Case Digests in Sales and Leases (1)

DIGEST:

RIDO MONTECILLO, petitioner, vs. IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA ABUCAY, respondents; [G.R. No. 138018. July 26, 2002]

FACTS: Reynes own a 448 square meter lot in Mabolo, Cebu City. On the lot, Jayag has erected a house and executed a chattel mortgage in favor of Cebu Ice Storage. In 1981, Reynes sold 185 square meters of the lot to Abucay. Abucay later built a residential house on the lot. In 1984, Reynes signed a Deed of Sale of the whole 448 square meter lot in favor of Montecillo. Reynes, being an illiterate, signed the Deed of Sale by affixing her thumb-mark on the document. In the Deed, Montecillo promised to pay the agreed purchase price of P47,000 to Reynes within a period of 1 month from the signing of the document, as well as, the deed containing words or provisions therein that Reynes received the purchase price of the contract of sale. A month later, Montecillo still was not able to give the promised purchase price of the sale of lot. Montecillo claims that the purchase price was used to pay Cebu Ice Storage for the release of the P50,000 chattel mortgage that constituted a lien on the lot and that he shouldered the payment of the real property tax and capital gains tax on the sale of the lot. This prompted Reynes to demand for the return of the Deed of Sale from Montecillo. But since Montecillo refused, Reynes unilaterally executed a document revoking the sale and gave a copy of the document to Montecillo. Then the was sold in favor of Abucay, and lot was later transferred in the name of Abucay. Montecillo then filed but lost his claim in court. ISSUE: 1. Whether or not there was an agreement between Reynes and Montecillo that the stated consideration be paid for the Chattel Mortgage? 2. If none, is the deed of sale void from the beginning or simply rescissible? HELD: 1. The deed of sale between Reynes and Montecillo did not state that said purchase price should be paid to Cebu Ice Storage for the chattel mortgage, in order to release the lot from encumbrance. Thus, payment must be made to Reynes, the one in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it (Art. 1240), and not to any other party. 2. The Deed of Sale is Void Ab Initio. There being no consideration, the contract of Sale has never been perfected. There was no consideration, thus, there was no meeting of the minds between Reynes and Montecillo. This is not merely a case of failure to pay the purchase price, which can only amount to a breach of obligation with rescission as its remedy. What we have here is a purported contract that lacks a cause/consideration- one of the three essential requisites of a valid contract. Failure to pay a consideration, which results in a right of the buyer to demand the fulfillment or cancellation/rescission of the obligation under an existing valid contract, is different from lack of consideration, which prevents the existence of a valid contract. In the case, the purchase price which appears on the deed as paid has in fact never been paid by Montecillo to Reynes. Hence, the Deed is Null and Void from the beginning.

Case Digests in Sales and Leases

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DIGEST: PARADAS VS HEIRS OF BALACANO FACTS: A deed of sale was allegedly signed by Gregorio Balacano in favor of Spouses Paradas, involving the sale of two parcels of land. In the allegation of the Petitioners, Spouses Paradas, the deed of sale was signed by Balacano on July 22, 1996 on his death bed, witnessed by a few persons known only to the Spouses Paradas and notarized by Atty. De Guzman in Santiago City, Isabela, on the same date. The deed of sale was purportedly perfected, but the heirs of the vendor claim the he could not do so when he is already on the stage where his mental faculties and physical abilities were already impaired, or, if ever the vendor did so, can no longer give an intelligent consent to the sale, and it was barely a week before he died due to liver cirrhosis, on July 28, 1996. The heirs of Balacano challenged the validity of the Deed of Sale on the reason of lack of consent due to the fact that the vendor, Balacano, has been incapacitated and cannot execute a deed of sale. As the medical records show, Balacano has been battling his sickness and hospitalized at the Veterans General Hospital, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. With his medical state worsening, he was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital, Quezon City, where he was confined therein until his death in July 28, 1996. According to the petitioners, the deed of sale was actually perfected and signed on July 19, 1996, and not on July 22, 1996 and that the Notary Public left Santiago City, Isabela and went to the Hospital in Bayombong to notarize the Deed of sale and that Balacano as still strong and of sound and disposing mind. The trial courts found the allegations of the spouses and give no credit to their claim, for the reason that Balacano was ill during the time they allege that the sale was perfected and declared the deed of sale null and void. The CA affirmed the decision of the trial courts. Hence, the case was appealed to the SC. ISSUE: Whether or not the Deed of Sale is valid or was there a valid sale? HELD: No. There was no valid Sale on the very reason that the Deed of Sale was executed or alleged to have been perfected when the vendor can no longer give an intelligent consent to the sale of subject parcels of land. It has been established that when Balacano signed the deed of sale, he was very ill, as he in fact died of complications of liver cirrhosis a week after the deed`s signing. Given that he was on the last stages of his battle against his disease, the court seriously doubt whether Balacano could have read, or fully understood, the contents of the documents he signed and the consequences of his act. Further, the irregular and invalid notarization of the is a falsity that raises doubts on the regularity of the transaction itself and the circumstances under which this falsity was committed speaks volume about the regularity the validity of the sale. Based on the foregoing, the consent of Balacano to the sale of the lots was absent. Hence the Contract of Sale was NULL and VOID.

Case Digests in Sales and Leases

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CASE DIGEST:

INDUSTRIAL TEXTILE MANUFACTURING COMPANY OF THE PHILIPPINES, INC., petitioner, vs. LPJ ENTERPRISES, INC., respondent (G.R. No. 66140; Jan. 21, 1993)

FACTS: Respondent LPJ Enterprises, Inc. had a contract to supply 300,000 bags of cement per year to Atlas, a member of the Soriano Group of Companies. The cement was delivered packed in kraft paper bags, as commlonly used. October, 1970, Cesar Campos, a Vice-President of Industrial Textile Manufacturing Com. of the Philippines (or Itemcop, for brevity), asked Lauro Panganiban, Jr., President of LPJ corporation, if he would agree to have an experiment to develop plastic cement bags. Panganiban agreed because Itemcop is a sister corporation of Atlas. A few weeks later, Panganiban together with Paulino Ugarte, another Vice-President of Itemcop, tested fifty (50) pieces of plastic cement bags and they found that experiment was unsuccessful as cement dust leaks out under pressure through the small holes of the woven plastic bags and the loading platform was filled with dust. The second trial was likewise a failure, despite improvement done, and on the third trial, with three hundred (300) "improved bags", the seepage was substantially reduced. Ugarte then asked Panganiban to send 180 bags of cement to Atlas via commercial shipping. Campos, Ugarte, and two other officials of ITCom followed the 180 bags to the plant of Atlas in Sangi, Toledo, Cebu where they professed satisfaction at the performance of their own plastic bags. On December 29, 1970, Campos sent Panganiban a letter proclaiming dramatic results in the experiment. Consequently, Panganiban agreed to use the plastic cement bags, and executed Four purchase orders, with a total of P101,474.00 ITCom delivered the above orders on different dates and LPJ paid a total amount of P17,350 with a valance of P84,123.80. No other payments were made, which prompted ITCom to demand LPJ for the said balance, and reiterations on said payments were made later. Then a collection suit was filed on April 11, 1973, when the demands remained unheeded. LPJ admits that the first orders of the cements bags were used by the company and had made payments, but the succeeding delivered orders of cement bags, covered by the balance of payments to petitioners, were not used because of due to strong objection from company workers of Luzon Cement for leakage of cements from the plastic bags posing serious health hazards to them. This made respondent not to use said delivered plastic bags in packing cement. Thereafter, petitioner was asked to take back the unused plastic bags which were stored in the cement factory of respondent's supplier. Petitioner demanded respondent to return the bags to them, but was not done and so petitioner demanded payment for the said bags. ISSUE: Whether or not the sale between the parties is a contract of sale or return or a sale on approval? HELD: Accordingly, respondent is liable for the plastic bags delivered to it by petitioner. It is beyond dispute that the bags were already tested and the results, despite initially unsuccessful, were considerably favorable after due improvements made. On such findings, respondent agreed to use the plastic cement bags and issued purchase orders, and the quantity of bags ordered by respondent proves contrary that the bags were still under experimentation. Indeed, if it were so, the bags ordered should have been considerably lesser in number and would normally increase as the suitability of the plastic bags became more definite. Surprisingly, respondent still ordered and accepted the subsequent deliveries and remitted its payments for the first deliveries. ITCom then demanded for the return of the plastic cement bags, which the respondent did not. The bags remained in the custody of Luzon Cement, respondent's supplier and virtually a stranger as far as petitioner is concerned. It is for this reason that petitioner may not be expected to just pull out its bags from Luzon Cement. The conditions which allegedly govern the transaction according to respondent may not be considered, and that such conditions should have been distinctly specified in the purchase orders and respondent's failure to do so is fatal to its cause. The SC finds that Article 1502 of the Civil Code, invoked by both parties herein, has no application at all to this case. The provision in the Uniform Sales Act and the Uniform Commercial Code from which Article 1502 was taken, clearly requires an express written agreement to make a sales contract either a "sale or return" or a "sale on approval". Parol or extrinsic testimony could not be admitted for the purpose of showing that an invoice or bill of sale that was complete in every aspect and purporting to embody a sale without condition or restriction constituted a contract of sale or return. If the purchaser desired to incorporate a stipulation securing to him the right of return, he should have done so at the time the contract was made. On the other hand, the buyer cannot accept part and reject the rest of the goods since this falls outside the normal intent of the parties in the "on approval" situation. In the light of these principles, the SC held that the transaction between respondent and petitioner constituted an absolute sale.

Case Digests in Sales and Leases

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CASE DIGEST:

LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-appellee, vs.PERFECTO A. TABORA, defendant-appellant; G.R. No. L-21263, April 30, 1965

FACTS: On May 3, 1955, Perfecto A. Tabora bought from the Lawyers Cooperative Publishing Company one complete set of American Jurisprudence for a total price of P1,682.40, inclusive of freight of P6.90. Tabora made a partial payment of P300.00, having a balance of P1,382.40, and the books were delivered to and received by Tabora on May 15, 1955 in his law office Ignacio Building, Naga City. In the midnight of the same date, a big fire destroyed and burned all the buildings standing on one whole block where the law office and library of Tabora is located. As a result, the books bought from the company were burned during the conflagration. Tabora failed to pay he monthly installments agreed upon on the balance of the purchase price, and the company demanded payment of the installments due. Tabora failed to pay the same, then the plaintiff company commenced action for the recovery of the balance of the obligation, with a prayer that defendant be ordered to pay 25% of the amount due as liquidated damages, and the cost of action. Defendant pleaded force majeure as a defense, alleging that the books bought were destroyed by fire and since the loss was due to force majeure he cannot be held responsible for the loss. The CFI and the CA rendered judgment in favor of the plaintiff, and ordered to pay balance of the purchase price, with legal interest from the filing of the complaint, plus a sum equivalent to 25% of the total amount due as liquidated damages, and the cost of action. ISSUE: Whether or not the seller shall bear the loss of the thing sold after delivery to the buyer, if a provision that ownership shall remain in the seller until the price is full paid? HELD: No. Loss or damage to the books after delivery to the buyer shall be borne by the buyer. The contract provide that price is payable on installment plan and it was provided in the contract that "title to and ownership of the books shall remain with the seller until the purchase price shall have been fully paid." The contention of the appellant, that since it was agreed that the title to and the ownership of the books shall remain with the seller until purchase price shall have been fully paid, and the books were burned or destroyed immediately after the transaction, seller should be the one to bear the loss for, after all, loss is always borne by the owner, and assuming that ownership was transferred to the buyer, he cannot still be made liable because the loss occurred through force majeure, is untenable. The SC held that, while as a rule, the loss of the object of the contract of sale is borne by the owner or in case of force majeure the one under obligation to deliver the object is exempt from liability, the application of that rule does not here obtain because the law on the contract entered into on the matter argues against it. It is true that in the contract entered into between the parties the seller agreed that the ownership of the books shall remain with it until the purchase price shall have been fully paid, but such stipulation cannot make the seller liable in case of loss not only because such was agreed merely to secure the performance by the buyer of his obligation but in the very contract it was expressly agreed that the "loss or damage to the books after delivery to the buyer shall be borne by the buyer." This stiulation is sanctioned by Article 1504 of our Civil Code, which in part provides: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery. Also, in this case the obligor agreed to assume any risk concerning the goods from the time of their delivery, which is an exception to the rule provided for in Article 1262 of our Civil Code. Hence, the buyer is bound to bear the loss of the thing subject of the contract and is liable to the seller for the balance of the purchase price.

Case Digests in Sales and Leases

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CASE DIGEST:

JOSE SANTA ANA, JR. and LOURDES STO. DOMINGO, petitioners, vs. ROSA HERNANDEZ, respondent; G.R. No. L-16394; December 17, 1966

Petitioners spouses Jose Santa Ana, Jr. and Lourdes Sto. Domingo, owned a 115,850-square meter parcel of land, which they sold in 28 May 1954 two (2) separate portions of the land for P11,000.00 to the respondent Rosa Hernandez, which in the contract of sale covered more or less 2,500 square meters for one lot and more or less 26,500 square meters for the other. The other portions of the land were the subject of two other previous sales to different vendees. After the sale, the petitioners-spouses caused the preparation of a subdivision plan, which was approved on 13 January 1955 by the Director of Lands. Rosa Hernandez, however, did not conform to the plan and refused to execute an agreement of subdivision and partition for registration with the Register of Deeds; and she refused to vacate the areas that she had occupied and caused the preparation of a different subdivision plan, which was approved by the Director of Lands on 24 February 1955, which contained the areas that Rosa Hernandez actually occupied. On 28 February 1955, herein petitioners-spouses sued respondent Rosa Hernandez in the CFI, alleging that defendant was occupying an excess of 17,000 square meters in area of what she had bought from them. Rosa Hernandez claimed that the alleged excess was part of the areas that she bought. The CFI decided against the Rosa Hernandez, which she appealed to the CA. The CA however decided in favor of Rosa Hernandez, which prompted herein petitioners for appealing this petition to the SC. ISSUE: Whether or not the sale of two portions of lots are with clear exact areas at a certain rate per unit or for a lump sum? HELD: The sale was for a lump sum, and declared Rosa Hernandez the owner of the two lots sold, notwithstanding their increased area as compared to that specified in the deed of sale, applying Article 1542 of the new Civil Code: In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be greater or l ess area or number than that stated in the contract. The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. To hold the buyer to no more than the area recited on the deed, it must be made clear therein that the sale was made by unit of measure at a definite price for each unit. If the defendant intended to buy by the meter be should have so stated in the contract (Goyena vs. Tambunting, supra). The ruling of the Supreme Court of Spain, in construing Article 1471 of the Spanish Civil Code is highly persuasive that as between the absence of a recital of a given price per unit of measurement, and the specification of the total area sold, the former must prevail and determines the applicability of the norms concerning sales for a lump sum.

Case Digests in Sales and Leases

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CASE DIGEST: Carmen del Prado, petitioner, vs. Spouses Antonio L. Caballero and Leonarda Caballero, respondents; G.R. No. 148225; March 03, 2010

On June 11, 1990, respondents Spouses Antonio L. Caballero and Leonarda Caballero sold to petitioner Carmen del Prado a lot containing an area, as reflected in the contract of sale, more or less4,000 square meters. Original Certificate of Title (OCT) covering the lot sold was issued only on November 15, 1990, and entered in the "Registration Book" of the City of Cebu on December 19, 1990, which technical description states that said lot measures about 14,457 square meters, more or less. On March 20, 1991, petitioner filed in the same cadastral proceedings a "Petition for Registration of Document Under Presidential Decree (P.D.) 1529" in order that a certificate of title be issued in her name, covering about 14,457 square meters. In the petition, petitioner alleged that the tenor of the instrument of sale indicated that the sale was for a lump sum or cuerpo cierto, in which case, the vendor was bound to deliver all that was included within said boundaries even when it exceeded the area specified in the contract. Respondents opposed, on the main ground that only 4,000 square meters were sold to petitioner. They claimed that the sale was not for a cuerpo cierto. After trial on the merits, the court found that petitioner had established a clear and positive right to the whole lot , of about 14,457 square meters in area. The intended sale between the parties was for a lump sum, since there was no evidence presented that the property was sold for a price per unit. It was apparent that the subject matter of the sale was the parcel of land and not only a portion thereof. ISSUE: The core issue in this case is whether or not the sale of the land was for a lump sum or not. HELD: In the instant case, the deed of sale is not one of a unit price contract. The parties agreed on the purchase price of P40,000.00 for a predetermined area of 4,000 sq m, more or less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract of sale of land in a mass, the specific boundaries stated in the contract must control over any other statement, with respect to the area contained within its boundaries. Black's Law Dictionary[17] defines the phrase "more or less" to mean: About; substantially; or approximately; implying that both parties assume the risk of any ordinary discrepancy. The words are intended to cover slight or unimportant inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are ordinarily to be interpreted as taking care of unsubstantial differences or differences of small importance compared to the whole number of items transferred. Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in quantity. The difference in the area is obviously sizeable and too substantial to be overlooked. It is not a reasonable excess or deficiency that should be deemed included in the deed of sale. After an assiduous scrutiny of the records, we lend credence to respondents' claim that they intended to sell only 4,000 sq m of the whole Lot No. 11909, contrary to the findings of the lower court. The records reveal that when the parties made an ocular inspection, petitioner specifically pointed to that portion of the lot, which she preferred to purchase, since there were mango trees planted and a deep well thereon. After the sale, respondents delivered and segregated the area of 4,000 sq m in favor of petitioner by fencing off the area of 10,475 sq m belonging to them. Contracts are the law between the contracting parties. 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. All these elements are present in the instant case.

Case Digests in Sales and Leases

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CASE DIGEST:

TAY CHUN SUY, petitioner, vs. COURT OF APPEALS AND DEVELOPMENT BANK OF THE PHILIPPINES, respondents; G.R. No. 93640, January 7, 1994

FACTS: On 9 May 1978, Sta. Clara Lumber Co., Inc. (SCLC), obtained a loan of P18,514,357.56 from private respondent Development Bank of the Philippines (DBP). As security for the loan, SCLC mortgaged some of its properties, among which was a vessel. Upon SCLC's failure to pay the loan, the mortgage was foreclosed. On 18 August 1982, the Clerk of Court and Provincial Sheriff Ex-Officio of Sultan Kudarat, Aurelio M. Rendon, conducted an auction sale and sold the vessel to DBP for P3,600,000.00. He thereafter issued a certificate of sale dated 18 August 1982 in favor of DBP, but DBP did not register with the Philippine Coast Guard the mortgage, neither the foreclosure nor the auction sale. In December 1983, DBP and Sta. Clara Housing Industries, Inc. (SCHI), entered into a Lease/Purchase Agreement which provided that DBP should lease some of the former properties of SCLC, including a vessel, to the latter and transfer actual ownership over these properties upon completion by the lessee of the stipulated lease/purchase payment. On 10 July 1986, petitioner caused the levy and attachment of the same vessel in order to satisfy a judgment rendered by the Regional Trial Court, Davao. At the time of the levy, the coastwise license of the vessel was in the name of Sta. Clara Lumber Co., Inc. On the scheduled date of the execution sale, Atty. Necitas Kintanar, counsel for SCHI, verbally informed Deputy Sheriff Manases M. Reyes, Jr., who was to conduct the sale, that the vessel was no longer owned by SCLC but by DBP pursuant to a prior extrajudicial foreclosure sale. Despite such information, Sheriff Reyes, Jr., proceeded with the sale and awarded the vessel to petitioner for P317,000.00. Meanwhile, on 23 July 1986, the vessel was again levied upon and attached by Deputy Sheriff Alfonso M. Zamora by virtue of a writ of attachment issued by the Regional Trial Court, Cebu City. On 24 July 1986, the same court issued an order appointing Philippine Trigon Shipyard Shipping Corporation as depository of the attached vessel with authority to operate the vessel temporarily. Subject vessel was then taken from the port of Davao City to Cebu City. Upon being informed of the execution sale to petitioner, DBP filed a complaint before the Regional Trial Court, Davao City, for annulment of the execution sale, recovery of possession, damages and attorney's fees with prayer for restraining order and preliminary injunction. Petitioner moved to dismiss the complaint for alleged lack of jurisdiction, cause of action and/or legal personality to sue on the part of DBP. On 28 October 1986, the court denied the motion to dismiss but granted DBP's prayer for a writ of preliminary injunction. Petitioner moved for reconsideration of the denial but on 19 November 1986, the motion was likewise denied. Forthwith, petitioner filed with the Court of Appeals a petition for certiorari and mandamus with prohibition assailing the Orders of 28 October and 19 November 1986 of the trial court. On 11 March 1987, the Court of Appeals dismissed the petition. Petitioner appealed to the SC. In the resolution of 28 September 1987, the SC thru its Third Division denied the petition for lack of merit. On 4 December 1987, the trial court issued a decision which, among other matters, declared that DBP was the lawful owner of subject vessel and that the public auction sale (first public auction) conducted by Deputy Sheriff Manases Reyes, Jr., on 16 July 1986 and the resultant certificate of sale were null and void. Petitioner sought recourse to the Court of Appeals., the appellate court dismissed his appeal and the motion to reconsider the dismissal was denied. ISSUE: As between the buyer of a vessel at a prior extrajudicial foreclosure and the buyer at a subsequent auction sale, both buyers failing to register their transactions, who has a better right of dominion over the vessel? HELD: The DBP has a better right to the Ownership of the vessel. The records show that SCHI, lessee of the vessel, is an entity separate from SCLC, and was not a party to the case filed by petitioner against the latter. Yet, SCHI was furnished, on a Saturday, copy of the auction sale of the vessel. Sta. Clara Lumber Co., Inc., which was the proper party, does not appear to have been notified. Upon being informed of the auction sale, counsel for SCHI immediately went to the auction site and requested that the sale be reset that day on the ground that SCLC was no longer the owner of the vessel. To support this claim, the Manager of SCHI hurriedly left for her office to secure a copy of the certificate of sale in favor of DBP as this was demanded by the sheriff.

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Given the circumstances obtaining in this case, a delay of a few hours could not have prejudiced petitioner. A sheriff's ministerial duty to conduct an auction sale is not without any limitation. In the performance of this duty, he is deemed to know what is inherently right and inherently wrong. Nonetheless, Sheriff Reyes, Jr., upon the persistent proddings of petitioner, proceeded with the auction sale. His poor judgment alone would not have caused any suspicion of bias. However, his precipitate action taken together with the anomalous proceedings that ensued, and the haste with which he delivered the certificate of sale to petitioner in the afternoon of the day of the auction sale lead to the inevitable conclusion that the whole operation was contrived to benefit petitioner. The handwritten Minutes of the auction sale clearly indicate the haste with which they were prepared, a telltale evidence of the anomalous conduct of the proceedings. The procedure followed by Sheriff Reyes, Jr., was patently irregular. The question of whether the non-registration by DBP is fatal to its claim to the vessel or whether the trial court has jurisdiction over the action should no longer be raised anew. Once a case has been decided one way, then another case involving exactly the same point at issue should be decided in the same manner. Further, petitioner contends that he is a bona fide purchaser for value at the auction sale and that he came to know about the acquisition by DBP only upon its filing of complaint for annulment of the execution sale. The evidence on record belies such contention. Before the auction sale started, counsel for petitioner was already aware of the cloud on the title of SCLC to the vessel. Notwithstanding his knowledge of the prior claim of DBP, petitioner insisted that the sheriff proceeded with the auction sale. Under the caveat emptor rule, he assumed the risk of losing the vessel because his right to it cannot be considered superior to that of DBP. As held in previous decisions, an execution creditor generally acquires no higher or better right than what the execution debtor has in the property levied upon. It follows then that if the judgment debtor had no interest in the property, the execution creditor acquires no interest therein. Moreover, petitioner is now estopped from denying knowledge of the prior claim of DBP to the vessel in the light of his judicial admission. The petition cannot be given merit.

CASE DIGEST:

Arra Realty Corp and Spouses Carlos Arguelles and Remedios Dela Rama Arguelles, petitioners, vs. Guarantee Development Corporation and Insurance Agency and Engr. Erlinda Eñaloza, respondents; G.R. No. 142310, September 20, 2004

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Arra Realty Corporation (ARC) was the registered owner of a parcel of land. Through its president, Architect Carlos D. Arguelles, the ARC constructed a five-story building on its property, with the services of Engineer Erlinda Peñaloza as project and structural engineer. On November 18, 1982, Peñaloza and the ARC, through Carlos Arguelles, agreed that Peñaloza would share the purchase price of one floor of the building, consisting of 552 square meters for the price of P3,105,838: that an amount of P901,738, shall be payable within sixty (60) days from November 20, 1982, and the balance payable in twenty (20) equal quarterly installments of P110,205. The parties further agreed that the payments of Peñaloza would be credited to her account in partial payment of her stock subscription in the ARC’s capital stock. In May 1983, Peñaloza took possession of the one-half portion of the second floor, with an area of 552 square meters where she put up her office and operated the St. Michael International Institute of Technology. On May 12, 198, ARC had executed a real estate mortgage over the lot and the entire building in favor of the China Banking Corporation as security for a loan without the knowledge of Penaloza. On June 3, 1983, the deed was annotated at the dorsal portion of Transfer Certificate of Title. From February 23, 1983 to May 31, 1984, Peñaloza paid P1,175,124.59 for the portion of the second floor of the building she had purchased from the ARC and in July 1984, she learned that the property had been mortgaged to the China Banking Corporation sometime. Thereafter, she stopped paying the installments due on the purchase price of the property. On August 1, 1984, Peñaloza wrote the bank and informed that the ARC had conveyed a portion of the second floor of the building to her, and that she had paid P1,175,124.59 out of the total price of P3,105,838. She offered to open an account with the bank in her name in the amount of P300,000, and to make monthly deposits of P50,000 each, to serve as payments of the equivalent loan of the ARC upon the execution of the appropriate documents, with a proposal for the bank to assist her in requesting the ARC to execute a deed of absolute sale over the portion of the second floor she had purchased and the issuance of the title in her name upon the payment of the purchase price, but was rejected bythe bank. On August 31, 1984, Penaloza then wrote the ARC informing it of the rejection of the bank on her offer to assume its equivalent loan from the bank and reminded it that it had conformed to her proposal to assume the payment of its loan from the bank up to the equivalent amount of the balance of the purchase price of the second floor of the building as agreed upon, and the consequent execution by the ARC of a deed of absolute sale over the property in her favor. Peñaloza then sent a copy of a deed of absolute sale with assumption of mortgage for the ARC’s consideration, and informed the latter that, in the meantime, she was withholding installment payments. On October 3, 1984, Peñaloza transferred the school to another building she had purchased, but retained her office therein. She later discovered that her office had been closed, but had the office reopened and continued holding office thereat. November 27, 1984, in order to protect her rights as purchaser, she executed on November 26, 1984 an affidavit of adverse claim over the property which was annotated at the dorsal portion of TCT. But, the adverse claim was cancelled on February 11, 1985 On August 13, 1986, the subject property was foreclosed extrajudicially when the ARC failed to pay its loan to China Banking Corporation, and, was sold at public auction to the same bank for P13,953,171.07. On April 29, 1987, the ARC and the Guarantee Development Corporation and Insurance Agency (GDCIA) executed a deed of conditional sale covering the building and the lot for P22,000,000, part of which was to be used to redeem the property from China Banking Corporation. With the money advanced by the GDCIA, the property was redeemed on May 4, 1987. On May 14, 1987, the petitioner executed a deed of absolute sale over the lot and building in favor of the GDCIA for P22,000,000. The ARC obliged itself under the deed to deliver possession of the property without any occupants therein. On May 15, 1987, the Register of Deeds issued a in favor of the GDCIA over the property without any liens or encumbrances.

Case Digests in Sales and Leases

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Of the purchase price of P22,000,000, the GDCIA retained P1,000,000 to answer for any damages arising from any suits of the occupants of the building. On May 28, 1987, Peñaloza filed a complaint against the ARC, the GDCIA, and the Spouses Arguelles, with the Regional Trial Court, Makati, for "specific performance or damages" with a prayer for a writ of preliminary injunction. On April 17, 1995, the trial court rendered judgment in favor of Peñaloza and the GDCIA, and against the ARC and the Spouses Arguelles. Peñaloza, as well as the ARC and the Spouses Arguelles, appealed the decision to the Court of Appeals (CA). The CA rendered judgment affirming the decision of the trial court. ARC and the Spouses Arguelles filed a motion for reconsideration of the decision of the CA, but denied the said motion. Peñaloza then filed a petition for review on certiorari with the Supreme Court. On March 15, 1999, the Court resolved to deny due course to the petition of Penaloza for failure to show any reversible error committed by the CA in its decision. Entry of judgment was made of record on April 14, 1999. For their part, the ARC and the Spouses Arguelles, now the petitioner, filed their petition for review with the SC. ISSUE: Whether the agreement between petitioner ARC, as vendor, and respondent Peñaloza, as vendee, is a contract of sale over a portion of a property still to be constructed? HELD: The agreement entered into by the parties is a contract of sale. As soon as the second floor was constructed, respondent Peñaloza took possession of the property, and title thereto would be transferred to her name. The parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the contract of sale was perfected, it being consensual in nature, perfected by mere consent, which, in turn, was manifested the moment there was a meeting of the minds as to the offer and the acceptance thereof. The perfection of the sale is not negated by the fact that the property subject of the sale was not yet in existence, because ownership by the seller of the thing sold at the time of the perfection of the contract of sale is not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. In May 1983, respondent Peñaloza took possession of a portion of the second floor of the building sold to her with an area of 552 square meters. She put up her office and operated the St. Michael International Institute of Technology. Thenceforth, respondent Peñaloza became the owner of the property, conformably to Article 1477 of the New Civil Code which reads: “Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.” In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the property. The failure of the buyer to pay the purchase price within the stipulated period does not by itself bar the transfer of ownership or possession of the property sold, nor ipso facto rescind the contract. Such failure will merely give the vendor the option to rescind the contract of sale judicially or by notarial demand as provided for by Article 1592 of the New Civil Code: “Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.” Despite Peñaloza`s failure to pay the downpayment on time, the petitioner ARC acceptance of the delayed payments, without any objections, made the obligation complied with. As provided in Article 1235 of the New Civil Code: “Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.”

Case Digests in Sales and Leases

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The respondent cannot be blamed for suspending further remittances of payment to the petitioner ARC because when she pushed for the issuance of her title to the property after taking possession thereof, the ARC failed to comply. She was aghast when she discovered that in July 1984, even before she took possession of the property, the petitioner ARC had already mortgaged the lot and the building to the China Banking Corporation; when she offered to pay the balance of the purchase price of the property to enable her to secure her title thereon, the petitioner ARC ignored her offer. Under Article 1590 of the New Civil Code, a vendee may suspend the payment of the price of the property sold: “Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price.” Contrary to the claim of the petitioners, respondent Peñaloza did not waive her right to enforce the letter-agreement or abandon the property she had purchased from the petitioner ARC. While she transferred the school to another location, the respondent maintained her office in the subject property, only to discover that the petitioner had had her office padlocked. Nevertheless, she had her office reopened and continued holding office thereat. Respondent Peñaloza turned over the possession of the property to the petitioner ARC on October 7, 1986 and, shortly thereafter, filed her complaint against the petitioner ARC. The bare fact that the respondent filed her complaint shortly after vacating the property is evidence of her determination to pursue her claims against the petitioners. In view of the failure of the petitioner ARC to transfer the title of the property to her name because of the mortgage thereof to China Banking Corporation and the subsequent sale thereof to the GDCIA, respondent Peñaloza is entitled to the refund of the amount she paid to the petitioner ARC, conformably to Article 1398 of the New Civil Code, which reads: “Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law. In obligations to render service, the value thereof shall be the basis for damages. We reject the petitioners’ claim that respondent Peñaloza is liable for P2,177,935 by way of advances and unpaid rentals. We note that in their answer to the amended complaint of respondent Peñaloza, the petitioners did not interpose any counterclaims for actual damages in the form of unpaid rentals. Neither did the petitioners assign as error in their brief in the CA the failure of the trial court to award P302,753.06 to them for advances. It was only when they moved for the reconsideration of the decision of the CA did they claim, for the first time on appeal, their entitlement to P302,753.06 as refund for advances. The petitioner ARC is, thus, barred from raising the said issue in this Court.” Likewise barren of factual and legal basis is the petitioners’ claim for damages against the respondent based on Article 19 of the New Civil Code, which reads: “Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.” In this case, respondent Peñaloza suspended the payment of the balance of the purchase price of the property because she had the right to do so. While she failed to pay the purchase price on time, the petitioner ARC nevertheless accepted such delayed payments. The respondent even proposed to assume the loan account of the petitioner ARC with the China Banking Corporation in an amount equivalent to the balance of the purchase price of the subject property, which the petitioner ARC rejected. In fine, respondent Peñaloza acted in accord with law and in utmost good faith. Hence, she is not liable for damages to the petitioners under Article 19 of the New Civil Code. The law is that men, singly or in combination, may use any lawful means to accomplish a lawful purpose, although the means adopted may cause injury to another. When a person is doing a lawful thing in a lawful way, his conduct is not actionable though it may result in damages to another; for, though the damage caused is undoubted, no legal right of another is invaded; hence, it is said to be damnum absque injuria. The elements of abuse of rights are the following: (a) the existence of a legal right or duty, (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. Malice or bad faith is at the core of said provision.

Case Digests in Sales and Leases

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