at sheriffs sales, so that
Respondent Amonoy was “clearly not prohibited from bidding his judgment and his acquisitions
therefore are sanctioned by law”

· Court of Appeals affirmed the aforesaid judgment predicated on three principal grounds: (1) that
no legal impediment exists to bar an heir from encumbering his share of the estate after a project of
partition has been approved, that act being a valid exercise of his right of ownership; (2) res judicata,
since petitioners never questioned the capacity of Respondent Amonoy to acquire the property in the
Foreclosure Case; and (3) the complaint in the Annulment Case did not allege extrinsic fraud nor
collusion in obtaining the judgment so that the action must fail.

ISSUE:
W/N the mortgage constituted on the Controverted Parcels in favor of Respondent Amonoy comes within the
scope of the prohibition in Article 1491 of the Civil Code.

HELD:

“Art. 1491. The following persons cannot acquire by purchase even at a public or judicial or auction, either in
person or through the We find the foregoing submissions without merit. mediation of another:

xxxxxx

(5) Justices, judges, prosecuting attorneys, x x x the property and rights in litigation or levied upon on
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.”

(Italics supplied)

At the time of the execution of the mortgage contract, the Controverted Parcels were still in litigation and a
fiduciary relationship of lawyer and client, which Article 1491[5] precisely seeks to protect, still existed between
the parties.

The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after
the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule
otherwise would be to countenance indirectly what cannot be done directly.

Respondent asserts further that Article 1491[5] does not apply to judgment creditors of which, he claims, he
was one. Under ordinary circumstances, the argument of respondent could be considered plausible.
Unfortunately, however, as heretofore explained, the mortgage was executed in violation of Article 1491[5] so
that this Article has a direct bearing on this case and respondent cannot escape its provision. Having violated
the same, he cannot be considered in the general run of a judgment creditor.

Nonetheless, considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil
Code, supra, is expressly prohibited by law, the same must be held inexistent and void ab initio (Director of
Lands vs. Abagat, 53 Phil. 147).

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

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

xxxxxx

(7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived.” (Civil Code) Being a void contract, the action or defense for
the declaration of its inexistence is imprescriptible (Article 1410, Civil Code). The defect of a void or inexistent
contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of
illegality be waived (Article 1409, Civil Code).

The Controverted Parcels could not have been the object of any mortgage contract in favor of Respondent
Amonoy and consequently neither of a foreclosure sale. By analogy, the illegality must be held to extend to
whatsover results directly from the illegal source (Article 1422, Civil Code). Such being the case, the Trial Court
did not acquire any jurisdiction over the subject matter of the Foreclosure Case and the judgment rendered
therein could not have attained any finality and could be attacked at any time. Neither could it have been a bar
to the action brought by petitioners for its annulment by reason of res judicata. (Municipality of Antipolo
vs.Zapanta, No. L-65334, December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment
as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have been rendered by a Court
having jurisdiction over the subject matter, are conspicuously absent.

And since the nullity of the transaction herein involved proceeds from the illegality of the cause or object of
the contract, and the act does not constitute a criminal offense, the return to petitioners of the Controverted
Parcels is in order.

“Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense,
the following rules shall be observed:

xxxxxx

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand
the return of what he has given without any obligation to comply with his promise.” (Civil Code).

50. The Conjugal Partnership of... vs Lacaya GR NO. 173188

Case #: 50
Case Title: G.R. No. 173188. January 15, 2014.* THE CONJUGAL PARTNERSHIP OF THE SPOUSES VICENTE
CADAVEDO and BENITA ARCOY-CADAVEDO (both deceased) substituted by their heirs, namely: HERMINIA,
PASTORA, Heirs of FRUCTUOSA, Heirs of RAQUEL, EVANGELINE, VICENTE, JR., and ARMANDO, all
surnamed CADAVEDO, petitioners, vs. VICTORINO (VIC) T. LACAYA, married to Rosa Legados,
Respondents.

Case Topic: Article 1491 – Persons relatively incapacitated


Overview of the case:

Attorneys; Legal Ethics; 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.—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.

Facts:

Before this Court is the petition for review on certiorari the challenge to the October 11, 2005 decision and the
May 9, 2006 resolution of the Court of Appeals (CA) in Petitioners, CA-G.R. CV No. 56948. The CA reversed and set
aside the September 17, 1996 decision of the Regional Trial Court (RTC), Branch 10, of Dipolog City in Civil Case No.
4038, granting in part the complaint for recovery of possession of property filed by the petitioners, the Conjugal
Partnership of the Spouses Vicente Cadavedo and Benita Arcoy-Cadavedo against Atty. Victorino (Vic) T. Lacaya,
married to Rosa Legados (collectively, the respondents).

The Spouses Vicente Cadavedo and Benita Arcoy-Cadavedo (collectively, the spouses Cadavedo) acquired
a homestead grant over a 230,765-square meter parcel of land known as Lot 5415 (subject lot) located in Gumay,
Piñan, Zamboanga del Norte. They were issued Homestead Patent No. V-15414 on March 13, 1953 and Original
Certificate of Title No. P-376 on July 2, 1953.On April 30, 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. The contingency fee stipulation
specifically reads: That due to the above circumstances, the plaintiffs were forced to hire a lawyer on contingent
basis and if they become the prevailing parties in the case at bar, they will pay the sum of ₱2,000.00 for
attorney’s fees.

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 sold the subject lot to their children. The spouses
Ames’ TCT No. T-4792 was subsequently cancelled and TCT No. T-25984 was issued in their children’s 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.

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. Meanwhile, the spouses
Ames defaulted in their obligation with the DBP. Thus, the DBP caused the publication of a notice of foreclosure sale
of the subject lot as covered by TCT No. T-25984(under the name of the spouses Ames’ children). Atty. Lacaya
immediately informed the spouses Cadavedo of the foreclosure sale and filed an Affidavit of Third Party Claim with the
Office of the Provincial Sheriff on September 14, 1981.

On September 23, 1981,and pending the RTC’s resolution of the motion for the issuance of a writ of execution, the
spouses Ames filed a complaint before the RTC against the spouses Cadavedo for Quieting of Title or Enforcement of
Civil Rights due Planters in Good Faith with prayer for Preliminary Injunction. The spouses Cadavedo, thru Atty. Lacaya,
filed a motion to dismiss on the ground of res judicata and to cancel TCT No. T-25984 (under the name of the spouses
Ames’ children). The RTC granted the motion for the issuance of a writ of execution in Civil Case No. 1721,and the
spouses Cadavedo were placed in possession of the subject lot on October 24, 1981. Atty. Lacaya asked for one-half
of the subject lot as attorney’s fees. He caused the subdivision of the subject lot into two equal portions, based on area,
and selected the more valuable and productive half for himself; and assigned the other half to the spouses Cadavedo.

Unsatisfied with the division, Vicente and his sons-in-law entered the portion assigned to the respondents and
ejected them. The latter responded by filing a counter-suit for forcible entry before the Municipal Trial Court (MTC).
Vicente and Atty. Lacaya entered into an amicable settlement (compromise agreement) 8 in Civil Case No. 215 (the
ejectment case), re-adjusting the area and portion obtained by each. Atty. Lacaya acquired 10.5383 hectares pursuant
to the agreement. The MTC approved the compromise agreement in a decision dated June 10, 1982.

Meanwhile, the spouses Cadavedo filed before the RTC an action against the DBP for Injunction; the RTC
subsequently denied the petition, prompting the spouses Cadavedo to elevate the case to the CAvia a petition for
certiorari. The CA dismissed the petition in its decision of January 31, 1984. On August 9, 1988, the spouses Cadavedo
filed before the RTC an action against the respondents, assailing the MTC-approved compromise agreement. The
spouses Cadavedo prayed, among others, that the respondents be ejected from their one-half portion of the subject
lot; that they be ordered to render an accounting of the produce of this one-half portion from 1981;and that the RTC fix
the attorney’s fees on a quantum meruit basis, with due consideration of the expenses that Atty. Lacaya incurred while
handling the civil cases.
During the pendency of Civil Case No. 4038, the spouses Cadavedo executed a Deed of Partition of Estate
in favor of their eight children. Consequently, TCT No. 41051 was cancelled and TCT No. 41690 was issued in the
names of the latter. The records are not clear on the proceedings and status of Civil Case No. 3352.

RTC Ruling: The RTC declared the contingent fee of 10.5383 hectares as excessive and unconscionable. The RTC
reduced the land area to 5.2691 hectares and ordered the respondents to vacate and restore the remaining
5.2692hectares to the spouses Cadavedo. The RTC noted that, as stated in the amended complaint filed by Atty.
Lacaya, the agreed attorney’s fee on contingent basis was ₱2,000.00. Nevertheless, the RTC also pointed out
that the parties novated this agreement when they executed the compromise agreement in Civil Case No. 215
(ejectment case), thereby giving Atty. Lacaya one-half of the subject lot. The RTC added that Vicente’s decision
to give Atty. Lacaya one-half of the subject lot, sans approval of Benita, was a valid act of administration and binds the
conjugal partnership. The RTC reasoned out that the disposition redounded to the benefit of the conjugal partnership
as it was done precisely to remunerate Atty. Lacaya for his services to recover the property itself. The RTC was
convinced that the issues involved in Civil Case No. 1721 were not sufficiently difficult and complicated to command
such an excessive award; neither did it require Atty. Lacaya to devote much of his time or skill, or to perform extensive
research.

Finally, the RTC deemed the respondents’ possession, prior to the judgment, of the excess portion of their
share in the subject lot to be in good faith. The respondents were thus entitled to receive its fruits.The RTC
ordered the respondents to account for and deliver the produce and income, valued at ₱7,500.00 per annum, of the
5.2692hectares that the RTC ordered the spouses Amesto restore to the spouses Cadavedo, from October 10, 1988
until final restoration of the premises.

CA Ruling: The CA reversed and set aside the RTC’s decision and maintained the partition and distribution of the
subject lot under the compromise agreement. In so ruling, the CA noted the following facts: (1) Atty. Lacaya served
as the spouses Cadavedo’s counsel from 1969 until 1988,when the latter filed the present case against Atty.
Lacaya; (2) during the nineteen (19) years of their attorney-client relationship, Atty. Lacaya represented the
spouses Cadavedo in three civil cases –Civil Case No. 1721, Civil Case No. 3352, and Civil Case No. 3443; (3)
the first civil case lasted for twelve years and even reached this Court, the second civil case lasted for seven
years, while the third civil case lasted for six years and went all the way to the CA;(4) the spouses Cadavedo
and Atty. Lacaya entered into a compromise agreement concerning the division of the subject lot where Atty.
Lacaya ultimately agreed to acquire a smaller portion; (5) the MTC approved the compromise agreement; (6)
Atty. Lacaya defrayed all of the litigation expenses in Civil Case No. 1721; and (7) the spouses Cadavedo
expressly recognized that Atty. Lacaya served them in several cases.

Considering these established facts and consistent with Canon 20.01 of the Code of Professional
Responsibility (enumerating the factors that should guide the determination of the lawyer’s fees), the CA ruled that the
time spent and the extent of the services Atty. Lacaya rendered for the spouses Cadavedo in the three cases, the
probability of him losing other employment resulting from his engagement, the benefits resulting to the spouses
Cadavedo, and the contingency of his fees justified the compromise agreement and rendered the agreed fee under the
compromise agreement reasonable.

Issue: Whether or not the attorney’s fee consisting of one-half of the subject lot is valid and reasonable, and binds the
petitioners?

Ruling:

The Court ruled in the NEGATIVE. The spouses Cadavedo and Atty. Lacaya agreed on a contingent fee of
₱2,000.00 and not, as asserted by the latter, one-half of the subject lot. The stipulation contained in the amended
complaint filed by Atty. Lacaya clearly stated that the spouses Cadavedo hired the former on a contingency basis; the
Spouses Cadavedo undertook to pay their lawyer ₱2,000.00 as attorney’s fees should the case be decided in their
favor.

At this point, we highlight that as observed by both the RTC and the CA and agreed as well by both parties,
the alleged contingent fee agreement consisting of one-half of the subject lot was not reduced to writing prior to or, at
most, at the start of Atty. Lacaya’s engagement as the spouses Cadavedo’s counsel in Civil Case No. 1721.An
agreement between the lawyer and his client, providing for the former’s compensation, is subject to the ordinary rules
governing contracts in general. As the rules stand, controversies involving written and oral agreements on attorney’s
fees shall be resolved in favor of the former. 17 Hence, the contingency fee of ₱2,000.00 stipulated in the amended
complaint prevails over the alleged oral contingency fee agreement of one-half of the subject lot.

Granting arguendo that the spouses Cadavedo and Atty. Lacaya indeed entered into an oral contingent fee agreement
securing to the latter one-half of the subject lot, the agreement is nevertheless void. In their account, the respondents
insist that Atty. Lacaya agreed to represent the spouses Cadavedo in Civil Case No. 1721 and assumed the litigation
expenses, without providing for reimbursement, in exchange for a contingency fee consisting of one-half of the subject
lot. This agreement is champertous and is contrary to public policy.

Champerty, along with maintenance (of which champerty is an aggravated form), is a common law
doctrine that traces its origin to the medieval period.19 The doctrine of maintenance was directed "against
wanton and in officious intermeddling in the disputes of others in which the intermeddler has no interest
whatever, and where the assistance rendered is without justification or excuse."20 Champerty, on the other
hand, is characterized by "the receipt of a share of the proceeds of the litigation by the intermeddler."21 Some
common law court decisions, however, add a second factor in determining champertous contracts, namely,
that the lawyer must also, "at his own expense maintain, and take all the risks of, the litigation."

In Bautista v. Atty. Gonzales,28 the Court struck down the contingent fee agreement between therein
respondent Atty. Ramon A. Gonzales and his client for being contrary to public policy. There, the Court held that an
reimbursement of litigation expenses paid by the former is against public policy, especially if the lawyer has agreed to
carry on the action at his expense in consideration of some bargain to have a part of the thing in dispute. It violates the
fiduciary relationship between the lawyer and his client.

That Atty. Lacaya also served as the spouses Cadavedo’s counsel in the two subsequent cases did not and
could not otherwise justify an attorney’s fee of one-half of the subject lot. As asserted by the petitioners, the spouses
Cadavedo and Atty. Lacaya made separate arrangements for the costs and expenses for each of these two cases.
Thus, the expenses for the two subsequent cases had been considered and taken cared of Based on these
considerations, we therefore find one-half of the subject lot as attorney’s fee excessive and unreasonable. 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. 32 The same proscription is provided under Rule
10 of the Canons of Professional Ethics.33

In the present case, the following considerations guide this Court in considering and setting Atty.
Lacaya’s fees based on quantum meruit: (1) the questions involved in these civil cases were not novel and did not
require of Atty. Lacaya considerable effort in terms of time, skill or the performance of extensive research; (2) Atty.
Lacaya rendered legal services for the Spouses Cadavedo in three civil cases beginning in 1969 until 1988 when the
petitioners filed the instant case; (3) the first of these civil cases (Cadavedo v. Ames) lasted for twelve years and
reaching up to this Court; the second (Ames v. Cadavedo) lasted for seven years; and the third (Cadavedo and Lacaya
v. DBP) lasted for six years, reaching up to the CA; and (4) the property subject of these civil cases is of a considerable
size of 230,765 square meters or 23.0765 hectares.

51. Rubias vs Batiller GR NO. 35702 Sandoval


Case Title: RUBIAS vs. BATILLER GR NO. 35702
 Case
Topic: Art. 1491 – Persons relatively incapacitated

Overview of the case:
Sales; Prohibition against purchase by lawyer of property in litigation from his client; Article 1491, paragraph (5) of the
Philippine Civil Code construed.—Article 1491 of the Civil Code of the Philippines (like Article 1459 of the Spanish
Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control
either directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents; (3)
administrators; (4) public officers and employees; (5) judicial officers and employees, prosecuting attorneys, and
lawyers; and (6) others specially disqualified by law.

 Same; Prohibited purchase void and produces no legal effect.— Castan's rationale for his conclusion that
fundamental considerations of public policy render void and inexistent such expressly prohibited purchases (e.g. by
public officers and employees of government property intrusted to them and by justices, judges, fiscals and lawyers of
property and rights in litigation submitted to or handled by them, under Article 1491, paragraphs (4) and (5) of the
Civil Code of the Philippines) has been adopted in a new
 article of the Civil Code of the Philippines, viz, Article 1409
declaring such prohibited contracts as "inexistent and void from the beginning."

FACTS:
Petitioner Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of lot
under Psu-99791 located in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his father-in-law,
Francisco Militante in 1956 when he was the counsel of the latter in a land registration case involving the lot in
question against its present occupant defendant, Isaias Batiller, who allegedly entered said portions of the lot on two
occasions—in 1945 and in 1959. In his answer with counter-claim defendant claims the complaint of the plaintiff does
not state a cause of action, the truth of the matter being that he and his predecessors-in-interest have always been in
actual, open and continuous
 possession since time immemorial under claim of ownership of the portions of the lot in
question.

ISSUE: Whether or not the contract of sale between appellant and his father-in-law is void

RULING:
Yes. The purchase by a lawyer of the property in litigation from his clients is categorically prohibited by Article 1491,
paragraph 5 of the Civil Code, and that the plaintiff’s purchase of the property in litigation from his client was void and
could produce no legal effect by virtue of Article 1409, paragraph of the Civil Code which provides that “contracts
expressly prohibited or declared void by law” are “inexistent and void from the beginning” and that “these contracts
cannot be ratified”.
Article 1491of the Civil Code prohibits certain persons, by reason of the relation of trust or their peculiar control over
the property from acquiring such property in their trust or control directly or indirectly and even at a public or judicial
auction as follows: a) guardians, b) agents, c) administrators, d) public officers and employees, judicial officers and
employees, prosecuting attorneys, and lawyers, and e) others especially disqualified by law.

52. Phil Suburban vs Auditor GR NO. 19545 Baril

Philippine Suburban Development Corporation v The Auditor General, Pedro Gimenez (Antonio, 1975)
Topic: Symbolic Delivery/Delivery by Public Instrument

FACTS
On June 8, 1960, in a Cabinet meeting, the President approved in principle the acquisition of the unoccupied
portion of the Sapang Palay Estate in Sta Maria, Bulacan for relocating squatters who desire to settle in the
north of Manila and of another area in Las Pinas or Paranaque.

The Board of Directors of PHHC passed a resolution authorizing the purchase of the unoccupied portion of
the Sapang Palay Estate at P 0.45 per sqm “subject to the following conditions precedent: x x

3.That the President of the Philippines shall first provide the PHHC with the necessary funds to effect the
purchase and development of this property from the proposed P4.5 million bond issue to be absorbed by the
GSIS.

4.That the contract of sale shall first be approved by the Auditor General pursuant to Executive Order dated
February 3, 1959.”
Petitioner Philippine Suburban Development Corp, owner of the unoccupied portion of Sapang Palay,
entered into a contract with PHHC embodied in a public instrument entitled “Deed of Absolute Sale” whereby
petitioner conveyed to PHHC 2 parcels of land for P 3, 386, 223.

The DAS was not registered in the Office of the Register of Deeds because the PHHC could not at once
advance the money needed for registration expenses. The Auditor General, to whom a copy of the contract
had been submitted for approval in conformity with Executive Order No. 290, expressed objections thereto
and requested a re-examination of the contract, because from 1948 to December 20, 1960, the entire
hacienda was assessed at P131,590.00, and reassessed beginning December 21, 1960 in the greatly
increased amount of P4,898,110.00.

On the first week of June, 1960 prior to the signing of the deed, PHHC acquired possession of the property,
with consent of petitioner, to construct roads in the new settlement.

Provincial Treasurer of Bulacan requested PHHC to withhold P 30k from the purchase price to be paid by
petitioner.

Petitioner: Auditor General erred in disallowing the refund of the real estate tax in P 30k because there was
presumptive delivery and the possession of the property was actually delivered to the vendee prior to the
sale, petitioner has ceased to be the owner of the property thus had no obligation to pay real property tax.

Respondent: Art 1498 does not apply because the contract requires that the Auditor General approve the
sale pursuant to an E.O. Later, the President must sign.

Auditor General – disallowed request of petitioner for the refund of real estate tax – appealed to the SC

ISSUES
WON there was a valid transfer of ownership between parties – YES

Under the civil law, delivery (tradition) as a mode of transmission of ownership maybe actual (real tradition)
or constructive (constructive tradition). When the sale of real property is made in a public instrument, the
execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.

There is symbolic delivery of the property subject of the sale by the execution of the public instrument,
unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention
of the parties. Such would be the case, for instance, when a certain date is fixed for the purchaser to take
possession of the property subject of the conveyance, or where, in case of sale by installments, it is
stipulated that until the last installment is made, the title to the property should remain with the vendor, or
when the vendor reserves the right to use and enjoy the properties until the gathering of the pending crops,
or where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material
delivery could not have been made.

In the case at bar, there is no question that the vendor had actually placed the vendee in possession and
control over the thing sold, even before the date of the sale. The condition that petitioner should first register
the deed of sale and secure a new title in the name of the vendee before the latter shall pay the balance of the
purchase price, did not preclude the transmission of ownership. In the absence of an express stipulation to
the contrary, the payment of the purchase price of the good is not a condition, precedent to the transfer of
title to the buyer, but title passes by the delivery of the goods.

We, therefore, hold that the payment of the real estate tax after such transfer is the responsibility of the
purchaser. However, in the case at bar, the purchaser PHHC is a government entity not subject to real
property tax.
➢ APPEALED DECISION REVERSED

53. Addison vs Felix GR NO. 12342 Carino

A. A. ADDISON, plaintiff-appellant, vs. MARCIANA FELIX and BALBINO TIOCO, defendants-appellees, G.R.
No. L-12342, August 3, 1918

Facts:
The defendants-appellees spouses Maciana Felix and Balbino Tioco purchased from plaintiff-appellant A.A.
Addison four parcels of land to which Felix paid, at the time of the execution of the deed, the sum of P3,000
on account of the purchase price. She likewise bound herself to the remainder in installments, the first of
P,2000 on July 15, 1914, the second of P5,000 thirty days after the issuance to her of a certificate of title
under the Land Registration Act, and further, within ten years from the date of such title, P10 for each
cocoanut tree in bearing and P5 for each such tree not in bearing that might be growing on said parcels of
land on the date of the issuance of title to her, with the condition that the total price should not exceed
P85,000. It was further stipulated that Felix was to deliver to the Addison 25% of the value of the products
that she might obtain from the four parcels "from the moment she takes possession of them until the Torrens
certificate of title be issued in her favor," and that within 1 year from the date of the certificate of title in her
favor, Marciana Felix may rescind the contract of purchase and sale.

In January 1915, Addison , filed suit in the CFI of Manila to compel Felix to pay the first installment of P2,000,
demandable, in accordance with the terms of the contract of sale. The defendants Felix and her husband
Tioco contended that Addison had absolutely failed to deliver the lands that were the subject matter of the
sale, notwithstanding the demands they made upon him for this purpose. The evidence adduced shows
Addison was able to designate only two of the four parcels, and more than two-thirds of these two were
found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts he so
occupied. The trial court held the contract of sale to be rescinded and ordered Addison to return to Felix the
P3,000 paid on account of the price, together with interest thereon at the rate of 10% per annum.

Issue:

Whether or not there was a delivery made and, therefore, a transfer of ownership of the thing sold.

Held:

No. The record shows that the plaintiff did not deliver the thing sold. With respect to two of the parcels of
land, he was not even able to show them to the purchaser; and as regards the other two, more than two-
thirds of their area was in the hostile and adverse possession of a third person.
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be
delivered when it is placed "in the hands and possession of the vendee." (Civ. Code, art. 1462.) It is true that
the same article declares that the execution of a public instruments is equivalent to the delivery of the thing
which is the object of the contract, but, in order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment
of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the
ownership and the right of possession. The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of
the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material
tenancy of the thing and make use of it himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then fiction yields to reality — the delivery has
not been effected.
It is evident, then, in the case at bar, that the mere execution of the instrument was not a fulfillment of the
vendors' obligation to deliver the thing sold, and that from such non-fulfillment arises the purchaser's right
to demand, as she has demanded, the rescission of the sale and the return of the price. (Civ. Code, arts. 1506
and 1124.)
Of course if the sale had been made under the express agreement of imposing upon the purchaser the
obligation to take the necessary steps to obtain the material possession of the thing sold, and it were proven
that she knew that the thing was in the possession of a third person claiming to have property rights therein,
such agreement would be perfectly valid. But there is nothing in the instrument which would indicate, even
implicitly, that such was the agreement.

54. Mendoza vs Kalaw GR NO. 16420


CASE #: 54
CASE TITLE: Mendoza vs. Kalaw [Gr. No. 16420. October 12, 1921]
CASE TOPIC: Double Sales
OVERVIEW OF THE CASE: FACTS OF THIS CASE.—C sold a parcel of land to K under "pacto
de retro." About two weeks later C sold the same parcel of land, by an absolute
deed of sale, to M, who, four days thereafter, took possession of said land and
enclosed it with a fence. A representative of K then tried to obtain pos session of
the land from M but the latter refused to deliver it. Then Z tried to have his
"pacto de retro" registered in the registry of deeds; but, for some valid reasons,
the register of deeds declined to register the same and only made a "pre ventative
precautionary notice" (anotacion preventiva) of K's "pacto de retro." Later, M
applied for the registration of said parcel of land under the Torrens system, and
K opposed the same upon the ground that he was the owner thereof by virtue of
his "pacto de retro." Held: M was entitled to have said land registered in his
name. He has a better title to said land than K because he (M) had acquired it by
an absolute deed of sale and had taken possession thereof prior to K.
FACTS: (1) That on the 24th day of September, 1919, the said Federico Cañet
sold, under a conditional sale, the parcel of land in question to the appellant
(Exhibit 1);
(2) That on the 8th day of November, 1919, the said Federico Cañet
made an absolute sale of said parcel of land to the petitioner Agripino
Mendoza (Exhibit B);
(3) That on the 12th day of November, 1919, Agripino Mendoza
entered upon, and took actual possession of, said parcel of land, enclosed it
with a fence, and began to clean the same;
(4) That after the petitioner had fenced and cleaned said lot, as above
indicated, a representative of the oppositor claimed and att possession of said lot, but the petitioner, who was then in
possession,
refused to de liver the possession, upon the ground that he was the owner;
(5) That on the 17th day of November (18th day of November), 1919,
the oppositor attempted to have his title registered in the registry of deeds of
the City of Manila, but such registration was denied by the register of deeds
for the reason that there existed some defect in the descrip tion of the
property, and for the reason that the title of the vendor had not theretofore
been registered. The reg ister of deeds, however, did make an "anotacion
preventiva."empted to obtain
ISSUE: WON there was a double sale?
RULING: NO.
While we have stated that there were two sales of the parcel of
land in question, that is hardly the fact, because a conditional sale,
before the performance of the condition, can hardly be said to be a
sale of property, especially where the condition has not been
performed or complied with. That being true, article 1473 of the
Civil Code can hardly be said to be applicable.
The first was but a con ditional sale while the latter was an
absolute sale. It will also be noted that while the absolute sale to the
petitioner was subsequent to the conditional sale to the oppositor, the
former obtained the actual possession of the property first. It will
further be noted from a reading of Exhibits 1 and B that the
petitioner actually paid to his vendor the purchase price of the
property in question, while the payment by the oppositor depended
upon the performance of certain conditions mentioned in the
contract of sale.

55. Villa Rey Transit vs. Ferrer 25 SCRA 861 Jaugan

56. Balatbat vs CA GR NO. 109410 Sabornido


Case #: 56
Case Title: Balatbat vs. CA
Case Topic: Article 1544: DOUBLE SALES - If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.

Overview of the case:


Same; Same; A contract of sale being consensual, it is perfected by the mere consent of the parties.—A contract of
sale being consensual, it is perfected by the mere consent of the parties. Delivery of “the thing bought or payment of
the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution
of the contract does not make the sale null and void for lack of consideration but results at most in default on the part
of the vendee, for which the vendor may exercise his legal remedies.

Same; Same; Double Sales; Persons to whom ownership of an immovable property shall be transferred in case of
double sale.—Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership
shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in
default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who
presents the oldest title, provided there is good faith.

Same; Same; Same; As between two purchasers, the one who has registered the sale in his favor, has a preferred
right over the other who has not registered his title even if the latter is in actual possession of the immovable property.—
As between two purchasers, the one who has
registered the sale in his favor, has a preferred right over the other who has not registered his title even if the latter is
in actual possession of the immovable property. Further, even in default of the first registrant or first in possession,
private respondents have presented the oldest title. Thus, private respondents who acquired the subject property in
good faith and for valuable consideration established a superior right as against the petitioner.

Facts:

A parcel of land was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union. Maria died on
August 28, 1966. On June 15, 1977, Aurelio filed a case for partition. The trial court held that Aurelio is entitled to the
½ portion at his share in the conjugal property, and 1/5 of the other half which formed part of Maria’s estate, divided
equally among him at his 4 children. The decision having become final and executory, the Register of Deeds of Manila
issued a transfer certificate of title on October 5, 1979 according to the ruling of the court. On April 1, 1980, Aurelio sold
his 6/10 share to spouses Aurora Tuazon-Repuyan and Jose Repuyan, as evidenced by a deed of absolute sale. On
June 21, 1980, Aurora caused the annotation of her affidavit of adverse claim. On August 20, 1980, Aurelio filed a
complaint for rescission of contract grounded on the buyers’ failure to pay the balance of the purchase price. On
February 4, 1982, another deed of absolute sale was executed between Aurelio and his children, and herein petitioner
Clara Balatbat, involving the entire lot. Balatbat filed a motion for the issuance of writ of possession, which was granted
by the court on September 20, 1982, subject to valid rights and interests of third persons. Balatbat filed a motion to
intervene in the rescission case, but did not file her complaint in intervention. The court ruled that the sale between
Aurelio and Aurora is valid.

Issues:

Whether or not the law on Double Sales as stated in Article 1544 of the New Civil Code is applicable in the case
at bar. (YES)

Ruling:

Contrary to petitioner’s contention that the sale dated April 1, 1980 in favor of private respondents Repuyan was merely
executory for the reason that there was no delivery of the subject property and that consideration/price was not fully
paid, SC find the sale as consummated, hence, valid and enforceable. The Court dismissed vendor’s Aurelio Roque
complaint for rescission of the deed of sale and declared that the Sale dated April 1, 1980, as valid and enforceable.
No appeal having been made, the decision became final and executory.
The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to
the vendee, who may thereafter exercise the rights of an owner over the same. In the instant case, vendor Roque
delivered the owner’s certificate of title to herein private respondent. The provision of Article 1358 on the necessity of
a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a
contract of sale of a parcel of land that this be embodied in a public instrument. A contract of sale being consensual, it
is perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is not necessary
for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not
make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which
the vendor may exercise his legal remedies.

Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall
be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2)
in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the
person who presents the oldest title, provided there is good faith.

In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share to private respondents Repuyan on April 1,
1980. Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10) and his children (4/10), represented
by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on February 4, 1982. Undoubtedly, this is
a case of double sale contemplated under Article 1544 of the New Civil Code.
Evidently, private respondents Repuyan’s caused the annotation of an adverse claim on the title of the subject property
on July 21, 1980. The annotation of the adverse claim in the Registry of Property is sufficient compliance as mandated
by law and serves notice to the whole world. On the other hand, petitioner filed a notice of lis pendens only on February
2, 1982. Accordingly, private respondents who first caused the annotation of the adverse claim in good faith shall have
a better right over herein petitioner. As between two purchasers, the one who has registered the sale in his favor, has
a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable
property. Further, even in default of the first registrant or first in possession, private respondents have presented the
oldest title. Thus, private respondents who acquired the subject property in good faith and for valuable consideration
established a superior right as against the petitioner.

Petitioner cannot be considered as a buyer in good faith. If petitioner did investigate before buying the land on February
4, 1982, she should have known that there was a pending case and an annotation of adverse claim was made in the
title of the property before the Register of Deeds and she could have discovered that the subject property was already
sold to the private respondents. It is incumbent upon the vendee of the property to ask for the delivery of the owner’s
duplicate copy of the title from the vendor. One who purchases real estate with knowledge of a defect or lack of title in
his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an
interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon
such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. Good
faith, or the want of it is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind
which can only be judged of by actual or fancied tokens or signs.

57. Occena vs Esponilla 431 SCRA 116 Clarion


SPOUSES TOMAS OCCEÑ A and SILVINA OCCEÑ A, petitioners, vs. LYDIA MORALES OBSIANA ESPONILLA,
ELSA MORALES OBSIANA SALAZAR and DARFROSA OBSIANA SALAZAR ESPONILLA, respondents.
Civil Law; Property; Double Sale; To whom ownership shall belong in case of sale of an immovable property to
different vendees.—Article 1544 of the New Civil Code provides that in case an immovable property is sold to
different vendees, the ownership shall belong: (1) to the person acquiring it who in good faith first recorded it in the
Registry of Property; (2) should there be no inscription, the ownership shall pertain to the person who in good faith
was first in possession; and, (3) in the absence thereof, to the person who presents the oldest title, provided there is
good faith.
Same; Same; Same; When is a person deemed a purchaser in good faith and for value; A buyer of real property in
the possession of persons other than the seller must be wary and should investigate the rights of those in possession
otherwise he can hardly be regarded as a buyer in good faith and cannot have any right over the property.—In the
case at bar, we find that petitioner-spouses failed to prove good faith in their purchase and registration of the land. A
purchaser in good faith and for value is one who buys property without notice that some other person has a right to or
interest in such property and pays its fair price before he has notice of the adverse claims and interest of another
person in the same property. So it is that the “honesty of intention” which constitutes good faith implies a freedom
from knowledge of circumstances which ought to put a person on inquiry. At the trial, Tomas Occeña admitted that he
found houses built on the land during its ocular inspection prior to his purchase. He relied on the representation of
vendor Arnold that these houses were owned by squatters and that he was merely tolerating their presence on the
land. Tomas should have verified from the occupants of the land the nature and authority of their possession instead
of merely relying on the representation of the vendor that they were squatters, having seen for himself that the land
was occupied by persons other than the vendor who was not in possession of the land at that time. The settled rule is
that a buyer of real property in the possession of persons other than the seller must be wary and should investigate
the rights of those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and
cannot have any right over the property. A purchaser cannot simply close his eyes to facts which should put a
reasonable man on his guard and then claim that he acted in good faith under the belief that there was no defect in
the title of his vendor. His mere refusal to believe that such defect exists or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor’s title will not make him an innocent purchaser for value if it later
develops that the title was in fact defective, and it appears that he would have notice of the defect had he acted with
that measure of precaution which may reasonably be required of a prudent man in a similar situation.
FACTS: The case involves a portion of the 1,198-square meter residential lot situated in Sibalom, Antique, originally
owned by deceased spouses Nicolas and Irene Tordesillas. They had (3) children: Harod, Angela and Rosario, the
latter having been survived by her (2) children, Arnold and Lilia de la Flor.
The lot was inherited by Harod and Angela, and grandchildren Arnold and Lilia. In 1951, they executed a Deed of
Pacto de Retro Sale in favor of Alberta Morales covering the southwestern portion of the lot with an area of 748
square meters.
3 years later, in 1954, Arnold and Lilia executed a Deed of Definite Sale of Shares, Rights, Interests and
Participations(their share) over the 748 sq. m. lot in favor of Alberta Morales.Alberta possessed the lot as owner,
constructed a house on it and appointed a caretaker to oversee her property. In July 1956, Arnold borrowed the OCT
from Alberta covering the lot & executed an Affidavit acknowledging receipt of the OCT in trust and undertook to
return said title free from changes, modifications or cancellations.
In 1966, Arnold and Angela, without the knowledge of Alberta, declared themselves as the only co-owners of the
undivided 1,198 sq. m., without acknowledging their previous sale of 748 sq. m. thereof to Alberta. A number of
times,Alberta and her nieces asked Arnold for the OCT of the land but Arnold just kept on promising to return it.
In 1983, Arnold declared himself sole heir of Angela who died in 1978 and thus consolidating the title of the entire lot
in his name.
In 1985,Alberta Morales died. Her nieces-heirs, Lydia, Elsa and Dafrosa, succeeded in the ownership of the lot.
Months later, before they left for US they again asked Arnold for the OCT so they can register it in their names.
Arnold repeatedly promised to do so but failed to deliver the title to them.
On 1986, after Alberta’s heirs left for the States, Arnold subdivided the entire lot into three sublots, and registered
them all under his name, viz.: lot No. 265-A (with TCT No. 16895), lot No. 265-B (with TCT No. 16896) and lot No.
265-C (with TCT No. 16897). He then paid the real estate taxes on the property.
On August 13, 1990, Arnold sold lot Nos. 265-B & C to spouses Tomas and Sylvina Occena ̃ , which included the 748
sq. m. A Deed of Absolute Sale over said lots was executed to the Occeña spouses and titles were transferred to
their names.
In 1993, after the death of Arnold, the (3) nieces-heirs of Alberta Morales learned about the second sale of their lot to
the Occeña spouses. In 1994, the heirs filed a case for annulment of sale and cancellation of titles, with damages,
against Occeña spouses. In their complaint, they alleged that the Occena ̃ s purchased the land in bad faith as they
were aware that the lots sold to them had already been sold to Alberta Morales in 1954. That when Tomas Occeña
conducted an ocular inspection of the lots, the caretaker Abas warned them not to push through with the sale as the
land was no longer owned by Arnold.

58. Navarro vs Second Laguna Devt Bank 398 SCRA 227 Comaling
59. La Fuerza vs CA GR NO. 24069 Astronomo
LA FUERZA, INC., petitioner, vs. THE HON. COURT OF APPEALS and ASSOCIATED ENGINEERING Co., INC.,
respondents.
Same; Acceptance by vendee cannot be regarded as a condi-tion to complete delivery.—Delivery is an act of the
vendor. Thus, one of the obligations of the vendor is the delivery of the thing sold (Art. 1495). The vendee has
nothing to do with the act of delivery by the vendor. On the other hand, acceptance is an obligation on the part of the
vendee (Art. 1582). Delivery and acceptance are two distinct and separate acts of different parties. Consequently,
acceptance cannot be regarded as a condition to complete delivery.
FACTS:
Plaintiff, Associated Engineering Co., Inc. is a corporation engaged in the manufacture and installation of flat belt
conveyors. The defendant,La Fuerza, Inc.is also a corporation engaged in the manufacture of wines.January, 1960,
Antonio Co, the manager of plaintiff, called Mariano Lim, the President and general manager of the defendant that he
had just visited their plan in Rizal was impressed by its size and beauty but he believed it needed a conveyor system
to convey empty bottles from the storage room in the plant to the bottle washers In the production room thereof. He
therefore offered his services to manufacture and install a conveyor system which, according to him, would increase
production and efficiency of his business. Mariano did not make up his mind then but suggested to Antonio Co to put
down his offer in writing. Effectively, on February 4, 1960, Antonio Co submitted his offer in writing in a letter dated
February 4, 1960. Mariano Lim did not act on the said offer until February 11, 1960, when Antonio Co returned to
inquire about the action of the defendant on his said offer. Mariano then expressed his conformity to the offer made
by writing at the foot thereof under the word “confirmation” his signature. He caused, however, to be added to this
offer at the foot a note which reads: “All specifications shall be in strict accordance with the approved plan made part
of this agreement hereof.” A few days later, Antonio Co made the demand for the down payment of P5,000.-00 which
was readily delivered thru check. Several trial runs were made then totalling about five. it was discovered that the
conveyor system did not function to their satisfaction for the reason that, when operated several bottles collided with
each other, some jumping off the conveyor belt and were broken, causing considerable damage. It was so sluggish
and that their old system of carrying the bottles.
“After the last trial run in the month of July and after co was advised to make the necessary and proper adjustments
or corrections in order to improve the efficiency of the conveyor system, the defects had not been remedied so they
parted ways. when the plaintiff billed the defendant for the balance of the contract price, the latter refused to pay for
the reason that according to the defendant the conveyor system installed by the plaintiff did not serve the purpose for
which the same was manufactured and installed at. such a heavy expense. The flat belt conveyors installed in the
factory of the defendant are still there.
ISSUE: WON there has been, in contemplation of law, no delivery of the conveyors by the plaintiff? WON (assuming
there was delivery, the 6 mos prescription refers to teh period where lafuerza may bring an action to demand
compliance of the warranty against hidden defects”, not the action for rescission of the contract.

HELD: Upon the completion of the installation of the conveyors in May, 1960, particularly after the last trial run, in July
1960, La Fuerza was in a position to decide whether or not it was satisfied with said conveyors, and, hence, to state
whether the same were accepted or rejected. The failure of La Fuerza to express categorically whether they accepted
or rejected the conveyors does not detract from the fact that the same were actually in its possession and control;
that, accordingly, the conveyors had already been delivered by the plaintiff;

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he
was not aware thereof.
“This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults
or defects in the thing sold.
Art. 1567. ln 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.
x x x x”
Pursuant to these two (2) articles, if the thing sold has; hidden faults or defects—as the conveyors are claimed have
vendor—the Plaintiff—shall be responsible therefor and the vendee— La Fuerza “may elect between withdrawing
from the contract and demanding a proportional reduction the price,with damages in either case”, La Fuerza had
chosen to withdraw from the contract, by praying for its rescission. HOWEVER 1571—shall be barred after six
months, from the deliv-
ery of the thing sold.” The period of four (4) year’s, provided in Art. 1389 of said Code, for “the action to claim
rescission,” applies to contracts, in general, and must yield, in the instant case, to said Art. 1571, which refers to
sales in particular.

60. Villarica vs CA GR NO. 19196 Abellanida

Case title: VILLARICA v. COURT OF APPEALS


Case topic: right of redemption
Overview of the case: Option to buy"; "Right of repurchase"; Where an instrument of absolute sale cannot be
presumed and construed as an equitable mortgage; Case at bar.—Where (a) the price of the real estate property—
subject matter of an instrument of absolute sale—was not inadequate, (b) the vendor did not remain in possession of
the land sold as lessee or otherwise: (c) the vendee as new owner granted the vendor merely an option to buy the
property sold within a certain period of time from the execution of the instrument of sale, and (d) the taxes paid by the
vendor were back taxes up to the time of the sale, said instrument of absolute sale cannot be presumed and construed
as an equitable mortgage.

An option to buy is different and distinct from the right of repurchase which must be reserved by the vendor, by
stipulation to that effect, in the contract of sale. This is clear from the provision of Article 1601 of the Civil Code.

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument
of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted
the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option
to buy in the instant case. Hence, in the case at bar, Exhibits "B" and "D" cannot be considered as evidencing a contract
of - sale with pacto de retro. Since Exh. "D" did not evidence a right to repurchase but an option to buy, the extension
of the period of one year for the exercise of the option by one month does not fall under No. 3 of Article 1602 of the
Civil Code.

Facts:
On May 19, 1951, the spouses Angel Villarica and Nieves Palma Gil de Villarica sold to the spouses Gaudencio
Consunji and Juliana Monteverde a lot containing an area of 1,174 sq. meters, situated in the poblacion of the City of
Davao, for the price of P35,000. The instrument of absolute sale dated May 19, 1951 in the form of a deed poll, drafted
by Counselor Juan B. Espolong who had been appointed by the Villaricas as their agent to sell the lot, was
acknowledged on May 25, 1951, before the same Juan B. Espolong who was also a Notary Public. The public
instrument of absolute sale and the vendors' TCT were delivered to the vendees. On the same day, the spouses
Consunji executed another public instrument whereby they granted the spouses Villarica an option to buy the same
property within the period of one year for the price of P37,750. In July, same year, the spouses Consunji registered the
absolute deed of sale in consequence of which TCT in the names of the spouses Villarica was cancelled and a new
TCT was issued in the names of the spouses Consunji. In February, 1953, the spouses Consunji sold the lot to Jovito
S. Francisco for the price of P47,000 by means of a public instrument of sale. This public instrument of sale was
registered in view of which the TCT in the names of the spouse Consunji was cancelled and a new TCT in the name of
Jovito S. Francisco was issued.

On April 14, 1953, the spouses Villarica brought an action in the Court of First Instance of Davao against the spouses
Consunji and Jovito S. Francisco for the reformation of the instrument of absolute sale into an equitable mortgage as
a security for a usurious loan of P28,000 alleging that such was the real intention of the parties. Defendants answered
that the deed of absolute sale expressed the real intention of the parties and they also alleged a counterclaim for sums
of money borrowed by the plaintiffs from the Consunjis which were then due and demandable.

- CFI says yes it is an equitable mortgage. Francisco deemed purchaser in good faith.
- CA reversed the decision. Case is not one of those under art. 2208 ncc.

Issue:

Does villarica have the right of redemption?

Held:

No, the court has held that Consunjis as new owners of the lot granted the Villaricas an option to buy the property within
the period of one year from May 25, 1951 for the price of P37,750. Said option to buy is different and distinct from the
right of repurchase which must be reserved by the vendor, by stipulation to that effect, in the contract of sale. This is
clear from Article 1601 of the Civil Code, which provides:

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the
obligation to comply with the provisions of article 1616 and other stipulation which may have been agreed upon.

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as one of the contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant
case.

Hence, Exhibits "B" and "D" cannot be considered as evidencing a contract of sale with pacto de retro. Since Exh. "D"
did not evidence a right to repurchase but an option to buy, the extension of the period of one year for the exercise of
the option by one month does not fall under No. 3, of Article 1602 of the Civil Code, which provides that:

When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or
granting a new period is executed.

PREMISES CONSIDERED, the judgment of the Court of Appeals is hereby affirmed, with costs against petitioners also
in this instance.
61. Tapas vs CA GR NO. 22202 Caballero
62. Dimaguila vs Monteiro GR NO. 201011 Trinidad
63. Baluran vs Navarro GR NO. 44428 Pendon
64. Sui Man Hui Chan vs CA GR NO. 147999 Medellin