Case Digest on SALES LAW

COMPILATION OF CASE DIGESTS SUBJECT MATTER OF SALE 1. MELLIZA vs CITY OF ILOILO (23 SCRA 477) Facts: Juliana Melliza during her lifetime owned, among other properties, 3 parcels of residential land in Iloilo City (OCT 3462).Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot 1214 was 29,073 sq. m. On 27 November 1931she donated to the then Municipality of Iloilo, 9,000 sq. m. of Lot 1214, to serve as site for the municipal hall. The donation was however revoked by the parties for the reason that the area donated was found inadequate to meet the requirements of the development plan of the municipality, the so-called “Arellano Plan.”

SALES the sum of P6,422; these lots and portions being the ones needed by the municipal government for the construction of avenues, parks and City hall site according the “Arellano plan.” On 14 January 1938, Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva (thereafter TCT 18178). Remedios in turn on 4 November1946 transferred her rights to said portion of land to Pio Sian Melliza (thereafter TCT 2492). Annotated at the back of Pio Sian Melliza‟s title certificate was the following “that a portion of 10,788 sq. m. of Lot 1214 now designated as Lots 1412-B-2 and1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated 15 November 1932.” On 24 August 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo,

Subsequently, Lot 1214 was divided by Certeza Surveying Co.,

donated the city hall site together with the building thereon,

Inc. into Lots 1214-A and 1214-B. And still later, Lot 1214-B

to the University of the Philippines (Iloilo branch). The site

was further divided into Lots 1214-B-1, Lot 1214-B-2 and

donated consisted of Lots 1214-B, 1214-C and 1214-D, with

Lot1214-B-3. As approved by the Bureau of Lands, Lot 1214-

a total area of 15,350 sq. m., more or less. Sometime in 1952,

B-1, with 4,562 sq. m., became known as Lot 1214-B; Lot

the University of the Philippines enclosed the site donated with

1214-B-2,with 6,653 sq. m., was designated as Lot 1214-C;

a wire fence. Pio Sian Melliza thereupon made representations,

and Lot 1214-B-3, with 4,135 sq. m., became Lot 1214-D. On

thru his lawyer, with the city authorities for payment of the

15 November1932, Juliana Melliza executed an instrument

value of the lot (Lot 1214-B). No recovery was obtained,

without any caption providing for the absolute sale involving

because as alleged by Pio Sian Melliza, the City did not have

all of lot 5, 7669 sq.m. of Lot 2 (sublots 2-B and 2-C), and a

funds. The University of the Philippines, meanwhile, obtained

portion of 10,788 sq. m. of Lot 1214 (sublots 1214-B2 and

Transfer Certificate of Title No. 7152 covering the three lots,

1214-B3) in favor of the Municipal Government of Iloilo for

Nos. 1214-B,1214-C and 1214-D.On 10 December 1955 Pio Sian Melizza filed an action in the CFI Iloilo against Iloilo City

1

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

and the University of the Philippines for recovery of Lot 1214-

HELD: The paramount intention of the parties was to provide

B or of its value. After stipulation of facts and trial, the CFI

Iloilo municipality with lots sufficient or adequate in area for

rendered its decision on 15 August 1957, dismissing the

the construction of the Iloilo City hall site, with its avenues

complaint. Said court ruled that the instrument executed by

and parks. For this matter, a previous donation for this

Juliana Melliza in favor of Iloilo municipality included in the

purpose between the same parties was revoked by them,

conveyance Lot 1214-B, and thus it held that Iloilo City had

because of inadequacy of the area of the lot donated. Said

the right to donate Lot 1214-B to UP. Pio Sian Melliza

instrument described 4parcels of land by their lot numbers

appealed to the Court of Appeals. On 19 May 1965, the CA

and area; and then it goes on to further describe, not only

affirmed the interpretation of the CFI that the portion of Lot

those lots already mentioned, but the lots object of the sale,

1214 sold by Juliana Melliza was not limited to the 10,788

by stating that said lots were the ones needed for the

square meters specifically mentioned but included whatever

construction of the city hall site, avenues and parks according

was needed for the construction of avenues, parks and the city

to the Arellano plan. If the parties intended merely to cover

hall site. Nonetheless, it ordered the remand of the case for

the specified lots (Lots 2, 5, 1214-C and 1214-D), there

reception of evidence to determine the area actually taken by

would scarcely have been any need for the next paragraph,

Iloilo City for the construction of avenues, parks and for city

since these lots were already plainly and very clearly described

hall site. Hence, the appeal by Pio San Melliza to the Supreme

by their respective lot number and areas. Said next paragraph

Court.

does not really add to the clear description that was already

One of his causes of action was that the contract of sale executed between Melliza and the Mun. referred only to lots 1214-C and 1214-D and it is unwarranted to include lot 1214-B as being included under the description therein because that would mean that the object of the contract of

given to them in the previous one. It is therefore the more reasonable interpretation to view it as describing those other portions of land contiguous to the lots that, by reference to the Arellano plan, will be found needed for the purpose at hand, the construction of the city hall site.

sale would be indeterminate. One of the essential

The requirement of the law that a sale must have for its object

requirements for a contract of sale is that it should have for its

a determinate thing, is fulfilled as long as, at the time the

object a determinate thing.

contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or

2

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

further agreement between the parties (Art. 1273, old Civil

judgment for the P3,000 and the additional P1,200. Judgment

Code; Art. 1460, New Civil Code). The specific mention of

was rendered for P3,000 only, and from this judgment both

some of the lots plus the statement that the lots object of the

parties appealed.

sale are the ones needed for city hall site; avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties. The Supreme Court affirmed the decision appealed from insofar as it affirms that of the CFI, and dismissed the complaint; without costs 2. YU TEK vs GONZALES (29 Phil 384) FACTS: A written contract was executed between Basilio Gonzalez and Yu Tek and Co., where Gonzales was obligated

Defendant alleges that the court erred in refusing to permit parol evidence showing that the parties intended that the sugar was to be secured from the crop which the defendant raised on his plantation, and that he was unable to fulfill the contract by reason of the almost total failure of his crop. The second contention of the defendant arises from the first. He assumes that the contract was limited to the sugar he might raise upon his own plantation; that the contract represented a perfected sale; and that by failure of his crop he was relieved from complying with his undertaking by loss of the thing due. (Arts. 1452, 1096, and 1182, Civil Code.)

to deliver600 piculs of sugar of the 1st and 2nd grade to Yu

ISSUES: 1) Whether compliance of the obligation to deliver

Tek, within the period of 3 months (1 January-31 March 1912)

depends upon the production in defendant‟s plantation

at any place within the municipality of Sta. Rosa, which Yu Tek & Co. or its representative may designate; and in case,

2) Whether there is a perfected sale

Gonzales does not deliver, the contract will be rescinded and

3) Whether liquidated damages of P1,200 should be awarded

Gonzales shall be obligated to return the P3,000 received and

to the plaintiff

also the sum of P1,200by way of indemnity for loss and damages. No sugar had been delivered to Yu Tek & Co. under this contract nor had it been able to recover the P3,000. Yu Tek & Co. filed a complaint against Gonzales, and prayed for

3

SALES under ATTY. PAOLO DIMAYUGA

HELD: 1) The case appears to be one to which the rule which excludes parol evidence to add to or vary the terms of a written contract is decidedly applicable. There is not the slightest intimation in the contract that the sugar was to be

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

raised by the defendant. Parties are presumed to have reduced

contract which did not provide for either delivery of the price

to writing all the essential conditions of their contract. While

or of the thing until a future time. In Barretto vs. Santa Marina

parol evidence is admissible in a variety of ways to explain the

(26 Phil 200),specified shares of stock in a tobacco factory

meaning of written contracts, it cannot serve the purpose of

were held sold by a contract which deferred delivery of both

incorporating into the contract additional contemporaneous

the price and the stock until the latter had been appraised by

conditions which are not mentioned at all in the writing,

an inventory of the entire assets of the company. In Borromeo

unless there has been fraud or mistake. It may be true that

vs. Franco (5 Phil.Rep., 49) a sale of a specific house was held

defendant owned a plantation and expected to raise the sugar

perfected between the vendor and vendee, although the

himself, but he did not limit his obligation to his own crop of

delivery of the price was withheld until the necessary

sugar. Our conclusion is that the condition which the

documents of ownership were prepared by the vendee. In Tan

defendant seeks to add to the contract by parol evidence

Leonco vs. Go Inqui (8 Phil. Rep.,531) the plaintiff had

cannot be considered. The rights of the parties must be

delivered a quantity of hemp into the warehouse of the

determined by the writing itself.

defendant. The defendant drew a bill of exchange in the sum

2) Article 1450 defines a perfected sale as follows: “The sale shall be perfected between vendor and vendee and shall be binding on both of them, if they have agreed upon the thing which is the object of the contract and upon the price, even when neither has been delivered.” Article 1452 provides that “the injury to or the profit of the thing sold shall, after the contract has been perfected, be governed by the provisions of

of P800, representing the price which had been agreed upon for the hemp thus delivered. Prior to the presentation of the bill for payment, in said case, the hemp was destroyed. Whereupon, the defendant suspended payment of the bill. It was held that the hemp having been already delivered, the title had passed and the loss was the vendee‟s. It is our purpose to distinguish the case at bar from all these cases.

articles 1096 and 1182.” There is a perfected sale with regard

The contract in the present case was merely an executory

to the “thing” whenever the article of sale has been physically

agreement; a promise of sale and not a sale. As there was no

segregated from all other articles

perfected sale, it is clear that articles 1452, 1096, and 1182

In McCullough vs. Aenlle & Co. (3 Phil 285), a particular tobacco factory with its contents was held sold under a

4

SALES under ATTY. PAOLO DIMAYUGA

are not applicable. The agreement upon the “thing” which was the object of the contract was not within the meaning of article 1450. Sugar is one of the staple commodities of this

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

country. For the purpose of sale its bulk is weighed, the

One of its incidental functions is the buying of palay grains

customary unit of weight being denominated a „‟picul.'‟ There

from qualified farmers. On 23 August 1979, Leon Soriano

was no delivery under the contract. If called upon to designate

offered to sell palay grains to the NFA, through the Provincial

the article sold, it is clear that Gonzales could only say that it

Manager (William Cabal) of NFA in Tuguegarao, Cagayan. He

was “sugar.” He could only use this generic name for the thing

submitted the documents required by the NFA for pre-

sold. There was no “appropriation” of any particular lot of

qualifying as a seller, which were processed and accordingly,

sugar. Neither party could point to any specific quantity of

he was given a quota of 2,640 cavans of palay. The quota

sugar.

noted in the Farmer‟s Information Sheet represented the

The contract in the present case is different from the contracts discussed in the cases referred to. In the McCullough case, for instance, the tobacco factory which the parties dealt with was specifically pointed out and distinguished from all other tobacco factories. So, in the Barretto case, the particular shares of stock which the parties desired to transfer were capable of designation. In the Tan Leonco case, where a quantity of hemp was the subject of the contract, it was shown that quantity had been deposited in a specific warehouse, and thus set apart and distinguished from all other hemp

maximum number of cavans of palay that Soriano may sell to the NFA. On 23 and 24 August 1979, Soriano delivered 630 cavans of palay. The palay delivered were not rebagged, classified and weighed. When Soriano demanded payment of the 630 cavans of palay, he was informed that its payment will beheld 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. On 28 August 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the

The Supreme Court affirmed the judgment appealed from with

630 cavans stating that NFA cannot legally accept the said

the modification allowing the recovery of P1,200 under

delivery on the basis of the subsequent certification of the

paragraph 4 of the contract, without costs

BAEX technician (Napoleon Callangan) that Soriano is not a

3. NATONAL GRAINS AUTHORITY vs IAC FACTS: National Grains Authority (now National Food Authority, NFA) is a government agency created under PD 4.

5

SALES under ATTY. PAOLO DIMAYUGA

bona fide farmer. Instead of withdrawing the 630 cavans of palay, Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of money

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

with damages on 2 November 1979, against the NFA and

between the parties. The object of the contract, being the

William Cabal (Civil Case 2754). Meanwhile, by agreement of

palay grains produced in Soriano's farmland and the NFA was

the parties and upon order of the trial court, the 630 cavans of

to pay the same depending upon its quality.

palay in question were withdrawn from the warehouse of NFA. On 30 September 1982, the trial court found Soriano a bona fide farmer and rendered judgment ordering the NFA, its officers and agents to pay Soriano the amount of P47,250.00 representing the unpaid price of the 630 cavans of palay plus legal interest thereof (12% per annum, from the filing of complaint on 20 November1979 until fully paid). NFA and Cabal filed a motion for reconsideration, which was denied by the court on 6 December 1982.Appeal was filed with the Intermediate Appellate Court. On 23 December 1986, the then IAC upheld the findings of the trialc ourt and affirmed the decision ordering NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest. Themotion for reconsideration of the appellate court‟s decision was denied in a resolution dated 17 April 1986. Hence, the present petition

The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: ".The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties." In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans. 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.

for review with the sole issue of whether or not there was a

The Supreme Court dismissed the instant petition for review,

contract of sale in the present case.

and affirmed the assailed decision of the then IAC (now Court

ISSUE: Whether there was a perfected sale HELD: Soriano initially offered to sell palay grains produced in

of Appeals) is affirmed; without costs. 4. SCHUBACK & SONS vs. CA

his farmland to NFA. When the latter accepted the offer by

FACTS: In 1981, Ramon San Jose (Philippine SJ Industrial

noting in Soriano's Farmer's Information Sheet a quota of

Trading) established contact with Johannes Schuback & Sons

2,640 cavans, there was already a meeting of the minds

Philippine Trading Corporation through the Philippine

6

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

Consulate General in Hamburg, West Germany, because he

immediately ordered the items needed by San Jose from

wanted to purchase MAN bus spare parts from Germany.

Schuback Hamburg. Schuback Hamburg in turn ordered the

Schuback communicated with its trading partner, Johannes

items from NDK, a supplier of MAN spare parts in West

Schuback and Sohne Handelsgesellschaft m.b.n. & Co.

Germany.

(Schuback Hamburg) regarding the spare parts San Jose wanted to order. On 16 October 1981,San Jose submitted to Schuback a list of the parts he wanted to purchase with specific part numbers and description. Schuback referred the list to Schuback Hamburg for quotations. Upon receipt of the quotations, Schuback sent to San Jose a letter dated25 November 1981 enclosing its offer on the items listed. On 4 December 1981, San Jose informed Schuback that he preferred genuine to replacement parts, and requested that he be given a 15% discount on all items. On 17 December 1981, Schuback submitted its formal offer containing the item number, quantity, part number, description, unit price and total to San Jose. On24 December 1981, San Jose informed Schuback of his desire to avail of the prices of the parts at that time and enclosed its Purchase Order 0101 dated 14 December 1981. On 29 December 1981, San Jose personally submitted the quantities he wanted to Mr. Dieter Reichert, General Manager of Schuback, at the latter‟s residence. The quantities were written in ink by San Jose in the same PO previously submitted. At the bottom of said PO, San Jose wrote in ink above his signature: “NOTE: Above PO will include a 3% discount. The above will serve as our initial PO.” Schuback

7

SALES under ATTY. PAOLO DIMAYUGA

On 4 January 1982, Schuback Hamburg sent Schuback a proforma invoice to be used by San Jose in applying for a letter of credit. Said invoice required that the letter of credit be opened in favor of Schuback Hamburg. San Jose acknowledged receipt of the invoice. An order confirmation was later sent by Schuback Hamburg to Schuback which was forwarded to and received by San Jose on 3 February 1981. On 16 February 1982, Schuback reminded San Jose to open the letter of credit to avoid delay in shipment and payment of interest. In the meantime, Schuback Hamburg received invoices from NDK for partial deliveries on Order 12204. On 16 February 1984, Schuback Hamburg paid NDK. On 18 October 1982, Schuback again reminded San Jose of his order and advised that the case may be endorsed to its lawyers. San Jose replied that he did not make any valid PO and that there was no definite contract between him and Schuback. Schuback sent a rejoinder explaining that there is a valid PO and suggesting that San Jose either proceed with the order and open a letter of credit or cancel the order and pay the cancellation fee of 30% F.O.B. value, or Schuback will endorse the case to its lawyers. Schuback Hamburg issued a Statement of Account to

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

Schuback enclosing therewith Debit Note charging Schuback

the thing and the cause which are to constitute the contract.

30% cancellation fee, storage and interest charges in the total

The offer must be certain and the acceptance absolute. A

amount of DM 51,917.81. Said amount was deducted from Schuback‟s account with Schuback Hamburg. Demand letters sent to San Jose by Schuback‟s counsel dated 22 March 1983 and 9J une 1983 were to no avail.

qualified acceptance constitutes a counter offer." The facts presented to us indicate that consent on both sides has been manifested. The offer by petitioner was manifested on December 17, 1981 when petitioner submitted its proposal containing the item number, quantity, part number,

Schuback filed a complaint for recovery of actual or

description, the unit price and total to private respondent. On

compensatory damages, unearned profits, interest, attorney‟s

December 24, 1981, private respondent informed petitioner of

fees and costs against San Jose. In its decision dated 13 June

his desire to avail of the prices of the parts at that time and

1988, the trial court ruled in favor of Schuback by ordering

simultaneously enclosed its Purchase Order. At this stage, a

San Jose to pay it, among others, actual compensatory

meeting of the minds between vendor and vendee has

damages in the amount of DM 51,917.81, unearned profits in

occurred, the object of the contract: being the spare parts and

the amount of DM14,061.07, or their peso equivalent. San

the consideration, the price stated in petitioner's offer dated

Jose elevated his case before the Court of Appeals. On 18

December 17, 1981 and accepted by the respondent on

February 1992, the appellate court reversed the decision of

December 24, 1981.

the trial court and dismissed Schuback‟s complaint. It ruled that there was no perfection of contract since there was no meeting of the minds as to the price between the last week of December 1981 and the first week of January 1982. Hence, the petition for review on certiorari.

Although the quantity to be ordered was made determinate only on 29 December 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of 24 December 1981, these

ISSUE: Whether or not a contract of sale has been perfected

essential elements had already concurred. Thus, perfection of

between the parties

the contract took place, not on 29 December 1981, but rather

HELD: Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer and acceptance upon

8

SALES under ATTY. PAOLO DIMAYUGA

on 24 December 1981. 5. NOOL vs CA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

FACTS: One lot formerly owned by Victorio Nool (TCT T-

the parties, whereby the defendants agreed to return to

74950) has an area of 1 hectare. Another lot previously owned

plaintiffs the lands in question, at anytime the latter have the

byF rancisco Nool (TCT T-100945) has an area of 3.0880

necessary amount; that latter asked the defendants to return

hectares. Both parcels are situated in San Manuel, Isabela.

the same but despite the intervention of the Barangay Captain

Spouses Conchita Nool and Gaudencio Almojera (plaintiffs)

of their place, defendants refused to return the said parcels of

alleged that they are the owners of the subject land as they

land to plaintiffs; thereby impelling the plaintiffs to come to

bought the same from Victorio and Francisco Nool, and that as

court for relief. On the other hand, defendants theorized that

they are in dire need of money, they obtained a loan from the

they acquired the lands in question from the DBP, through

Ilagan Branch of the DBP (Ilagan, Isabela), secured by a real

negotiated sale, and were misled by plaintiffs when defendant

estate mortgage on said parcels of land, which were still

Anacleto Nool signed the private writing, agreeing to return

registered in the names of Victorino and Francisco Nool, at the

subject lands when plaintiffs have the money to redeem the

time, and for the failure of the plaintiffs to pay the said loan,

same; defendant Anacleto having been made to believe, then,

including interest and surcharges, totaling P56,000.00, the

that his sister, Conchita, still had the right to redeem the said

mortgage was foreclosed; that within the period of

properties

redemption, the plaintiffs contacted Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the2 parcels of land in question were transferred to Anacleto; that as part of their arrangement or understanding, Anacleto agreed to buy from Conchita the 2 parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, the plaintiffs were to regain possession of the 2 hectares of land, which amounts spouses Anacleto Nool and Emilia Nebre (defendants) failed to pay, and the same day the said arrangement was made; another covenant was entered into by

9

SALES under ATTY. PAOLO DIMAYUGA

It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the 1-year redemption period (from 16March 1982 up to 15 March 1983) and that the mortgagors‟ right of redemption was not exercised within this period. Hence, DBP became the absolute owner of said parcels of land for which it was issued new certificates of title, both entered on 23 May1983 by the Registry of Deeds for the Province of Isabela. About 2 years thereafter, on 1 April 1985, DBP entered into a Deed of Conditional Sale involving the same parcels of land with Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on 8 February 1988.

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

The trial court ruled in favor of the defendants, declaring the

the buyer acquires no better title to the goods than the seller

private writing to be an option to sell, not binding and

had, unless the owner of the goods is by his conduct

considered validly withdrawn by the defendants for want of

precluded from denying the seller‟s authority to sell.”

consideration; ordering the plaintiffs to return to the

Jurisprudence, on the other hand, teaches us that “a person

defendants the sum of P30,000.00 plus interest thereon at the

can sell only what he owns or is authorized to sell; the buyer

legal rate, from the time of filing of defendants‟ counterclaim

can as a consequence acquire no more than what the seller

until the same is fully paid; to deliver peaceful possession of

can legally transfer.” No one can give what he does not have —

the 2 hectares; and to pay reasonable rents on said 2 hectares

nono dat quod non habet.

at P5,000.00 per annum or at P2,500.00 per cropping from the time of judicial demand until the said lots shall have been delivered to the defendants; and to pay the costs. The plaintiffs appealed to the Court of Appeals (CA GR CV 36473), which affirmed the appealed judgment intoto on 20 January 1993. Hence, the petition before the Supreme Court. ISSUE: Whether the Contract of Repurchase is valid. HELD: Nono dat quod non habet, No one can give what he does not have; Contract of repurchase inoperative thus void. A contract of repurchase arising out of a contract of sale where the seller did not have any title to the property “sold” is not valid. Since nothing was sold, then there is also nothing to repurchase.

In the present case, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Further, the contract of repurchase that the parties entered into presupposes that petitioners could repurchase the property that they “sold” to private respondents. As petitioners “sold” nothing, it follows that they can also “repurchase” nothing. In this light, the contract of repurchase is also inoperative and by the same analogy, void. The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals 6. VILLAFLOR vs CA FACTS: On 16 January 1940, Cirilo Piencenaves, in a Deed of Absolute Sale, sold to Vicente Villafor, a parcel of agricultural

Article 1505 of the Civil Code provides that “where goods are

land (planted to Abaca) containing an area of 50 hectares,

sold by a person who is not the owner thereof, and who does

more or less. The deed states that the land was sold to

not sell them under authority or with consent of the owner,

Villaflor on 22 June1937, but no formal document was then

10

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

executed, and since then until the present time, Villaflor has

property of the lessor at the end of the lease without

been in possession and occupation of the same. Before the

obligation on the part of the latter for expenses incurred in

sale of said property, Piencenaves inherited said property form

the construction of the same.

his parents and was in adverse possession of such without interruption for more than 50 years. On the same day, Claudio Otero, in a Deed of Absolute Sale sold to Villaflor a parcel of agricultural land (planted to corn), containing an area of 24 hectares, more or less; Hermogenes Patete, in a Deed of Absolute Sale sold to Villaflor, a parcel of agricultural land (planted to abaca and corn), containing an area of 20 hectares, more or less. Both deed state the same details or circumstances as that of Piencenaves‟. On 15 February 1940, Fermin Bocobo, in a Deed of Absolute Sale sold to Villaflor, a parcel of agricultural land (planted with abaca), containing an area of 18 hectares, more or less. On 8 November 1946, Villaflor leased to Nasipit Lumber Co., Inc. a parcel of land, containing an area of 2 hectares, together with all the improvements existing thereon, for a period of 5 years (from 1 June 1946) at a rental of P200.00 per annum to cover the annual rental of house and building sites for 33 houses or buildings. The lease agreement allowed the lessee to sublease the premises to any person, firm or corporation; and to build and construct additional houses with the condition the lessee shall pay to the lessor the amount of 50 centavos per month for every house and building; provided

On 7 July 1948, in an “Agreement to Sell” Villaflor conveyed to Nasipit Lumber, 2 parcels of land. Parcel 1 contains an area of 112,000 hectares more or less, divided into lots 5412, 5413, 5488, 5490,5491, 5492, 5850, 5849, 5860, 5855, 5851, 5854, 5855, 5859, 5858, 5857, 5853, and 5852; and containing abaca, fruit trees, coconuts and thirty houses of mixed materials belonging to the Nasipit Lumber Company. Parcel 2 contains an area of 48,000more or less, divided into lots 5411, 5410, 5409, and 5399, and containing 100 coconut trees, productive, and 300 cacao trees. From said day, the parties agreed that Nasipit Lumber shall continue to occupy the property not anymore in concept of lessee but as prospective owners. On 2 December 1948, Villaflor filed Sales Application V-807 with the Bureau of Lands, Manila, to purchase under the provisions of Chapter V, XI or IX of CA 141 (The Public Lands Act), as amended, the tract of public lands. Paragraph 6 of the Application, states: „I understand that this application conveys no right to occupy the land prior to its approval, and I recognize that the land covered by the same is of public domain and any and all rights I may have with respect thereto

that said constructions and improvements become the

11

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

by virtue of continuous occupation and cultivation are hereby

On 24 July 1950, the scheduled date of auction of the property

relinquished to the Government.

covered by the Sales Application, Nasipit Lumber offered the

On 7 December 1948, Villaflor and Nasipit Lumber executed an “Agreement,” confirming the Agreement to Sell of 7 July 1948, but with reference to the Sales Application filed with the Bureau of Land. On 31 December 1949, the Report by the public land inspector (District Land Office, Bureau of Lands, in

highest bid of P41.00 per hectare, but since an applicant under CA 141, is allowed to equal the bid of the highest bidder, Villaflor tendered an equal bid, deposited the equivalent of 10% of the bid price and then paid the assessment in full.

Butuan) contained an endorsement of the said officer

On 16 August 1950, Villaflor executed a document,

recommending rejection of the Sales Application of Villaflor

denominated as a “Deed of Relinquishment of Rights,” in favor

for having leased the property to another even before he had

on Nasipit Lumber, in consideration of the amount of P5,000

acquired transmissible rights thereto. In a letter of Villaflor

that was to be reimbursed to the former representing part of

dated 23 January1950, addressed to the Bureau of Lands, he

the purchase price of the land, the value of the improvements

informed the Bureau Director that he was already occupying

Villaflor introduced thereon, and the expenses incurred in the

the property when the Bureau‟s Agusan River Valley

publication of the Notice of Sale; in light of his difficulty to

Subdivision Project was inaugurated, that the property was

develop the same as Villaflor has moved to Manila. Pursuant

formerly claimed as private property, and that therefore, the

thereto, on 16 August1950, Nasipit Lumber filed a Sales

property was segregated or excluded from disposition

Application over the 2 parcels of land, covering an area of 140

because of the claim of private ownership. Likewise, in a letter

hectares, more or less. This application was also numbered V-

of Nasipit Lumber dated 22 February 1950 addressed to the

807. On 17 August 1950 the Director of Lands issued an

Director of Lands, the corporation informed the Bureau that it

“Order of Award” in favor of Nasipit Lumber; and its

recognized Villaflor as the real owner, claimant and occupant

application was entered in the record as Sales Entry V-407.On

of the land; that since June 1946, Villaflor leased 2hectares

27 November 1973, Villafor wrote a letter to Nasipit Lumber,

inside the land to the company; that it has no other interest on

reminding the latter of their verbal agreement in 1955; but the

the land; and that the Sales Application of Villaflor should be

new set of corporate officers refused to recognize Villaflor‟s

given favorable consideration.

claim.

12

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

In a formal protest dated 31 January 1974 which Villaflor filed

within which to file an action on an oral contract per Article

with the Bureau of Lands, he protested the Sales Application of

1145 (1) of the Civil Code expired in 1972. Nasipit Lumber

Nasipit Lumber, claiming that the company has not paid him

was declared the lawful owner and actual physical possessor

P5,000.00 as provided in the Deed of Relinquishment of

of the 2 parcels of land (containing a total area of 160

Rights dated 16 August 1950. On 8 August 1977, the Director

hectares). The Agreements to Sell Real Rights and the Deed of

of Lands found that the payment of the amount of P5,000.00

Relinquishment of Rights over the 2 parcels were likewise

in the Deed and the consideration in the Agreement to Sell

declared binding between the parties, their successors and

were duly proven, and ordered the dismissal of Villaflor‟s

assigns; with double costs against Villaflor. The heirs of

protest.

petitioner appealed to the Court of Appeals which, however,

On 6 July 1978, Villaflor filed a complaint in the trial court for “Declaration of Nullity of Contract (Deed of Relinquishment of Rights), Recovery of Possession (of two parcels of land subject of the contract), and Damages” at about the same time that he appealed the decision of the Minister of Natural Resources to the Office of the President. On 28 January 1983, he died. The

rendered judgment against them via the assailed Decision dated 27 September 1990 finding petitioner‟s prayers —(1) for the declaration of nullity of the deed of relinquishment, (2) for the eviction of private respondent from the property and (3) for the declaration of petitioner‟s heirs as owners —to be without basis.

trial court ordered his widow, Lourdes D. Villaflor, to be

Not satisfied, petitioner‟s heirs filed the petition for review

substituted as petitioner. After trial in due course, the then CFI

dated 7 December 1990. In a Resolution dated 23 June 1991,

Agusan del Norte and Butuan City, Branch III, dismissed the

the Court denied this petition “for being late.” On

complaint on the grounds that: (1) petitioner admitted the due

reconsideration, the Court reinstated the petition.

execution and genuineness of the contract and was estopped from proving its nullity, (2) the verbal lease agreements were unenforceable under Article 1403 (2)(e) of the Civil Code, and (3) his causes of action were barred by extinctive prescription

ISSUE: Whether the sale is valid or void for the alleged existence of simulation of contract HELD: The provision of the law is specific that public lands

and/or laches. It ruled that there was prescription and/or

can only be acquired in the manner provided for therein and

laches because the alleged verbal lease ended in 1966, but the

not otherwise(Sec. 11, CA. No. 141, as amended). In his sales

action was filed only on 6 January 1978. The 6-year period

13

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

application, petitioner expressly admitted that said property

not own the land and that the same is a public land under the

was public land. This is formidable evidence as it amounts to

administration of the Bureau of Lands, to which the

an admission against interest. The records show that Villaflor

application was submitted, all of its acts prior thereof,

had applied for the purchase of lands in question with this

including its real estate tax declarations, characterized its

Office (Sales Application V-807) on 2 December 948. There is

possessions of the land as that of a “sales applicant”. And

a condition in the sales application to the effect that he

consequently, as one who expects to buy it, but has not as yet

recognizes that the land covered by the same is of public

done so, and is not, therefore, its owner.

domain and any and all rights he may have with respect thereto by virtue of continuous occupation and cultivation are relinquished to the Government of which Villaflor is very much aware. It also appears that Villaflor had paid for the publication fees appurtenant to the sale of the land. He participated in the public auction where he was declared the successful bidder. He had fully paid the purchase price thereof. It would be a height of absurdity for Villaflor to be buying that which is owned by him if his claim of private ownership thereof is to be believed. The area in dispute is not the private property of the petitioner. It is a basic assumption of public policy that lands of whatever classification belong to the state. Unless alienated in accordance with law, it retains its rights over the same as dominus. No public land can be acquired by private persons without any grant, express or implied from the government. It is indispensable then that there be showing of title from the state or any other mode of acquisition recognized by law. s such sales applicant manifestly acknowledged that he does

14

SALES under ATTY. PAOLO DIMAYUGA

The rule on the interpretation of contracts (Article 1371) is used in affirming, not negating, their validity. Article 1373, which is a conjunct of Article 1371, provides that, if the instrument is susceptible of two or more interpretations, the interpretation which will make it valid and effectual should be adopted. In this light, it is not difficult to understand that the legal basis urged by petitioner does not support his allegation that the contracts to sell and the deed of relinquishment are simulated and fictitious. Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. Such an intention is not apparent in the agreements. The intent to sell, on the other hand, is as clear as daylight. The fact, that the agreement to sell (7 December 1948) did not absolutely transfer ownership of the land to private respondent, does not

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

show that the agreement was simulated. Petitioner‟s delivery

public land; the records do not show that private respondent

of the Certificate of Ownership and execution of the deed of

was not so authorized under its charter

absolute sale were suspensive conditions, which gave rise to a corresponding obligation on the part of the private respondent, i.e., the payment of the last installment of the consideration mentioned in the Agreement. Such conditions did not affect the perfection of the contract or prove simulation

The Supreme Court dismissed the petition. PRICE 7. LOYOLA vs CA FACTS: A parcel of land (Lot 115-A-1 of subdivision plan

Nonpayment, at most, gives the vendor only the right to sue for collection. Generally, in a contract of sale, payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract under Article 1191 of the Civil Code. However, failure to pay is not even a breach, but merely an event which prevents the vendor‟s obligation to convey title from acquiring binding force.

[LRC] Psd-32117, a portion of Lot 115-A described on Plan Psd-55228, LRC[GLRO] Record 8374, located in Poblacion, Binan, Laguna, and containing 753 sq.m., TCT T-32007) was originally owned in common by the siblings Mariano and Gaudencia Zarraga, who inherited it from their father. Mariano predeceased his sister who died single, without offspring on 5 August 1983, at the age of 97. Victorina Zarraga vda. de Loyola and Cecilia Zarraga, are sisters of Gaudencia and Mariano. The property was subject of Civil Case B-1094 before

T he requirements for a sales application under the Public

the then CFI Laguna (Branch 1, Spouses Romualdo Zarraga, et

Land Act are: (1) the possession of the qualifications required

al. v .Gaudencia Zarraga, et al.). Romualdo Zarraga was the

by said Act (under Section 29) and (2) the lack of the

plaintiff in Civil Case B-1094. The defendants were his

disqualifications mentioned therein (under Sections 121, 122,

siblings: Nieves, Romana, Guillermo, Purificacion, Angeles,

and 123). Section121 of the Act pertains to acquisitions of

Roberto, Estrella, and Jose, all surnamed Zarraga, as well as

public land by a corporation from a grantee: The private

his aunt, Gaudencia. The trial court decided Civil Case B-1094

respondent, not the petitioner, was the direct grantee of the

in favor of the defendants. Gaudencia was adjudged owner of

disputed land. Sections 122 and 123 disqualify corporations,

the 1/2 portion of Lot 115-A-1. Romualdo elevated the

which are not authorized by their charter, from acquiring

decision to the Court of Appeals and later the Supreme Court.

15

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

The petition (GR 59529) was denied by the Court on 17 March

pending with the trial court. Cecilia died on 4 August 1990,

1982.On 24 August 1980, nearly 3 years before the death of

unmarried and childless. Victorina and Cecilia were

Gaudencia while GR 59529 was still pending before the

substituted by Ruben, Candelaria,Lorenzo, Flora, Nicadro,

Supreme Court.

Rosario, Teresita and Vicente Loyola as plaintiffs. The trial

On said date, Gaudencia allegedly sold to the children of Mariano Zarraga (Nieves, Romana, Romualdo, Guillermo, Lucia, Purificacion, Angeles, Roberto, Estrella Zarraga) and the heirs of Jose Zarraga Aurora, Marita, Jose, Ronaldo, Victor, Lauriano,and Ariel Zarraga; first cousins of the Loyolas) her share in Lot 115-A- 1 for P34,000.00. The sale was evidenced by a notarizeddocument denominated as “Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na Lupa.” Romualdo, the petitioner in GR 59529, was among the vendees.The decision in Civil Case B-1094 became final. The children of Mariano Zarraga and the heirs of Jose Zarraga (privaterespondents) filed a motion for execution.

court rendered judgment in favor of complainants; declaring the simulated deed of absolute sale as well as the issuance of the corresponding TCT null and void, ordering the Register of Deeds of Laguna to cancel TCT T-116087 and to issue another one in favor of the plaintiffs and the defendants as co-owners and legal heirs of the late Gaudencia, ordering the defendants to reconvey and deliver the possession of the shares of the plaintiff on the subject property, ordering the defendants to pay P20,000 as attorney‟s fees and cost of suit, dismissing the petitioner‟s claim for moral and exemplary damages, and dismissing the defendants‟ counterclaim for lack of merit. On appeal, and on 31 August 1993, the appellate court reversed the trial court (CA-GR CV 36090). On

On 16 February 1984, the sheriff executed the corresponding

September 15, 1993, the petitioners (as substitute parties for

deed of reconveyance to Gaudencia. On 23 July 1984,

Victorina and Cecilia, the original plaintiffs) filed a motion for

however, the Register of Deeds of Laguna, Calamba Branch,

reconsideration, which was denied on 6 June 1994. Hence, the

issued in favor of private respondents, TCT T-116067, on the

petition for review on certiorari.

basis of the sale on 24 August 1980 by Gaudencia to them. On 31 January 1985, Victorina and Cecilia filed a complaint, docketed as Civil Case B-2194, with the RTC of Biñan, Laguna,

ISSUE: Whether the alleged sale between Gaudencia and respondents is valid

for the purpose of annulling the sale and the TCT. Victorina

HELD: Petitioners vigorously assail the validity of the execution

died on 18 October 1989, while Civil Case B-2194 was

of the deed of absolute sale suggesting that since the notary

16

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

public who prepared and acknowledged the questioned Bilihan

did not deny. The requisites for simulation are: (a) an outward

did not personally know Gaudencia, the execution of the deed

declaration of will different from the will of the parties; (b) the

was suspect. The rule is that a notarized document carries the

false appearance must have been intended by mutual

evidentiary weight conferred upon it with respect to its due

agreement; and (c) the purpose is to deceive third persons.

execution, and documents acknowledged before a notary

None of these are present in the assailed transaction.

public have in their favor the presumption of regularity. By their failure to overcome this presumption, with clear and convincing evidence, petitioners are estopped from questioning the regularity of the execution of the deed.

Contracts are binding only upon the parties who execute them. Article 1311 of the Civil Code clearly covers this situation. In the present case Romualdo had no knowledge of the sale, and thus, he was a stranger and not a party to it.

Petitioners suggest that all the circumstances lead to the

Even if curiously Romualdo, one of those included as buyer in

conclusion that the deed of sale was simulated. Simulation is

the deed of sale, was the one who questioned Gaudencia‟s

"the declaration of a fictitious will, deliberately made by

ownership in Civil Case B-1094, Romana testified that

agreement of the parties, in order to produce, for the

Romualdo really had no knowledge of the transaction and he

purposes of deception, the appearances of a juridical act

was included as a buyer of the land only because he was a

which does not exist or is different what that which was really

brother.

executed." Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. Perusal of the questioned deed will show that the sale of the property would convert the co-owners to vendors and vendees, a clear alteration of the juridical relationships. This is contrary to the requisite of simulation that the apparent contract was not really meant to produce any legal effect. Also in a simulated contract, the parties have no intention to be bound by the contract. But in this case, the parties clearly intended to be bound by the contract of sale, an intention they

17

SALES under ATTY. PAOLO DIMAYUGA

Petitioners fault the Court of Appeals for not considering that at the time of the sale in 1980, Gaudencia was already 94 years old; that she was already weak; that she was living with private respondent Romana; and was dependent upon the latter for her daily needs, such that under these circumstances, fraud or undue influence was exercised by Romana to obtain Gaudencia's consent to the sale. The rule on fraud is that it is never presumed, but must be both alleged and proved. For a contract to be annulled on the ground of fraud, it must be shown that the vendor never gave consent to

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

its execution. If a competent person has assented to a

transaction could not be a “simulated sale.” No reversible error

contract freely and fairly, said person is bound. There also is a

was thus committed by the Court of Appeals in refusing to

disputable presumption, that private transactions have been

annul the questioned sale for alleged inadequacy of the price

fair and regular. Applied to contracts, the presumption is in favor of validity and regularity. In this case, the allegation of fraud was unsupported, and the presumption stands that the contract Gaudencia entered into was fair and regular. Petitioners also claim that since Gaudencia was old and senile,

The Supreme Court denied the petition, and affirmed the assailed decision of the Court of Appeals; with costs against petitioners 8. UY vs CA

she was incapable of independent and clear judgment.

FACTS: William Uy and Rodel Roxas are agents authorized to

However, a person is not incapacitated to contract merely

sell 8 parcels of land by the owners thereof. By virtue of such

because of advanced years or by reason of physical infirmities.

authority, they offered to sell the lands, located in Tuba,

Only when such age or infirmities impair his mental faculties

Tadiangan, Benguet to National Housing Authority (NHA) to be

to such extent as to prevent him from properly, intelligently,

utilized and developed as a housing project. On 14 February

and fairly protecting his property rights, is he considered

1989, the NHA Board passed Resolution 1632 approving the

incapacitated. Petitioners show no proof that Gaudencia had

acquisition of said lands, with an area of 31.8231 hectares, at

lost control of her mental faculties at the time of the sale. The

the cost of P23.867 million, pursuant to which the parties

notary public who interviewed her, testified that when he

executed a series of Deeds of Absolute Sale covering the

talked to Gaudencia before preparing the deed of sale, she

subject lands. Of the 8 parcels of land, however, only 5 were

answered correctly and he was convinced that Gaudencia was

paid for by the NHA because of the report it received from the

mentally fit and knew what she was doing.

Land Geosciences Bureau of the Department of Environment

Petitioners seem to be unsure whether they are assailing the sale of Lot 115-A-1 for being absolutely simulated or for inadequacy of the price. These two grounds are irreconcilable.

and Natural Resources (DENR)that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project.

If there exists an actual consideration for transfer evidenced

On 22 November 1991, the NHA issued Resolution 2352

by the alleged act of sale, no matter how inadequate it be, the

cancelling the sale over the 3 parcels of land. The NHA,

18

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

through Resolution 2394, subsequently offered the amount of

party who stands to be benefited or injured by the judgment

P1.225 million to the landowners as daños perjuicios. On 9

or the party entitled to the avails of the suit. “Interest,” within

March 1992, petitioners Uy and Roxas filed before the RTC

the meaning of the rule, means material interest, an interest in

Quezon City a Complaint for Damages against NHA and its

the issue and to be affected by the decree, as distinguished

General Manager Robert Balao. After trial, the RTC rendered a

from mere interest in the question involved, or a mere

decision declaring the cancellation of the contract to be

incidental interest. Cases construing the real party-in-interest

justified. The trial court nevertheless awarded damages to

provision can be more easily understood if it is borne in mind

plaintiffs in the sum of P1.255 million, the same amount

that the true meaning of real party-in-interest may be

initially offered by NHA to petitioners as damages.

summarized as follows: An action shall be prosecuted in the

Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing

name of the party who, by the substantive law, has the right sought to be enforced.

the complaint. It held that since there was “sufficient

Where the action is brought by an attorney-in-fact of a land

justifiable basis” in cancelling the sale, “it saw no reason” for

owner in his name, (as in our present action) and not in the

the award of damages. The Court of Appeals also noted that

name of his principal, the action was properly dismissed

petitioners were mere attorneys-in-fact and, therefore, not

because the rule is that every action must be prosecuted in the

the real parties-in-interest in the action before the trial court.

name of the real parties-in-interest (Section 2, Rule 3, Rules

Their motion for reconsideration having been denied,

of Court)

petitioners seek relief from the Supreme Court. ISSUES: 1) Whether the petitioners are real parties in interest 2) Whether the cancellation is justified

Petitioners claim that they lodged the complaint not in behalf of their principals but in their own name as agents directly damaged by the termination of the contract. Petitioners in this case purportedly brought the action for damages in their own name and in their own behalf. An action shall be prosecuted in

HELD: 1) Section 2, Rule 3 of the Rules of Court requires that

the name of the party who, by the substantive law, has the

every action must be prosecuted and defended in the name of

right sought to be enforced. Petitioners are not parties to the

the real party-in-interest. The real party-in-interest is the

contract of sale between their principals and NHA. They are

19

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

mere agents of the owners of the land subject of the sale. As

chosen fulfillment, if the latter should become impossible.” In

agents, they only render some service or do something in

the present case, the NHA did not rescind the contract.

representation or on behalf of their principals. The rendering

Indeed, it did not have the right to do so for the other parties

of such service did not make them parties to the contracts of

to the contract, the vendors, did not commit any breach, much

sale executed in behalf of the latter. Since a contract may be

less a substantial breach, of their obligation. Their obligation

violated only by the parties thereto as against each other, the

was merely to deliver the parcels of land to the NHA, an

real parties-in-interest, either as plaintiff or defendant, in an

obligation that they fulfilled. The NHA did not suffer any injury

action upon that contract must, generally, either be parties to

by the performance thereof

said contract. Petitioners have not shown that they are assignees of their principals to the subject contracts. While they alleged that they made advances and that they suffered loss of commissions, they have not established any agreement granting them "the right to receive payment and out of the proceeds to reimburse [themselves] for advances and commissions before turning the balance over to the principal[s]."

The cancellation was not a rescission under Article 1191. Rather, the cancellation was based on the negation of the cause arising from the realization that the lands, which were the object of the sale, were not suitable for housing. Cause is the essential reason which moves the contracting parties to enter into it. In other words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties. Cause,

2) The right of rescission or, more accurately, resolution, of a

which is the essential reason for the contract, should be

party to an obligation under Article 1191 is predicated on a

distinguished from motive, which is the particular reason of a

breach of faith by the other party that violates the reciprocity

contracting party which does not affect the other party.

between them. The power to rescind, therefore, is given to the

Ordinarily, a party's motives for entering into the contract do

injured party. Article 1191 states that “the power to rescind

not affect the contract. However, when the motive

obligations is implied in reciprocal ones, in case one of the

predetermines the cause, the motive may be regarded as the

obligors should not comply with what is incumbent upon him.

cause. In this case, it is clear, and petitioners do not dispute,

The injured party may choose between the fulfillment and the

that NHA would not have entered into the contract were the

rescission of the obligation, with the payment of damages in

lands not suitable for housing. In other words, the quality of

either case. He may also seek rescission, even after he has

the land was an implied condition for the NHA to enter into

20

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL

COMPILATION OF CASE DIGESTS

SALES

the contract. On the part of the NHA, therefore, the motive was the cause for its being a party to the sale. We hold that the NHA was justified in canceling the contract. The realization of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent. The Supreme Court denied the petition

21

SALES under ATTY. PAOLO DIMAYUGA

COMPILED BY atorni2be AUSL