Law on Sales - Digested Cases

HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S. TRIA, petitioners, vs. VICENTE RODRIGUEZ, respondent. G.R. No. 135634

May 31, 2000

Facts: Juan andres was the owner of the lot situated in liboton, naga city. The sale was evidenced by a deed of sale. Upon the death of juan andres, ramon san andres was appointed as administrator of the estate, and hired geodetic engineer. Jose panero prepared a consolidated plan of the estate and also prepared a sketch plan of the lot sold to respondent. It was found out that respondent had enlarged the area which he purchased from juan. The administrator sent a letter to the respoindent to vacate the said portion in which the latter refused to do. Respondent alleged that apart from the original lot, which had been sold to him, the latter likewise sold to him the following day the remaining portion of the lot. He alleged that the payment for such would be affected in 5 years from the eecution of the formal deed of sale after a survey is conducted. He also alleged that under the consent of juan, he took possession of the same and introduced improvements thereon. Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the aforesaid 509-square meter lot. On September 20, 1994, the trial court rendered judgment in favor of petitioner. It ruled that there was no contract of sale to speak of for lack of a valid object because there was no sufficient indication to identify the property subject of the sale, hence, the need to execute a new contract. Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision reversing the decision of the trial court. The appellate court held that the object of the contract was determinable, and that there was a conditional sale with the balance of the purchase price payable within five years from the execution of the deed of sale. Issue: whether or not there was a valid sale. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Held: Civil Code provides that By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract conditional.

of

sale

may

be

absolute

or

As thus defined, the essential elements 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. 12 As shown in the receipt, dated September 29, 1964, the late Juan San Andres received P500.00 from respondent as "advance payment for the residential lot adjoining his previously paid lot on three sides excepting on the frontage; the agreed purchase price was P15.00 per square meter; and the full amount of the purchase price was to be based on the results of a survey and would be due and payable in five (5) years from the execution of a deed of sale. Petitioner's contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since the lot subsequently sold to respondent is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinable. As the Court of Appeals explained: 15 Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered into, the thing is Page 1

capable of being determinate without necessity of a new or further agreement between the parties. Here, this definition finds realization. Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil Code provides: The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. . . .That the contract of sale is perfected was confirmed by the former administrator of the estates, Ramon San Andres, who wrote a letter to respondent on March 30, 1966 asking for P300.00 as partial payment for the subject lot. As the Court of Appeals observed: Without any doubt, the receipt profoundly speaks of a meeting of the mind between San Andres and Rodriguez for the sale. Evidently, this is a perfected contract of sale on a deferred payment of the purchase price. All the prerequisite elements for a valid purchase transaction are present. There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale. Apparently, the appellate court considered as a "condition" the stipulation of the parties that the full consideration, based on a survey of the lot, would be due and payable within five (5) years from the execution of a formal deed of sale. It is evident from the stipulations in the receipt that the vendor Juan San Andres sold the residential lot in question to respondent and undertook to transfer the ownership thereof to respondent without any qualification, reservation or condition.

parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to respondent. 20 Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. Consequently, the contention that the absence of a formal deed of sale stipulated in the receipt prevents the happening of a sale has no merit. The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is based on the agreement of the parties as evidenced by the receipt (Exh. 2). Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such contract so long as they are not contrary to law, morals, good customs or public policy. Otherwise, court would be interfering with the freedom of contract of the parties. Simply put, courts cannot stipulate for the parties nor amend the latter's agreement, for to do so would be to alter the real intentions of the contracting parties when the contrary function of courts is to give force and effect to the intentions of the parties. The decision of the Court of Appeals is AFFIRMED with the modification that respondent is ORDERED to reimburse petitioners for the expenses of the survey.

A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Applying these principles to this case, it cannot be gainsaid that the contract of sale between the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 2

Hernando R. Penalosa vs. Severino Santos G.R. No. 133749

August 23, 2001

Facts: Severino sold his property to henry. Henry applied for a loan with philam life. As It was already approved pending the submission of certain documents such as the owners duplicate of transfer certificate of title which is in possession of severino. Henry already took possession of the property in question after ejectment of the lessees. He also paid an ernest money of 300,000 under the premise that it shall be forfeited in favor of severino in case of nonpayment. Severino now claims ownership over the property claiming that henry did not pay for the property, therefore there was no sale to speak of. Issue: whether or not there is a contract of sale perfected in this case. Held: there was a perfected contract of sale due to the second deed of sale. The basic characteristic of an absolutely simulated or fictitious contract is that the apparent contract is not really desired or intended to produce legal effects or alter the juridical situation of the parties in any way. 30 However, in this case, the parties already undertook certain acts which were directed towards fulfillment of their respective covenants under the second deed, indicating that they intended to give effect to their agreement. Further, the fact that Severino executed the two deeds in question, primarily so that petitioner could eject the tenant and enter into a loan/mortgage contract with Philam Life, is to our mind, a strong indication that he intended to transfer ownership of the property to petitioner. For why else would he authorize the latter to sue the tenant for ejectment under a claim of ownership, if he truly did not intend to sell the property to petitioner in the first place? Needless to state, it does not make sense for Severino to allow petitioner to pursue the ejectment case, in petitioner's own name, with petitioner arguing Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

that he had bought the property from Severino and thus entitled to possession thereof, if petitioner did not have any right to the property. Also worth noting is the fact that in the case filed by Severino's tenant against Severino and petitioner in 1989, assailing the validity of the sale made to petitioner, Severino explicitly asserted in his sworn answer to the complaint that the sale was a legitimate transaction. He further alleged that the ejectment case filed by petitioner against the tenant was a legitimate action by an owner against one who refuses to turn over possession of his property. It should be emphasized that the nonappearance of the parties before the notary public who notarized the deed does not necessarily nullify nor render the parties' transaction void ab initio. We have held previously that the provision of Article 1358 of the New Civil Code on the necessity of a public document is only for convenience, not for validity or enforceability. Failure to follow the proper form does not invalidate a contract. Where a contract is not in the form prescribed by law, the parties can merely compel each other to observe that form, once the contract has been perfected.35 This is consistent with the basic principle that contracts are obligatory in whatever form they may have been entered into, provided all essential requisites are present.3 The elements of a valid contract of sale under Art. 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent.37 In the instant case, the second deed reflects the presence of all these elements and as such, there is already a perfected contract of sale. The non-payment of the contract price merely results in a breach of contract for nonperformance and warrants an action for rescission or specific performance under Article 1191 of the Civil Code. Be that as it may, we agree with petitioner that although the law allows rescission as a remedy for breach of contract, the same may not be availed of by respondents in this case. To begin with, it was Severino who prevented full payment of the stipulated price when he refused to deliver the owner's original duplicate title to Page 3

Philam Life. His refusal to cooperate was unjustified, because as Severino himself admitted, he signed the deed precisely to enable petitioner to acquire the loan. He also knew that the property was to be given as security therefor. Thus, it cannot be said that petitioner breached his obligation towards Severino since the former has always been willing to and could comply with what was incumbent upon him. In sum, the only conclusion which can be deduced from the aforesaid circumstances is that ownership of the property has been transferred to petitioner. WHEREFORE, the petition is GRANTED.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 4

Issue:

DAVIDE, JR., J.:

Whether the trial court erred in finding that the prosecution has fully met the test of moral certainty as to the guilt of the accused on both charges of violation of section 15, Article III of the Dangerous Drugs Act of 1972 and of illegal possession of firearms.

Facts:

Decision:

Major Juvenile Sulapas, Officer-incharge, Dangerous Drugs Enforcement Section, Pasay City Police Station, received a confidential report from an informant about the rampant trafficking of drugs by Elizabeth Ganguso y Decena a.k.a. "Beth Tomboy".

The instant appeal is partly granted, and the challenged decision of the Regional Trial Court of Pasay City is modified. As modified, accused-appellant Beth is acquitted for the charge of illegal possession of firearms on ground of reasonable doubt. The penalty imposed on her for the violation of section 15, Article III of the Dangerous Drugs Act of 1972 is reduced to an indeterminate sentence of three months of arresto mayor, as minimum, to three years of prision correccional, as maximum.

PEOPLE OF THE PHILIPPINES v. ELIZABETH GANGUSO G.R. No. 115430

November 23, 1995

A buy-bust operation was planned with Dennis Vermug acting as poseur-buyer, backedup by SPO1 Lumapat, SPO1 Gabutin, PO3s Mendoza and Garcia with SPO3 Fucanan as team leader. The operation was carried out and they were successful in arresting Beth for the violation of Dangerous Drugs Act of 1972. At the same time, they were able to recover a .38 caliber Paltik revolver from the suspect. Several documentary exhibits were presented as evidence to the crime. Beth made statements in her testimony different to that of the police’s: policemen barged into her house, searched the premises and her person without a warrant and; denied the revolver recovered from her. At the trial, defense presented two witnesses who also claimed that no buy bust operation took place and no revolver was in the possession of the suspect. Nevertheless, the Regional Trial Court of Pasay convicted her of both charges. She was sentenced to suffer the penalty of life imprisonment and to pay a fine plus costs for the crime involving drugs. She was also sentenced to an indeterminate penalty of ten years and one day of prision mayor, as minimum, to twelve years and one day, as maximum, with fine and costs for the crime of illegal possession of firearms. Hence, Beth appealed. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Ratio Decidendi: Supreme Court held that the elements of a contract of sale were present. Beth is presumed to have given her consent by not inquiring as to the meaning of “S” when the officer posed to buy “Php 500 worth of S”. Therefore, there was a meeting of minds upon a definite object and upon the price. Though she was not in possession of the object of sale, Article 1459 merely requires that the vendor must have the right to transfer ownership of the object sold at the time of delivery. In the case at bar, though Beth is not the owner, she had the right to dispose of the prohibited drug. Ownership was thereafter acquired upon her delivery to the men in the alley after her payment of the price. Supreme Court also held that failure to conduct prior surveillance and absence of marked money does not affect the evidence of the prosecution. It is sufficient that the members of the operation were accompanied by the informant to the scene; the sale was adequately proven and; the drug subject was presented before the court. As regards the penalty imposed, since the shabu only weighs 0.1954 grams, penalty Page 5

should be prision correccional to reclusion temporal depending upon the quantity. Applying R.A. No. 7659, ISLAW, and the decision in the case of People v. Simon, proper penalty should be within the range of arresto mayor to prision correccional. •

R.A. No. 7659, amending R.A. No. 6425, took effect on 31 December 1993. Being patently favorable to the appellant, that amendatory law should be applied retroactively.

•

ISLAW: If an offense under the RPC is also punishable by another law, the court shall sentence the accused to an indeterminate sentence, the maximum term of which shall not exceed the maximum fixed by said law and the minimum shall not be less than the minimum term prescribed by the same.

Finally, there was no proof that Beth is guilty beyond reasonable doubt for the possession of firearms. Hence, presumption of innocence stands for failure of the prosecution to establish such guilt.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 6

HEIRS OF AMPARO AURORA SANTOS G.R. No. L-46892

DEL

ROSARIO

v.

September 30, 1981

GUERRERO, J.: Facts: Amparo Del Rosario entered into a contract with Attorney Andres Santos and his wife Aurora Santos whereby the latter sold to the former a 20,000 sq. m. of land which is to be segregated from Lot 1. Said lot forms part of the several lots belonging to a certain Teofilo Custodio, of which lots, Attorney Santos, by agreement with the latter, as his attorney’s fees, owns ½ interest thereof. Parties agreed that spouses Andres shall thereafter execute a Deed of Confirmation of Sale in favor of Del Rosario as soon as the title has been released and the subdivision plan of said Lot 1 has been approved by the Land Registration Commissioner. Due to the failure of spouses Andres to execute the deed after the fulfillment of the condition, Del Rosario claims malicious breach of a Deed of Sale. Defendant thereafter filed a motion to dismiss setting up the defenses of lack of jurisdiction of the court over the subject of the action and lack of cause of action as well as the defense of prescription. They further alleged that the deed of sale was only an accommodation graciously extended, out of close friendship between the defendants and the plaintiff, hence, tantamount to waiver, abandonment or otherwise extinguishment of the demand set forth in the complaint. Finally, defendants alleged that the claim on which the action or suit is founded is unenforceable under the statute of frauds and that the cause or object of the contract did not exist at the time of the transaction.

and convey to plaintiff the 20,000 sq. m. of land to be taken either from Lot 4 or from Lot 5-A of Custodio’s lots, which defendants own ½ interest thereof. Aggrieved by the aforesaid decision, the defendants filed an appeal with the Court of Appeals which certified the records of the case to the Supreme Court for final determination. Issue: (As far as it concerns Sales) Whether the sale is valid as to the cause or object of the contract. Decision: The judgment appealed from is hereby affirmed in toto, with costs against the appellants. Ratio Decidendi: Supreme Court held that the execution of the deed of sale is valid notwithstanding the lack of any title to the lot by appellants at the time of execution f the deed of sale in favor of appellee as there can be a sale of an expected thing in accordance with Article 1461 of the New Civil Code: Art. 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain expectancy is void.

hope

or

The case at bar is not a case of a vain hope or expectancy which is void under the law. The expectant right came into existence or materialized for the appellants actually derived titles from Lot I which subsequently became the object of subdivision.

The lower court resolved to deny the motion to dismiss. After actions by respective parties, the lower court ordered the defendants to execute Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 7

JOSE M. JAVIER and ESTRELLA F. JAVIER vs. COURT OF APPEALS and LEONARDO TIRO GR No. 48194 March 15, 1990 Regalado, J.: FACTS: Leonardo Tiro executed a Deed of assignment concerning his shares of stock in Timberwealth Corporation on Feb. 15, 1966 in favor of spouses Jose and Estrella Javier and for the amount of P 120,000. Spouses paid P 20,000 as initial payment and the balance to be paid in instalments as agreed. The parties entered into another deed on Feb. 28, 1966 for the addt’l forest concession, subject of a pending application, adjoining the area covered in the first deed. As agreed, the payment therefor of P 30,000 shall be paid as soon as the application is approved. On Nov. 18, 1966, the Dir. of Forestry directed a consolidation for the renewal of the concession. By virtue of the deed, spouses Javier consolidated with the other adjoining concessionaires.On July 16, 1968, Tiro filed a complaint for failure of the spouses to pay the remaining balance.Spouses filed their answer arguing therein the nullity of the deeds and the return of the payments made by them. It appeared in record that the Timberwealth Corporation was a non-existent organization.The trial court dismissed the complaint hence, Tiro appealed to CA. CA reversed the judgment. Petition to review filed with SC. ISSUE: W/N THE TWO DEEDS ARE NULL AND VOID, THE FORMER FOR TOTAL ABSENCE OF CONSIDERATION AND THE LATTER FOR NON-FULFILLMENT OF CONDITIONS.

RULING: Decision Modified.

Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private respondent in Timberwealth Corporation, as Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

stated in the deed itself. Since said corporation never came into existence, no share of stocks was ever transferred to them, hence the said deed is null and void for lack of cause or consideration. The true cause or consideration of said deed was the transfer of the forest concession of private respondent to petitioners for P120,000.00. This finding is supported by the contemporaneous and subsequent acts of petitioners and private respondent. It is settled that the previous and simultaneous and subsequent acts of the parties are properly cognizable indicia of their true intention. Their acts reveal that the cause stated in the questioned deed of assignment is false. The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false cause or consideration, or one where the parties conceal their true agreement. A contract with a false consideration is not null and void per se. Under Article 1346 of the Civil Code, a relatively simulated contract, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. As to the nullity for the non-fulfilment of the conditions, SC agrees. The efficacy of said deed of assignment is subject to the condition that the application of private respondent for an additional area for forest concession be approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said deed produces no effect. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled. Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. In this case, since private respondent never acquired any right over the additional area for failure to secure the approval of the Bureau of Forestry, the agreement executed therefor, which had for its object the transfer of said right to petitioners, never became effective or enforceable.

Page 8

ONAPAL PHILS. COMMODITIES, INC. vs. THE COURT OF APPEALS and SUSAN CHUA February 1, 1993

GR No. 90707

Campos, Jr., J.: FACTS: ONAPAL Phils. Commodities, Inc. is a commission merchant/broker licensed by SEC, engaged in commodity futures trading. Futures Commission Merchant/Broker refers to a corporation or partnership, which must be registered and licensed as a Futures Commission Merchant/Broker and is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of the contract market and that, in connection with such solicitation or acceptance of orders, accepts any money, securities or property (or extends credit in lieu thereof) to margin, guarantee or secure any trade or contract that results or may result therefrom. Its Account Executive Elizabeth Diaz invited Susan Chua to invest in commodity futures trading and they subsequently entered into a commodity futures contract without explanation to Susan as to the risks involved. A commodity futures contract refers to an agreement to buy or sell a specified quantity and grade of a commodity at a future date at a price established at the floor of the exchange. As stipulated in the trading contract, Susan may withdraw anytime and she did. From P 800,000 Susan invested, she was able to get only P 470,000. Hence, complaint was filed with the trial court. The trial court found and rendered the trading contract a specie of gambling and therefore null and void. CA upheld the judgment. Hence, petition for certiorari with SC.

by the parties, is a contract for the sale of products for future delivery, in which either seller or buyer may elect to make or demand delivery of goods agreed to be bought and sold, but where no such delivery is actually made. By delivery is meant the act by which the res or subject is placed in the actual or constructive possession or control of another. ONAPAL received the customer's orders and private respondent's money. As per terms of the trading contract, customer's orders shall be directly transmitted by the petitioner as broker to its principal, Frankwell Enterprises Ltd. of Hongkong , which in turn must place the customer's orders with the Tokyo Exchange. There is no evidence that the orders and money were transmitted to its principal Frankwell Enterprises Ltd. in Hongkong nor were the orders forwarded to the Tokyo Exchange. We draw the conclusion that no actual delivery of goods and commodity was intended and ever made by the parties. In the realities of the transaction, the parties merely speculated on the rise and fall in the price of the goods/commodity subject matter of the transaction. If private respondent's speculation was correct, she would be the winner and the petitioner, the loser, so petitioner would have to pay private respondent the "margin". But if private respondent was wrong in her speculation then she would emerge as the loser and the petitioner, the winner. The petitioner would keep the money or collect the difference from the private respondent. This is clearly a form of gambling provided for with unmistakeable certainty under Article 2018 If a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and void. The loser may recover what he has paid.

ISSUE: W/N THE TRADING CONTRACT IS NULL AND VOID AS IT APPEARS TO BE A SPECIE OF GAMBLING

RULING: Petition Dismissed. The trading contract signed Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 9

Sps. Bernardo Buenaventura and Consolacion Joaquin vs. Court of Appeals November 20, 2003 First Division Ponente: Carpio, J.

GR No. 126376

Facts: Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed Joaquin. Leonardo and Feliciana executed several deeds of sale in favour of their co-defendant children. Petitioners then filed an action the Regional Trial Court (RTC) of Makati seeking to declare as null and void ab initio the deeds of sale executed by Leonardo and Feliciana claiming that: (1) here was no actual valid consideration for the deeds of sale, (2) assuming that there was consideration in the sums reflected in the questioned deeds, the properties are more than three-fold times more valuable than the measly sums appearing therein, and (3) the deeds of sale do not reflect and express the true intent of the parties Defendants, on the other hand aver (1) that the sales were with sufficient considerations and made by defendants parents voluntarily, in good faith, and with full knowledge of the consequences of their deeds of sale; and (2) that the certificates of title were issued with sufficient factual and legal basis. The RTC dismissed the case, declaring that the deeds of sale were all executed for valuable consideration. On appeal, the Court of Appeals affirmed the decision of the RTC. Issues: (1) Whether there the deeds of sale are void for lack of consideration (2) Whether the deeds of sale are void for gross inadequacy of price Held: The petition is without merit. (1) A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds as to Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

price. If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, then the contract is void. Article 1471 of the Civil Code states that if the price in a contract of sale is simulated, the sale is void. It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove simulation, petitioners presented Emma Joaquin Valdozs testimony stating that their father, respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale without need for her payment of the purchase price. The trial court did not find the allegation of absolute simulation of price credible. Petitioners failure to prove absolute simulation of price is magnified by their lack of knowledge of their respondent siblings financial capacity to buy the questioned lots. On the other hand, the Deeds of Sale which petitioners presented as evidence plainly showed the cost of each lot sold. Not only did respondents’ minds meet as to the purchase price, but the real price was also stated in the Deeds of Sale. As of the filing of the complaint, respondent siblings have also fully paid the price to their respondent father. (2) Articles 1355 of the Civil Code states: Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. Article 1470 of the Civil Code further provides: Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may Page 10

indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale. All the respondents believed that they received the commutative value of what they gave.

Labagala vs. Santiago Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 11

December 4, 2001 Second Division Ponente: Quisumbing, J.

GR No. 132305

Facts: Jose T. Santiago owned a parcel of land. Alleging that Jose had fraudulently registered it in his name alone, his sisters Nicolasa and Amanda Santiago (respondents), sued Jose for recovery of 2/3 share of the property. On April 20, 1981, the trial court in that case decided in favor of the sisters, recognizing their right of ownership over portions of the property. Jose died intestate. Thereafter, the respondents filed an action before the Regional Trial Court of Manila seeking to recover Jose’s 1/3 share over the property.

Code provides: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract.

Respondents claim that Jose’s share in the property ipso jure belongs to them because they are the only legal heirs of their brother, who died intestate and without issue. They allege that it is highly improbable for petitioner to have paid the supposed consideration of P150,000 for the sale of the subject property because petitioner was unemployed and without any visible means of livelihood at the time of the alleged sale. Petitioner Labagala, on the other hand, claims that she is the daughter of Jose and argued that the purported sale of the property was in fact a donation to her. The RTC held that while there was indeed no consideration for the deed of sale executed by Jose in favor of petitioner, but said deed constitutes a valid donation. On appeal, the Court of Appeals reversed the decision of the RTC Issue: Whether the purported deed of sale was valid Held: There is no valid sale. Clearly, there is no valid sale in this case. Jose did not have the right to transfer ownership of the entire property to petitioner since 2/3 thereof belonged to his sisters. Petitioner could not have given her consent to the contract, being a minor at the time. Consent of the contracting parties is among the essential requisites of a contract, including one of sale, absent which there can be no valid contract. Moreover, petitioner admittedly did not pay any centavo for the property, which makes the sale void. Article 1471 of the Civil Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Dizon vs. Court of Appeals G.R. No. 122544 302 SCRA 288 Page 12

FIRST DIVISION Ponente: Martinez, J Facts: On 1974, Private respondent Overland Express Lines, Inc (lessee) entered into a Contract of Lease with Option to Buy with petitioners (lessors) involving a land situated at Quezon City for one (1) year. During that period the respondent was granted an option to purchase the land. 1976, for failure of lessee to pay the rentals the petitioners filed an action for ejectment. The City Court rendered judgment ordering lessee to vacate the leased premises and to pay the rentals in arrears and damages with interests. Lessee filed a petition enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction. Such petition was denied. Thereafter, lessee filed for an action for specific performance to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial consideration given to Alice Dizon and for the fixing of period to pay the balance. Respondent Court of Appeals rendered a decision upholding the jurisdiction of City Court and concluding that there was a perfected contract of sale between the parties due to the said partial payment. Petitioner’s motion for reconsideration was denied by the respondent Court. HTP. Issues:

2. The term stipulated in the contract of lease with option to buy is just one (1) year. Having failed to exercise the option within that period, the lessee cannot enforce its option to purchase anymore. Even assuming that such option still subsists, when the lessee tendered the amount on 1975, the suit for specific performance to enforce the option to purchase was filed only on 1985 ore more than ten (10) years after accrual of the cause of action. Since the lessee did not purchase within the stipulated one (1) year and afterwhich still kept possession thereof, there was an implicit renewal of the contract reviving all the terms in the original contract which are only germane to the lessee’s rights of continued enjoyment of the property leased. The option to purchase is not deemed incorporated. 3. There was no perfected contract of sale between the parties. In herein case, the lessee gave the money to Alice Dizon in an attempt to resurrect the lapsed option.The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. Here, there was no showing that petitioners consented to the act of Alice Dizon nor authorized her to act on their behalf with regard to her transaction with the lessee. Therefore, one of the essential elements for a contract of sale to be perfected is lacking: consent.

Whether the Quezon City court has jurisdiction over the ejectment case? Whether the money given constitutes partial consideration to the option to purchase the land? Whether or not there is a perfected contract of sale? Ruling: 1. The petitioneres had a cause of action to institute an ejectment suit against the lessee with the City Court thus the city court (now MTC) has jurisdiction over it. The filing of lessor of a suit with the RTC did not divest the City Court of its jurisdiction to take cognizance over the ejectment case. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Heirs of San Juan Andres vs. Rodriguez G.R. 135634 332 SCRA 769 SECOND DIVISION Page 13

Ponente: Mendoza, J Facts: Juan San Andres sold a portion of his land to respondent Vicente Rodriguez evidenced by a Deed of Sale. Upon the death of Juan, Ramon San Andres was appointed judicial administrator of his estate. Ramon engaged the serviced of geodetic engineers to survey the lot. From such survey, thtey discovered that the respondent had enlarged the area which he purchased from the late Juan. Ramon then send a letter demanding the respondent to vacate the portion allegedly encroached by him. However, respondent refused to do so claiming that he purchased the same from the late Juan with both parties treating the two lots as one who parcel of land. Respondent further alleged that the full payment of the additional lot would be effected within five (5) years from the execution of the deed of sale after a survey is conducted over said property. Respondent attached to his answer a receipt signed by the late Juan as proof of the purchase. Respondent thereafter deposited in the court the balance of the purchase price. While the case is pending, Ramon died and was replaced by son Ricardo. Vicente also died and was substituted by his heirs. The trial court rendered judgement in faovr of the petitioner and ruled that there was no contract of sale because there is no valid object because there is no sufficient indication. Respondent Court of Appeals reversed the decision rendered by the Trial Court.

Since the lot subsequently sold to respondent is said to adjoin the “previously paid lot” on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The contract of Sale can be gainsaid to be absolute because there is no reservation of ownership. The stipulation “payment of full consideration based on a survey shall be due and payable in five (5) years from the execution of deed of sale” is not a condition which affects the efficacy of the contract. It merely provides for the manner of computation of payment.. 2. Consignation is proper only in cases where an existing obligation is due. In herein case since there is no deed of sale yet thus the period when the purchase price should be paid has not commenced yet which makes it not yet due and demandable. The court is not erroneous because it thereafter ordered the execution of deed and the acceptance of the deposit. 3. The amount is based on the agreement which is the law between the parties. Thus, it is binding and the court can only give force and effect to the intentions of the parties. 4. Since there was no Deed of Sale yet and the respondent wants to pay the purchase price, he deemed it proper to deposit it in the Court. Thus, Prescription does not apply.

Issues: Whether the Court erred in holding that there is a valid contract of sale? Whether the Court erred in holding that the consignation is valid? Whether the untenable?

amount

of

consignation

is

Whether the respondent is barred by prescription and laches from enforcing the contract? Rulings: 1. There is a valid Contract of Sale because all the essential elements are present. In herein case, petitioner’s contention that there is no determinate object is without merit. The receipt described the lot as “previously paid lot”. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

LAGRIMAS A. BOY, petitioner, vs. COURT OF APPEALS, ISAGANI P. RAMOS Page 14

and ERLINDA respondents.

GASINGAN

RAMOS,

BETWEEN PETITIONER (DEFENDANT) AND PRIVATE RESPONDENT (PLAINTIFF) SUPERSEDES THE DEED OF SALE WHICH HAS NOT BEEN CONSUMMATED. NO.

April 14, 2004 G.R. No. 125088 FIRST DIVISION AZCUNA, J.:

Ruling:

Facts:

The Court of Appeals did not give credence to the statement in the Kasunduan that private respondents paid only P22,500 to petitioner since her indebtedness already reached P26,200. CA gave weight to the argument of private respondents that Erlinda Ramos was merely tricked into signing the Kasunduan.

On September 24, 1993, spouses Isagani P. Ramos and Erlinda Gasingan Ramos, filed an action for ejectment against Lagrimas A. Boy (Lagrimas), with the Metropolitan Trial Court of Manila. In their Complaint, the spouses alleged that they are the owners of a parcel of land and the house existing thereon at 1151 Florentino Torres St., Singalong, Manila. They acquired the said properties from Lagrimas who sold the same to them by virtue of a Deed of Absolute Sale, which was executed on June 4, 1986. However, Lagrimas requested for time to vacate the premises, and they agreed thereto, because they were not in immediate need of the premises. Time came when they needed the said house as they were only renting their own residence. They then demanded that Lagrimas vacate the subject premises, but she refused to do so. Hence, they initiated this action for ejectment against Lagrimas. Sometime in May 1988, Erlinda Ramos and Lagrimas executed an agreement (Kasunduan) acknowledging that the subject parcel of land, together with the upper portion of the house thereon, had been sold by Lagrimas to the spouses Ramos for P31,000; that of the said price, the sum of P22,500 (representing P15,000 cash loan plus P7,500 as interest from September 1984 to May 1988) had been paid; that the balance of P8,500 would be paid on the last week of August 1988; and that possession of the property would be transferred to the spouses Ramos only upon full payment of the purchase price. Issue: WHETHER OR NOT THE COURT OF APPELS GRAVELY ERRED AND ABUSED ITS DISCRETION IN NOT INTERPRETING THAT THE "KASUNDUAN" EXECUTED BY AND Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

It has been established that petitioner sold the subject property to private respondents for the price of P31,000, as evidenced by the Deed of Absolute Sale, the due execution of which was not controverted by petitioner. The contract is absolute in nature, without any provision that title to the property is reserved in the vendor until full payment of the purchase price. By the contract of sale, petitioner (as vendor), obligated herself to transfer the ownership of, and to deliver, the subject property to private respondents (as vendees) after they paid the price of P31,000. Under Article 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. In addition, Article 1498 of the Civil Code provides that when the sale is made through a public instrument, as in this case, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. In this case, the Deed of Absolute Sale does not contain any stipulation against the constructive delivery of the property to private respondents. In the absence of stipulation to the contrary, the ownership of the property sold passes to the vendee upon the actual or constructive delivery thereof. The Deed of Absolute Sale, therefore, supports private respondents’ right of material possession over the subject property.

Page 15

SPS. HENRY CO AND ELIZABETH CO AND MELODY CO, petitioners, vs. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 16

COURT OF APPEALS AND MRS. ADORACION CUSTODIO, represented by her Attorney-in-fact, TRINIDAD KALAGAYAN, respondents.

The March 15, 1985 letter sent by the COS through their lawyer to the CUSTODIO reveals that the parties entered into a perfected contract of sale and not an option contract.

August 17, 1999

A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts.

G.R. No. 112330 THIRD DIVISION GONZAGA-REYES, J.: Facts: . . . sometime on October 9, 1984, plaintiff entered into a verbal contract with defendant for her purchase of the latter's house and lot located at 316 Beata St., New Alabang Village, Muntinlupa, Metro Manila, for and in consideration of the sum of $100,000.00. One week thereafter, plaintiff paid to the defendants the amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same may be reserved for her purchase, said earnest money to be deducted from the total purchase price. The purchase price of $100,000.00 is payable in two payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on January 5, 1985. On January 25, 1985, although the period of payment had already expired, plaintiff paid to the defendant Melody Co in the United States, the sum of $30,000.00, as partial payment of the purchase price. Defendant's counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15, 1985, demanding that she pay the balance of $70,000.00 and not receiving any response thereto, said lawyer wrote another letter to plaintiff dated August 8, 1986, informing her that she has lost her "option to purchase" the property subject of this case and offered to sell her another property. Issue: Whether or not the Court of Appeals erred in ordering the spouses Co (COS) to return the $30,000.00 paid by CUSTODIO pursuant to the "option" granted to her over the Beata property? NO.

Ruling: Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. As evidenced by the March 15, 1985 letter, all three elements of a contract of sale are present in the transaction between the petitioners and respondent. Custodio's offer to purchase the Beata property, subject of the sale at a price of $100,000.00 was accepted by the COS. Even the manner of payment of the price was set forth in the letter. Earnest money in the amounts of US$1,000.00 and P40,000.00 was already received by the COS. Under Article 1482 of the Civil Code, earnest money given in a sale transaction is considered part of the purchase price and proof of the perfection of the sale. . The COS were of the mistaken belief that CUSTODIO had lost her "option" over the Beata property when she failed to pay the remaining balance of $70,000.00 pursuant to their August 8, 1986 letter. Accordingly, CUSTODIO acted well within her rights when she attempted to pay the remaining balance of $70,000.00 to complete the sum owed of $100,000.00 as the contract was still subsisting at that time. When the COS refused to accept said payment and to deliver the Beata property, CUSTODIO immediately sued for the rescission of the contract of sale and prayed for the return of the $30,000.00 she had initially paid. Under Article 138518 of the Civil Code, rescission creates the obligation to return the things which were the object of the contract but such rescission can only be carried out when the one who demands rescission can return whatever he may be obliged to restore. The property involved has not been Page 17

delivered to the appellee. She has therefore nothing to return to the appellants. The price received by the appellants has to be returned to the appellee as aptly ruled by the lower court, for such is a consequence of rescission, which is to restore the parties in their former situations.

SAN MIGUEL PROPERTIES PHILIPPINES, INC., PETITIONER, VS. SPOUSES ALFREDO HUANG AND GRACE HUANG, RESPONDENTS. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 18

[GRN 137290 July 31, 2000]

counsel, demanded the execution of the Deed of Sale and attempted to return the earnest-deposit but SMPPI refused to accept it on the ground that the option to purchase had already expired.

First Division Facts: Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real properties. Parts of its inventory are two parcels of land totaling to 1, 738 square meters at the corner of Meralco Avenue and Gen. Capinpin St., Barrio Oranbo, Pasig City. On February 21, 1994, the properties were offered for sale for ₱52,140,000 in cash. The offer was made to Atty. Helena Dauz who was acting for respondent spouses as undisclosed principals. In a letter dated March 24, 1994, Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of ₱500,000 would be given as earnest money and the balance would be paid in 8 equal monthly installments from May to December 1994. However, petitioner refused the counter-offer. Atty. Dauz thus wrote San Miguel expressing the interest of respondent spouses, subject to the following conditions: “1. We will be given the exclusive option to purchase the property within 30 days from date of your acceptance of this offer; 2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the necessary management and board approvals; and we initiate the documentation if there is mutual agreement between us; 3. In the event that we do not come to an agreement on this transaction, the said amount of ₱1,000,000 shall be refundable to us in full upon demand.” On July 7, 1994, San Miguel, through its president, Federico Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension granted by San Miguel, it is already returning the amount of ₱1 Million given as “earnest-deposit”. Respondent

spouses,

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

through

their

Thus on August 16, 1994, respondent spouses filed a complaint for specific performance against SMPPI but the latter moved to dismiss said complaint alleging that: 1. the alleged “exclusive option” of respondent spouses lacked a consideration separate and distinct from the purchase price and was thus unenforceable; and 2. the complaint did not allege a cause of action because there was no meeting of the minds between the parties and therefore, no perfected contract of sale. This motion was opposed by respondent spouses. RTC granted the motion to dismiss but the CA reversed it on appeal and held that all the requisites of a perfected contract of sale had been complied with as the offer made in connection with which the earnest money in the amount of ₱1 Million was tendered by respondent spouses had already been accepted by SMPPI. The court cited Art. 1482 of the Civil Code which provides that “whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract.”

Issue: Whether or not the contract of sale was perfected.

Ruling: The contract of sale was not perfected. In holding that there is perfected contract of sale, the CA relied on the following findings: (1) earnest money was allegedly given by respondents and accepted by SMPPI through its vice-president and operations manager, Isidro Sobrecarey; and (2) the documentary evidence in the records show that there was perfected contract of sale. With regard to the alleged payment and acceptance of the earnest money, the SC holds that respondents did not give the ₱1 Million as earnest money as contemplated in Art. 1482. Respondents presented the amount merely as deposit of what would eventually become earnest money or down payment should a Page 19

contract of sale be made by them. The amount was thus given not as part of the purchase price and proof of the perfection of the contract of sale but only as guarantee that respondents would not back out of the sale. They even described it as “earnest-deposit”. All that respondents had option to buy the properties which not exercised by them because failure to agree on the terms of contract of sale may thus be respondents.

was just an privilege was there was a payment. No enforced by

SPOUSES ONNIE SERRANO AND AMPARO HERRERA, PETITIONERS, VS. GODOFREDO CAGUIAT, RESPONDENT. [GRN 139173 February 28, 2007]First Division Facts: Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 20

Petitioners are registered owners of a lot located in Las Piñas. On March 23, 1900, respondent offered to buy the lot and petitioners agreed to sell it at ₱1,500 per square meter. Respondent then gave ₱100,000 as partial payment. A few days after, respondent, through his counsel, wrote petitioners informing them of his readiness to pay the balance of the contract price and requesting them to prepare the Deed of Sale. Petitioners, through counsel, informed respondent in a letter that Amparo Herrera would be leaving for abroad on or before April 15, 1990 and they are canceling the transaction and that respondent may recover the earnest money (₱100,000) anytime. Petitioners also wrote him stating that they already delivered a manager’s check to his counsel in said amount. Respondent thus filed a complaint for specific performance and damages with the RTC of Makati. The trial court ruled that there was already a perfected contract of sale between the parties and ordered the petitioners to execute a final deed of sale in favor of respondent. The Court of appeals affirmed said decision. Issue: Whether or not there was a contract of sale. Ruling: The transaction was a contract to sell.

“When petitioners declared in “Receipt for Partial Payment” that they –

the

“RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS… MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

DEED OF SALE ON THIS DATE.” there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price. “A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price. “In this case, the “Receipt for Partial Payment” shows that the true agreement between the parties is a contract to sell. “First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price. Third, petitioners retained possession of the certificate of title of the lot. “It is true that Article 1482 provides that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract. However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. “Clearly, respondent cannot compel petitioners to transfer ownership of the property to him.” PCI Leasing and Finance Inc. Vs. Giraffe- X Creative Imaging, Inc. July 12, 2007 GR 142618 First Division Garcia, J Facts: -On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement, whereby the former Page 21

leased out to the latter one (1) set of Silicon High Impact Graphics and accessories worth P3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10 worth P6,500,000.00. - A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rentalpayment obligations. And following a threemonth default, PCI LEASING addressed a formal pay-or-surrender-equipment type of demand letter dated February 24, 1998 to GIRAFFE. - The demand went unheeded. - PCI Leasing instituted a case against GIRAFFE. PCI prayed for the issuance of a writ of replevin for the recovery of the leased property - Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of replevin, paving the way for PCI LEASING to secure the seizure and delivery of the equipment covered by the basic lease agreement. - Instead of an answer, GIRAFFE filed a Motion to Dismiss,arguing that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action. -GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of personal property, PCI LEASING is barred from further pursuing any claim arising from the lease agreement and the companion contract documents, adding that the agreement between the parties is in reality a lease of movables with option to buy. -GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI LEASING is proscribed by the application to the case of Articles 1484 and 1485, supra, of the Civil Code. - PCI Leasing on the other hand maintains that its contract with GIRAFFE is a straight lease without an option to buy. - petitioner contends that the financial leasing arrangement it concluded with the respondent represents a straight lease covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A. No. 8556, otherwise known as Financing Company Act of 1998, and is outside the application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines and authorizes its existence and business. -the trial court granted GIRAFFE’s motion to dismiss - motion for reconsideration was denied, hence this petition for review. Issue: Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Whether the agreement between PCI Leasing and GIRAFFE is governed by Articles 1484 and 1485 of the Civil Code? Held: Petition denied. Trial Court’s decision affirmed Ratio: -The PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the declarations made in its demand letter to the respondent. There could be no other explanation than that if the respondent paid the balance, then it could keep the equipment for its own; if not, then it should return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply. - The present case reflects a situation where the financing company can withhold and conceal up to the last moment - its intention to sell the property subject of the finance lease, in order that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that the basic “lease agreement” does not contain a “purchase option” clause. The absence, however, does not necessarily argue against the idea that what the parties are into is not a straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of vendors of personal property of denominating a contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid. -Being leases of personal property with option to purchase as contemplated in the above article, the contracts in question are subject to the provision that when the lessor in such case “has chosen to deprive the lessee of the enjoyment of such personal property,” “he shall have no further action” against the lessee “for the recovery of any unpaid balance” owing by the latter, “agreement to the contrary being null and void.” -In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the petitioner waived its right to bring an action to recover unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are hereunder re-reproducing, cannot be any Page 22

clearer. ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: xxx

xxx

xxx

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

renege on its word. Yet more than that, the very word “or” as used in the letter conveys distinctly its intention not to claim both the unpaid balance and the equipment. It is not difficult to discern why: if we add up the amounts paid by the respondent, the residual value of the property recovered, and the amount claimed by the petitioner as sued upon herein (for a total of P21,779,029.47), then it would end up making an instant killing out of the transaction at the expense of its client, the respondent. The Recto Law was precisely enacted to prevent this kind of aberration. Moreover, due to considerations of equity, public policy and justice, we cannot allow this to happen. Not only to the respondent, but those similarly situated who may fall prey to a similar scheme.

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. -As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals, the remedies provided for in Article 1484 of the Civil Code are alternative, not cumulative. The exercise of one bars the exercise of the others. This limitation applies to contracts purporting to be leases of personal property with option to buy by virtue of the same Article 1485. The condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for a sum of money with prayer for replevin to recover possession of the office equipment. By virtue of the writ of seizure issued by the trial court, the petitioner has effectively deprived respondent of their use, a situation which, by force of the Recto Law, in turn precludes the former from maintaining an action for recovery of “accrued rentals” or the recovery of the balance of the purchase price plus interest. The imperatives of honest dealings given prominence in the Civil Code under the heading: Human Relations, provide another reason why we must hold the petitioner to its word as embodied in its demand letter. Else, we would witness a situation where even if the respondent surrendered the equipment voluntarily, the petitioner can still sue upon its claim. This would be most unfair for the respondent. We cannot allow the petitioner to Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Elisco Tool Manufacturing Corp. Vs. Court of Appeals et. al. May 31, 1999 GR 109966 Second Division Mendoza J. Facts: -Private respondent Rolando Lantan was employed at the Elisco Tool Manufacturing Corporation as head of its cash department. On Page 23

January 9, 1980, he entered into an agreement with the company which provided as follows: - that, Elisco Tool Manufacturing Corp is the owner of a car which for and in consideration of a monthly rental of P 1010.65 will be leased to Rolando Lantan for 5 years - That, Rolando Lantan shall pay the lease thru salary deduction from his monthly remuneration in the amount as above specified for a period of FIVE (5) years; - That, he shall for the duration of the lease contract, shoulder all expenses and costs of registration, insurance, repair and maintenance, gasoline, oil, part replacement inclusive of all expenses necessary to maintain the vehicle in top condition -That, at the end of FIVE (5) year period or upon payment of the 60th monthly rental, Lantan may exercise the option to purchase the motor vehicle from Elisco and all monthly rentals shall be applied to the payment of the full purchase price of the car and further, should Lantan desire to exercise this option before the 5-year period lapse, he may do so upon payment of the remaining balance on the five year rental unto Elisco, it being understood however that the option is limited to the EMPLOYEE; -That, in case of default in payment THREE (3) accumulated monthly rentals, Elisco shall have the full right to lease the vehicle to another EMPLOYEE; -That, in the event of resignation and or dismissal from the service, Lantan shall return the subject motor vehicle to the EMPLOYER in good working and body condition. -On the same day, January 9, 1980, private respondent executed a promissory note which states his promise to pay P 1,010.65 without the necessity of notice or demand in accordance with the schedule of payment - After taking possession of the car, Lantan installed accessories worth P15,000.00 -In 1981, Elisco Tool ceased operations, as a result of which private respondent Rolando Lantan was laid off. Nonetheless, as of December 4, 1984, private respondent was able to make payments for the car in the total amount of P61,070.94. -On June 6, 1986, petitioner filed a complaint, entitled “replevin plus sum of money,” against private respondent Rolando Lantan, his wife Rina, and two other persons, identified only as John and Susan Doe, before the Regional Trial Court of Pasig, Metro Manila. -Petitioner alleged that private respondents failed to pay the monthly rentals that despite Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

demands, private respondents failed to settle their obligation thereby entitling petitioner to the possession of the car; that petitioner was ready to post a bond in an amount double the value of the car, which was P60,000; and that in case private respondents could not return the car, they should be held liable for the amount of P60,000 plus the accrued monthly rentals thereof, with interest at the rate of 14% per annum, until fully paid. - Upon the posting of the bond, the sheriff took possession of the car and after 5 days turned it over to the petitioner - private respondents claim that their agreement was to buy and sell and not lease with option to buy the car - in its reply, petitioner maintained that the contract was one of lease with option to purchase and that the promissory note was merely a “nominal security” for the agreement. - trial court rendered its decision in favor of the private respondent - petitioner appealed to CA, petitioner filed motion for execution pending appeal - CA affirmed in toto the decision of the trial court, hence the petition for review on certiorari Issue/s: Whether the Court of Appeals erred (a) in disregarding the admission in the pleadings as to what documents contain the terms of the parties’ agreement. (b) in holding that the interest stipulation in respondents’ Promissory Note was not valid and binding. (c) in holding that respondents had fully paid their obligations. Held: The decision of the Court of Appeals is AFFIRMED with costs against petitioner. Ratio: First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in question under a car plan for executives of the Elizalde group of companies. Under a typical car plan, the company advances the purchase price of a car to be paid back by the employee through monthly deductions from his salary. The company retains ownership of the motor vehicle until it shall have been fully paid for. However, retention of registration of the car in the company’s name is only a form of a lien on the vehicle in the event that the employee would abscond before he has fully paid for it. There are also stipulations in car plan agreements to Page 24

the effect that should the employment of the employee concerned be terminated before all installments are fully paid, the vehicle will be taken by the employer and all installments paid shall be considered rentals per agreement. This Court has long been aware of the practice of vendors of personal property of denominating a contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid. As this Court noted in Vda. de Jose v. Barrueco: Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of the bargain, in the transfer of title to the lessee. Second. The contract being one of sale on installment, the Court of Appeals correctly applied to it the following provisions of the Civil Code: The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the exercise of the others. This limitation applies to contracts purporting to be leases of personal property with option to buy by virtue of Art. 1485. The condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this case by the filing by petitioner of the complaint for replevin to recover possession of movable property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff seized the vehicle on August 6, 1986 and thereby deprived private respondents of its use. The car was not returned to private respondent until April 16, 1989, after two (2) years and eight (8) months, upon issuance by the Court of Appeals of a writ of execution. Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the amount that they were supposed to pay as of May 1986, plus interest at the legal rate. At the same time, it prayed for the issuance of a writ of replevin or Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

the delivery to it of the motor vehicle “complete with accessories and equipment.” In the event the car could not be delivered to petitioner, it was prayed that private respondent Rolando Lantan be made to pay petitioner the amount of P60,000.00, the “estimated actual value” of the car, “plus accrued monthly rentals thereof with interests at the rate of fourteen percent (14%) per annum until fully paid.” This prayer of course cannot be granted, even assuming that private respondents have defaulted in the payment of their obligation. This led the trial court to say that petitioner wanted to eat its cake and have it too. Both the trial court and the Court of Appeals correctly ruled that private respondents could no longer be held liable for the amounts of P39,054.86 or P60,000.00 because private respondents had fulfilled their part of the obligation. The agreement does not provide for the payment of interest on unpaid monthly “rentals” or installments because it was entered into in pursuance of a car plan adopted by the company for the benefit of its deserving employees. As the trial court correctly noted, the car plan was intended to give additional benefits to executives of the Elizalde group of companies. Third. Private respondents presented evidence that they “felt bad, were worried, embarrassed and mentally tortured” by the repossession of the car. This has not been rebutted by petitioner. There is thus a factual basis for the award of moral damages. In addition, petitioner acted in a wanton, fraudulent, reckless and oppressive manner in filing the instant case, hence, the award of exemplary damages is justified. The award of attorney’s fees is likewise proper considering that private respondents were compelled to incur expenses to protect their rights

PEOPLE'S INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner, vs. COURT OF APPEALS and MAR-ICK INVESTMENT CORPORATION, respondents. G.R. No. 112733

October 24, 1997

281 SCRA 206 Ponente: ROMERO, J. (THIRD DIVISION) Page 25

Facts: Private respondent Mar-ick Investment Corporation is the exclusive and registered owner of Mar-ick Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondent entered into 6 agreements with petitioner People's Industrial and Commercial Corporation whereby it agreed to sell to petitioner 6 subdivision lots. Five of the agreements stipulate that the petitioner agreed to pay private respondent for each lot, the amount of P7,333.20 with a down payment of P480.00. The balance of P6,853.20 shall be payable in 120 equal monthly installments of P57.11 every 30th of the month, for a period of ten years. With respect to another lot, the parties agreed to the purchase price of P7,730.00 with a down payment of P506.00 and equal monthly installments of P60.20. After the lapse of ten years, petitioner still had not fully paid for the six lots. It had paid only the down payment and 8 installments. After a series of negotiations between the parties, they agreed to enter into a new contract to sell on October 11, 1983. The contract stipulates that the previous contracts have been cancelled due to the failure of the purchaser to pay the stipulated installments. Neither of the parties signed the new contract. Siatianum issued checks in the total amount of P37,642.72 to private respondent. Private respondent received but did not encash the checks. Instead, it filed in the Regional Trial Court of Antipolo, Rizal, a complaint for accion publiciana de posesion against petitioner and Tomas Siatianum, as president and majority stockholder of petitioner. It prayed that petitioner surrender possession of the lots of Mar-ick Subdivision, and that petitioner and Tomas Siatianum be ordered to pay reasonable rentals for the use of the lots. In the alternative, the complaint prayed that should the agreements be deemed not automatically cancelled, the same agreements should be declared null and void. Lower court rendered a decision finding that the original agreements of the parties were validly cancelled. The parties did not enter into a new contract in accordance with Art. 1403 (2) of the Civil Code as the parties did not sign the draft contract. Receipt by private respondent of the five checks could not amount to perfection of Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

the contract because private respondent never encashed and benefited from those checks. There was no meeting of the minds between the parties because Art. 475 of the Civil Code should be read with the Statute of Frauds that requires the embodiment of the contract in a note or memorandum. What was clearly proven was that both parties negotiated a new contract after the termination of the first. Thus, the fact that the parties tried to negotiate a new contract indicated that they considered the first contract as already cancelled. Petitioner elevated the case to the Court of Appeals which affirmed in toto the lower court's decision.

Issue: Whether or not there was a perfected and enforceable contract of sale on October 11, 1983 which modified the earlier contracts to sell which had not been validly rescinded. Ruling: The contracts to sell of 1961 were cancelled to which the parties voluntarily bound themselves. When petitioner failed to abide by its obligation to pay the installments provision No. 9 of the contract automatically took effect which states that “should the purchaser fail to make the payment of any of the monthly installments as agreed herein, this contract shall, by the mere fact of nonpayment, expire by itself and become null and void.” The 1961 agreements are contracts to sell and not contracts of sale. The distinction between these contracts is depicted in Adelfa Properties, Inc. v. Court of Appeals which states that “the distinction between the two is important for in a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the Page 26

property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.” Being contracts to sell, Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable. Petitioner alleges that there was a new perfected and enforceable contract of sale between the parties in October 1983. Private respondent's company lawyer volunteered that after the cancellation of the 1961 agreements, the parties should negotiate and enter into a new agreement. However, after he had drafted the contract and sent it to petitioner, the latter deposited a check for downpayment but its representative refused to sign the prepared contract. In the absence of proof to the contrary, this draft contract may be deemed to embody the agreement of the parties. Private respondent did not and has not denied the existence of that contract. Under these facts, therefore, the parties may ideally be considered as having perfected the contract of October 1983. Justice and equity, however, will not be served by a positive ruling on the perfection and performance of the contract to sell. There are facts on record proving that the parties had not arrived at a definite agreement. By Atty. Villamayor's admission, the checks were not encashed because Tomas Siatianun did not sign the draft contract that he had prepared. On his part, Tomas Siatianun explained that he did not sign the contract because it covered 7 lots while their agreement was only for 6 lots. The number of lots to be sold is a material component of the contract to sell. Without an agreement on the matter, the parties may not in any way be considered as having arrived at a contract under the law. Moreover, installments paid by the petitioner on the land should be deemed rentals. Article 1486 of the Civil Code provides that a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. WHEREFORE, the instant petition for review on certiorari is hereby denied and the questioned Decision of the Court of Appeals is AFFIRMED.

REGALADO DAROY, complainant, vs. ATTY. ESTEBAN ABECIA, respondent. A.C. No. 3046

October 26, 1998

Ponente: MENDOZA, J. (SECOND DIVISION)

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 27

Facts: This refers to the complaint for malpractice filed by Regalado Daroy against Esteban Abecia, a member of the Bar. Respondent Abecia was counsel of complainant Daroy in a case for forcible entry before the Municipal Trial Court of Opol, Misamis Oriental. Judgment was rendered in favor of complainant. To satisfy the judgment, the sheriff sold at public auction a parcel of land belonging to one of the defendants to complainant Daroy as highest bidder. Upon failure of the defendants to redeem the land, its ownership was consolidated in complainant Daroy. Complainant Daroy claimed that respondent Abecia forged his signature in a deed of absolute sale transferring the parcel of land to Jose Gangay and that in a fictitious deed of absolute sale it was made to appear that Gangay in turn conveyed the land to Nena Abecia, wife of respondent Abecia. Daroy alleged that he entrusted the title to the land to Abecia as his counsel and allowed him to take possession of the land upon the latter’s request. By means of the forged deed of sale, Abecia was able to obtain new transfer certificates of title, first in the name of Gangay and then in that of Mrs. Abecia, from the Registry of Deeds of Misamis Oriental. Daroy claimed he discovered the fraud only in 1984. On July 15, 1993, Commissioner Plaridel Jose ruled that respondent Abecia is guilty of malpractice and recommended his disbarment. The Integrated Bar of the Philippines approved the report but reduced the penalty to indefinite suspension. Respondent Abecia filed a Motion for Reconsideration and/or Appeal. Issues: Whether or not the Commission on Bar Discipline erred when it held that complainant had no knowledge of the execution of the Deed of Absolute Sale. Whether or not respondent Atty. Esteban Abecia is prohibited from acquiring the parcel of land. Ruling: Respondent’s motion is well taken. As already stated, the land in question was purchased by complainant at the sheriff’s sale. Deputy Sheriff stated that when he finally transferred the land to the buyer, he placed in Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

possession of the land not only the buyer, Regalado Daroy, but also the latter’s assignee, Nena Abecia, in whose name the title to the land had in fact been transferred. It would appear, therefore, that Daroy already knew that title to the land had already been transferred in the name of the respondent’s wife. Indeed, what appears to have happened in this case is that the parties thought that because the land had been acquired by complainant at a public sale held in order to satisfy a judgment in his favor in a case in which respondent was complainant’s counsel, the latter could not acquire the land. The parties apparently had in mind Art. 1491 of the Civil Code which provides: ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: 5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession. In Guevara v. Calalang, we held that the prohibition in Art. 1491 does not apply to the sale of a parcel of land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. While judges, prosecuting attorneys, and others connected with the administration of justice are prohibited from acquiring property or rights in litigation or levied upon in execution, the prohibition with respect to attorneys in the case extends only to property and rights which may be the object of any litigation in which they may take part by virtue of their profession. WHEREFORE, the resolution of the IBP Board of Governors is RECONSIDERED and the complaint against respondent Esteban Abecia is DISMISSED.

Page 28

In Re: Suspension from the Practice of Law in the territory of Guam of Atty. Leon G. Maquera, 435 SCRA 417,

July 30, 2004.

Tinga, B.M. 793 FACTS: Atty. Leon G. MAquera, in a decision rendered by the Superior Court of Guam, was suspended from the practice of law in Guam for Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 29

two years. The decision was based on Maquera’s misconduct, as he acquired his client’s property as payment for his legal services, then sold it and as a consequence obtained an unreasonable high fee for handling his client’s case. Castro, his client, and his creditor was in a civil case where Castro’s property, a parcel of land, was a subject. The decision was rendered in against Castro and ordered the auction sale of the land. It was purchased by the creditor but Castro retained his right of redemption which was later on assigned to Maquera as payment for his services. Maquera exercised this right and he was able to obtain the property. He then sold it to C.S Chang and C.C. Chang which gave him a huge profit. Thw suspension of Maquere was referred here in the Philippines through the Integrated Bar of the Philippines. However, it concluded that there’s no evidence to establish that he also committed a breach of ethics in the Philippines.

ISSUE: Whether Atty. Maquera’s acts constitute grounds for his suspension or disbarment in the Philippine Jurisdiction.

RULING: Atty. Maquera is suspended for one year for the meantime or until he shall have paid his membership dues, whichever came later. Paragraph 5 of Article 1491 of the New Civil Code prohibits lawyer’s acquisition by assignment of the client’s property which is the subject of the litigation handled by the lawyer. Under Article 1492, the prohibition extends to sales in legal redemption. Maquera’s acts in Guam which resulted in his two-year suspension from the practice of law in that jurisdiction are also valid grounds for his suspension from the practice of law in the Philippines. Such acts are violative of lawyer’s sworn duty to act with fidelity toward his clients. It is also violative of Canon 17 which states, “a lawyer owes fidelity to the cause of his client and shall be mindful of the trust and confidence reposed in him.” Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Chua v. Court of Appeals and Valdes-Choy, 401 SCRA 54, April 9, 2003 Carpio, G.R. No. 119255

FACTS: Encarnacion Valdes-Choy advertised for sale her paraphernal house and lot in Makati City which Chua responded to. They both agreed on a purchased price of P100,000.00 payable in cash. Page 30

Chua gave P100,000.00 to Valdes-Choy as an earnest money and another P485,000.00 for the payment of capital gains tax since Valdes-Choy was not able to pay the said tax. However, Chua did not pay the remaining balance of P10,215,000.00 but demanded that the property be first registered under his name. On the other hand, ValdesChoy wanted that the remaining purchase balance be deposited in her account before she could transfer the title of her property to him. Chua filed a complaint for a specific performance against her which the trial court held in favor of Chua. However, the Court of Appeals reversed the said decision.

ISSUE: Whether there is a perfected contract of sale of immovable property.

RULING: Petition is dismissed. There is no perfected contract of sale. The agreement that the parties entered into is a contract to sell and not a contract of sale. In a contract of sale, the title of the property passes to the vendee upon the delivery of the thing sold and the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded. In a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price and the title is retained by the vendor until full payment of the price. Also in the contract to sell, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. The receipt made by both of them shows that the true agreement between the parties was a contract to sell. Ownership over the property was retained by Valdes-Choy and was not to pass to Chua until full payment of the purchase price.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents. G.R. No. 83851

March 3, 1993

DAVIDE, JR. Facts: Ramon J. Hibionada and Visayan Sawmill Company (VISAYAN SAWMILL) entered into a sale involving scrap iron subject to the condition that plaintiff-appellee will open a letter of credit Page 31

in the amount of P250,000.00 in favor of defendant-appellant corporation on or before May 15, 1983. Ramon J. Hibionada through his man, started to dig and gather and scrap iron at the VISAYAN SAWMILL's premises, proceeding with such endeavor until May 30 when VISAYAN SAWMILL allegedly directed Hibionada‘s men to desist from pursuing the work in view of an alleged case filed against Hibionada by a certain Alberto Pursuelo. This, however, is denied by VISAYAN SAWMILL who allege that on May 23, 1983, they sent a telegram to Hibionada cancelling the contract of sale because of failure of the latter to comply with the conditions thereof. On May 26, 1983, VISAYAN SAWMILL received a letter advice from the Dumaguete City Branch of the Bank of the Philippine Islands dated May 26, 1983. Hibionada sent a series of telegrams stating that the case filed against him by Pursuelo had been dismissed and demanding that VISAYAN SAWMILL comply with the deed of sale, otherwise a case will be filed against them. In reply, VISAYAN SAWMILL is unwilling to continue with the sale due to Hibionada's failure to comply with essential preconditions of the contract. Hibionada filed the complaint below with a petition for preliminary attachment and prayed for judgment ordering the VISAYAN SAWMILL to comply with the contract by delivering to him the scrap iron subject thereof In their Answer with Counterclaim, VISAYAN SAWMILL insisted that the cancellation of the contract was justified because of Hibionada’s non-compliance with essential preconditions, among which is the opening of an irrevocable and unconditional letter of credit not later than 15 May 1983.

not a contract of sale. The seller bound and promised itself to sell the scrap iron upon the fulfillment by the private respondent of his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the purchase price. The VISAYAN SAWMILL's obligation to sell is unequivocally subject to a positive suspensive condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and unconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of the purchase price by means of an irrevocable and unconditional letter of credit. Otherwise stated, the contract is not one of sale where the buyer acquired ownership over the property subject to the resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case at bar is a mere promise to sell, the failure of the private respondent to comply with the positive suspensive condition cannot even be considered a breach — casual or serious — but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force. Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot be compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner corporation may totally rescind. The trial court ruled, however, and the public respondent was in agreement, that there had been an implied delivery in this case of the subject scrap iron because on 17 May 1983, private respondent's men started digging up and gathering scrap iron within the petitioner's premises. The entry of these men was upon the private respondent's request.

Issue: Is there a contract of sale? Is the object of sale delivered? Held: The nature of the transaction between the petitioner corporation and the private respondent is a mere contract to sell or promise to sell, and Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

This permission or consent can, by no stretch of the imagination, be construed as delivery of the scrap iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil Code, petitioners placed the private respondent in control and possession thereof. In the first place, said Article 1491 falls under the Chapter Page 32

15

Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As such, therefore, the obligation imposed therein is premised on an existing obligation to deliver the subject of the contract. In the instant case, in view of the private respondent's failure to comply within the positive suspensive condition earlier discussed, such an obligation had not yet arisen. In the second place, it was a mere accommodation to expedite the weighing and hauling of the iron in the event that the sale would materialize. The private respondent was not thereby placed in possession of and control over the scrap iron. Thirdly, the conversion of the initial contract or promise to sell into a contract of sale by the petitioner corporation's alleged implied delivery of the scrap iron because its action and conduct in the premises do not support this conclusion. Indeed, petitioners demanded the fulfillment of the suspensive condition and eventually cancelled the contract.

MUNICIPALITY OF VICTORIAS, petitioner, vs. THE COURT OF APPEALS, NORMA LEUENBERGER and FRANCISCO SOLIVA, respondents. G.R. No. L-31189

March 31, 1987

PARAS, J.: Facts: Norma Leuenberger inherited the whole of Lot No. 140 from her grandmother, Simeona J. Vda. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 33

de Ditching. In 1952, she donated a portion of Lot No. 140, about 3 ha., to the municipality for the ground of a certain high school and had 4 ha. converted into a subdivision. In 1963, she had the remaining 21 ha. or 208.157 sq. m. relocated by a surveyor upon request of lessee Ramon Jover who complained of being prohibited by municipal officials from cultivating the land. It was then that she discovered that the parcel of land, more or less 4 ha. or 33,747 sq.m. used by Petitioner Municipality of Victorias, as a cemetery from 1934, is within her property. Norma Leuenberger wrote the Mayor of Victorias regarding her discovery, demanding payment of past rentals and requesting delivery of the area allegedly illegally occupied by Municipality of Victorias. When the Mayor replied that Petitioner bought the land she asked to be shown the papers concerning the sale but was referred by the Mayor to the municipal treasurer who refused to show the same. Norma Leuenberger filed a complaint for recovery of possession of the parcel of land occupied by the municipal cemetery. In its answer, petitioner Municipality, by way of special defense, alleged ownership of the lot, subject of the complaint, having bought it from Simeona Jingco Vda. de Ditching sometime in 1934. The lower court decided in favor of the Municipality. On appeal Respondent appellate Court set aside the decision of the lower court hence, this petition for review on certiorari. Held: It is expressly provided by law that the thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. Where there is no express provision that title shall not pass until payment of the price, and the thing gold has been delivered, title passes from the moment the thing sold is placed in the possession and control of the buyer. Delivery produces its natural effects in law, the principal and most important of which being the conveyance of ownership, without prejudice to the right of the vendor to payment of the price. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed, the contrary does not appear or cannot be clearly inferred. The execution of the public instrument operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of ownership. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Respondent Norma Leuenberger admitted that she inherited the land covered by Transfer Certificate of Title No. T-34036 from her grandmother, who had already sold the land to the petitioner in 1934; hence, she merely stepped into the shoes of her grandmother and she cannot claim a better right than her predecessor-in-interest.

SPOUSES CAMILO L. SABIO, and MA. MARLENE A. LEDONIO-SABIO, petitioners, vs. THE INTERNATIONAL CORPORATE BANK, INC. (now UNION BANK OF THE PHILIPPINES), GOLDENROD, INC., PAL EMPLOYEES SAVINGS AND LOAN ASSOCIATION, INC., AYALA CORPORATION, LAS PINAS VENTURES, INC., FILIPINAS LIFE ASSURANCE COMPANY(now AYALA LIFE ASSURANCE, INC.), AYALA PROPERTY VENTURES CORPORATION, and AYALA LAND, INC., respondents. G.R. No. 132709.

September 4, 2001.

Page 34

YNARES-SANTIAGO, J.: Facts: The object of the controversy is a portion of a vast tract of land located at Tindig na Manga, Almanza, Las Pinas City. The spouses Gerardo and Emma Ledonio, assigned to the spouses Camilo and Ma. Marlene Sabio (herein petitioners) all their rights, interests, title and participation over a contiguous portion of the subject property measuring 119,429 square meters. Similarly, while the subject property was still the object of several pending cases, the International Corporate Bank, Inc. (or Interbank) acquired from the Trans-Resource Management and Development Corporation all of the latter’s rights to the subject property by virtue of a deed of assignment executed between them.

also transferred, along with ownership thereof, to the petitioners by virtue of the deed of conveyance. Petitioner’s contention that respondents “never acquired ownership over the subject property since the latter was never in possession of the subject property nor was the property ever delivered” is totally without merit. The mere execution of the deed of conveyance in a public document is equivalent to the delivery of the property. Since the execution of the deed of conveyance is deemed equivalent to delivery, prior physical delivery or possession is not legally required. The deed operates as a formal or symbolic delivery of the property sold and authorizes the buyer or transferee to use the document as proof of ownership. Nothing more is required.

Sometime thereafter, the Sabios and Interbank settled their opposing claims by entering into a Memorandum of Agreement (or MOA) whereby the Sabios assigned, conveyed and transferred all their rights over the parcel assigned to them to Interbank, with the express exception of of 58,000 square meter contiguous portion of said lot. Thereafter, a dispute arose concerning the 58,000 square meter contiguous portion subject of the MOA, petitioners claiming that respondent Interbank was obligated to complete and perfect its ownership and title to the parcels of land so that Interbank could transfer to petitioners the absolute ownership and title over the contiguous portion. Issue: Whether or not respondents failed to “complete and perfect ownership and title” to the subject property since it was never in actual occupation, possession, control and enjoyment of said property. Whether or not symbolic delivery by mere execution of the deed of conveyance is sufficient since actual possession, control and enjoyment is a main attribute to ownership.

LEOPOLDO C. LEONARDO, represented by his daughter EMERCIANA LEONARDO, petitioner, vs. VIRGINIA TORRES MARAVILLA and LEONOR C. NADAL, as Administratrices of the Estate of MARIANO TORRES, as substituted by FE NADAL, respondents.

Held:

G.R. No. 143369.

Under Article 1498 of the Civil Code, “when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the object of the contract , if from the deed the contrary does not appear or cannot be inferred.” Possession is

YNARES-SANTIAGO, J.:

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

November 27, 2002.

Facts: The instant controversy stemmed from a dispute over a lot located in Pasay City and Page 35

registered in the name of Mariano Torres y Chavarria, the predecessor-in-interest of respondents. Petitioner claims that he is the lawful owner of the disputed lot, having purchased it from a certain Eusebio Leonardo Roxas who in turn acquired the same lot by purchase from Mariano Torres. Petitioner filed a complaint for “Delivery of Possession of Property, Owner’s Duplicate Certificate of Title, Rentals and Damages”. Respondents, in their answer, countered that since 1938 up to the present, the lot in question has been registered in the name of the late Mariano Torres y Chavarria, their predecessors-in-interest and that they have been in material possession thereof in the concept of owners. Respondents maintain that they have been in open and peaceful possession of the said property and that it was only in 1993 when they came to know of the alleged claim of petitioners over the same property. The trial court issued an order dismissing petitioner’s complaint on the ground of prescription and laches. The Court of Appeals likewise ruled that since petitioner’s cause of action is founded on the the deed of sale dated September 29, 1972, being an action based on written contracts, petitioner’s complaint falls under Art. 1144 of the Civil Code which provides that an action upon a written contract shall prescribe in 10 years from the time the right of action accrued. Since petitioner brought the instant case only on September 6, 1993 or 21 years from the time his supposed right of action accrued on September 29, 1972, i.e., the date of execution of the contract conveying him the questioned lot, his action was clearly barred by statute of limitations. Petitioner, on the other hand, contends that the applicable provision is Art. 1141 and not Art.1144 of the Civil Code because his action is one for recovery of possession of real property which prescribes in 30 years.

Petitioner’s contention is without merit, for petitioner’s action is actually an action for specific performance, i.e., to enforce the deed of absolute sale allegedly executed in his favor and not an action for recovery of possession. It is a fundamental principle that ownership does not pass by mere stipulation but by delivery. The delivery of the thing constitutes a necessary and indispensable requisite for the purpose of acquiring the ownership of the same by virtue of a contract. Under Art. 1498 of the Civil Code, when the sale is made through a public instrument, execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred. Thus, the execution of the contract is only a presumptive, not conclusive delivery which can be rebutted by evidence to the contrary, as when there is failure on the part of the vendee to take material possession of the land subject of the sale in the concept of a purchaser-owner. In the case at bar, it is not disputed that the lot in question was never delivered to petitioner notwithstanding the alleged execution of a deed of absolute sale. Petitioner neither had, nor demanded, material possession of the disputed lot. It was the respondents who have been in control and possession thereof in the concept of owners since 1983 up to the present. It follows that ownership of the lot was never transferred to petitioner. Hence, he cannot claim that the instant case is an action to recover ownership and full possession of the property which, in the first place, never came into his possession for lack of requisite delivery. Clearly, the case filed by petitioner was an action for specific performance of a written contract of sale which, pursuant to Art. 1144 of the Civil Code, prescribes in 10 years from the accrual of the right of action. In the same vein, said action is barred by laches having allowed 21 years to lapse before enforcing his alleged right.

Issue: Whether or not petitioner’s action is barred by prescription and laches Held: The action by petitioner is already barred by prescription and laches. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 36

Perfecto Dy , Jr. vs. Court of Appeals July 8, 1991 Third Division Justice Gutierrez, Jr. Facts: Perfecto Dy and Wilfredo Dy are brothers. Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance and Investment Corporation. Both truck and tractor were mortgaged to Libra as a security for the loan. The petitioner, Perfecto Dy, wanted to buy the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 37

tractor from his brother, therefore he wrote a letter to Libra requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the mortgage debt from the latter. Libra, thru its manager, approved the petitioner’s request. Wilfredo executed a deed of absolute sale in favor of Perfecto. A PNB check was issued in favor of Libra, thus the indebtedness of Wilfredo with the financing firm has bee settled. Libra insisted, however that it be cleared first before Libra could release the tractor in question. Meanwhile a civil case entitled ‘”Gelac Trading, Inc v. Wilfredo Dy was pending in another court in Cebu regarding a collection case to recover a sum. Through an alias writ of execution, the sheriff was able to seize and levy on the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction. The property was sold to Antonio Gonzales. It was only when the check was cleared that Perfecto learned about Gelac having already taken custody of the subject tractor.

right to sell it although he was under obligation to secure the written contract of the mortgagee. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected. Article 1496 of the civil code states that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any manner signifying an agreement that the possession is transferred from the vendor to the vendee. The sale of the object tractor was consummated upon the execution of the public instrument. At this time constructive delivery was already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was levied upon by the sheriff(Dy, Jr. vs. Court of Appeals).

Perfecto Dy filed and action to recover the subject tractor against “Gelac Trading “ with the RTC in Cebu City. RTC rendered judgment in favor of Perfecto, pronouncing that Perfecto is the owner of the tractor and directing Gelac Trading Corporation and Antonio Gonzales to return the same to Perfecto. On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint. It held that the tractor in question still belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of the alias writ of execution. Issue: Whether or not the property(tractor) in question belongs to the mortgagor upon the execution of the chattel mortgage. Ruling: Petition granted. The decision of the Court of Appeals was set aside. The decision of the trial court was reinstated. Ratio: (Dy, Jr. vs. Court of Appeals) The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Industrial Textile Manufacturing Company of the Philippines, Inc. v. LPJ Enterprises, Inc. January 21, 1993 Third Division Justice Melo Facts: The respondent LPJ Enterprises, Inc. had a contract to supply 300,000 bags of cement per year to Atlas Consolidated Mining Development Corporation. Cesar Campos, a Vice-President of petitioner Industrial Textile Manufacturing Company of the Philippines(or Itemcop), asked Page 38

Lauro Panganiban, Jr., president of respondent corporation, if he would like to cooperate in an experiment to develop a plastic cement bags. The petitioner agreed to the offer. The experiment,however, was unsuccessful. Cement dust oozed out under pressure through the small holes of the woven plastic bags and the loading and the loading platform was filled with dust. The second batch o plastic bags subjected to trial was likewise a failure. Although the weaving of the plastic bags was already tightened, cement dust still spilled through the gaps. Petitoner delivered the orders consecutively but the respondent only remitted a part of the total amount leaving a balance of P84, 123.80 Thus, the legal department of the petitioner sent demand letters to respondent corporation

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 purchase 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 cannoy accept part and reject the rest of the goods since this falls outside the normal intent of the parties in the “on approval” situation. Therefore, we hold that the transaction between the respondent and petitioner constituted an absolute sale. Accordingly, respondent is liable for the plastic bags delivered to it by petitioner(Industrial Textile Manufacturing Company of the Phils. v. LPJ Enterprises, Inc, pp 326-327).

On the trial, the respondent admitted its liability covered by the first purchase. With respect to the second, third, fourth purchase orders, respondent, however, denied full responsibility. Respondent said that it will pay for, only the plastic bags actually used in packing cement. The trial court rendered a decision sentencing the defendant to pay the sum of P84, 123 with corresponding interest. The respondent corporation’s appeal was upheld by the appellate court when it reversed the trial court’s decision and dismissed the case with costs against petitioner. Issue: Whether or not respondent may be held liable for the plastic bags which were not actually used for packaging cement as originally intended. Ruling: The decision appealed from is SET ASIDE and the decision of the trial court REINSTATED. Ratio: (Industrial Textile Manufacturing Company of the Phils. v. LPJ Enterprises, Inc, pp 326-327) 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 of return” or a “sale on approval”. Parol or extrinsic testimony could not be admitted for the purpose of showing that an Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Aerospace Chemical Industries, Inc vs. Court of Appeal, Philippine Phosphate Fertilizer Corporation. G.R. No. 108129. September 23, 1999. QUISUMBING, J.: FACTS: Petitioner Aerospace Industries purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos).The agreement provided that the buyer shall pay its purchases in Philippine Currency five days before the shipment date. Petitioner as buyer committed to secure the means of transport to Page 39

pick-up the purchases from private respondents load ports. Per agreement, 100 metric tons of sulfuric acid should be taken from Basay Negros Oriental storage tank, while the remaining 400 metric tons should be retrieve from Sangi, Cebu. On August 6, 1986, private respondent Philphos sent an advisory letter to petitioner to withdraw the sulfuric acid purchased at Basay because private respondent has been incurring incremental expenses of 2,000 for each delay in shipment.On October 3, 1986, petitioner paid Php 553,280 for 500 metric tons of sulfuric acid. Petitioner charted the M/T Sultan Kayumanggi to carry out the agreed volumes of freight form designated loading areas. The chartered vessel only withdrew 70 metric tons of sulfuric acid from Basay because said vessel heavily tilted on its port side. Because of this, the vessel underwent repairs. Private respondents asked petitioners to retrieve the remaining sulphur in Basay tanks so that said tanks are emptied before December 15, 1986.Private respondent said that if petitioner will not comply petitioner will be charge storage and consequential costs. Petitioner chartered another vessel after several demand of the private respondent. Hernandez, acting for the petitioner, addressed a letter to private respondent, commencing additional orders to replace its sunken purchases. Petitioner Counsel, Atty Santos, sent a demand letter to private respondent for the delivery of the 272.49 MT of sulfuric acid or return the purchase price of Php 307, 530.In reply, private respondent instructed petitioner to lift remaining 30 MT of sulfuric acid from Basay or pay maintenance and storage expenses. Despite several demands to deliver remaining sulfuric acids and other counter demands also of private respondents, petitioner filed a complaint for specific performance and/or damages before the RTC. Private respondent contends that it was the petitioner who was remiss in the performance of its obligation. The RTC ruled in favor of the petitioner. Upon appeal, Court of Appeals reversed the decision of RTC, ruling in favor of the private respondent. Hence, this petition ISSUES: Whether or not respondent Court of Appeals erred in holding that the petitioner committed breach of contract due to the delay in Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

the performance of its obligation? Did private respondent err in awarding damages to private respondent? RULING: Supreme Court ruled in sustaining the decision of the Court of Appeals finding in favor of private respondent. SC held that petitioner violated the subject contract of sale supported by preponderant evidence. The contention that petitioner’s delay was caused by a storm or force majeure is untenable. The report revealed that the vessel chartered by petitioner is unstable and incapable of carrying full load. Despite of several repairs of the vessel, the vessel still failed to carry the whole metric tons of sulfuric acid. Its unfortunate sinking was not due to force majeure. Hence, the proximate cause of the delay of the petitioner cannot be attributed due to force majeure but because of the chartered vessel contracted by petitioner to carry out the sulfuric acid. Despite demands to immediate replace M/T Sultan Kayumanggi, petitioner did not comply. Moreover, because of petitioner delay in complying with its obligation to replace immediately the defective chartered vessel despite several demand letters sent by private respondent to it, the awarding of damages against the petitioner is justified .Petitioner in this case is guilty of delay. Since petitioner failed to comply with its obligation under the contract it became liable for its shortcomings.

Conchita Nool and Gaudencio Almojera vs. Court of Appeals, Anacleto Nool and Emilia Nebre. G.R. No.116635. July 24, 1997 PANGANIBAN, J.: FACTS: Two parcels of land are the subject of dispute in this case. The first area was formerly owned by Victorino Nool and the other parcel of land previously owned by Francisco Nool. Both parcels of land located in San Manuel, Isabela. Petitioner spouses Conchita and Gaudencio seek recovery of the parcel of land from Page 40

defendant, Anacleto Nool, younger brother of Conchita and Emilia, respondents in this case Petitioners contend that they are the owners of subject of land and that it bought the same from Conchita’s brothers, Francisco and Victorino. Because they are in need of money, they applied and were granted of a loan by DBP, secured by real estate mortgage on the said parcels of land. The title of the lands then was still in the names of the previous owners. Since the petitioners defaulted in paying the loan the mortgaged lands were foreclosed. The ownership of the lands was conveyed with DBP for being the highest bidder in the auction sale. As requested by Conchita, Anacleto, brother of Conchita redeemed the foreclosed property with DBP; as a result, the titles of two parcels of were transferred to Anacleto. That as part of their agreement (Conchita and Anacleto), Anacleto agreed to buy from the petitioners the parcels of land for 100,000, 30,000 of which price is paid to Conchita and upon payment of 14, 000 petitioners were to regain possession of the two parcel of land. which defendants failed to pay. Because of this another agreement was entered into by the parties, whereby respondents agreed to return the parcels of land at anytime when the petitioners have the necessary amount, When petritioners asked to return the parcels of land, respondents refused to return the same. Hence, petitioners filed this complaint to seek recovery of the disputed land.

sale of the parcels of land, such right to redeem is also void. The petitioners in this case cannot assert the right to repurchase the property with the respondents, since respondent Anacleto redeemed the property after the period of redemption given to the petitioners. Thus, the ownership of the parcels of land was transferred already to DBP and then conveyed to Respondent upon buying the said property to DBP. Moreover, respondent cannot be estopped from raising the defense of nullity of contract, since they acted in good faith, believing that petitioners are still the owners of the parcels of land. Article 1410 of the Civil Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. Thus, respondent Anacleto can impugn the nullity of the agreement at anytime.

Lower court ruled in favor of the respondents. Court of Appeals affirmed Lower Court Decision. Hence this petition ISSUES: Whether or not the agreement entered into by the parties (Petitioners and respondents) with respect to the sale and period of redemption of the parcels of land valid and enforceable? Whether or not the Respondent is estopped in impugning the validity of the agreement with the petitioner? RULING: Supreme Court ruled affirming the decision of the Court of Appeals and the Lower Court. The SC held that the sellers (petitioners) no longer had any title to the parcels of land at the time of sale. And since delivery is not possible in this case without transferring ownership of such parcels of land, the contract of sale between petitioners and respondent is void. Further since the right to redeem the property is dependent upon the validity of the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Semira vs. Court of Appeals March 2, 1994

G.R. No. 76031

First Division Bellosillo, J. Facts:

Juana Guitierrez sold a parcel of land, lot 4221,

Page 41

to Buenaventura An by a deed of sale. Th are stated in the deed was an estimated area of 822.5 square meters and the boundaries of the lot. Subsequently, Buenaventura An sold the said lot to his nephew who in turn sold the lot to petitioner with the very same boundaries mentioned in the deed of sale executed in his favor by his uncle Buenaventura An.

Petitioner claims that he owns the entire 2,200 square meters since it is the size of Lot 4221 following its established boundaries. On the other hand, private respondent insists that he only sold 822.5 square meters, hence, his nephew could not have transferred a bigger area to petitioner.

Issue: Is the sale of Lot 4221 includes the whole 1, 377 square meters or the estimated 822.5 square meters?

Ruling: Reversed and set aside. Reinstating the decision of MCTC dated May 4, 1983.

Where land is sold for a lump sum and not so much per unit of measure or number, the boundaries of the land stated in the contract determine the effects and scope of the sale, not the area thereof. The vendors are obligated to deliver all the land included within the boundaries, regardless of whether the real area should be greater or smaller than that recited in the deed. This is particularly true where the area is described as "humigit kumulang," that is, more or less. This is particularly true where the area is described as "humigit kumulang," that is, more or less. Abrigo vs. De Vera June 21, 2004 154409First Division

G.R. No.

Panganiban ,J. Facts: Gloria Villafania sold a house and lot to Rosenda Tigno-Salazar and Rosita Cave-Go Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

which thereafter became a subject of a suit for annulment of documents. The RTC rendered judgment approving the Compromise Agreement submitted by the parties. Gloria Villafania was given one year to buy back the house and lot which she failed to do so. However, unknown to Rosenda and Rosita, Gloria has a crtificate title of the lot. 4 years after the 1st sale, Gloria again sold the said lot to Romanda de Vera and a TCT was issued to her. Rosita and Rosenda then filed for the annulment of the documents and damages. Issue: Who between the petitioner and respondent has a better right to the property? Ruling: Denied. The law provides that a double sale of immovables transfers ownership to (1) the first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good faith presents the oldest title. Section 51 of PD 1529 provides that no deed, mortgage, lease or other voluntary instrument -except a will -- purporting to convey or affect registered land shall take effect as a conveyance or bind the land until its registration.

Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. A person dealing with registered land is not required to go behind the registry to determine the condition of the property, since such condition is noted on the face of the register or certificate of title.[36] Following this principle, this Court has consistently held as regards registered land that a purchaser in good faith acquires a good title as against all the transferees thereof whose rights are not recorded in the Registry of Deeds at the time of the sale. SPOUSES TOMAS OCCEÑA and SILVINA OCCEÑA vs. LYDIA MORALES OBSIANA ESPONILLA June 4, 2004 Second Division

G.R. No. 156973

PUNO, J.: Facts: Page 42

Spouses Nicolas and Irene Tordesillas owned a piece of land which their children Harod, Angela and Rosario, and grandchildren Arnold and Lilia de la Flor inherited. The heirs sold a part of the land to Alberta Morales. Morales possessed the lot as owner, constructed a house on it and appointed a caretaker to oversee her property. Arnold borrowed the Original Certificate of Title (OCT) from Alberta covering the lot. Then, he executed an Affidavit acknowledging receipt of the OCT in trust and undertook to return said title free from changes, modifications or cancellations. However, Arnold used the OCT he borrowed from the vendee Alberta Morales, subdivided the entire lot into three sublots, and registered them all under his name. Arnold did not return the OCT belonging to Alberta despite repeated requests. Arnold subsequently sold the land to spouses Tomas and Sylvina Occeña. When the respondent heirs of Alberta learned of the sale, they filed a case for annulment of sale and cancellation of titles, with damages, against the Occeña spouses, alleging bad faith since the Occeñas conducted ocular inspection of the area before the purchase and their caretaker warned them that Arnold is no longer the owner of the lot being sold. On the other hand, the Occeña spouses alleged that they were buyers in good faith as the titles to the subject lots were free from liens or encumbrances when they purchased them, that they verified with the Antique Registry of Deeds that Arnold’s TCTs were clean and unencumbered. Lower court declared the Occeña spouses as buyers in good faith and ruled that the action of the heirs was time-barred. Court of Appeals reversed the decision of the trial court. Hence the petition.

there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, (3) in the absence thereof, to the person who presents the oldest title, provided there is good faith. In all cases, good faith is essential. It is the basic premise of the preferential rights granted to the one claiming ownership over an immovable. What is material is whether the second buyer first registers the second sale in good faith, i.e., without knowledge of any defect in the title of the property sold. The defense of indefeasibility of a Torrens title does not extend to a transferee who takes the certificate of title in bad faith, with notice of a flaw. Indeed, the general rule is that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on the title. However, this principle does not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith.

Issue: Whether or not a purchaser of a registered land is obliged to make inquiries of any possible defect or adverse claim which does not appear on the Certificate of Title

Ruling: Petition dismissed. The petition at bar presents a case of double sale of an immovable property. Article 1544 of the New Civil Code provides that in case an immovable property is sold to different vendees, the ownership shall belong: (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) should Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

SPOUSES ISABELO and ERLINDA PAYONGAYONG, vs. HON. COURT OF APPEALS,

May 28, 2004 Third Division

G.R. No. 144576

Page 43

CARPIO MORALES, J.:

Facts: Eduardo Mendoz is the registered owner of a parcel of land in Caloocan. He mortgaged the land to the Meralco Employees Savings and Loan Association (MESALA) to secure a loan. The mortgage was duly annotated on the title. After 2 years, Mendoza executed a Deed of Sale with Assumption of Mortgage over the parcel of land in favor of spouses Payongayong. It is stated in the deed that petitioners bound themselves to assume payment of the balance of the mortgage indebtedness of Mendoza to MESALA. Mendoza, without the knowledge of petitioners, mortgaged the same property to MESALA, again to secure another loan. Second mortgage was annotated in Mendoza’s title. Mendoza executed a Deed of Absolute Sale over still the same property in favor of respondent spouses Clemente and Rosalia Salvador. Spouses Salvador had the lot registered in their name after ocular inspection and verification from the Register of Deeds. Getting wind of the sale of the property to respondents, Payongayong filed for annulment sale with damages against Mendoza and spouses Salvador. Trial Court ruled in favor of Mendoza and Salvador. CA affirmed. Hence the petition.

Issue: Whether or not spouses Salvador are innocent purchasers for value

Held: Petition denied.

Where innocent third persons rely upon the correctness of a certificate of title and acquire rights over the property, the court cannot just disregard such rights. Otherwise, public confidence in the certificate of title, and ultimately, the Torrens system, would be impaired, for everyone dealing with registered property would still have to inquire at every instance whether the title has been regularly or irregularly issued.28 In respondents’ case, they did not only rely upon Mendoza’s title. Rosalia personally inspected the property and verified with the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Registry of Deeds of Quezon City if Mendoza was indeed the registered owner. Given this factual backdrop, respondents did indeed purchase the property in good faith and accordingly acquired valid and indefeasible title thereto. The law is thus in respondents’ favor. Article 1544 of the Civil Code so provides: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. There being double sale of an immovable property, as the above-quoted provision instructs, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith.

Isabela Colleges, Inc. vs. Heirs of Nieves Tolentino–Rivera October 20, 2000 Second Division Ponente: Justice Mendoza

G.R. No.132677

Facts: The late Nieves Tolentino-Rivera and her husband, Pablo Rivera, were married in 1921. Nieves, still using her maiden name, filed an Page 44

application for a sales patent over a 13.5267hectare land in Cauayan, Isabela. Her application was approved and a sales patent was issued in the name of “Nieves Tolentino, married to Pablo Rivera”. The above said spouses sold to petitioner Isabela four hectares of their land, which was thereafter immediately occupied by the petitioner and used the same as its new campus. Since 1950, the Isabela Colleges declared the land for tax purposes, but it did not immediately secure a separate title to the property. It was only on January 13, 1970 when it secured a title to the land. In December 1976, the Office of the Register of Deeds of Isabela was burned. Among the titles destroyed was that of the Isabela Colleges which was however administratively reconstituted in 1978. In January 1988, certain people entered the property of Isabela Colleges, prompting the latter to bring an action for forcible entry. The Municipal Trial Court of Cauayan, Isablela rendered a decision ordering the intruders to vacate the land in question. In 1991, Nieves brought the present suit against the Isabela Colleges for “Nullity of Titles, Deeds of Sale, Recovery of Ownership and Possession, Cancellation of Titles, Damages with Preliminary Injunction.” In its Answer, the Isabela Colleges asserted that the property in question had been sold to it with the knowledge and consent of Nieves who in fact signed the deed of sale. Moreover, herein petitioner contends that the complaint was barred by prescription and/or laches. Two complaints-in-intervention were allowed by the trial court. The intervenors, who were the parties in the ejectment suit, claimed to be buyers in good faith or lessees of Nieves as to certain portions of the subject land.

the government during her marriage with Pablo Rivera out of conjugal funds; 2.) Nieves’ signature in the questioned deed of sale is forged; 3.) laches cannot defeat that claim of a registered property owner despite the long delay of 41 years. Ruling: Wherefore the decision of the Court of Appeals is REVERSED. Issue 1: Both the acquisition of the 13-hectare land and the sale of a portion thereof to petitioner in 1949 took place when the Spanish Civil Code was still in effect. Under Article 1407 of that code, the property of the spouses are deemed conjugal partnership property in the absence of proof that it belongs exclusively to one or the other spouse. This presumption arises with respect to property acquired during the marriage. It is not necessary to prove that the property was acquired with conjugal funds. Indeed, other than its finding that Nieves was already in possession of the land and applied for a sales patent before she married Pablo Rivera, the Court of Appeals cited no other evidence to prove that the land was her paraphernal property. On the contrary, the evidence clearly shows that the land was acquires during her marriage with Pablo Rivera. Issue 2: The fact that Nieves Tolentino’s signature in the deed of sales is a forgery does not, however, render the deed of sale void. The land was conjugal property and under the Spanish Civil Code, the wife’s consent to the sale is not required. Therefore, that her signature is a forgery is determinative only of Nieves’ lack of consent but not of the validity of the sale. As the husband may validly sell or dispose of conjugal property even without the wife’s consent, the absence of the wife’s consent alone does not make the sale “in fraud” of her.

During the pendency of this case Nieves died and her heirs substituted her. On September 30, 1994, the trial court rendered its decision, ruling in favor of Isabela Colleges. On Appeal, its decision was reversed. Hence, this petition.

Issue 3: Nonetheless while it is true that a Torrens title is indefeasible and imprescriptible, the registered owner may lose his right to recover possession of his registered property by reason of laches.

Issue: Whether the Court of Appeals erred in ruling that: 1.) the subject property is paraphernal despite Nieves’ admission that it was purchased from

Laches means the failure or neglect for an unreasonable and unexplained length of time to do that which, by observance of due diligence, could or should have been done earlier. It is

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 45

negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert his right either has abandoned or declined to assert it. So it is in the present case where the complaint questioning the validity of the sale to petitioner Isabela Colleges was filed only after 42 years had lapsed. Respondents could not feign ignorance of the sale because petitioner had been in open, public, and continuous possession of the land, which it had used as its school campus since 1949.

Bayoca vs. Nogales September 12, 2000 G.R.No.138201 Third Division Ponente: Justice Gonzaga-Reyes Facts: Gaudioso Nogales acquired ownership over the subject property on the basis of the Compromise Agreement and the Deed of Absolute Sale executed by Julia Deocareza who had acquired of said property from the Canino Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 46

brothers and sisters. However, Preciosa Canino subsequently sold at different times portions of the subject property to herein petiitoners, Francisco Bayoca, Nonito Dichoso, Erwin Bayoca, and spouses Pio and Dolores Dichoso. The Appellee, filed complaint against the Appellants for “Accion Reinvindicatoria with Damages.” He alleged in his complaint, that he purchased the said property from Julia Decareza and thus acquired ownership thereof and that the Appellants respectively purchased portions of said property in bad faith and through fraud. The Appellants, in their Answer to the complaint, alleged that Preciosa Canino and her siblings acquired just title over the property when they executed their “Deed of Partition of Real Property” and conveyed titles to the vendees, the Appellants in the present recourse, as buyers in goof faith. The Regional Trial Court ruled in favor of Nogales and declared that the sales of portions of said property by Preciosa Canino were null and void. The trial court further declared further that petitioners were purchasers in bad faith. On appeal, the court of Appeals affirmed the RTC ruling. Hence this petition. Issue: Who has the superior right to the parcel of land sold to different buyers at different times by its former owners? Ruling: Petition is hereby DENIED and the assailed DECISION of the Court of Appeals is AFFIRMED. There is no question from the records that respondent Nogales was the first to buy the subject property from Julia, who in turn bought the same from the Canino brothers and sisters. Petitioners, however, rely on the fact that they were the first to register the sales of the different portions of the property resulting in the issuance of new titles in their names. Article 1544 of the Civil Code governs the preferential rights of vendees in cases of multiple sales, as follows: “Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and in the absence thereof, to the person who presents the oldest title, provided there is good faith.” Based on the foregoing, to merit the protection under Article 1544, second paragraph, the second buyer must act in good faith in registering the deed. Thus, It has been held that in cases of double sale of immovables, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property. On account of the undisputed fact of registration by respondent Nogales as the first buyer, necessarily, there is absent good faith in the registration of the sale by the petitioners Erwin Bayoca and the spouses Pio and Lourdes Dichoso for which they had been issued certificates of title in their names. As for the petitioners Francisco Bayoca and Nonito Dichoso, they failed to register the portions of the property sold to them, and merely rely on the fact that they declared the same in their name for taxation purposes. Suffice it to state, that such fact, does not, by itself, constitute evidence of ownership and cannot likewise prevail over the title of respondent Nograles.

SPOUSES FLORENDO DAUZ and HELEN DAUZ, et al. v. SPOUSES ELIGIO and LORENZA ECHAVEZ and the COURT OF APPEALS G.R. No. 152407, 21 September 2007, SANDOVAL-GUTIERREZ, J.

Spouses Albert Oguis, Sr. and Florencia

Page 47

Refuerzo Oguis sold a portion of the land to respondents spouses Eligio and Lorenza Echavez. On April 1, 1982, they had the sale registered in the Registry of Deeds of Benguet. Spouses Oguis later on sold the remaining portion of the land to the same respondents, but the land was not registered.

HELD: Petition DENIED. RATIO: Article 1544 of the Civil Code is relevant, thus:

Albert Oguis, Sr. and his two children Albert Oguis, Jr. and Helen Oguis Valerio, executed a Deed of Extrajudicial Settlement of Estate. On the same date, they sold to spouses Florendo and Helen Dauz, petitioners, a portion of the land as shown by a Deed of Absolute Sale. Albert Oguis, Sr. informed petitioners that he had sold only a portion to respondents.

Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Petitioners then filed with the Regional Trial Court (RTC) of Baguio and Benguet a Petition for the Issuance of a New Duplicate Copy of TCT No. T-13728.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Respondents had the sale to them of the remaining 7,616 square meters portion of the land registered in the same Registry of Deeds. Consequently, the title in the names of spouses Oguis was cancelled and in lieu thereof, a new title was issued in respondents’ names. The new title covers the entire property previously owned by spouses Oguis.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

Meanwhile, petitioners sold to spouses Ignacio and Francisca Reambonanza, also petitioners, a portion sold to them by Albert Oguis, Sr. and his two children. Petitioners, then filed with the RTC, a complaint for declaration of ownership. The trial court dismissed the petition. The Court of Appeals affirmed RTC’s decision.

ISSUE: WHETHER THERE WAS BAD FAITH ON THE REGISTRATION OF THE LAND BY THE RESPONDENTS

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

In April 1982, respondents caused the registration of the sale of the 1,295-square meter portion of the land; and on January 25, 1989, the sale of the remaining 7,616 square meters in the Registry of the Deeds. Petitioners (spouses Dauz), on the other hand, failed to cause the registration of the sale to them in the Registry of Deeds. Where both parties claim to have purchased the same property, as in this case, Article 1544 cited above provides that as between two purchasers, the one who registered the sale in his favor has a preferred right over the other who has not registered his title, even if the latter is in actual possession of the immovable property

Page 48

Nonetheless, we still perused the records and found that there is no evidence showing that respondents acted in bad faith. In China Airlines, Ltd. v. Court of Appeals, we held that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. It means breach of a known duty through some motive, interest or ill will that partakes of the nature of fraud. These incidents or circumstances are not present here. Respondents did not immediately register the sale because they waited for spouses Oguis to repurchase the property. In fact, it was Albert Oguis, Sr. himself who requested them not to cause the registration of the sale.

CHINA AIRLINES, LTD. v. COURT OF APPEALS, ANTONIO S. SALVADOR and ROLANDO C. LAO G.R. No. 129988, 14 July 2003, CARPIO, J.

Private respondents planned to travel to Los Angeles, California. They initially engaged Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 49

the services of Morelia Travel Agency (Morelia), which booked them with petitioner China Airlines Ltd (CAL). However, private respondents decided to drop the services of Morelia, as the American Express Travel Service Philippines (Amexco) offers cheaper rates, and engage the services of the latter. Lao then called Amexco and gave the tire record locator number if booking reference that CAL had previously issued to Morelia when Morelia booked the reservations of the private respondents. In the afternoon of the same day, Amexco called up CAL to finalize private respondents' reservation for CAL's 13 June 1990 flight. Amexco used the record locator number given by Lao in confirming the reservations of private respondents. CAL confirmed the booking. Amexco then issued to private respondents the confirmed tickets for the 13 June 1990 flight of CAL. On the same day, CAL called up Morelia to reconfirm the reservations of private respondents. Morelia cancelled the reservations of private respondents. On the day of the flight, the private respondents were not able to board the plane since their names were not on the passengers’ list. CAL cancelled the reservations when Morelia revoked the booking it had made for the private respondents. Hence this petition. ISSUE: Whether the petitioner is liable despite the fact that such acts complained of were acts done by its employees

destination, and (2) a contract to transport passengers to their destination. In this case, when CAL confirmed the reservations, it bound itself to transport private respondents on its flight on 13 June 1990. The airline business is intended to serve the traveling public primarily and is thus imbued with public interest. The law governing common carriers consequently imposes an exacting standard. Thus, in an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier. CAL does not deny its confirmation of the reservations made by Amexco. The confirmed tickets issued by Amexco to private respondents upon CAL's confirmation of the reservations are undeniable proof of the contract of carriage between CAL and private respondents. In Alitalia Airways v. CA, et al., we held that when an airline issues a ticket to a passenger confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger then has every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. CAL did not allow private respondents, who were then in possession of the confirmed tickets, from boarding its airplane because their names were not in the passengers' manifest. Clearly, CAL breached its contract of carriage with private respondents. We, however, rule out bad faith by CAL.

HELD:

Petition DENIED.

SPOUSES SALERA vs SPOUSES RODAJE G.R. No. 135900

RATIO:

The nature of an airline's contract of carriage partakes of two types, namely: (1) a contract to deliver a cargo or merchandise to its Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

17 August 2007

Ponente: Justice Sandoval – Gutierrez, First Division Facts: Spouses Salera filed an action for quieting of title regarding a parcel of land in Brgy. Basud, San Isidro, Leyte. The land was bought from the heirs of Brigido Tonacio as Page 50

evidenced by the Deed of Absolute Sale executed on June 23, 1986. They allege that they have been in possession of the property and the house they built thereon because they had paid the purchase price even before the execution of the deed of sale. When they asked the Provincial Assessor to declare the property under their names for taxation purposes, they found that Tax Declaration No. 2994 (R-5) in the name of Brigido was already cancelled and another one, Tax Declaration No. 2408, was issued in the names of Spouses Rodaje. Spouses Rodaje claimed that they bought the land from Catalino Tonacio, father of Brigido on June 6, 1986 and that the sale was registered with the Register of Deeds and the Tax Declaration No. 2408 was issued in their name. They also claimed that they had a verbal contract with Catalino even before the execution of the sale since January 1984. They paid a downpayment of P1,000 and paid the balance of P4,000 when the sale was executed. They allege that they been in exercising their right of ownership over the property and the building constructed thereon peacefully, publicly, adversely and continuously. Apart from being the first registrants, they are buyers in good faith. RTC of Calubian, Leyte declared Spouses Salera as the rightful and legal owners while declaring null and void the Deed of Absolute Sale between Catalino and herein respondents and ordering the cancellation of Tax Declaration No. 2408 issued. The court cited that the real owners of the land, by operation of the law on succession would be the heirs of Brigido and not his father. Catalino had no legal personality to sell the parcel of land.

single vendor sold one and the same immovable property to two or more buyers. Art. 1544 does not apply in this case since the sale was made by Catalino and the heirs of Brigido. Bad faith was established in the RTC. The evidence submitted to the court, established that Spouses Rodaje knew beforehand that the property was declared in the name of Brigido Tonacao for taxation purposes. Any lot buyer is expected to be vigilant, exercising utmost care in determining whether the seller is the true owner of the property and whether there are other claimants. There is no indication from the record that Rodaje first determined the status of the lot. While tax declarations are not conclusive proofs of ownership, however, they are good indicia of possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. Hence, Catalino, not being the owner or possessor, could not validly sell the lot to respondents. The certification presented by respondents clearly shows that the house is owned by Aida Salera and that respondents started paying the electric bills (in the name of Aida Salera) only in 1986. The respondents proof of payment of realty tax from the period of 1974 to 1984 was paid in lump sum. (Petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and the Decision of the trial court is REINSTATED.)

The Court of Appeals reversed and set aside the decision of the RTC. It based its decision on the Civil Code provision on double sale. Issue: Which of the two contracts of sale is valid?

URACA, et al. vs CA and VELEZ, JR., et al. G.R. No. 115158

September 5,

Held: Sale made by the heirs of Brigido Tonacao to the spouses Salera is valid. Sale made by Catalino to spouses Rodaje is invalid.

Ponente: Justice Panganiban, Third Division

The Court of Appeals is wrong. Article 1544 of the Civil Code contemplates a case of double sale or multiple sales by a single vendor. More specifically, it covers a situation where a

Facts: The Velezes were the owners of the lot and commercial building in question located at Progreso and M.C. Briones Streets in Cebu City. The petitioners were its lessees.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

1997

Page 51

On July 8, 1985, the Velezes through Carmen Velez Ting wrote a letter to petitioners offering to sell the subject property for P1,050,000.00 and to reply within three days. Petitioners, through counsel, accepted the offer. When Uraca went to Ting, Ting told her that there was a mistake in the price. It should have been P1.4M, Uraca agreed to the new price to be payable in installments with a down payment of P1M and the balance of P400,000 to be paid in 30 days. Carmen Velez Ting did not accept the said counter-offer of Emilia Uraca although this fact is disputed by Uraca.

perfected contract of sale of the property for P1,050,000.00 between the Velezes and herein petitioners. It added, however, that such perfected contract of sale was subsequently novated. However, it was mutually withdrawn, cancelled and rescinded by novation, and was therefore abandoned by the parties when Carmen Velez Ting raised the consideration of the contract by P350,000.00, thus making the price P1.4M instead of the original price of P1,050,000.00. Since there was no agreement as to the 'second' price offered, there was no meeting of minds between the parties, hence, no contract of sale was perfected.

No payment was made by to the Velezes on July 12 and 13, 1985. On July 13, 1985, the Velezes sold property to Avenue Merchandising Inc. for P1,050,000.00. The certificate of title of the said property was clean and free of any annotation of adverse claims or lis pendens.

CA added that, even if there was agreement as to the price and a second contract was perfected, the later contract would be unenforceable under the Statute of Frauds. It further held that such second agreement, if there was one, constituted a mere promise to sell which was not binding for lack of acceptance or a separate consideration.

On July 31, 1985, petitioners filed the instant complaint against the Velezes. On August 1, 1985, they also registered a notice of lis pendens over the property in question with the Office of the Register of Deeds.

Issues: 1.) Was there novation of the first contract? 2.) Was there a double sale of the real property involved?

On October 30, 1985, the Avenue Group filed an ejectment case against petitioners ordering the latter to vacate the commercial building standing on the lot in question. Petitoners filed an amended complaint impleading the Avenue Group as new defendants after about 4 years after the filing of the original complaint. RTC found two perfected contracts of sale between the Velezes and the petitioners involving the real property in question. The first sale was for P1,050,000.00 and the second was for P1,400,000.00. In respect to the first sale, the trial court held that "[d]ue to the unqualified acceptance by the plaintiffs within the period set by the Velezes, there consequently came about a meeting of the minds of the parties not only as to the object certain but also as to the definite consideration or cause of the contract. The second sale merely constituted a mere modificatory novation which did not extinguish the first sale. It also held that the Avenue Group were buyers in bad faith. The Court of Appeals held that there was a Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Held: On Novation Novation is never presumed; it must be sufficiently established that a valid new agreement or obligation has extinguished or changed an existing one. The registration of a later sale must be done in good faith to entitle the registrant to priority in ownership over the vendee in an earlier sale. Article 1600 of the Civil Code provides that "(s)ales are extinguished by the same causes as all other obligations, . . . ." Article 1231 of the same Code states that novation is one of the ways to wipe out an obligation. Extinctive novation requires: (1) the existence of a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old obligation or contract; and (4) the validity of the new one. Novation is effected only when a new contract has extinguished an earlier contract between the same parties. It must be proven as a fact either

Page 52

by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between old and new obligations or contracts.

the consideration to be paid under par. 2 of the disposition is P1,050,000.00 and not P1,400,000.00.)

The petitioners and the Velezes clearly did not perfect a new contract because the essential requisite of consent was absent, the parties having failed to agree on the terms of the payment. Since the parties failed to enter into a new contract that could have extinguished their previously perfected contract of sale, there can be no novation of the latter. Consequently, the first sale of the property in controversy, by the Velezes to petitioners for P1,050,000.00, remained valid and existing. On Double Sale Prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good faith. Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith (Art. 1544). The Avenue Group was a buyer and registrants in bad faith. They had actual knowledge of the Velezes' prior sale of the same property to the petitioners. Hence, the third and not the second paragraph of Article 1544 should be applied to this case. Under this provision, petitioners are entitled to the ownership of the property because they were first in actual possession, having been the property's lessees and possessors for decades prior to the sale. (The petition is GRANTED. The assailed Decision of the Court of Appeals is hereby SET ASIDE and the dispositive portion of the trial court's decision dated October 19, 1990 is REVIVED with the following MODIFICATION — Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

BINALBAGAN TECH., INC. vs. COURT OF APPEALS G.R. No. 100594 (219SCRA777)

March

10,

1993

Third Division MELO, J.:

Page 53

Facts: On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of 42 subdivision lots within the Phib-Khik Subdivision of the Puentevella family, conveying and transferring said lots to petitioner Binalbagan Tech., Inc. In turn Binalbagan, through its president, petitioner Hermilo J. Nava, executed an Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the estate of Puentevella. Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the lots and the building and improvements thereon. Binalbagan started operating a school on the property from 1967 when the titles and possession of the lots were transferred to it. There was a pending case involving the said property. The intestate estate of the late Luis B. Puentevella sold said lots to Raul Javellana with the condition that the vendeepromisee would not transfer his rights to said lots without the express consent of Puentevella and that in case of the cancellation of the contract by reason of the violation of any of the terms thereof, all payments therefore made and all improvements introduced on the property shall pertain to the promissor and shall be considered as rentals for the use and occupation thereof. Javellana having failed to pay the installments for a period of five years, the case was filed by defendant Puentevella against him. Judgment was rendered in favor of Puentevella. Plaintiffs in the instant case on appeal filed their ThirdParty Claim based on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez, thus Puentevella was constrained to assert physical possession of the premises to counteract the fictitious and unenforceable claim of herein plaintiffs. CA issued a writ of preliminary injunction, thus, defendant Puentevella was restored to the possession of the lots and buildings subject of this case. Plaintiffs filed a petition for review with the Supreme Court which issued a restraining order against the sale of the properties claimed by the spouses-plaintiffs [in Abierra vs. Court of Appeals, 45 SCRA 314]. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession of the building and other property was taken from petitioner Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to another location. After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent Angelina Echaus demanded payment from petitioner Binalbagan for the subdivision lots, enclosing in the letter of demand a statement of account as of September 1982 showing a total amount due of P367,509.93, representing the price of the land and accrued interest as of that date. As petitioner Binalbagan failed to effect payment, Echaus filed on October 8, 1982 Civil Case No. 1354 with the RTC in Himamaylan, Negros Occidental against petitioners for recovery of title and damages. Echaus filed an amended complaint by including her mother, brothers, and sisters as co-plaintiffs. The trial court rendered a decision in favor of the defendants. Private respondents appealed to the CA which reversed and set aside the appealed decision. Thus, this petition for review on certiorari wherein petitioners assign the following alleged errors of the Court of Appeals:

Issue: Whether private respondents' cause of action in Civil Case No. 1354 is barred by prescription.

Ruling: Petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 24635 is AFFIRMED. A party to a contract cannot demand performance of the other party's obligations unless he is in a position to comply with his own obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready, willing and able to comply with his own obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, Page 54

Civil Code of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession of the thing Art. 1547. In a contract of sale, unless a contrary intention appears, there is: (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing. The period of prescription was interrupted, because from 1974 up to 1982, the appellants themselves could not have restored unto the appellees the possession of the 42 subdivision lots precisely because of the preliminary injunction mentioned elsewhere. Consequently, the appellants could not have prospered in any suit to compel performance or payment from the appellees-buyers, because the appellants themselves were in no position to perform their own corresponding obligation to deliver to and maintain said buyers in possession of the lots subject matter of the sale.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 55

ROBERTO Z. MACHUCA

LAFORTEZA

vs.

ALONZO

G.R. No. 137552. June 16, 2000 (333SCRA643) Third Division GONZAGA_REYES, J.

Facts: On August 2, 1988, defendants Lea Zulueta-Laforteza and Michael Z. Laforteza both executed a Special Power of Attorney (SPA) in favor of defendants Roberto and Gonzalo Z. Laforteza, Jr., appointing both as her Attorneyin-fact authorizing them jointly to sell the subject property and sign any document for the settlement of the estate of the late Francisco Q. Laforteza. Both agency instruments contained a provision that in any document or paper to exercise authority granted, the signature of both attorneys-in-fact must be affixed. On October 27, 1988, defendant Dennis Z. Laforteza executed an SPA in favor of defendant Roberto Z. Laforteza for the purpose of selling the subject property. A year later, Dennis Z. Laforteza executed another SPA in favor of defendants Roberto and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of selling the subject property and signing any document for the settlement of the estate of the late Francisco Q. Laforteza. On January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (MOA[Contract to Sell]) with the plaintiff over the subject property for the sum of P630,000.00. On January 20, 1989, plaintiff paid the earnest money of P30,000.00, plus rentals for the subject property. On September 18, 1998 , defendant heirs, through their counsel wrote a letter to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising him that he had 30 days to produce the balance of P600,000.00 under the Memorandum of Agreement which plaintiff received on the same date. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the 30 DAYS. On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already had the balance P600,000.00 covered by United Coconut Planters Bank Managers Check. However, the defendants, refused to accept the balance Defendant Roberto Z. Laforteza had told him that the subject property was no longer for sale. On November 20, 1998, defendants informed the plaintiff that they were canceling the MOA in view of the plaintiffs failure to comply with his contractual obligations. Thereafter, plaintiff reiterated his request to tender payment of the balance. Defendants, however, insisted on the rescission of the MOA. Plaintiff filed the instant action for specific performance. The lower court rendered judgment in favor of the plaintiff. Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower court. Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages. Hence this petition.

Issues: W the Memorandum of Agreement is a mere contract to sell, as indicated in its title.

Ruling: CA decision is AFFIRMED and the instant petition is hereby DENIED.

A perusal of the MOA shows that the transaction between the petitioners and the respondent was one of sale and lease. A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. From that moment the parties may reciprocally demand performance subject to the provisions of the law Page 56

governing the form of contracts. The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter and (3) price certain in money or its equivalent. In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby the petitioners obligated themselves to transfer the ownership of and deliver the house and lot and the respondent to pay the price amounting to P600,000.00. All the elements of a contract of sale were thus present. However, the balance of the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed in possession of the house and lot as lessee thereof for six months at a monthly rate of P3,500.00. The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a period within which to exercise an option. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. An option contract is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. An option must be supported by consideration. An option contract is governed by the second paragraph of Article 1479 of the Civil Code. “An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price." In the present case, the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the expiration of the six-month period, there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the sale.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 57

Jon and Marissa De Ysasi vs. Arturo and Estela Arceo G.R. No. 136586 November 22, 2001 Mendoza, J. Second Division

Facts: On October 1, 1988, spouses Jon and Marissa de Ysasi leased from spouses Arturo and Estela Arceo, the latter's premises in order to carry on their business of hand painting and finishing services. Petitioners paid P5,000.00 as goodwill money and P15,000.00 as deposit for three months. It appears that due to heavy rains, the roof of the building leaked and the premises were flooded, as a result of which the schedule of the delivery of hand painted moldings to petitioners' customers was disrupted. Although petitioners asked respondents to make the necessary repairs, the latter repaired only a portion of the leased premises. Consequently, petitioners stopped paying rent as well as their share of the electric, water, and telephone bills from December 1988 up to the time they vacated the leased premises in June 1989. Respondents in turn filed an ejectment suit against petitioners in the Metropolitan Trial Court. In its decision, the MeTC, while ruling that petitioners were justified in suspending the payment of rent, ordered the deposits made by them to be applied to the payment of rentals up to June 1989 and directed them to pay them electric and water bills. On appeal to the Regional Trial Court, the decision was modified inasmuch as petitioners were ordered to pay P20,000.00 as balance of their rentals up to the time they vacated the premises. Petitioners then filed a complaint in the Regional Trial Court, for specific performance or rescission of contract with damages, which they subsequently changed to a claim for damages in view of the expiration of the lease contract. The trial court, however, dismissed the complaint and ordered petitioners to pay respondents the sums of P5,000.00 as attorney's fees and P20,000.00 as back rentals, with interest at the legal rate. On appeal to the Court of Appeals, the decision was affirmed. Petitioners' motion for reconsideration was subsequently denied. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Issue: WON there was an implied waiver of repairs including repairs for hidden and unknown defects by the lessee.

Ruling: Decision of Court of Appeals affirmed with modification that the order for payment of unpaid rentals with interest to respondents is deleted.

Ratio: Petitioners anchor their complaint for damages on respondents' failure, as lessors, to make the necessary repairs on the leased premises as provided in Art. 1654(2) of the Civil Code. The Court of Appeals held that under the contract of lease of the parties, there was an implied waiver of right to demand repairs to be made by the lessee. The records show that respondent Mrs. Arceo caused certain repairs to be done on the leased premises at the request of petitioners, although the latter alleged that the repairs made were inadequate. This fact indicates that there was no implied waiver of repairs on the part of the lessee. For Art. 1371 of the Civil Code provides that “In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts should be principally considered.”

Under Arts. 1561 and 1653 of the Civil Code, the lessor is responsible for warranty against hidden defects, but he is not answerable for patent defects or those, which are visible. Petitioner Jon de Ysasi admitted on cross-examination that he inspected the premises three or four times before signing the lease contract. During his inspection, he noticed the rotten plywood on the ceiling, which in his opinion was caused by leaking water or termites. Yet, he decided to go through with the lease agreement. Hence, respondents cannot be held liable for the alleged warranty against hidden defects.

Page 58

Coca-Cola Bottlers Philippines, Inc. vs. The Honorable Court of Appeals and Ms. Lydia Geronimo G.R. No. 110295 October 18, 1993 Davide, Jr., J, First Division

Facts: Lydia L. Geronimo was the proprietress of Kindergarten Wonderland Canteen in Dagupan City, an enterprise engaged in the sale of soft drinks (including Coke and Sprite) and other goods to the students of Kindergarten Wonderland and to the public. On or about August 12 1989, some parents of the students complained to her that the Coke and Sprite soft drinks sold by her contained fiber-like matter and other foreign substances or particles. She then went over her stock of softdrinks and discovered the presence of some fiber-like substances in the contents of some unopened Coke bottles and a plastic matter in the contents of an unopened Sprite bottle. She brought the said bottles to the Regional Health Office of the Department of Health at San Fernando, La Union, for examination. She received a letter from the Department of Health informing her that the samples she submitted "are adulterated;" as a consequence of the discovery of the foreign substances in the beverages, her sales of soft drinks severely plummeted from the usual 10 cases per day to as low as 2 to 3 cases per day resulting in losses of from P200.00 to P300.00 per day, and not long after that she had to lose shop on December 12 1989, she became jobless and destitute. She demanded from the petitioner the payment of damages but was rebuffed by it.

defects of or encumbrances upon the thing sold are not limited to those prescribed in Article 1567 of the Civil Code which provides: Art. 1567. In the case of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages eithercase. The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which case the ordinary rule on obligations shall be applicable. Under the law on obligations, responsibility arising from fraud is demandable in all obligations and any waiver of an action for future fraud is void. Responsibility arising from negligence is also demandable in any obligation, but such liability may be regulated by the courts, according to the circumstances. Those guilty of fraud, negligence, or delay in the performance of their obligations and those who in any manner contravene the tenor thereof are liable for damages. The vendor could likewise be liable for quasidelict under Article 2176 of the Civil Code, and an action based thereon may be brought by the vendee. While it may be true that the preexisting contract between the parties may, as a general rule, bar the applicability of the law on quasi-delict, the liability may itself be deemed to arise from quasi-delict, i.e., the acts which breaks the contract may also be a quasi-delict.

Issue: WON the subsequent action for damages by the proprietress against the soft drinks manufacturer should be treated as one for breach of implied warranty against hidden defects or merchantability.

Ruling: Petiton denied.

Ratio: The vendee's remedies against a vendor with respect to the warranties against hidden Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 59

Inocencio Yu Dino vs. Court of Appeals June 20, 2001

G.R. No. 113564

ISSUE:

359 SCRA 91

First Division

Whether the contract between the contracting parties is a contract of sale or a contract for a piece of work

Puno, J.: FACTS: Petitioners spouses Dinoare engaged in the business of manufacturing and selling shirts.1 Respondent Sio is part owner and general manager of a manufacturing corporation doing business under the trade name "Universal Toy Master Manufacturing." Petitioners and respondent Sio entered into a contract whereby the latter would manufacture for the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample approved by the petitioners. These frogs and mooseheads were to be attached to the shirts petitioners would manufacture and sell. Respondent Sio delivered in several installments the 40,000 pieces of frogs and mooseheads. Petitioner fully paid the agreed price. Subsequently, petitioners returned to respondent 29,772 pieces of frogs and mooseheads for failing to comply with the approved sample. Petitioners then demanded from the respondent a refund of the purchase price of the returned goods in the amount of P208,404.00. As respondent Sio refused to pay. Petitioners filed action for collection of a sum of money.

Whether the respondent is responsible for the warranty against hidden defects RULING: Petition is DENIED. The contract between the petitioners and respondent stipulated that respondent would manufacture upon order of the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according to the samples specified and approved by the petitioners. Respondent Sio did not ordinarily manufacture these products, but only upon order of the petitioners and at the price agreed upon. Clearly, the contract executed by and between the petitioners and the respondent was a contract for a piece of work. At any rate, whether the agreement between the parties was one of a contract of sale or a piece of work, the provisions on warranty of title against hidden defects in a contract of sale apply to the case at bar. A hidden defect is one which is unknown or could not have been known to the vendee.

RTC ruled in favor of the petioners. Respondent Sio sought recourse in the Court of Appeals. The appellate court affirmed the trial court decision. Respondent then filed a Motion for Reconsideration and a Supplemental Motion for Reconsideration alleging therein that the petitioners' action for collection of sum of money based on a breach of warranty had already prescribed. On January 24, 1994, the respondent court reversed its decision and dismissed petitioners' Complaint for having been filed beyond the prescriptive period. Hence, this petition. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 60

D.M Wenceslao and Associates, Inc. Vs. Ready Contrading and Construction Corp. June 29, 2004 G.R. No. 154106 Second Division QUISUMBING, J.:

FACTS: WENCESLAO had a contract with the Public Estates Authority (PEA) for the improvement of the main expressway in the R-1 Toll Project along the Coastal Road in Parañaque City. To fulfill its obligations to the PEA, WENCESLAO entered into a contract with READYCON. READYCON agreed to sell to WENCESLAO asphalt materials valued at P1,178,308.75. Under the contract, WENCESLAO was bound to pay respondent a twenty percent (20%) downpayment, or P235,661.75, upon delivery of the materials contracted for. The balance of the contract price, amounting to P942,647, was to be paid within fifteen (15) days thereof. It was further stipulated by the parties that respondent was to furnish, deliver, lay, roll the asphalt, and if necessary, make the needed corrections on a prepared base at the jobsite. Fifteen (15) days after performance of said work, READYCON demanded that WENCESLAO pay the balance of the contract price. WENCESLAO, however, ignored said demand.On May 30, 1991, the counsel for READYCON wrote a demand letter to WENCESLAO asking that it make good on the balance it owed. Again, WENCESLAO failed to heed the demand. It did not even bother to reply to the demand letter. READYCON filed a complaint with the RTC of Pasig City for collection of a sum of money and damages, with prayer for writ of preliminary attachment against D.M. Wenceslao and/or Dominador Dayrit. In the proceedings below, WENCESLAO admitted that it owed READYCON P1,014,110.45 indeed. However, it alleged that their contract was not merely one of sale but also of service, namely, that respondent shall lay the asphalt in accordance with the specifications and standards imposed by and acceptable to the government. WENCESLAO also alleged that since the contract did not indicate this condition with respect to the period within which the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

balance must be paid, the contract failed to reflect the true intention of the parties.12 It alleged READYCON agreed that the balance in the payments would be settled only after the government had accepted READYCON’s work as to its quality in laying the asphalt. By way of counterclaim, WENCESLAO prayed for the payment of damages caused by the filing of READYCON’s complaint and the issuance of the writ of attachment despite lack of cause. RTC ruled in favor of the petitioner. CA affirmed. Hence this petition.

ISSUE: Was the obligation of WENCESLAO to pay READYCON already due and demandable as of May 30, 1991.

RULING: Petition Denied. Under Article 1582 of the Civil Code, the buyer is obliged to pay the price of the thing sold at the time stipulated in the contract. Both the RTC and the appellate court found that the parties’ contract stated that the buyer shall pay the manufacturer the amount of P1,178,308.75. Following the rule on interpretation of contracts, no other evidence shall be admissible other than the original document itself,26 except when a party puts in issue in his pleading the failure of the written agreement to express the true intent of the parties. However, to rule on whether the written agreement failed to express the true intent of the parties would entail having this Court reexamine the facts. The findings of the trial court as affirmed by the appellate court on this issue, however, bind us now. For in a petition for certiorari under Rule 45 of the 1997 Rules of Civil Procedure, this Court may not review the findings of fact all over again. Suffice it to say, however, that the findings by the RTC, then affirmed by the CA, that the extra condition being insisted upon by the petitioners is not found in the sales contract between the parties. Hence it cannot be used to qualify the reckoning of the period for payment. Besides, telling Page 61

against petitioner WENCESLAO is its failure still to pay the unpaid account, despite the fact of the work’s acceptance by the government already

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 62

.INTEGRATED vs.

PACKAGING

CORP.,

COURT OF APPEALS and FIL-ANCHOR PAPER CO., INC., [G.R. No. 115117; June 8, 2000; Second Division] QUISUMBING, J.: FACTS Integrated Packaging Corp (petitioner) and FilAnchor Paper Co. Inc. (respondent) executed on May 5, 1978, an order agreement whereby respondent bound itself to deliver to petitioner 3,450 reams of printing paper. The materials were to be paid within a minimum of thirty days and maximum of ninety days from delivery. Respondent filed with the Regional Trial Court (RTC) a collection suit against petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on credit. In its counterclaim, the petitioner denied the material allegations of the complaint. It alleged that respondent delivered only 1,097 reams of printing paper which was short of 2,875 reams, in total disregard of their agreement and also failed to deliver the balance of the printing paper despite demand therefor, hence, petitioner suffered actual damages and failed to realize expected profits.

In its reply respondent alleged that subsequent to the enumerated purchase invoices in the original complaint, petitioner made additional purchases of printing paper on credit amounting to P94,200.00 and that petitioner refused to pay its outstanding obligation although it made partial payments amounting to P97,200.00 which was applied to back accounts, thus, reducing petitioner's indebtedness to P763,101.70. RTC ruled that petitioner should pay P763,101.70 representing the value of printing paper delivered by respondent from June 5, 1980 to July 23, 1981. However it also found petitioner's counterclaim meritorious because if Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

not for the failure or delay of respondent to deliver printing paper, petitioner could have sold books to Philacor and realized profit of P790,324.30 from the sale. SInce that petitioner suffered a dislocation of business on account of loss of contracts and goodwill as a result of respondent's violation of its obligation, the former is entitled to moral damages. The Court of Appeals (CA) reverse and set aside the jugdgment. It deleted the award of P790,324.30 as compensatory damages as well as the award of moral damages and attorney's fees, for lack of factual and legal basis. Hence this petition. ISSUE Whether or not the respondent violated the order agreement RULING PETITION DENIED. The respondent did not violate the order agreement when the latter failed to deliver the balance of the printing paper on the dates agreed upon. The transaction between the parties is a contract of sale whereby respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay therefor a sum of money or its equivalent (price). Both parties concede that the order agreement gives rise to a reciprocal obligations such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Thus, respondent undertakes to deliver printing paper of various quantities subject to petitioner's corresponding obligation to pay, on a maximum 90-day credit, for these materials. In the contract, petitioner is not even required to make any deposit, down payment or advance payment, hence, the undertaking of respondent to deliver the materials is conditional upon payment by petitioner within the prescribed period. Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September and October 1980.

Page 63

The agreement provides for the delivery of printing paper on different dates and a separate price has been agreed upon for each delivery. It is also admitted that it is the standard practice of the parties that the materials be paid within a minimum period of thirty (30) days and a maximum of ninety (90) days from each delivery. Accordingly, the respondent's suspension of its deliveries to petitioner whenever the latter failed to pay on time, as in this case, is legally justified under the second paragraph of Article 1583 of the Civil Code which provides that: When there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or more installments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. Here, petitioner's evidence failed to establish that it had paid for the printing paper covered by the delivery invoices on time. Consequently, respondent has the right to cease making further delivery, hence the respondent did not violate the order agreement. On the contrary, it was petitioner which breached the agreement as it failed to pay on time the materials delivered by respondent. Respondent appellate court correctly ruled that respondent did not violate the order agreement.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 64

GREGORIO FULE, vs COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO [G.R. No. 112212 March 2, 1998; Third Division] ROMERO, J.: FACTS Gregorio Fule (petitioner), a banker by profession and a jeweler at the same time, acquired a 10-hectare property in Tanay, Rizal (Tanay property). Petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza to look for a buyer who might be interested in the Tanay property. The two found Dr. Ninevetch Cruz (private respondent).

It so happens that at that time petitioner had shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had seen when his mother examined and appraised them as genuine. Petitioner then made a bid to buy them but Dr. Cruz declined the offer. At that point former inspected said jewelry at the lobby of the Prudential Bank branch in San Pablo City and then made a sketch thereof. Having sketched the jewelry then gave them back to Dr. Cruz. Subsequently, negotiations for the barter of the jewelry and the Tanay property ensued. When Dr. Cruz had later agreed to the proposal, petitioner went to Prudential Bank once again to take a look at the jewelry.

agreed that the balance of P40,000.00 would just be paid later in cash.

Thereafter the petitioner headed for the bank, arriving there at past 5:00 p.m. Dr. Cruz (who arrived later) and the cashier then opened the safety deposit box, the former retrieving a cellophane bag with the jewelry inside and handing over the same to petitioner. The latter took the jewelry from the bag, went near the electric light at the bank's lobby, held the jewelry against the light and examined it for ten to fifteen minutes. After a while, Dr. Cruz asked, "Okay na ba iyan?" Petitioner expressed his satisfaction by nodding his head.

Later, at about 8:00 o'clock in the evening of the same day, petitioner arrived at the residence of Atty. Belarmino complaining that the jewelry given to him was fake. He then used a tester to prove the alleged fakery.

On October 26, 1984, petitioner filed a complaint before the Regional Trial Court (RTC) against private respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit. RTC, as affirmed by the Court of Appeals, held the earrings uses as consideration for the sale was delivered by Dr. Cruz to the petitioner as genuine. Hence this petition.

In the afternoon of October 23, 1984, petitioner met Atty. Belarmino (Dr. Cruz’s lawyer) at the latter's residence to prepare the documents of sale. The Attorney accordingly caused the preparation of a deed of absolute sale while petitioner and Dr. Cruz attended to the safekeeping of the jewelry. The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale. Petitioner signed the deed. Since the jewelry was appraised only at P160,000.00, the parties Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

ISSUE Whether or not the deed of sale of the Tanay property is null and void. RULING

PETITION DENIED. The contract of barter or sale is valid. The Civil Code provides that contracts are Page 65

perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz. As such, they are bound by the contract unless there are reasons or circumstances that warrant its nullification. Hence, the problem that should be addressed in this case is whether or not under the facts duly established herein, the contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the subject of the contract with their fruits, and the price with interest. Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. Accordingly, petitioner now stresses before this Court that he entered into the contract in the belief that the pair of emeraldcut diamond earrings was genuine. On the pretext that those pieces of jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification of said contract on the ground that it was, in fact, "tainted with fraud" such that his consent was vitiated. There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

contract which, without them, he would not have agreed to. The records, however, are bare of any evidence manifesting that private respondents employed such insidious words or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioner's proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioner's property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property. Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Even assuming that he did, petitioner cannot successfully invoke the same. To invalidate a contract, mistake must "refer to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract." An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by the parties with another. In his allegations in the complaint, petitioner insinuated that an inferior one or one that had only Russian diamonds was substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution. Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for the "mistake." On account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his

Page 66

land. The fact that he had seen the jewelry before October 24, 1984 should not have precluded him from having its genuineness tested in the presence of Dr. Cruz. Had he done so, he could have avoided the present situation that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a juridical act. As the Civil Code provides, "(t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract." Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was satisfied with the same. 29 By taking the jewelry outside the bank, petitioner executed an act which was more consistent with his exercise of ownership over it. This gains credence when it is borne in mind that he himself had earlier delivered the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after two hours he later claimed that the jewelry was not the one he intended in exchange for his Tanay property, could not sever the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had taken preclude its return after that supervening period within which anything could have happened, not excluding the alteration of the jewelry or its being switched with an inferior kind.

forming part of the consideration was still payable to petitioner, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their contract is silent as to when it becomes due and demandable. Neither may such failure to pay the balance of the purchase price result in the payment of interest thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee "for the period between the delivery of the thing and the payment of the price" in the following cases: (1) Should it have been so stipulated; (2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price. Not one of these cases obtains here. There is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale.

Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and constructive delivery thereof. Said contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Such stipulations are not manifest in the contract of sale. While it is true that the amount of P40,000.00 Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

CENTRAL BANK OF THE PHILIPPINES vs. Page 67

SPOUSES BICHARA

ALFONSO

and

ANACLETA

G.R. No. 131074 March 27, 2000 Second Division DE LEON, JR., J.: Facts: Respondent sold a parcel of land located in Legaspi City to Petitioner at the amount of 500 pesos per square meter or a total amount of 405 thousand pesos. The deed of sale contained that the payment is to be effected only after the Deed of Sale shall have been duly registered and a clean title issued in the name of VENDEE. Also, the VENDORS will undertake at their expense to fill the parcels of land with an escombro free from waste materials compacted to the street level upon signing of the Deed of Sale to suit the ground for the construction of the regional office of the Central Bank of the Philippines thereat. Despite the issuance of the title, petitioner failed to pay respondent. On its part, respondents did not fill up the lot with escombro despite several demands made by petitioner. Petitioner was thus constrained to undertake the filling up of the said lots, by contracting the services of BGV Construction. The filling up of the lots cost petitioner P45,000.00. Petitioner deducted the said amount from the purchase price payable to respondents. Petitioner, however, still did not pay the respondents. Consequently, respondents commenced an action for rescission or specific performance with damages, against petitioner before the Regional Trial Court of Legazpi City. Respondents alleged that petitioner failed to pay the purchase price despite demand. They prayed for the rescission of the contract of sale and the return of the properties, or in the alternative that petitioner be compelled to pay the purchase price plus interest at the rate of 12% per annum from July 19, 1983, until fully paid, and to pay the capital gains and documentary stamp taxes with the Bureau of Internal Revenue and registration fees with the Register of Deeds. Petitioner tendered payment to respondents in the amount of P360,500.00. Respondents refused the tender, however, in view of their Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

complaint for rescission. After receipt of summons, petitioner filed its answer averring that it was justified in delaying payment of the purchase price in view of respondents' breach of several conditions in the contract. First, petitioner alleged that respondents failed to deliver to the former free and legal possession of the two properties, in view of the encumbrances noted in the title, in addition to the presence of squatters who were not evicted by respondents. Second, it claimed that respondents did not fill up the lots with escombro free from waste materials, as agreed Trial court ordered specific performance of Central Bank to pay for the property plus interest. Court of Appeals on the other hand ordered the rescission of the contract of sale hence this petition.

Issues: Issue 1: Whether respondents are entitled to the remedy of rescission despite of their noncompliance to their obligations to Central Bank. Issue 2: Whether Central Bank is justified in withholding the payment of the purchase price. Held: Issue 1: Respondents should not be allowed to rescind the contract where they themselves did not perform their essential obligation thereunder which is to fill up the parcels of land with escombro. It should be emphasized that a contract of sale involves reciprocity between the parties. Since respondents were in bad faith, they may not seek the rescission of the agreement they themselves breached. Issue 2: Aside from the instances mentioned under Article 1590 of the civil code, the vendee is likewise entitled to withhold payment of the purchase price if the vendor fails to perform any essential obligation of the contract. Such right is premised not on the aforequoted article, but on general principles of reciprocal obligations. Since respondents failed to comply with their obligation, Central Bank is justified in withholding its payment of the purchase price.

ALBERT

R.

PADILLA

vs.

SPOUSES Page 68

FLORESCO PAREDES and ADELINA PAREDES, and THE HONORABLE COURT OF APPEALS G.R. No. 124874

March 17, 2000

Second Division QUISUMBING, J.: Facts: Albert R. Padilla and Floresco and Adelina Paredes entered into a contract to sell involving a parcel of land in San Juan, La Union. At that time, the land was untitled although private respondents were paying taxes thereon. Under the contract, petitioner undertook to secure title to the property in private respondents' names. Of the P312,840.00 purchase price, petitioner was to pay a downpayment of P50,000.00 upon signing of the contract, and the balance was to be paid within ten days from the issuance of a court order directing issuance of a decree of registration for the property. But petitioner made several payments to private respondents, some even before the court issued an order for the issuance of a decree of registration. After the court ordered the issuance of a decree of land registration for the subject property, respondents then demanded payment of the balance of the purchase price. But the petitioner was not able to pay the balance in full. In a letter, private respondents, through counsel, demanded payment of the remaining balance, with interest and attorney's fees, within five days from receipt of the letter. Otherwise, private respondents stated they would consider the contract rescinded. Petitioner did not accept private respondents' proposal. Instead, he offered to pay the balance in full for the entire property, plus interest and attorney's fees. Private respondents refused the offer. Petitioner instituted an action for specific performance against private respondents, alleging that he had already substantially complied with his obligation under the contract to sell. He claimed that the several partial payments he had earlier made, upon private respondents' request, had impliedly modified the contract. He also averred that he had already spent P190,000.00 in obtaining title to the property, subdividing it, and improving its rightof-way. Private respondents on the other hand claimed Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

before the lower court that petitioner maliciously delayed payment of the balance of the purchase price, despite repeated demand. According to private respondents, their acceptance of partial payments did not at all modify the terms of their agreement, such that the failure of petitioner to fully pay at the time stipulated was a violation of the contract. Also, they aver that this violation led to the rescission of the contract, of which petitioner was formally informed. The lower court ruled in favor of petitioner, saying that even if petitioner indeed breached the contract to sell, it was only a casual and slight breach that did not warrant rescission of the contract. The trial court pointed out that private respondents themselves breached the contract when they requested and accepted installment payments from petitioner, even before the land registration court ordered issuance of a decree of registration for the property. According to the trial court, this constituted modification of the contract, though not reduced into writing as required by the contract itself. The payments, however, were evidenced by receipts duly signed by private respondents. Acceptance of delayed payments estopped private respondents from exercising their right of rescission, if any existed. The Court of Appeals, however, reversed the ruling of the trial court and confirmed private respondents' rescission of the contract to sell. According to the Court of Appeals, the issue of whether or not the breach of contract committed is slight or casual is irrelevant in the case of a contract to sell, where title remains in the vendor if the vendee fails to "comply with the condition precedent of making payment at the time specified in the contract." Moreover Court of Appeals rejected petitioner's claim that there had been a novation of the contract when he tendered partial payments for the property even before payment was due. The contract itself provides that no terms and conditions therein shall be modified unless such modification is in writing and duly signed by the parties. The modification alleged by petitioner is not in writing, much less signed by the parties. Moreover, private respondents made a timely objection to petitioner's partial payments when they offered to sell to petitioner only one-half of the property for such partial payments. Private respondents therefore are entitled to rescission under Article 1191 of the Civil Code, but with the obligation to return to petitioner the payments Page 69

the latter had made, including expenses incurred in securing title to the property and in subdividing and improving it right of way, hence this petition. Issues: Whether the appellants are entitled to rescission under Article 1191 of the Civil Code. Held: Pertinent provisions of the contract signify that title to the property remains in the vendors until the vendee should have fully paid the purchase price, the contract entered into by the parties thus is a contract to sell. Since petitioner failed to comply with his obligation to pay the full purchase price within the stipulated period, the contract therefore may be rescinded but the reason for this is not that private respondents have the power to rescind such contract, but because their obligation thereunder did not arise. Art. 1191 cannot be applied. It speaks of obligations already existing, which may be rescinded in case one of the obligors fails to comply with what is incumbent upon him. However, in the present case, there is still no obligation to convey title of the land on the part of private respondents. There can be no rescission of an obligation that is non-existent, considering that the suspensive condition has not yet happened.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 70

Alfonso Iringan vs. Court of Appeals G.R. No. 129107 September 26, 2001 Quisumbing

Facts: Private respondent Palao sold to petitioner Iringan an undivided portion of land to be paid in installments. Due to petitioner’s failure to pay the full amount on the second installment, private respondent considered the contract rescinded. The petitioner on the other hand, on its reply, did not oppose the revocation of the contract but only asked for the reimbursement of the initial payment made.

party entitled to rescind should apply to the court for a decree of rescission. The operative act which produces the resolution of contract is decree of court not the mere act of vendor. The letter written by the private respondent declaring hi intention to rescind did not operate validly, The filing by Palao of Judicial Confirmation of Rescission of Contract and Damages satisfies the requirement of the law. 2. The petitioner knew respondent’s reason for selling. Petitioner refused to formally execute an instrument showing their mutual agreement to rescind the contract of sale. He also did not substantiate proof that he was ready and willing to pay. Hence, the awarding for damages is proper. Petition denied.

Private respondent said that they are not amenable regarding to the reimbursements claimed. Simply put, no agreement between the parties was made. Palao filed a complaint for Judicial Confirmation of Rescission of Contract and Damages against Iringan and his wife. On his answer, he argued that the contract is already consummated; hence, the remedy should be for the collection of the balance of the purchase price and not rescission. RTC affirmed the rescission and ordered for the payment for damages to Palao. This was brought to the Court of Appeals but the latter also affirmed the decision. Hence, this petition.

Issues: 1. Whether or not the contract of sale is validly rescinded. 2. Whether or not the award of moral and exemplary damages is proper. Held: 1. Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve the contract. The Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 71

in good faith. Perla Gil vs. CA G.R. No. 127206

Issue:

September 12, 2003

Whether or not the property was validly sold to Iluminada and Agapito Pacetes.

Callejo Sr.

Held: Facts: Concepcion Gil and sister Nieves Gil are co-owners of a parcel of land. Nieves and husband constructed a two storey building on the said land. Concepcion then filed a complaint against her sister. The Court rendered judgment in favor of Concepcion. Nieves appealed to the Court of Appeals but the latter also affirmed the assailed decision. The Court issued a writ of execution but Nieves refused to execute the required deed. The Sheriff was then ordered to execute but instead, he divided the property into 4 lots and gave two to Concepcion. Lot 59 C1, one of the two lots given to Concepcion was then sold by the latter to Agapito and Iluminada Pacetes. This contract was however subject to the condition that a deposit shall be given at the time of the execution of the contract and the remaining amount shall be paid upon the delivery of the certificate of title to the vendee. The property was then sold to one Constancio Maglana and was again sold to the present possessor Emilio Magtulac who is constructing a building on said lot. Subsequently, Concepcion died and now represented by her successors as the petitioners in this instant case.

The Court ruled that the sale between Concepcion and Iluminada is a consummated contract of sale. The contract specifies payment provision wherein a deposit will be made at a time of the execution of the instrument. The vendor within 120 days shall be delivered the certificate of title to the vendee. Then, vendee will pay the remaining amount. The certificate of title was not delivered. As a consequence of the death of Concepcion, it is the heirs who have the duty to deliver such. Apparently, they were not able to deliver the certificate also. Iluminada’s act of paying the remaining amount only after so many years is still valid because after all she has no duty to pay until tile has been delivered to her.

Petition denied for lack of merit.

Petitioners are contending that Concepcion’s sale of the disputed property to Iluminada and Agapito Pacetes is merely a contract to sell because the full price was not paid by the latter to the former. They also argue that the consignation made by Iluminada did not produce legal effect. Therefore, subsequent buyers are not purchasers Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 72

Severino Baricuatro, Jr.,

ISSUE:

vs. Court of Appeals, Tenth Division, Mariano B. Nemenio and Felisa V. Nemenio, Constantino M. Galeos and Eugenio V. Amores

1. Whether the sale made to Amores by Galeos is valid? 2. Whether the Nemenio spouses are purchasers in good faith?

February 9, 2000

G.R. No. 105902

Buena, J.:

RULING:

FACTS:

Issue 1

Baricuatro bought two lots, part of the Victoria Village, on installments basis from Galeos on October 16, 1968.

Amores was in good faith when he bought the subdivision, however, when he registered his title he already had knowledge of the previous sale. Such knowledge tainted his registration with bad faith. In addition, the agreement to collect the balance of the purchase price of the disputed lots from Baricuatro which presupposes knowledge of the previous sale by Amores.

Two months from the date of the previous sale, Galeos sold the entire subdivision, including the two lots, to Amores. Baricuatro was informed by Galeos about the sale and was advised to pay the balance of the purchase price of the two lots directly to Amores.

Amores took possession of the subdivision and developed the same for residential purposes. He secured the transfer of the title to the same in his name. Afterwards, he sold the two lots of the spouses Mariano and Felisa Nemenio. Prior to the sale, Baricuatro was informed through a letter by Amores about the impending sale of the two lots but the former failed to respond. Nemenio spouses demanded from Baricuatro to vacate the said lots but the latter refused to do so.

Trial court rendered a decision, declaring Nemenio spouses as the owners of the disputed lot. Court of Appeals affirmed in toto the judgment of the trial court.

Under Art. 1544, the ownership of an immovable property shall belong to the purchaser who in good faith registers it first in the registry of property.

(Uraca vs Ca) “The second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law.” This means that the good faith of the purchaser should be from the time of the perfection of the sale until up to the time that he be declared the sole and true owner of the property.

Issue 2

Nemenio spouses only visited the lots ten months after the sale which was evidenced Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 73

during the trial of the case. And so, they cannot claim to be purchasers in good faith when they registered the title. The registration made by the spouses were done in bad faith, hence, it amounted to no inscription at all.

Decision of CA is REVERSED.

Cecilia Amodia Vda. De Melencion, Veneranda Amodia, Felipe Amodia, Eutiquio Amodia and Go Kim Chuan Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 74

vs.

ISSUE:

Honorable Court of Appeals and Aznar Brothers Realty Company.

June 23, 2001

G.R. No. 148846

Nachura, J.:

FACTS:

1. Who between Go Kim Chuan and Aznar has the better right over the subject property?

RULING:

Art. 1544 provides:

A property in the name of Go Kim Chuan was originally owned by the Amodias and was brought under the operation of the Torrens System. However, the title was lost during the Second World War.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

In 1964, the Amodias allegedly conveyed the property to Aznar and was registered under Act 344 as there was no title.

If the land is registered under Torrens Title, and it is sold and the sale is registered no under the Land Registration Act but under Act 3344, such sale is not considered registered.

In 1989, the Amodias conveying the property in favor of Go Kim Chuan and was reconstituted pursuant to RA No. 26. Thereafter, Go Kim Chuan exercised control and dominion over the subject property in an adverse and continuous manner in the concept of an owner.

Aznar registered its title under Act 3344 while Go Kim Chuan registered it under Act No. 496, and so the latter is deemed to be the owner of the property.

RTC’s decision: Go Kim Chuan as the real owner of the property. The signatures of the Amodias were forged, thus, the said deed did not convey anything in favor of Aznar. And Aznar, failed to show that Go Kim Chuan acquired the property in bad faith.

CA’s decision: Aznar registered ahead in favor of Go Kim Chuan, thus, pursuant to Art 1544, the former deed should be given preference over the latter.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Petition for review is GRANTED.

Soliva vs. The Intestate Estate of Marcelo M. Villalba

Page 75

Date: December 8, 2003

G.R. No.154017

Division: First Division Ponente: Justice Panganiban

FACTS: Petitioner, Soliva, filed a complaint for recovery of ownership against respondent, Villalba, over a parcel of land situated in Misamis Oriental. She contended that the respondent failed to give full consideration for the house and lot purchased by the latter.

For the rescission of immovables, Art 1592 provides that even though it may have been stipulated that upon failure to pay the price at the time agreed upon, the recission 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 has been made upon him. After the demand, the court may not grant him a new term.

The petitioner, herein, did not exercise her right to demand for rescission or specific performance. Hence, she was already barred from recovering the property due to laches and prescription.

On the other hand, respondent argued that the house and lot were sold to him on installment basis; and that partial payment thereof was given. He also argued that no demands were made on him to vacate the property for a long a period of time. Prescription, therefore, barred petitioner’s claim of ownership.

Trial Court ruled in favor of the respondent on the ground of laches. Court of Appeals affirmed this ruling.

Hence, this petition.

ISSUE: Whether or not the respondent’s nonpayment of the full consideration would invalidate the contract of sale.

RULING: SC affirmed CA’ s and ruled in favor of respondent, stressing that contrary to petitioner’s submission, the nonpayment of the full consideration did not invalidate the contract of sale. Under the settled doctrine, nonpayment is a resolutory condition that extinguishes the transaction existing for a time and discharges the obligations created thereunder. The remedy of the unpaid seller is to sue for collection or rescind the contract.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Visayan Sawmill Company, Inc. vs. Court of Appeals

Page 76

Hence, the petition. Date: March 3, 1993

G.R. No. 83851

Division: En banc Ponente: Justice Davide

FACTS: Petitioner-corporation entered into a sale involving scrap iron with private respondent, subject to the condition that the latter should open a letter of credit in favor of the former on or before May 15, 1983. Private respondent then started to dig and gather scrap iron. Subsequently, however, petitioner-corporation sent a letter to the private respondent conveying its intention to discontinue with the sale due to the latter’s failure to comply with the essential preconditions of their con tract.

Private respondent prayed for judgment ordering the petitioner-corporation to comply with the contract by delivering to him the scrap iron subject thereof.

ISSUE: Whether or not lower court erred in ruling that automatic rescission could not be applied in the instant case.

RULING: SC found merit on the petition stressing that the lower court erred in the appreciation of the nature of the transaction between petitioner-corporation and private respondent. Accordingly, what transpired between the parties was a contract or promise to sell and not a contract of sale. Petitionercorporation’s obligation to sell is subject to a suspensive condition, which was private respondent’s opening of an irrevocable and unconditional letter of credit. However, this condition was not fulfilled.

In line with the foregoing, the nonfulfillment could not even be considered a breach, but simply an event that prevented the obligation of the petitioner corporation to convey title from acquiring binding force.

On the other hand, petitionercorporation insisted that the cancellation of the contract was justified because of private respondent’s non-compliance with essential preconditions, among which was the opening of an irrevocable and unconditional letter of credit not later than May 15, 1983.

Trial Court ruled in favor of the private respondent finding that Art 1593 of the Civil Code, which provides for automatic rescission upon failure to deliver or failure to pay movable properties, could not be applied because implied delivery was already made in the case at bar. This implied delivery was manifested by the fact that the petitioner-corporation allowed the private respondent to dig and gather scrap iron from its premises.

Court of Appeals affirmed the ruling.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Conchita Nool, et al. vs. Court of Appeals, et al.

Page 77

G.R. No. 116635, July 24, 1997 Third Division

None.

PANGANIBAN, J:

A contract of repurchase arising out of a 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. It is clear that Conchita no longer had any title to the parcels of land at the time of sale because when the mortgaged parcels of land were foreclosed due to their non-payment of said loan, ownership of the mortgaged lands was consolidated to DBP. DBP gave the mortgagors one year redemption period but this was not exercised by them. Thereafter Anacleto succeeded in buying the same, so that DBP’s titles were cancelled and new certificates of title were issued to him. Since, the alleged contract of repurchase was dependent on the validity of the contract of sale, it is itself void. A void contract cannot give rise to a valid one. It is likewise clear that Conchita can no longer deliver the object of the sale to the Anacleto because he has already acquired title and delivery thereof from the rightful owner, the DBP. Thus, the contract may be deemed to be inoperative. The right to repurchase presupposes a valid contract of sale between the same parties. Undisputedly, Anacleto acquired title to the property from DBP and not from the petitioners. Petition denied.

FACTS:

Two parcels of land are in dispute and litigated which was formerly owned by Victorino Nool and Francisco Nool. Plaintiff spouses Conchita Nool seek recovery of the aforementioned parcels of land from defendants Anacleto Nool, younger brother of Conchita. Plaintiffs alleged that they are the owners of subject parcels of land and they bought the same from Conchita’s other brother, Victorino and Francisco. When they were in dire of money, they obtained a loan from Development Bank of the Philippines (DBP) secured by a real estate mortgage on said land which was still registered in the names of Victorino and Francisco. For their failure to pay said loan, the mortgage was foreclosed. That within the period of redemption, plaintiff contacted defendant Anacleto to redeem it from DBP which the latter did. Because of this, titles of two parcels were transferred to Anacleto. Anacleto agreed to buy the land for P100,000.00, P30,000.00 of which was paid to Conchita and upon payment of the balance P14,000.00, plaintiffs were to regain possession which amounts defendant failed to pay. Another agreement was entered where by defendants agreed to return to plaintiffs the land at anytime the latter have the necessary amount. Plaintiffs asked the defendants to return the same but defendant refused, impelling them to come to court for relief.

ISSUE:

Whether or not plaintiffs spouses has the right to repurchase the parcels of land to Anacleto.

RULING: Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Sps. Carlos and Eulalia Raymundo, et al. vs. Page 78

Sps. Dominador and Rosalia Bandung G.R. No. 171250, July 04, 2007

ISSUE:

Third Division

CHICO-NAZARIO, J.:

1. Whether or not the transaction entered into by the parties was a contract of sale. 2. Whether or not Jocelyn is a buyer in Good Faith.

FACTS: RULING: Eulalia was engaged in the business of buying and selling large cattle. For this purpose, she employed “biyaheros” whose primary task involved the procuring of large cattle with the financial capital provided by Eulalia and delivering the procured cattle to her for further diposal. To secure the financial capital she advanced for the “biyaheros” Eulalia required them to surrender the Transfer Certificates of Title of their properties and to execute the corresponding Deeds of Sale in her favour. Dominador had been working for Eulalia as one of her “biyaheros” for three decades so she no longer required him to post any security in the performance of his duties. However, Eulalia found that he incurred shortage in his cattle procurement operation so Dominador and his wife Rosalia Bandong executed a Deed of Sale in favour of Eulalia. The subject property was thereafter sold by Eulalia and her spouse Carlos Raymundo to Eulalia’s grandniece Jocelyn which was later registered in the name of Jocelyn and her husband Angelito Buenaobra. Spouses Buenaobra instituted before the MeTC an action for ejectment against Souses Bandong which they opposed on the ground that they are the rightful owners. Spouses Bandong instituted an action for annulment of sale before RTC against Eulalia and Jocelyn on the ground that their consent to the sale of the subject property was vitiated by Eulalia after they were served by Jocelyn’s counsel to vacate. They alleged that there was no sale intended but only equitable mortgage for the purpose of securing the shortage incurred by Dominador while employed as “biyahero”. Jocelyn maintained that she was a buyer in good faith and for value. The court of appeals reversed the RTC Decision and found that the transaction entered into by Dominador and Eulalia was not one of sale but an equitable mortgage. Hence this petition. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

1. No. In executing the said Deed of Sale, Dominador and Eulalia never intended the transfer of ownership of the subject property but to burden the same with an encumbrance to secure the indebtedness incurred by Dominador on the occasion of his employment with Eulalia. By Eulalia’s own admission it was her customary business practice to require her “biyaheros” to deliver to her the titles to their real properties and to execute in her favour the corresponding deeds of sale over the said properties as security for the money she provided. Hence, said transaction is an equitable mortgage, so that Eulalia has no right to subsequently transfer ownership of the subject property, in consonance that nobody can dispose of what he does not have. Their relationship is merely mortgagor and mortgagee rather than seller and buyer. The contention of petitioner that Dominador ceded his property to Eulalia as payment for his obligation for it is contrary to human experience because he would first look for means to settle his obligation and the selling of a property on which his house that shelters them stand would be his last resort.

2. No. Jocelyn is a grandniece of Eulalia which resides in the same locality where the latter lives and conducts her principal business. Therefore it is impossible for her not to Page 79

acquire knowledge of her grand aunt’s business practice of requiring her “biyaheros” to surrender the titles to their properties as security. This should put her on guard for any possible abuses that Eulalia may commit with the titles. Likewise she admitted that she was aware that Dominador and Lourdes were in possession of the property. A buyer of real property that is in possession of a person other than the seller must be wary. A buyer who does not investigate the rights of one in possession can hardly be regarded as a buyer in good faith. Petition is denied.

ERLINDA SAN PEDRO vs. RUBEN LEE and LILIAN SISON G.R. No. 156522 Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

May 28, 2004 Page 80

FIRST DIVISION

petitioner. On appeal, the Court of Appeals reversed the trial court, and rendered a decision in favor of respondents, the dispositive portion of which reads:

YNARES-SANTIAGO, J.: Issue: Facts:

The parties in this case executed the "Kasulatan ng Ganap na Bilihan ng Lupa", which states that the petitioner is the true owner of a parcel of land located in Bulacan, which is selling to the respondents for the amount of P150,000.

The document bears two signatures above the typewritten words "ERLINDA SAN PEDRO, Nagbibili". It contains the signatures of two witnesses.

Petitioner claims that she approached one Philip dela Torre, who introduced her to respondent. From Lee and his wife Lilian Sison, Petitioner was able to secure a loan in the amount of P105,000.00, with interest of P45,000.00, or a total indebtedness of P150,000.00.6 As security for this loan, she agreed to mortgage a parcel of agricultural land located in Bulacan,

Petitioner claims that Atty. Roxas and Lee coerced her to sign the "Kasulatan" and that the document was executed merely as written evidence of the loan and mortgage. Respondents, on the other hand claim that the sale of the property in question was brokered by their mutual acquaintance and broker, Philip dela Torre. They thus negotiated for the purchase of the property, which had an initial asking price of P200,000.00,21 and offered to pay P150,000.00 therefor. San Pedro accepted their offer and agreed to sell the land.

The trial court rendered a decision in favor of Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Whether the contract in question is an equitable mortgage or a deed of absolute sale.

Ruling:

The document appears on its face to be a contract of sale, and contains the following clause:

Na dahil at alang-alang sa halagang ISANG DAAN AT LIMAMPUNG LIBONG PISO (P150,000.00), Salaping Pilipino, na ngayong araw na ito ay ibinayad sa akin at tinanggap ko naman ng buong kasiyahang-loob bilang husto at ganap na kabayaran ni RUBIN T. LEE, may sapat na gulang, Pilipino, kasal kay Lilian Sison at naninirahan sa 230 MacArthur Highway, Karuhatan, Valenzuela, Metro Manila, aking IPINAGBIBILI, ISINASALIN at INILILIPAT ng ganap at patuluyan at walang anumang pasusubali o pananagutan, ang lahat at boo [sic] kong karapatan at pagmamay-ari at pamumusesyon sa nabanggit na lagay ng lupa at mga kaunlaran o mejoras na dito ay makikita o nakatirik o matatagpuan sa nasabing RUBIN T. LEE at sa kanyang mga tagapamana o kahalili.

It is well-settled that the presence of even one of the foregoing circumstances is sufficient to declare a contract as an equitable mortgage, in consonance with the rule that the law favors the least transmission of property rights.For the presumption of an equitable mortgage to arise under Article 1602, two requisites must concur: (1) that the parties entered into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way

Page 81

of a mortgage.

WHEREFORE, premises considered, the decision of the Court of Appeals dated November 20, 2002, which dismissed the complaint filed by petitioner for lack of merit, is AFFIRMED

Spouses Austria and Leonisa Hilario vs. Spouses Gonzalez G.R. No. 147321 January 21, 2004 Second Division QUISUMBING, J., Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 82

FACTS: Spouses Hilario filed an action for Declaration of Nulity against Spouses Gonzales involving 3 parcels of lands which were the subject of 2 Deeds of Sale executed Leonisa Hilario in favor of the latter spouses. One lot was priced at P50, 000 and the other at P240,000. Spouses Hilario claimed that the contract between them and Spouses Gonzalez were not of sale but loans for P260,000. However, it turned out that Spouses Gonzalez registered the disputed lots in their names through the use of fraud, misrepresentation and falsification, using the fictitious contracts of sale.

existence and genuineness of the letter was never rebutted. Note that in said letter Leonisa used the term "Kasulatan ng Bilihan" (Deed of Sale). She likewise made mention about capital gains tax and registration fees, which can only find relevance and necessity in a contract of sale and not in a contract of mortgage. Petitioners cannot feign ignorance and illiteracy as to its contents. Said letter is written not in English but in Filipino in which petitioners are conversant. Thus, the true intent of the parties involves a contract of sale. It is not merely a loan, much less an equitable mortgage

Spouses on the other hand contend that they bought the said lots from Spouses Hilario merely out of pity for them and that the Deed of Absolute Sale was notarized. RTC: ruled in favor of Spouses Hilario. CA: REVERSED. ISSUE: Whether the transaction is an absolute sale or equitable mortgage of real property. HELD: AFFIRMED. The transaction is an absolute sale. The presumption of equitable mortgage when there is inadequacy of the selling price; possession in the premises; and payment of realty taxes is not conclusive. It may be rebutted by competent and satisfactory proof to the contrary. Here, Spouses Hilario failed to present any proof whatsoever that the fair market values of the real property in the area at the time of the transaction were much higher than the selling price of the parcels in question. As to the allegation that petitioners were in possession of the properties even after the sale, it is obviated by the fact that they executed an undertaking promising to vacate the premises. Moreover, they failed to rebut the testimony of the Notary Public who testified in court that the petitioners as vendors of the properties personally appeared and acknowledged the sale documents before him. Lastly, Leonisa Hilario sent a note to Mrs. Gonzales requesting them to execute another antedated deed of sale, providing for a decreased selling price, so as to reduce petitioners' taxes, e.g. capital gains tax. The Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Oscar Fernandez vs. Spouses Carlos and Narcisa Tarun G.R. No. 143868 November 14, 2002

Third Division

Page 83

PANGANIBAN, J.: FACTS: A fishpond located in Arellano-Bani Dagupan City is co-owned by brothers Antonio, Santiago, Demetria and Angel Fernandez, together with their uncle Armando. Antonio and Demetria sold their respective shares to Spouses Tarun. These sales were registered and annotated in the OCT. Later, the said coowners executed a Deed of Extrajudicial Partition of two parcels of registered land with exchange of shares. This involved the fishpond (1st) that was co-owned and another fishpond (2nd). It was also stipulated in the deed that the parties recognize and respect the sale earlier made. Angel B. Fernandez exchanged his share in the 2nd fishpond to the shares of his co-owners on the remaining portion of the 1st fishpond. From that time on, they had been paying the realty taxes thereon. However, it was Angel B. Fernandez and later on his heirs, [petitioners], who remained in possession of the entire fishpond. The Spouses Tarun sought the partition of the property but Angel Fernandez refused. When he died, Spouses Tarun again sought the partition of the property but Angel Fernandez’s heirs [petitioner] again refused. Hence, this action for partition.

contract denominated as a contract of sale, and that their intention was to secure an existing debt by way of mortgage. Furthermore, mere alleged inadequacy of the price does not necessarily void a contract of sale, although the inadequacy may indicate that there was a defect in the consent, or that the parties really intended a donation, mortgage, or some other act or contract. Finally, unless the price is grossly inadequate or shocking to the conscience, a sale is not set aside. In this case, petitioners failed to establish the fair market value of the property when it was sold in 1967. Hence, there is no basis to conclude that the price was grossly inadequate or shocking to the conscience.

RTC: in favor of petitioners. They are entitled to redeem the property. CA: REVERSED. ISSUE: Whether or not the transaction is one of absolute sale or equitable mortgage. HELD: AFFIRMED. The transaction is an absolute sale. On its face, a document is considered a contract of equitable mortgage when the circumstances enumerated in Article 1602 of the Civil Code are manifest, as follows: (a) when the price of the sale with the right to repurchase is unusually inadequate, and (b) when the vendor remains in possession as lessee or otherwise. Although it is undisputed that Angel Fernandez was in actual possession of the property, it is important to note that he did not sell it to respondents. The sellers were his co-owners -- Antonio and Demetria Fernandez -- who, however, are not claiming that the sale between them was an equitable mortgage. For the presumption of an equitable mortgage to arise, one must first satisfy the requirement that the parties entered into a Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Tolentino and Roño vs. CA, De Guzman, Pongco and Baduria

Page 84

G.R. No. 128759

Issues:

August 1, 2002

1.) Whether Art. 1602 (presumption of equitable mortgage) is inapplicable to the instant case. 2.) Whether the action for declaration of nullity of the Deed of Absolute Sale is the proper remedy or cause of action.

Second Division Quisumbing, J:

Facts: Sps. Pedro and Josefina De Guzman were the registered owners of a parcel of land covered by TCT No. 20248 T-105 of the Register of Deeds of Quezon City (RD of QC). They obtained a loan from the Rehabilitation Finance Corporation (RFC), now Development Bank of the Philippines (DBP), and executed a mortgage security therefor. They failed to pay the obligation; hence, the mortgage was foreclosed.

But before the expiry of the redemption period, Sps. De Guzman obtained another loan of P18,000 from Raymundo Tolentino and Lorenza Roño (petitioners). The loan to RFC was paid and the mortgage was cancelled. Petitioners then requested Sps. De Guzman to sign a Deed of Promise to Sell as security for the loan. Afterwards, they asked again Sps. De Guzman to sign a Deed of Absolute Sale. Armed with the Deed of Absolute Sale, petitioners secured the cancellation of TCT No. 20248 T-105 and TCT No. 69164 was issued in their name.

Upon the death of Pedro de Guzman in 1971, respondents tried to settle the remaining balance of the loan. Petitioners agreed to reconvey the property on the condition that respondents pay the actual market value obtaining in 1971. Upon verification with the RD of QC, the De Guzmans found that the title was already in the name of the petitioners. Consequently, respondents filed a complaint for declaration of sale as equitable mortgage and reconveyance of property with damages. Both the trial court and CA ruled in favor of respondents. Hence, this instant petition.

Ruling: 1.) Petitioners argue that Art. 1602 of the Civil Code applies only when there is no express agreement or stipulation between the parties. But in the instant case, there was an express agreement, therefore inapplicable.

SC said wrong. There is nothing in Art. 1602 that indicates it applies only in the absence of express agreement between the parties. The trial court in rendering the decision considered foremost the real parties’ intent in entering into the transactions. It observed that the transactions indicated that petitioners did not intend to hold the property as owner, but as security for the loan extended to the respondents. Furthermore, the respondents remained in possession of the property and continued to pay real estate taxes even after the execution of the Deed of Absolute Sale. These are badges of equitable mortgage. The trial court, invoking Art. 1602 and Art. 1604 of the Civil Code, ruled that these were sufficient to raise the presumption that the contract was an equitable mortgage.

2.) SC held that well entrenched is the rule that litigants cannot raise an issue for the first time on appeal as this contravenes the basic rules of fair play and justice. Moreover, there is nothing in Art. 1605 that prohibits the institution of an action different from the one provided therein. It uses the word “may” and denotes discretion and cannot be construed as mandatory. Thus, it is not obligatory for respondent to file an action for reformation of instruments.

Petition DENIED. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 85

_______________________________________ Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as a lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. Art. 1604. The provisions of article 1602 shall also apply to a contract purporting to be an absolute sale.

Georgina Hilado vs. Heirs of Rafael Medalla

G.R. No. 144227 February 15, 2002 Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 86

Second Division Mendoza, J:

Facts: Gorgonio Macainan was the owner of several properties in Bacolod City. Upon his death in 1966, his estate was divided among his heirs, including Berbonia who had predeceased him. In turn, her children Rafael, Lourdes and Teresita, surnamed Medalla succeeded to her inheritance. Rafael Medalla’s share consisted of five hectares in Lot No. 1031 and 1,197 sq.m. in the Lopez Jaena property.

In 1979 and 1981, Rafael executed a Deed of Absolute Sale, purporting to sell his share to Georgina Hilado (petitioner). The first deed was for Lot No. 1031 for P50,000 while the second was for the Lopez Jaena property for P25,000.

Over the next two years, Hilado and Medalla executed three more contracts concerning Lot No. 1031 and the Lopez Jaena property.

However, the CA reversed the trial court’s decision for the reason that the assessed value of Lot No. 1031 is P145,460 and the consideration was only for P50,000. As such, it can only conclude that it was grossly inadequate.

Petitioner now seeks a reversal of the said decision.

Issues: 1.) Whether Art. 1602 of the Civil Code is present in the instant case. 2.) Whether the contract of deed of absolute sale executed is the law between the parties. Ruling: 1.) Under Art. 1602 in relation to Art. 1604 of the Civil Code, a contract purporting to be an absolute sale is presumed to be an equitable mortgage –

(1) when the price of a sale . . . is unusually inadequate; In 1984, Berbonia’s sister, Anita Macainan brought a suit against Hilado and Medalla for legal redemption. Medalla filed a cross-claim against Hilado, alleging that the Deed of Sale in 1979 was an equitable mortgage to secure a loan for P50,000 which he had received from Hilado. Nevertheless, Hilado claims it was a deed of sale and not a loan agreement.

The trial court dismissed Anita’s complaint and ruled in favor of petitioner, stating that Medalla as a third year law proper when the deed was executed had full knowledge of the consequences when he affixed his signature. Hence, the court was convinced that the intention was really to sell because all the formalities required for a valid and enforceable contract have been fully satisfied. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

(2) when the vendor remains possession as lessee or otherwise;

in

(6) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation

The presence of these circumstances is sufficient for a contract to be presumed as an equitable mortgage.

In the instant case, there was evidence showing that the price paid by petitioner was unusually inadequate as compared to the market value of the lands in the neighborhood. Page 87

Also, Medalla remained in possession of the lot as corroborated by his tenant Ramon Nessia and also by Anita Macainan.

Moreover, the series of transactions executed after the 1979 Deed of Absolute Sale indicated quite clearly that the real intention of the parties was to secure the loans of Medalla. In fact the CA held that “It is very unlikely for one person who had acquired a property for a certain price to sell the same property to the same person five years after for the same price rate, considering that they are unrelated, unless, there has been an understanding between them that the same property will be resold to Medalla after the fulfillment of a resolutory condition.”

2.) The SC held that in view of the conclusions reached, it will suffice to say that even if a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage and that the document does not express the true intent and agreement of the parties.

Petition DENIED.

SPOUSES JAYME C. UY and EVELYN UY, petitioners, vs. THE HONORABLE COURT OF APPEALS and SPS. NICANOR G. DE GUZMAN and ESTER DE GUZMAN, respondents. G.R. No. 109197

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

June 21, 2001

Page 88

MELO, J.: Private respondents Nicanor de Guzman, Jr. and Ester de Guzman were the owners of three lots located in Greenhills Subdivision, San Juan, Metro Manila. In 1971, they constructed, at a cost of P3 million, a 1,200 square meter residential house on two of the lots. In 1987, the market value of the lots already ranged from P4,000 to P5,000 per square meter while the house was worth about P10 million. Sometime in 1987, Nicanor de Guzman, Jr. decided to run for the position of Representative of the Fourth District of Nueva Ecija. Sometime in April 1987, however, de Guzman’s campaign fund began to run dry and he was compelled to borrow P2.5 Million from Mario Siochi. The de Guzman spouses were required to sign, as a sort of collateral, a deed of sale dated April 10, 1987 whereby they purportedly sold 2 of the 3 lots along with the improvements thereon, to Siochi. De Guzman was able to obtain two more loans of P500,000.00 each from Siochi. No additional collateral was required, the "deed of sale" being more than sufficient to cover the original P2.5 million loan and the additional P1 million loan. Despite the "deed of sale," however, the de Guzmans remained in possession of the property. Aside from these loans, de Guzman also owed Siochi several debts, to repay these other loans, the de Guzmans agreed with Siochi to have their 1,411 square meter vacant lot, which had already been "sold" to Siochi under the April 10, 1987 deed of sale, sold. The sale of the same amounted to P4.8 Million, the proceeds of which were all retained by Siochi. In the meantime and without the knowledge of the de Guzman spouses, Siochi had the spouses TCT cancelled on the basis of the deed of sale executed by the spouses on April 10, 1987, and had new Torrens titles issued in his name. On June 20, 1987, Siochi sold the two lots and the improvements thereon for P2.75 Million to herein petitioners Jayme and Evelyn Uy. Thereafter, petitioners had Siochi’s titles over the lots cancelled and had new titles issued over the property. On July 1, 1988, petitioners entered into a contract of lease with option to buy with Roberto Salapantan. Salapantan was, however, unable to obtain possession of the lots since the premises were occupied by the de Guzman spouses. Consequently, Salapantan Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

filed a complaint for ejectment on August 1, 1988 against the de Guzman spouses with the Metropolitan Trial Court of San Juan, Metro Manila. On September 16, 1988, the de Guzmans filed a complaint with the Regional Trial Court of Pasig against Siochi, Salapantan, and herein petitioners, seeking the reformation of the April 10, 1987 Deed of Absolute Sale to the end that the true intention of the parties therein be expressed. On December 28, 1990, the trial court rendered its decision in favor of the de Guzmans. Aggrieved, petitioners interposed an appeal with the Court of Appeals, the latter affirmed the decision of the trial court holding that the sale disputed by the de Guzmans to Siochi was an equitable mortgage. ISSUE : Whether or not the sale made by herein private respondents was indeed an equitable mortgage as held by both the trial court and the appellate court

HELD: YES, the sale is an equitable mortgage. Art. 1602 of the New Civil Code provides: The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate;(2) When the vendor remains in possession as lessee or otherwise;(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;(4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold;(6) In any other case where it may fairly be inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. The court was convinced and found that the questioned deed of sale is in reality a mere equitable mortgage and not an absolute sale in view of the following circumstances: First, the consideration of the sale of P2.5 Million is grossly and unusually inadequate.Second, despite the alleged deed of sale, plaintiffs have

Page 89

remained in actual and physical possession of the litigated property up to the present time.Third, the uncontradicted evidence is that plaintiffs were driven to obtain the emergency loan due to urgent necessity of obtaining funds and they signed the deed of sale knowing that it did not express their real intention. In fact, additional loans in the total sum of P1 million were extended to plaintiffs by Siochi even after the execution of said sale without Siochi demanding for any additional security.Lastly, Siochi had retained for themselves the entire proceeds of P4.8 million derived from the sale of plaintiffs’ vacant lot. In the following circumstances, it indubitably shows that the alleged sale was indeed an equitable mortgage. As found by both the trial court and appellate court, the April 10, 1987 deed of sale executed by the de Guzmans and Siochi was an equitable mortgage, hence, the titles to the house and lots which were sold by Siochi to petitioners actually remained with the mortgagors, the de Guzmans. The circumstance that the original transaction was subsequently declared to be an equitable mortgage must mean that the title to the subject land which had been transferred to private respondents actually remained or is transferred back to petitioners herein as ownersmortgagors, conformably with the wellestablished doctrine that the mortgagee does not become the owner of the mortgaged property because the ownership remains with the mortgagor. The issuance of a certificate of title in Siochi’s favor did not vest upon him ownership of the property. Neither did it validate the sale made by Siochi to petitioners, which is null and void. Article 2088 of the Civil Code provides that the "the creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them." Being null and void, the sale by Siochi of the questioned property to petitioners, who are not innocent purchasers, produced no legal effects whatsoever. SPOUSES OCTAVIO and EPIFANIA LORBES, petitioners, vs. COURT OF APPEALS, RICARDO DELOS REYES and JOSEFINA CRUZ, respondents. G.R. No. 139884 February 15, 2001

GONZAGA-REYES, J.: Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 90

Petitioners were the registered owners of a 225-square meter parcel of land located in Antipolo, Rizal covered by Transfer Certificate of Title No. 165009. Sometime in August 1991, petitioners mortgaged this property to Florencio and Nestor Carlos in the amount of P150,000.00. About a year later, the mortgage obligation had increased to P500,000.00 and fearing foreclosure of the property, petitioners asked their son-in-law, herein private respondent Ricardo delos Reyes, for help in redeeming their property. Private respondent delos Reyes agreed to redeem the property but because he allegedly had no money then for the purpose he solicited the assistance of private respondent Josefina Cruz, a family friend of the delos Reyeses and an employee of the Land Bank of the Philippines. It was agreed that petitioners will sign a deed of sale conveying the mortgaged property in favor of private respondent Cruz and thereafter, Cruz will apply for a housing loan with Land Bank, using the subject property as collateral. It was further agreed that out of the proceeds of the loan, P500,000.00 will be paid to the Carloses as mortgagees, and an such balance will be applied by petitioners for capital gains tax, expenses for the cancellation of the mortgage to the Carloses, transfer of title to Josefina Cruz, and registration of a mortgage in favor of Land Bank. Moreover, the monthly amortization on the housing loan which was supposed to be deducted from the salary of private respondent Cruz will be reimbursed by private respondent delos Reyes. On September 29, 1992, the Land Bank issued a letter of guarantee in favor of the Carloses, informing them that Cruz’s loan had been approved. On October 22, 1992, Transfer Certificate of Title No. 165009 was cancelled and Transfer Certificate of Title No. 229891 in the name of Josefina Cruz was issued in lieu thereof.2 On November 25, 1992, the mortgage was discharged. Sometime in 1993, petitioners notified private respondent delos Reyes that they were ready to redeem the property but the offer was refused. Aggrieved, petitioners filed on July 22, 1994 a complaint for reformation of instrument and damages with the RTC of Antipolo, Rizal, Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

docketed as Civil Case No. 94-3296. In the complaint, petitioners claimed that the deed was merely a formality to meet the requirements of the bank for the housing loan, and that the real intention of the parties in securing the loan was to apply the proceeds thereof for the payment of the mortgage obligation. They alleged that the deed of sale did not reflect the true intention of the parties, and that the transaction was not an absolute sale but an equitable mortgage, considering that the price of the sale was inadequate considering the market value of the subject property and because they continued paying the real estate taxes thereto even after the execution of the said deed of sale. On June 20, 1995, the trial court rendered judgment in favor of petitioners, upon finding that: (1) the Deed of Absolute Sale dated October 21, 1992 did not reflect the true intention of the parties, and (2) the transaction entered into between petitioners and Cruz was not an absolute sale but an equitable mortgage, considering that the price stated in the Deed of Absolute Sale was insufficient compared to the value of the property, petitioners are still in possession of the property, and petitioners had continued to pay the real estate taxes thereon after the execution of the said deed of sale. The Court of Appeals reversed the above decision, finding that the transaction between petitioners and Cruz was one of absolute sale, not of equitable mortgage. To the Court of Appeals, the transaction was unmistakably a contract of sale, as evidenced by the numerous supporting documents thereto, such as the Contract to Sell dated June 1992, Affidavit of Waiver/Assignment dated August 14, 1992, Receipt of Partial Advance Payment dated September 9, 1992, and Transfer Certificate of Title No. 229891 issued in the name of private respondent Cruz. ISSUE: Whether or not the alleged sale was an equitable mortgage HELD: YES, the sale was indeed an equitable mortgage. The Supreme Court held that the conditions which give way to a presumption of equitable mortgage, as set out in Article 1602 of the Civil Code, apply with equal force to a contract purporting to be one of absolute sale. Moreover, the presence of even one of the circumstances laid out in Article 1602, and not a Page 91

concurrence of the circumstances therein enumerated, suffices to construe a contract of sale to be one of equitable mortgage. This is simply in consonance with the rule that the law favors the least transmission of property rights. Thus, under Article 1602 of the Civil Code, a contract shall be presumed to be an equitable mortgage when --- (a) the price of a sale with right to repurchase is unusually inadequate; (b) the vendor remains in possession as lessee or otherwise; (c) upon or after the expiration of the right of repurchase another instrument extending the period of redemption or granting a new period is executed; (d) the purchaser retains for himself a part of the purchase price; (e) the vendor binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

property only because they refused to vacate on Cruz’s demand is not accurate because the records reflect that no such demand was made until more than a year since the purported sale of the property. From the above, the Court is satisfied that enough of the circumstances set out in Article 1602 of the Civil Code are attendant in the instant case, as to show that the true arrangement between petitioners and private respondent Cruz was an equitable mortgage.

Applying the foregoing considerations to the instant case, the Court found that the true intention between the parties for executing the Deed of Absolute Sale was not to convey ownership of the property in question but merely to secure the housing loan of Cruz, in which petitioners had a direct interest since the proceeds thereof were to be immediately applied to their outstanding mortgage obligation to the Carloses. Understandably, the Deed of Absolute Sale and its supporting documents do not reflect the true arrangement between the parties as to how the loan proceeds are to be actually applied because it was not the intention of the parties for these documents to do so. The sole purpose for preparing these documents was to satisfy Land Bank that the requirement of collateral relative to Cruz’s application for a housing loan was met. The facts further bear out that petitioners remained in possession of the disputed property after the execution of the Deed of Absolute Sale and the transfer of registered title to Cruz in October 1992. Cruz made no demand on petitioners to vacate the subject premises until March 19, 1994; interestingly, this was two days after petitioners signified their intention to redeem the property by paying the full amount of P600,000.00. On this basis, the finding of respondent court that petitioners remained in possession of the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

TOMAS SEE TUAZON vs. COURT APPEALS and JOHN SIY LIM G.R. No. 119794 October 3, 2000 Third Division Ponente: PURISIMA, J.:

OF

FACTS: The case originated from a contract of mortgage constituted on the subject lot. Tomas See Tuazon, who was then the President and General Manager of Universal Rubber Products, Inc., together with the spouses, See Tiong

Page 92

Cheng and Eng Tang Go See, mortgaged, together with other properties, subject lot to the Philippine Bank of Commerce (PBCom), to secure a loan of 4,830,265.90 Pesos. When the mortgagors failed to pay the mortgage debt, the mortgaged property was foreclosed and sold at public auction, with PBCom itself as the highest bidder. On July 15, 1987, spouses Tomas S. Tuazon and Natividad S. Tuazon sold to John Siy Lim (Lim) a 650 square meter conjugal lot along A. del Mundo Street, 7th Avenue, Kaloocan City, with a two-storey building and Apartment Units Nos. 161 and 163 existing thereon. Atty. Crisostomo, lawyer of the Tuazons, drafted the Absolute Deed of Sale, which was duly registered. By virtue of the said deed, TCT in the name of the Tuazons was cancelled and in lieu thereof, a TCT was issued in the name of John Siy F. Lim. The Tuazons brought a Complaint for Reformation of Contract, Quieting of Title with Damages against John Siy F. Lim theorizing that the real intention of the parties was to enter into a loan accommodation that their daughter Bernice told that her fiancé, the respondent was willing to help them redeem the subject property by accommodating them with 1Million Pesos. Appellee proposed that: 60% of the P1 Million, or P600,000 would be a URPI loan where machineries worth P3 Million, by way of chattel mortgage, would secure it, and 40% of the P1 Million would be appellants personal loan. The bank agreed to reduce the redemption price to One Million (P1,000,000.00) Pesos subject to the condition that petitioner surrendered in favor of PBCom his (petitioner) Producer's Bank stock certificates by way of dacion en pago. To keep the creditors, suppliers and laborers of URPI from levying on subject property, petitioner decided to transfer the title thereof to Lim. The new title was to serve as security for the loan. Lim filed hi s answer, theorizing that the Deed of Absolute Sale expressed the true intention of the parties. Petitioner Tuazon and his daughter persuaded him to redeem for himself the extrajudicially foreclosed property from PBCom because Tuazon was financially incapable. Trial court decided for the respondent. Both parties filed an MR. Trial court rendered a decision declaring that the deed of absolute sale was an equitable mortgage. CA decided in favour of respondent. The Tuazon family remained in the premises sold to Lim. But Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

not in the concept of owner. The first year of Tuazons continued occupancy of Apt. No. 163 was at Lims graciousness with the understanding that after one year, the Tuazons will pay the appropriate rentals for the continued use and occupation of the property. In the exercise of his right as owner of the property, Lim leased Apartment No. 161 to a William Sze where Lim signed the contract of lease as the lessor ISSUE: Whether or not the deed of absolute sale is in fact an equitable mortgage RULING: Petition is denied. Ruling of CA is affirmed. Article 1602 of the Civil Code provides that a contact shall be presumed to be an equitable mortgage by the presence of any of the following: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Under Article 1604 of the New Civil Code, the provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. And for these provisions of law to apply, two requisites must concur: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. For an action for reformation of an instrument as provided for in Article 1359 to prosper, the following requisites must concur, to wit: (1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident. Here, petitioner has not shown or established the presence of the aforestated requirements for the Page 93

reformation of the deed in question. Prepared by the lawyer of the herein petitioner, Tomas See Tuazon, subject Deed of Absolute Sale executed on July 15, 1987 is couched in clear terms and conditions. John Siy Lim had no hand in its preparation. Besides, the voluntary, written and unconditional acceptance of contractual commitments negate the theory of equitable mortgage.

SPOUSES MARIO REYES VS. COURT OF APPEALS G.R. No. 134166 August 25, 2000 Second Division Ponente: Bellosillo,J.: FACTS: Two separate actions for specific performance was filed by Spouses Ramos agains Spouses Reyes and Spouses Victa to compel them to segregate a total of 3000 square meters of lot from each of their respective shares in the estate of the FLorentino Dominguez, their father. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 94

The Ramoses contended that Conception Reyes and Araceli Vita sold 1,700 and 1,300 square meters of lot to them. Early 1991 Lot No. 4705 was finally subdivided into several smaller lots and partitioned extrajudicially among the five (5) heirs of Florentino Dominguez although the records only disclosed three (3) names, Concepcion Dominguez-Reyes, Araceli Dominguez-Victa and Fortunata Dominguez. Concepcion acquired a 2,440-square meter lot while Araceli took possession of two (2) lots with a combined area of 2,340 square meters. Upon learning of the partition, the Ramoses demanded that the petitioners make good their undertakings under the deed of sale executed beforehand but the latter refused, insisting that the deeds did not reflect the true intention of the parties as their real intention was simple loans of money the payment of which was to be secured by mortgages. Concepcion D. Reyes and Araceli D. Victa averred that between 1980 to 1985 they obtained individually various loans from Nilda Ramos which were covered by handwritten receipts prepared either by her or by her daughter Dinah Ramos and signed by Concepcion and Araceli. Sometimes they were furnished by Nilda Ramos with duplicate copies of the corresponding receipts although in most instances only one (1) copy was prepared which Nilda retained. The loans were released by Nilda to Concepcion and Araceli on a piecemeal basis, and every time the loans reached an aggregate amount of P10,000.00 to P20,000.00 Nilda would prepare a Deed of Absolute Sale and Transfer which purported to convey in her favor a portion of the undivided shares of Concepcion and Araceli in Lot No. 4705. To entice them to sign the deeds, Nilda represented to them that the instruments were merely for purposes of complying with the formalities required by ARVI Finance Corporation, which she owned, and where the amounts loaned to them presumably came from. Nilda Ramos further assured Concepcion and Araceli that the deeds would not be notarized nor would they be enforced against them. That however out of a total of eighteen (18) deeds of sale signed by Concepcion and Araceli, it appeared that three (3) were actually notarized. Finally, Concepcion and Araceli offered to settle their indebtedness but Nilda refused to accept payment. Trial court rendered a decision in favor of the Reyes and Victa spouses holding that "the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

alleged sales were not really sales but receipts of sums of money by way of loans." The Court of Appeals however disagreed and reversed the ruling of the trial court on appeal. CA: We have examined the instruments evidencing the transactions under consideration and found the language of each clearly and without ambiguity to be setting forth a contract of sale and purchase. And the authenticity and due execution of these deeds, it must be emphasized, are not disputed. They are in fact admitted x x x x In the mind of this court, appellants have convincingly proven the reality of the sale of the parcels of land subject hereof x x x these pieces of evidence are not mere drafts of contracts since everything for the existence of a perfect contract of purchase and sale are present. Neither can they possibly be mistaken for receipts inasmuch as even their title – typewritten in capital letters and underlined – proclaims what each of the documents is all about x x x x When contracting minds have reduced their agreement into writing, the contents of the writing constitute the sole repository of the terms of the contract between the parties x x x x ISSUE: The pivotal issue then is whether the parties intended the contested Deed(s) of Absolute Sale and Transfer to be bona fide absolute conveyances of parcels of land, or merely equitable mortgages RULING: CA decision is inconsistent with law and equity. Trial court decision is reinstated and affirmed. Art. 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may be presumed to be an equitable mortgage: (a) when the price of a sale with right to repurchase is unusually inadequate; (b) when the vendor remains in possession as lessee or otherwise; (c) when upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (d) when the purchaser retains for himself a part of the purchase price; (e) when the vendor binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. For the presumption of an equitable mortgage to arise under Art. 1602, two (2) Page 95

requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale, and (b) that their intention was to secure an existing debt by way of a mortgage. The existence of any one of the circumstances defined in the foregoing provision, not the concurrence nor an overwhelming number of such circumstances, is sufficient for a contract of sale to be presumed an equitable mortgage. The provision also applies even to a contract purporting to be an absolute sale, as in this case, if indeed the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. The facts and evidence decidedly show that the true intention of the parties was to secure the payment of the loans and not to convey ownership over the property in question. The transactions were replete with veritable badges of equitable mortgage.

Aguirre vs. CA and Tupas G.R. No. 131520 January 28, 2000

Facts: •

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

In April 30, 1972, petitioner Estelita Aguirre and private respondent Teofista S. Tupas entered into a Deed of Absolute Sale covering a 3,230 square meter parcel of land located in Balabag, Page 96

Malay, Aklan, in what is more popularly known as Boracay Island.

•

•

Immediately thereafter, petitioner took possession and occupied the said parcel of land. On August 15, 1984, however, claiming to have been disturbed in the possession of the subject land, petitioner filed a Complaint for Quieting of Title and/or Recovery of Possession with Damages being coowners with their sister, Teofista S. Tupas, of the subject land. On August 21, 1991, the Regional Trial Court of Kalibo, Aklan rendered judgment dismissing the Complaint for lack of merit. It found that the contract between the parties was one of equitable mortgage and not of sale.

Issue: Whether or not the transaction between the parties was not a sale but an equitable mortgage? Ruling: Petition Denied •

•

In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such therefore, documentary and parol evidence may be submitted and admitted to prove such intentio.against the spouses Privado Tupas and Teofista S. Tupas. The other private respondents then came in as intervenors, Art. 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may be presumed to be an equitable mortgage,

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

as follows: ‘Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1).......When the price of a sale with right to repurchase is unusually inadequate; (2).......When the vendor remains in possession as lessee or otherwise; (3).......When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4).......When the purchaser retains for himself a part of the purchase price; (5).......When the vendor binds himself to pay the taxes on the thing sold; (6).......In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws.’ Lexj  uris By the terms of Art. 1604, the foregoing provisions ‘shall also apply to a contract purporting to be an absolute sale.’ x x x."

Page 97

•

As already stated above, Article 1604 of the Civil Code provides that the provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. The presence of even one of the circumstances in Article 1602 is sufficient basis to declare a contract as one of equitable mortgage.

•

The explicit provision of Article 1602 that any of those circumstances would suffice to construe a contract of sale to be one of equitable mortgage is in consonance with the rule that the law favors the least transmission of property rights. To stress, the existence of any one of the conditions under Article 1602, not a concurrence, or an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage

•

Article 1602(6), in relation to Article 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. After a careful review of the records of the case, we are convinced that it qualifies as an equitable mortgage under Article 1602(6). This may be gleaned from the following circumstances surrounding the transaction

•

First, it is not disputed that private respondents spouses Tupas built two cottages on the subject land as well as operated a sari-sari store and grew banana plants on the same, such that, per petitioner’s own account, almost ½ half of the area had been occupied by them.Despite this bold possession, petitioner admits that no demand to vacate the land was ever made upon the spouses Tupas. Their possession remained undisturbed for years, until the action below was filed in 1984.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

•

Neither was rent ever collected from them for their occupancy of the land.

•

Coming now to the temporary possession of the subject land by petitioner, the court find credibility in private respondents’ claim that the spouses Tupas gave petitioner a ten (10) year period to occupy the subject land as part of their mortgage agreement. That period of time may well be deemed as the time allotted to the spouses Tupas, as mortgagors, to pay their indebtedness to petitioner. That petitioner vacated the subject land after having occupied the same only underscores the fact that no sale took place between the parties. Otherwise, why would she, as rightful owner, abandon the property she already was in possession of, only to leave possession of the same to her vendor?

•

It is also of record that private respondents had continued paying tax on the subject land even after the same had been supposedly "sold" to petitioner. On the other hand, while petitioner presented tax declarations in her favor, the same would show that the taxes for the years 1974-1980 were only made by petitioner on June 4, 1985,almost a year after she had already filed the suit below.

•

In arguing that the transaction was one of sale, petitioner points out that private respondent Teofista Tupas was not a debtor at any time prior to the sale; hence, it cannot be held that the subject land was being used as security for a debt. However, it may be that the debt was given at the very moment of the mortgage transaction.

Lumayag v. Court of Appeals G.R. No. 162112 July 3, 2007 Facts: •

During their lifetime, the spouses Jacinto Nemeño and Dalmacia Dayangco-Nemeño, predecessors-ininterest of the herein respondent heirs, owned two (2) parcels of coconut land

Page 98

located in Manaca, Ozamiz City. The parcels are: Lot No. 4049, with an area of five (5) hectares and covered by Original Certificate of Title (OCT) No. 01743 and Lot No. 4035 C-4, consisting of 4,420 square meters and covered by Tax Declaration No. 13750 •

In 1979, Dalmacia died survived by her husband, Jacinto, and their six (6) children, to wit: Meliton, Eleuteria, Timoteo, Justo, Saturnino (now deceased) and Felipa.

•

On February 25, 1985, Jacinto, joined by his five (5) children, namely, Meliton, Eleuteria, Timoteo, Justo and Saturnino, conveyed to his daughter Felipa and the latter’s husband Domingo Lumayag the aforementioned Lot. The instrument of conveyance is denominated as Deed of Sale with Pacto De Retro

•

Thereunder, it was stipulated that the consideration for the alleged sale of the two (2) aforementioned lots was Twenty Thousand Pesos (P20,000.00) and that the vendors a retro have the right to repurchase the same lots within five (5) years from the date of the execution of the instrument on February 25, 1985. It was likewise agreed thereunder that in the event no purchase is effected within the said stipulated period of five (5) years “conveyance shall become absolute and irrevocable without the necessity of drawing up a new absolute deed of sale, subject to the requirements of law regarding consolidation of ownership of real property.”

•

More than a decade later, or on August 28, 1996, the spouses Domingo Lumayag and Felipa Nemeño-Lumayag filed with the RTC of Ozamiz City a petition for the reconstitution of the owner’s duplicate copy of one of the two lots subject of the earlier Deed of Sale with Pacto De Retro.

•

In that petition, the Lumayags alleged that said owner’s duplicate copy of was in Domingo’s possession but the same

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

was lost when a typhoon hit and destroyed the couple’s house in Talisay, Cebu. The petition was opposed by the other heirs of Jacinto and Dalmacia who claimed that the owner’s duplicate copy of the same OCT was actually in the possession and custody of their brother Meliton Nemeño, the administrator of the property, when it was burned in a fire on May 22, 1992. In an order dated December 20, 1996, the RTC resolved said petition by ordering the issuance of a new owner’s duplicate copy and its delivery to the heirs of Jacinto and Dalmacia. •

The heirs of Jacinto and Dalmacia, namely, their children Meliton, Eleuteria, Timoteo and Justo and grandchildren Ricky and Daisy who are the heirs of Saturnino, (hereinafter collectively referred to as the respondent heirs) filed against the spouses Domingo Lumayag and Felipa N. Lumayag a complaint for Declaration of Contract as Equitable Mortgage, Accounting and Redemption with Damages.

•

Essentially, the complaint alleged that the subject Deed of Sale with Pacto De Retro was executed only for the purpose of securing the payment of a loan of P20,000.00 obtained from the defendant spouses in connection with the medication and hospitalization of the then ailing Jacinto Nemeño.

•

To support their claim that the contract in question was an equitable mortgage, the plaintiff heirs materially pointed out the following: (1) the grossly inadequate price of the subject lots considering that Lot No. 4049 with an area of 5 hectares has a market value of P40,760.00 and an assessed value of P15,230.00, as shown by Tax Declaration No. 9407335-A, while Lot No. 4035 C-4 with an area of 4,420 square meters has a market value of P4,120.00 and an assessed value of P1,460.00, per Tax Declaration No. 94-07355-A; (2) their (plaintiffs’) continued payment of realty taxes; (3) the land title and tax declaration remained in the names of Jacinto Nemeño and Dalmacia Page 99

Dayangco-Nemeño; (4) their possession, particularly Justo Nemeño’s, of the subject lots with the petitioner spouses only given two-thirds share of the harvest therefrom; and (5) the pactum commissorium stipulation in the subject contract. •

Eventually, in a decision dated February 3, 1999, the trial court adjudged the subject Deed of Sale with Pacto De Retro as an equitable mortgage and ordered the defendant spouses to reconvey the lot to the plaintiff heirs for P20,000.00

•

Dissatisfied, both parties appealed to the CA. Unfortunately, for failure of the plaintiff heirs to submit their appeal brief, their appeal was dismissed, leaving that of the defendant spouses

•

As stated at the threshold hereof, the appellate court, affirmed that of the trial court but with the modification that the mortgaged properties are subject to foreclosure should the respondents fail to redeem the same within thirty (30) days from finality of the decision.

•

•

Here, there is no issue as regards the fact that the subject Deed of Sale with Pacto De Retro provided for a 5-year redemption period which expired on February 25, 1990. Evidently, then, the failure of the respondent heirs to redeem the properties within the stipulated period indubitably vested the absolute title to and ownership thereof to the petitioners. But such consequence would only be true if the contract that was executed between the parties was indeed a pacto de retro sale and not an equitable mortgage.

•

The two (2) courts below unanimously found that the subject Deed of Sale with Pacto De Retro, while purporting to be a sale, is in truth and in fact an equitable mortgage. Such factual finding, more so when supported by the evidence, as here commands is binding upon the court.

•

An equitable mortgage has been defined “as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.”

•

Article 1604 of the Civil Code provides that the provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale, and, in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.

•

The law requires the presence of any one and not the concurrence of all of the circumstances enumerated under Article 1602, to conclude that the transaction is one of equitable mortgage.

•

Here, the CA correctly found the presence of not merely one but four (4) circumstances indicative of the true nature of the subject transaction as an equitable mortgage, to wit: (a) gross inadequacy of the contract price of

Hence this appeal...

Issue: Whether or not the transaction between the parties was not a sale but an equitable mortgage?

Ruling: •

Petition denied.

•

Under a pacto de retro sale, title to and ownership of property are immediately vested in the vendee a retro, subject only to the resolutory condition that the vendor repurchases it within the stipulated period. The failure of the vendor a retro to repurchase the property vests upon the vendee a retro by operation of law the absolute title and ownership over the property sold.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 100

•

•

• •

P20,000.00 for two (2) parcels of land, the total area of which is almost 5.5 hectares; (b) respondent heirs remained in possession of the subject property even after the execution of the supposedly Deed of Sale with Pacto de Retro; (c) said respondents’ payment of realty taxes; and (d) the provision on pactum commissorium While the Supreme Court are not in full accord with the CA in its observation that the consideration of the sale with right to repurchase is grossly inadequate since the market value and assessed value of the two lots were not made on or before the date the subject contract was executed on February 25, 1985 but only on June 8, 1994, still, there are other circumstances convincing enough to support a conclusion that the transaction in question is really an equitable mortgage. Evidence is extant on record that the respondent heirs, as vendors a retro, remained in possession of the subject lots after the execution of the deed of sale with right to repurchase. In stark contrast, evidence is wanting that petitioners ever enjoyed possession thereof. If the transaction was really a sale with right to repurchase, as claimed by the petitioners, then the latter should have asserted their rights for the immediate delivery of the lots to them instead of allowing some of the respondents to freely stay in the premises. Well-settled to the point of being elementary is the doctrine that where the vendor remains in physical possession of the land as lessee or otherwise, the contract should be treated as an equitable mortgage As well, that the parties intended to enter into an equitable mortgage is further accentuated by respondents’ continued payment of the real property taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to ownership and when, as here, such payment is coupled with continuous possession of the property, it constitutes evidence of great weight that a person under whose name

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

the realty taxes were declared has a valid and rightful claim over the land. •

•

Lastly, the stipulation in the subject deed reading: “if we fail to exercise our rights to repurchase as herein granted within the period stipulated, then this conveyance shall become absolute and irrevocable without the necessity of drawing a new absolute Deed of Sale, subject to the requirements of law regarding consolidation of ownership of real property,” - is considered a pactum commissorium. This stipulation is contrary to the nature of a true pacto de retro sale since in such sale, ownership of the property sold is immediately transferred to the vendee a retro upon execution of the sale, subject only to the repurchase of a vendor a retro within the stipulated period. Undoubtedly, the aforementioned stipulation is a pactum commissorium because it enables the mortgagee to acquire ownership of the mortgaged properties without need of any foreclosure proceedings which is a nullity being contrary to the provisions of Article 2088 of the Civil Code. Indeed, the inclusion of such stipulation in the deed shows the intention to mortgage rather than to sell.

AMELIA S. ROBERTS, petitioner, vs. MARTIN B. PAPIO, respondent.

February 9, 2007 G.R.No.166714

Page 101

THIRD DIVISION

Ponente: CALLEJO, SR.

FACTS: Spouses Martin and Lucina Papio mortgage their residential lot in Makati in order to secure P59,000.00 loan from Amparo Investments Corporation. Upon Papio’s failure to pay, the Corp. filed a petition for extrajudicial foreclosure of the mortgage. To prevent foreclosure, they executed a Deed of Absolute Sale over the property in favor of Amelia Roberts (his cousin) for P85,000.00 purchase price. Transfer Certificate of Title is now in the name of Amelia Roberts.

Roberts and Papio executed a 2-yr. contract of lease subject to renewal at the option of the lessor. After 2yrs Papio failed to pay the monthly rentals but he and his family remained in the possession of the property for almost 13yrs. Roberts demanded Papio to vacate the property in case he failed to settle his back rentals amounting to P410,000.00. Papio refused to pay and leave the premises.

Roberts now filed a complaint for unlawful detainer and damages against Papio before Metropolitan Trial Court.

In his Answer, Papio alleged that when the Corp. filed a petition for extrajudicial foreclosure, his cousin Roberts offered to redeem the property. Believing that she had made the offer for the purpose of retaining his ownership over the property, he accepted. However, he was alarmed when Roberts had a Deed of Absolute Sale over the property prepared. He then believed that if he signed the deed, Roberts would acquire ownership over the property. He asked her to allow him to redeem the property anytime for a reasonable amount. Roberts agreed so he signed the Deed of Absolute Sale. Pursuant to the right to redeem given him, Papio purchased the property for P250,000.00. Since Roberts was already in USA, he remitted to her authorized representative Perlita Ventura the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

amount of P150,000.00 as partial payment and another P100,000.00 and were evidenced by receipts signed by Ventura. However, Ventura misappropriated P39,000.00 out of P250,000.00 which is the reason why Roberts refused to execute the Deed of Absolute Sale in favor of Papio if Ventura would not pay the amount she misappropriated.

Metropolitan Trial Court ruled in favor of Roberts. Papio appealed to RTC, and in its decision it affirmed the findings of MeTC. Papio file a petiton for review in CA. CA ruled in favor of Papio stating that what transpired is not a contract of absolute sale but an equitable mortgage and that Papio is entitled to possession of the property. Roberts filed a petition for review assigning as error that petitioner did not alleged in his Answer the defense of equitable mortgage; hence the Ca should not have discussed the same.

ISSUE: whether the transaction entered into by the parties under the Deed of Absolute Sale and Contract of Lease is an equitable mortgage.

RULING: CA erred in finding that the transaction is an equitable mortgage. An EQUITABLE MORTGAGE is one that although lacking in some formality, form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a debt and contain nothing impossible or contrary to law. The decisive factor is the intention of the parties.

In Papio’s Answer he stated that he was given the right of redemption at any time; that he had repurchased the property and consequently he obliged Roberts to execute a deed of absolute sale in his favor. With this claims, it is antithetical to an equitable mortgage.

In PACTO DE RETRO SALE, ownership of the property sold is immediately transferred to the vendee a retro subject only to the right of the vendor a retro to repurchase the property upon Page 102

compliance with legal requirements for repurchase. Failure of the vendor a retro to exercise the right to repurchase within the agreed time vests upon the vendee a retro, by operation of law, absolute title over the property.

One who repurchase a property means that the property was previously sold. The right of repurchase presupposes a valid contract of sale between the parties. Papio insisted that he repurchased the property thereby admitting that a deed of absolute sale was executed by him and petitioner and not an equitable mortgage. Papio is barred from claiming otherwise.

The right of repurchase is not a right granted the vendor by the vendee, but a right reserved by the vendor in the same instrument of the sale as one of the stipulations of the contract. When the sale is made without such agreement, the purchaser acquires the thing sold absolutely.

When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it any other intention that would contradict its plain import.

DIONISIA DORADO VDA. DE DELFIN, petitioner vs. SALVADOR DELLOTA, respondent.

January 28, 2008 G.R. No.143697

FIRST DIVISION

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 103

Ponente: SANDOVAL-GUTIERREZ

FACTS: Dionisia Dorado Delfin is the registered owner of Lot in Capiz with an area of 143,935 square meters. Dionisia executed an Escritura De Venta Con Pacto de Retro over 50,000 square meters in favor of Ildefonso Dellota and Patricia Delfin.

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

Dionisia sold another portion to Gumersinda Deleña as evidenced by a notarized “Deed of Sale with Right of Redemption” thus, leaving an unsold area of more than 43,000 square meters. Dionisia never redeemed this 50,000 square meter portion from Gumersindo.

Dionesia’s heirs now contend that the Deed of Sale with Right of redemption entered into by Dionisia and Gumersindo is an equitable mortgage. They insist that the price of P5,3000.00 for 5 hectare portion is grossly inadequate.

ISSUE: whether the transaction entered into by Dionisia is an equitable mortgage.

RULING: An EQUITABLE MORTGAGE is one that although lacking in some formality, form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to change a real property as security for a debt and contain nothing impossible or contrary to law. The decisive factor is the intention of the parties.

Bautista vs. Unangst G.R. No. 173002; July 04, 2008

Third Division There is gross inadequacy in price if a reasonable man will not agree to dispose of his property. The court finds no cogent reason to conclude that the 1949 price of P5,300.00 as agreed upon by the parties was unreasonable.

There is no evidence herein whatsoever to show that Dionisia did not understand the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Reyes, R.T., J.:

FACTS: Hamilton Salak and Shirley G. Unangst were arrested on February 02, 1997 for estafa and carnapping for the former’s failure to return Page 104

a car he rented from Benjamin Bautista. Bautista demanded from Salak the sum of Php 232, 372.00 as payment for car rental fees, other fees and incidental expenses in the retrieval of the car. Salak and the respondent proposed to sell to the petitioner a house & lot under the Unangst’s name to amicably settle the cases filed against them and their accounts with the same, which the petitioner welcomed. Furthermore, petitioner agrees to pay the mortgage loan over the subject property to a certain Jojo Lee (as the property was then set to be publicly auctioned). They executed a deed of sale with right to repurchase within 30 days, and that the respondents shall pay the taxes and utility bills related to the subject property. Upon the failure of the respondent to repurchase, petitioner filed a complaint for specific performance or recovery of possession, for sum of money, for consolidation of ownership, and damages against the respondent. After the RTC deciding in favor of the petitioner, respondent now argues before the CA to annul the deed, arguing that respondent Unangst’s consent to the deed was procured under duress and assuming arguendo that the same was freely given the same partakes the nature of an equitable mortgage and not of sale. The CA ruled in favor of the respondent; hence this petition for review on certiorari. The petitioner argues that the deed was clear and unequivocal, ergo; such must be construed in its literal sense.

ISSUE: Whether the subject contract is that of sale or an equitable mortgage?

HELD: The Deed of Sale with right to repurchase is that of an equitable mortgage. The petition is denied for lack of merit.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

RATIO DECIDENDI: The Deed of Sale with right to repurchase qualifies as an equitable mortgage under Article 1602, for respondent merely secured the payment of the unpaid car rentals and the amount advanced by petioner to Jojo Lee. Provided for are the cases to presume a contract to be an equitable mortgage under Article 1602 (NCC): (1.) (2.) (3.)

(4.) (5.) (6.)

When the price of the sale with right to repurchase is unusually inadequate; When the vendor remains in possession as lease or otherwise; When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; When the purchaser retains for himself a part of the purchase price; When the vendor binds himself to pay the taxes on the thing sold; In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt of the performance of any other obligation

In the case at bar, first, the consent was taken in duress since it was signed by the respondent to be freed from police custody. Following the principle, “Nel consensui tam contrarium est quam vis ataqui mtus” (Necessitous men are not, truly speaking, free men; but to answer a present emergency will submit to any terms that the crafty may impose upon them). Second, petitioner allowed respondent Salak to retain the possession of the property despite the execution of the deed since the latter is not even bound to deliver the possession of the property to the former if they would pay him the amount he demanded. In this case it shall be presumed that it is an equitable mortgage, for if otherwise, the legal title to the property must be immediately transferred to the vendee, subject to the vendor’s right to redeem. Ergo, retention by the vendor of the possession is inconsistent with the vendee’s acquisition of the right of ownership under a true sale. It Page 105

discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale a retro. Third, the deed was executed by reason of: (01.) the alleged indebtedness of Salak to petitioner, that is, car rental payments; and (02.) respondent’s own obligation to petitioner, that is, reimbursement of what petitioner paid to the mortgagee, Jojo Lee. Fact is, the purchase price stated in the deed was the amount of the indebtedness of both respondent and Salak to petitioner. Apparently, the deed purports to be a sale a retro, on the other hand, since the same was executed in consideration of the aforesaid loans and/or indebtedness, said contract is firmly settled that whenever it is clearly shown that a deed of sale with pacto de retro, regular on its face, is given as security for a loan, it must be regarded as an equitable mortgage. Moreover, it is provided for in Article 1603 (NCC) that: “in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.”

Lorbes vs. Court of Appeals G.R. No. 139884; February 15, 2001

Octavio and Lorbes (petitioners) mortgaged their parcel of land in Antipolo, Rizal to Florencio and Nestor Carlos for Php 150, 000.00 that subsequently increased to Php 500, 000.00 in a year. In fear of foreclosure, petitioner asked their son-in-law, delos Reyes (herein respondent), for help in redeeming the subject property. Since the latter has no money for that purpose, he solicited the help of his friend Josefina Cruz, a Land Bank of the Philippines (LBP) employee. It was agreed upon by the parties that: Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 106

(1.) (2.) (3.)

(4.) (5.) (6.)

they would sign a deed of sale conveying the mortgaged property in favor of private respondent Cruz; and thereafter Cruz will apply for a housing loan with Land Bank, using the subject property as collateral; it was further agreed that out of the proceeds of the loan, P500,000.00 will be paid to the Carloses as mortgagees, and any such balance will be applied by petitioners for capital gains tax, expenses for the cancellation of the mortgage to the Carloses; transfer of title to Josefina Cruz; and registration of a mortgage in favor of Land Bank; and the monthly amortization on the housing loan which was supposed to be deducted from the salary of private respondent Cruz will be reimbursed by private respondent delos Reyes.

The private respondent (delos Reyes) was declared in default and the case proceeded in ex parte. The lower court ruled in favor of the petitioners, since the sale was executed in order to secure a loan from LBP to save the property from the danger of foreclosure and to use it as collateral thereof for bank loan purposes and that the same does not reflect the real intention of the parties in executing the said Deed of Sale. Furthermore, the petitioners are still in possession of the subject property and had been paying the realty taxes thereon even after the execution of the deed, and that the petitioners were merely forced to enter into the said transaction out of the grave necessity of redeeming the subject property at that time. The CA reversed the decision of the lower court; hence this petition for review on certiorari.

ISSUES: After which, LBP issued a letter of guarantee in favor of the Carloses, informing them that Cruz’ loan has been approved, and subsequently a new title in the name of Cruz was issued in lieu thereof; thus, the mortgage was discharged.

Whether the Deed of Absolute Sale entered into by the parties was an equitable mortgage?

In 1993, the petitioners notified delos Reyes that they are now capable of redeeming the subject property, but the latter refused. This led the former to file an action for reformation of instrument plus damages. The petitioners argue that: (1.)

(2.)

the deed was merely a formality to meet the requirements of the bank for the housing loan, and that the real intention of the parties in securing the loan was to apply the proceeds thereof for the payment of the mortgage obligation; that the deed of sale did not reflect the true intention of the parties, and that the transaction was not an absolute sale but an equitable mortgage, considering that the price of the sale was inadequate considering the market value of the subject property and because they continued paying the real estate taxes thereto even after the execution of the said deed of sale

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

HELD: The Deed of Absolute Sale is an equitable mortgage. The CA decision is reversed and the RTC decision is reinstated.

RATIO DECIDENDI: There is no conclusive test to determine whether a deed of absolute sale on its face is really a simple loan accommodation secured by a mortgage, ergo; “the decisive decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed,

Page 107

and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding. As such, documentary and parol evidence may be submitted and admitted to prove the intention of the parties.” Provided for are the cases to presume a contract to be an equitable mortgage under Article 1602 (NCC): (1.) (2.) (3.)

(4.) (5.) (6.)

emergency, will submit to any terms that the crafty may impose upon them,” since the transaction was borne out of the impending foreclosure of the subject property. Lastly, the petitioners remained in possession of the subject property after the execution of the deed; and Cruz made no demand to the former to vacate the premises.

When the price of the sale with right to repurchase is unusually inadequate; When the vendor remains in possession as lease or otherwise; When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; When the purchaser retains for himself a part of the purchase price; When the vendor binds himself to pay the taxes on the thing sold; In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt of the performance of any other obligation.

And that the conditions herein set forth by the law which give way for the presumption of equitable mortgage apply with equal force to a contract purporting to be one of absolute sale. The presence of even one of these circumstances, and not the concurrence of these circumstances, suffices to construe a contract of sale to be one of equitable mortgage. The SC finds that the true intention between the parties for executing the Deed of Sale was not to convey ownership of the subject property but merely to secure the housing loan of Cruz, in the petitioners had direct interest since the proceeds thereof was to be immediately applied to their outstanding mortgage obligation to the Carloses. Although this is not shown in the supporting documents of the principal transaction between the parties, the sole purpose of these documents was to satisfy LBP. Second, the consent given by the petitioners where in duress following the principle, “Necessitous men are not, truly speaking, free men; but to answer a present Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 108

executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale in favor of Parangan which was superseded by the Deed of Definite Sale dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former.

ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents.

[G.R. No. 111924. January 27, 1997]

For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand Pesos.

THIRD DIVISION

FRANCISCO, J.:

FACTS

Petitioner Adoracion Lustan is the registered owner of a parcel of land. On February 25, 1969, petitioner leased the land to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. The RTC ordered the cancellation by the Register of Deeds of the Province of lloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of the land. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T561 of the Register of Deeds of lloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage. It also ordered defendant Nicolas Parangan to pay all the loans he Page 109

secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff. Also, Ordering defendant Nicolas Parangan to return possession of the land in question to the plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount;

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision.

ISSUE

Whether or not the Deed of Definite Sale is in reality an equitable mortgage.

RULING

The Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. A contract is perfected by mere consent. More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract.

"Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale."

For a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage.

Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth:

Petitioner had no knowledge that the contract she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature Page 110

of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him. To our mind, this burden has not been satisfactorily discharged.

We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying.

The presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement — it was one executed to secure some loans. SPOUSES CRISPIN AUSTRIA and LEONISA HILARIO, petitioners, vs. SPOUSES DANILO GONZALES, JR., and VERONICA GONZALES, respondents.

[G.R. No. 147321. January 21, 2004 ]

SECOND DIVISION

QUISUMBING, J.:

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 111

FACTS

On September 4, 1991 , petitioners Crispin Austria and Leonisa Hilario filed a civil action for Declaration of Nullity of Document and Reconveyance before the RTC of Malolos, Bulacan, against herein respondents Danilo Gonzales, Jr., and Veronica Gonzales. In their Complaint, petitioners alleged that they are the owners and possessors of three (3) parcels of land, all in the name of petitioner Leonisa Hilario. Said parcels became the subject of two (2) Deeds of Absolute Sale, one dated July 21, 1979 , priced at P50,000 and the other dated October 23, 1981 priced at P240,000. Both deeds were executed by petitioner Leonisa Hilario in favor of respondents. But petitioners claimed that the transactions entered between petitioners and respondents were not actually sales, but merely loans in the amount of P260,000. According to petitioners, they used this amount to redeem some mortgaged properties from the Rural Bank of Pandi, Bulacan. To secure the loan, however, respondents required petitioners to furnish them with ten (10) TCTs. Three of these certificates covered the petitioners' properties subject of the present case, while .the other seven belonged to their relatives. Petitioners admitted that their debts to respondent spouses remained unpaid due to business reverses.

According to petitioners, respondents thereafter registered the disputed properties in their own names through the use of fraud, misrepresentation and falsification, using the fictitious contracts of sale. Petitioners alleged that they came to know of said acts of respondents only when they were served with a notice dated May 22, 1991 , from respondents' counsel to vacate said lots. Thus, petitioners sought the reconveyance of the three parcels from respondents, with moral damages and attorney's fees.

For their part, respondents insisted in their Answer that on October 1981, petitioner Leonisa Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Hilario sold to them the three lots in question. Respondent Veronica Gonzales agreed to buy the same out of pity for petitioners, whose several properties had earlier been foreclosed by the bank. The transaction was embodied in a Deed of Absolute Sale and notarized before Notary Public Protacio Cortez, Jr. The original amount in the Deed of Absolute Sale was P240,000. However, before the properties were registered, petitioner Leonisa Hilario in a letter dated July 20, 1983 , requested for the execution of another Deed of Absolute Sale indicating a price of P50,000, purportedly to lessen the taxes and fees that they will be paying as the vendors.

According to respondents, a new Deed of Absolute Sale indicating a selling price of P50,000 for the 3 lots was executed and notarized before Notary Public Jose Ramos. Shortly afterwards, according to respondents, the titles of said lots were transferred to them.

After respondents wrote petitioners on June 20, 1983, asking them to vacate the disputed properties, petitioners sent respondents on July 28, 1983, an UNDERTAKING5 promising to vacate and surrender possession of the properties on or about December 15, 1983, without further extension. But then petitioners failed to vacate as promised on said date. Their failure to vacate and turn over the purchased lots prompted respondents to send a final demand letter asking petitioners to vacate the premises but petitioners still refused. As a result, said respondents were forced to file an ejectment suit before the Municipal Trial Court of Pandi, Bulacan,6 against petitioners. That suit was decided by the municipal court in respondents' favor.

Hence the petitioners elevated their case to the Regional Trial Court of Malolos.

On August 11, 1995 , after trial on the merits, the RTC of Malolos decided Civil Case No. 552M-91 against respondents and in favor of herein petitioners.

Page 112

Applying Article 1604 of the Civil Code in relation to Article 1602,the RTC observed that: (a) petitioners as the vendor remained in physical possession of the lots even after the execution of the deed of sale; (b) petitioners paid the realty taxes for the years 1982 and 1983; and (c) the purchase price of P50,000.00 was unusually inadequate by any standard for realties.

Respondents seasonably appealed the decision to the Court of Appeals. It reversed the trial court's decision.

ISSUE

WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN HOLDING THAT THE CONTRACT BETWEEN PETITIONERS AND RESPONDENTS WAS A SALE AND NOT AN EQUITABLE MORTGAGE OF REAL PROPERTY

RULING Decisive for the proper determination of the true nature of the transaction between the parties is the intent of the parties. There is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage.

Petitioners point out that the requirements of an equitable mortgage have been satisfied by the following circumstances, to wit: (1) inadequacy of the selling price; (2) possession in the premises, and (3) payment of realty taxes. However, such presumption of equitable Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

mortgage is not conclusive. It may be rebutted by competent and satisfactory proof to the contrary. In the instant case, petitioners' claim that the selling price of the lots in question was inadequate needs closer scrutiny. Petitioners' allegation that the insufficiency of the selling price creates the presumption that the transaction is an equitable mortgage is unsupported by the evidence on record. Petitioners failed to present any proof whatsoever that the fair market values of the real property in the area at the time of the transaction were much higher than the selling price of the parcels in question. Mere allegation that the price paid by respondents was inadequate, without more, does not make a case favorable to petitioners.

As to the allegation that petitioners were in possession of the properties even after the sale, it is obviated by the fact that they executed an undertaking promising to vacate the premises. But they repeatedly delayed honoring it. The records also show that they did not object when improvements were made on the premises by respondents. The latter introduced permanent improvements thereon and had in fact converted the pigpens, which used to belong to plaintiff Austria , into a fishpond. When all these improvements were being undertaken, plaintiffs were aware thereof but did not object to any of the work done on the subject premises. Such inaction is contrary to their claim of ownership over the subject properties, considering that the owner of a thing has the right to exclude any person from the enjoyment and disposal thereof and may, for this purpose, use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property. (Article 429, Civil Code).

Petitioners insist that they entered into a contract only to obtain a loan with respondents and nothing more. Petitioners failed, however, to present a copy of said contract in the proceedings before the RTC, nor could they testify as to its details. Petitioners surely cannot now pretend to be ignorant of the real nature of Page 113

their transaction with respondents. For this was not the first time they dealt with each other. MOREOVER, he failed to rebut the testimony of the Notary Public who testified in court that the petitioners as vendors of the properties personally appeared and acknowledged the sale documents before him.

Thus, we are constrained to find that indeed the true intent of the parties involves a contract of sale. It is not merely a loan, much less an equitable mortgage. WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals dated February 23, 1999 as well as its resolution dated February 28, 2001 , is AFFIRMED.

RONALDO P. ABILLA vs. CARLOS ANG GOBONSENG, JR. August 6, 2002 G.R. No. 146651 Respondent (Gobonseng) contracted a loan from petitioner in the sum of P550k, secured by a real estate mortgage over two parcels of land, covered by TCT Nos. 13607 and 13535. Respondent defaulted in the payment of the loan, which had reached the amount of P700k. He sought a renewal of the loan and issued 2 postdated checks, one for P10k and the other for P690k, representing the full amount of his obligation. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 114

The second check was dishonoured xxx. Respondent promised to pay petitioner the sum of P690k upon approval of his pending loan application with the State Investment House, Inc. However, the said lending institution required a collateral for which reason respondent borrowed from petitioner the two titles so he can mortgage the same. Thus, petitioner cancelled the mortgage in his favor and delivered the two titles to respondent. Despite approval of the loan, respondent failed to make good on his promise to pay his outstanding obligation to petitioner. Hence, the latter threatened to sue him for Estafa. Respondent thus executed a deed of absolute sale over his17 lots in Dumaguete in favor of petitioner. On the same day, the parties executed an Option to Buy whereby respondent was allowed to repurchase the lots within a period of 6 months. Respondent failed to repurchase the lots within the stipulated period. Consequently, petitioners instituted an action for specific performance xxx pursuant to the deed of absolute sale. In his answer, respondent interposed the defense that the transaction was in reality an equitable mortgage. RTC of Dumaguete rendered judgment in favor of petitioner and ruled that the Option to Buy was rendered null and void by respondent's failure to exercise the option within the period of six months. On appeal, the Court of Appeals affirmed the decision of the trial court, but further declared that "the deed of sale and option to buy actually constitute a pacto de retro sale." Gabonseng’s MR was denied. His petition filed with SC was also. Hence, the decision became final on February 8, 1999.. On February 27, 1999, respondent filed with the court of origin a motion to repurchase the lots with tender of payment, which was denied. Subsequently, the trial court issued an Order granting respondent's motion for reconsideration and allowing him to repurchase the lots within thirty days from finality thereof. Thus, petitioner Abilla instant petition for review.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

brought

the

ISSUE: Whether or not the contract between the parties was an absolute sale with pacto de retro. HELD: NO.(it was equitable mortgage)

held

as

a

mere

On January 17, 2002, we rendered the assailed Decision reversing the Order of the RTC, in effect denying respondent the right to repurchase the subject lots. Respondent's claim of the right to repurchase the lots is anchored on the third paragraph of Article 1606 of the Civil Code, which states: However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. In our Decision, we ruled that Article 1606 of the Civil Code does not apply to the case at bar because the transaction between the parties was a pacto de retro sale, citing the case of Vda. de Macoy v. CA. However, upon a careful review and analysis of the antecedent facts, we are convinced that the right granted under the third paragraph of Article 1606 may be invoked by respondent. In Vda. de Macoy, citing the earlier ruling in Felicen, Sr. v. Orias, we held: The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must appear that there was a belief on his part, founded on facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or other obligation. In that event, if the matter of the real nature of the contract is submitted for judicial resolution, the application of the rule is meet and proper; that the vendor a retro Page 115

be allowed to repurchase the property sold within 30 days from rendition of final judgment declaring the contract to be a true sale with right to repurchase. Conversely, if it should appear that the parties' agreement was really one of sale — transferring ownership to the vendee, but accompanied by a reservation to the vendor of the right to repurchase the property — and there are no circumstances that may reasonably be accepted as generating some honest doubt as to the parties' intention, the proviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right of repurchase, by simply instituting an action to reform the contract — known to him to be in truth a sale with pacto de retro — into an equitable mortgage. xxx xxx xxx.

retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or other obligation. Consistently therewith, respondent has maintained throughout the proceedings that transaction between him and petitioner was really an equitable mortgage. As such, respondent may avail of the third paragraph of Article 1606 of the Civil Code and repurchase the lots affected by the deed of absolute sale and option to buy.

Therefore, the applicability of Article 1606 rests on the bona fide intent of the vendor a retro, i.e., Gabonseng in this case. If he honestly believed that the transaction was an equitable mortgage, the said article applies and he can still repurchase the property within thirty days from finality of the judgment declaring the transaction as a sale with pacto de retro. Parenthetically, it matters not what the vendee intended the transaction to be. When petitioner lent the two titles to respondent, the loan he extended to respondent became unsecured. Naturally, there was a need to secure respondent's obligation after he reneged on his promise to pay the same out of the loan proceeds from State Investment House. Thus, it may well be that the deed of sale, together with the option to buy executed on the same day, was meant to serve as security for the indebtedness of respondent which had become long overdue. Said obligation would have been satisfied had respondent exercised the option to buy within the stipulated period. These circumstances, peculiar to the case at bar, make this case fall squarely within the situation contemplated in the above-quoted doctrine – that there was a belief on the part of the vendor a retro, founded on facts attendant upon the execution of the sale with pacto de Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

PHILADELPHIA AGAN vs. HEIRS OF SPS. ANDRES NUEVA and DIOSDADO NUEVA

December 11, 2003 G.R. No. 155018

FACTS: On April 13, 1988, Diosdada Nueva, with marital consent, sold under a pacto de retro, a parcel of land (2,033 sq.m.) situated in Cagayan de Oro City to Agan for P21k.The property is covered by TCT No. 25370 and registered in the name of Spouses Andres and Diosdada Nueva. Page 116

The agreement is evidenced by a public instrument entitled “Deed of Sale under a Pacto de Retro” executed and duly signed by the late Diosdada and Philadelphia. The parties agreed that the Nuevas are granted the right to repurchase the property sold, within six (6) months for the same consideration. Petitioners failed to repurchase the property within the stipulated period. On July 5, 1991, upon the death of Diosdada Nueva, the property was extrajudicially partitioned where Andres sold his interest in the land in question to his daughter Ann and son Lou. Since the title to the property was allegedly lost during the fire that razed the property on March 19, 1990 where Diosdada died, title was reconstituted and subsequently transferred and registered in the name of Ann and Lou Nueva. On June 19, 1992, Philadelphia filed a petition for consolidation of ownership against Spouses Nuevas with RTC of Cagayan de Oro City xxx In their answer filed on the Nuevas alleged that the pacto de retro sale was actually an equitable mortgage, the consideration for the sale being only P21k as against its Fair Market Value of P81k pursuant to Tax Declaration. On August 3, 2000, the judgment consolidating ownership over the disputed property in favor of Philadelphia was rendered by RTC. However, the second paragraph of the dispositive portion gave the vendors a period of 30 days from receipt of the decision within which to redeem the property. The dispositive portion of the decision reads: “WHEREFORE, based on the evidence presented, the ownership in the vendee is hereby consolidated by virtue of the failure of the vendors to redeem the property described in the Deed of Sale under Pacto de Retro xxx consisting of an area of 2,033 square meters, more or less. However, the vendors can still exercise the right to repurchase said property within thirty (30) days from receipt of this decision pursuant to Article 1606 and 1607 of the New Civil Code. [“]SO ORDERED.”

with the court. On September 12, 2000, Philadelphia filed a petition for relief from the August 3, 2000 decision. She argued that she did not find it necessary to file an appeal from the said decision considering that the grant of the thirdday period to redeem the property is a mere surplusage and hence, unenforceable and illegal in view of the court’s order consolidating ownership of the property in her favor. Respondent Agan prayed for the court to delete the said portion of the decision. On October 9, 2000, the trial court rendered its questioned Order, thus: “WHEREFORE, the decision of August 4, 2000 is hereby amended by deleting the second paragraph of the disposition thereof. [“]SO ORDERED.” Nuevas’ MR was denied by the court. Respondent heirs filed a petition for certiorari before the CA, contending that the RTC gravely abused its discretion in granting the petition for relief. In its Decision, the CA reversed the Order of the RTC and rendered judgment in favor of respondent heirs. The CA held that: Further, We do not agree with the contention of the private respondent that Article 1606 of the Civil Code does not apply in the instant case. In their answer to the petition for consolidation filed on October 22, 1998, petitioners raised the defense that the transaction between the parties was actually an equitable mortgage, considering that they remained in possession of the subject property and continued to pay the real taxes thereon. The lower court, in its August 3, 2000 decision, ruled that the transaction is one of sale under a pacto de retro, hence it acted within its authority under Article 1606 of the Civil Code in giving the petitioners thirty days as redemption period.

Hence, petitioner filed this presentaction with the SC.

Because of the refusal of Agan to accept the amount of P52,080.00 as redemption price, the Nuevas were constrained to consign the amount Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 117

ISSUE: Whether the transaction between the parties in the case at bar was an equitable mortgage.

HELD: YES. There is no ambiguity at all in the decision that would warrant clarification. If at all, the ambiguity is merely ostensible. At first blush, the dispositive portion of the RTC Decision declaring the consolidation of ownership of the property in petitioner, on one hand, and granting respondents thirty (30) days to repurchase the property, on the other, appears inconsistent. The dispositive portion, however, also makes reference to the third paragraph of Article 1606 of the New Civil Code. Taken together, it becomes obvious that the consolidation of the property in petitioner is subject to the suspensive condition of respondents’ failure to repurchase within the thirty-day period. At any rate, the grant of the right to repurchase to respondents is in accordance with the third paragraph of Article 1606, a provision not found in the old Civil Code. The legislative intent behind this Article, along with Articles 1602-1605 and 1607 of the same Code, is “to accord the vendor a retro the maximum safeguards for the protection of his legal rights under the true agreement of the parties. Experience has demonstrated too often that many sales with right to repurchase have been devised only to circumvent or ignore our usury laws and for this reason, the law looks upon then with disfavor.” Article 1606 is intended to cover suits where the seller claims that the real intention was a loan with equitable mortgage but decides otherwise. The seller, however, must entertain a good faith belief that the contract is an equitable mortgage. The RTC in this case made no finding in its Decision that respondents’ defense that the pacto de retro sale was an equitable mortgage was not made in good faith. Indeed, it does not appear that petitioner even attempted to prove bad faith on the part of respondents during the trial, which accounts for the RTC Decision’s utter silence on the matter. Moreover, respondents alleged in their answer that the consideration for the alleged sale, which was P21k was inadequate, considering that the Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

fair market value of the property was P81k. Respondents also averred that they remained in possession of the subject property and paid the real taxes thereon, and that their predecessor continued to pay the loan under which the mortgage was constituted. Respondents even reconstituted their title over the property, and partitioned the property with the other heirs, after which respondents purchased the latter’s share and caused the issuance of a TCT in their name. Such title, however, was subsequently annulled. The law presumes good faith and, in the absence of a contrary finding by the RTC in its Decision, respondents are entitled to the right to redeem the property pursuant to the third paragraph of Article 1606 of the New Civil Code. The Court also notes that the RTC erred in allowing petitioners the right to repurchase said property within thirty (30) days from receipt of the RTC Decision. By express provision, Article 1606 grants the vendor a retro thirty (30) days “from the time final judgment was rendered,” not from the defendant’s receipt of the judgment. The Court has construed “final judgment” to mean one that has become final and executory.

Spouses ALEXANDER CRUZ and ADELAIDA CRUZ, petitioners, vs. ELEUTERIO LEIS, RAYMUNDO LEIS, ANASTACIO L. LAGDANO, LORETA L. CAYONDA and the HONORABLE COURT OF APPEALS, respondents. G.R. No. 125233 March 9, 2000 Facts: Adriano and Gertrudes were married. Gertrudes acquired from the then Department of Agriculture and Natural Resources (DANR) a parcel of land. The Deed of Sale described Gertrudes as a widow. TCT No. 43100 was issued in the name of "Gertrudes Isidro," who was also referred to therein as a "widow." Page 118

When Adriano died It did not appear that he executed a will before his death. Gertrudes then obtained a loan from petitioners, the spouses Alexander and Adelaida Cruz, in the amount of P15,000.00 at 5% interest, payable on or before 5 February 1986. The loan was secured by a mortgage over the property covered by TCT No. 43100. Gertrudes, however, failed to pay the loan on the due date. Unable to pay her outstanding obligation, Gertrudes executed two contracts in favor of petitioner Alexander Cruz. The first is denominated as "Kasunduan" which the parties concede is a pacto de retro sale, granting Gertrudes one year within which to repurchase the property. The second is a "Kasunduan ng Tuwirang Bilihan," a Deed of Absolute Sale covering the same property for the price of P39,083.00, the same amount stipulated in the "Kasunduan." For failure of Gertrudes to repurchase the property, ownership thereof was consolidated in the name of Alexander Cruz. When Gertrudes Isidro died, her heirs, herein private respondents, received demands to vacate the premises from petitioners, the new owners of the property. Private respondents responded by filing a complaint. On the basis of the foregoing facts, the RTC rendered a decision in favor of private respondents. The RTC held that the land was conjugal property since the evidence presented by private respondents disclosed that the same was acquired during the marriage of the spouses and that Adriano contributed money for the purchase of the property. Thus, the court concluded, Gertrudes could only sell to petitioner spouses her one-half share in the property. Petitioners appealed to the Court of Appeals in vain. The Court of Appeals affirmed the decision of the Regional Trial Court, holding that since the property was acquired during the marriage of Gertrudes to Adriano, the same was presumed to be conjugal property under Article 160 of the Civil Code. The appellate court, like the trial court, also noted that petitioner did not comply with the provisions of Article 1607 of the Civil Code. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Petitioners are now before this Court seeking the reversal of the decision of the Court of Appeals. Issue: whether or not a co-owner may acquire exclusive ownership over the property held in common? Held: Essentially, it is the petitioner's contention that the property subject of dispute devolved upon him upon the failure of his co-heirs to join him in its redemption within the period required by law. He relies on the provisions of Article 1515 of the old Civil Code, Article 1613 of the present Code, giving the vendee a retro the right to demand redemption of the entire property. There is no merit in this petition. The right of repurchase may be exercised by a co-owner with respect to his share alone (CIVL CODE, art. 1612; CIVIL CODE (1889), art. 1514.). While the records show that petitioner redeemed the property in its entirety, shouldering the expenses therefor, that did not make him the owner of all of it. In other words, it did not put to end the existing state of coownership (Supra, Art. 489). There is no doubt that redemption of property entails a necessary expense. The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one co-heir or co-owner of the property in its totality does not vest in him ownership over it. Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain the property and consolidate title thereto in his name (Supra, art. 1607). But the provision does not give to the redeeming co-owner the right to the entire property. It does not provide for a mode of terminating a co-ownership. It is conceded that, as a rule, a co-owner such as Gertrudes could only dispose of her share in the property owned in common. Unfortunately for private respondents, however, the property was registered in TCT No. 43100 solely in the name of "Gertrudes Isidro, widow." Where a parcel of land, forming past of the

Page 119

undistributed properties of the dissolved conjugal partnership of gains, is sold by a widow to a purchaser who merely relied on the face of the certificate of title thereto, issued solely in the name of the widow, the purchaser acquires a valid title to the land even as against the heirs of the deceased spouse. The rationale for this rule is that "a person dealing with registered land is not required to go behind the register to determine the condition of the property. He is only charged with notice of the burdens on the property which are noted on the face of the register or the certificate of title. To require him to do more is to defeat one of the primary objects of the Torrens system." 9

without prejudice to compliance by petitioners with the provisions of Article 1607 of the Civil Code

As gleaned from the foregoing discussion, despite the Court of Appeals' finding and conclusion that Gertrudes as well as private respondents failed to repurchase the property within the period stipulated and has lost all their rights to it, it still ruled against petitioners by affirming the Regional Trial Court's decision on the premise that there was no compliance with Article 1607 of the Civil Code requiring a judicial hearing before registration of the property in the name of petitioners. This provision states: Art. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard. The aforequoted article is intended to minimize the evils which the pacto de retro sale has caused in the hands of usurers. A judicial order is necessary in order to determine the true nature of the transaction and to prevent the interposition of buyers in good faith while the determination is being made. 10 WHEREFORE, the decision of the Court of Appeals is MODIFIED in that the petitioners are deemed owners of the property by reason of the failure of the vendor, Gertrudes Isidro, to repurchase the same within the period stipulated. However, Transfer Certificate of Title No. 130584, in the name of Alexander M. Cruz, which was issued without judicial order, is hereby ordered CANCELLED, and Transfer Certificate of Title No. 43100 in the name of Gertrudes Isidro is ordered REINSTATED, Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

BPI FAMILY SAVINGS BANK, INC. v. SPS. JANUARIO ANTONIO VELOSO AND NATIVIDAD VELOSO G.R. No. 141974

August 9, 2004

CORONA, J.: Facts: Respondent spouses Januario Antonio Veloso and Natividad Veloso obtained a loan of P1,300,000 from Family Bank and Trust Company. The loan was secured by a deed of mortgage over three parcels of lands owned by the spouses.

Page 120

When the respondents defaulted in the monthly installments due on their loan, Family Bank instituted an extra-judicial foreclosure proceeding on the respondents’ mortgaged properties and was sold at public auction with Family Bank as the highest bidder for P2,782,554.66.

Subsequently, Family Bank assigned all its rights and interests in the foreclosed properties to BPI Family Bank, Inc, herein petitioner.

Respondents, wrote to petitioners offering to redeem the foreclosed properties for P1,872,935 but were however rejected by the latter.

Being so, they filed with the RTC of Quezon City, a complaint for annulment of foreclosure and thereafter were ordered by the latter to deposit with the clerk of court the sum of P1,500,000 representing the redemption price.

Hence, the instant petition.

Issue:

1. Whether the extra-judicial foreclosure confirmed by both the trial court and the court of appeals is valid. 2. Whether the respondent spouses complied with all the requirements for the redemption of the subject properties. Decision:

The appealed decision of the Court of Appeals is hereby REVERSED and SET ASIDE. The complaint filed by respondent spouses is hereby dismissed.

Ratio Decidendi: Despite the opposition of petitioner, the trial court ordered the release to the respondents of P1,400,000 of the consigned amount. The balance of P100,000 is to take the place of the injunction bond to answer for whatever damages petitioner might suffer because of the issuance of the preliminary injunction previously issued by a different branch of RTC and then later lifted.

The trial court rendered a decision declaring the validity of the extra-judicial foreclosure of the mortgaged properties of respondents but allowed the redemption of the same at a redemption price of P2,140,000.

Upon appeal by the petitioner, the Court of Appeals affirmed the trial court’s decision subject to the modification declaring P2,678,639.80 as the redemption price.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

The Supreme Court found no reason to question the validity of the extra-judicial foreclosure. In a real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right to foreclose on the mortgage and have the property seized and sold to apply the proceeds to the obligation. Therefore, due to the default of the respondents to pay their obligation, foreclosure was proper.

As regards the second issue, the general rule on redemption is that the statement of intention to exercise the right to repurchase must be accompanied by an actual and simultaneous tender of payment, otherwise, the offer to redeem is ineffectual. A bona fide redemption necessarily implies a reasonable and valid tender of the entire repurchase price, otherwise the rule on the redemption period fixed by law can easily be circumvented.

Page 121

The Supreme Court held in the case of Bodiongan vs. Court of Appeals that in order to effect a redemption, the judgment debtor must pay the purchaser the redemption price composed of the following: (1) the price which the purchaser paid for the property; (2) interest of 1% per month on the purchase price; (3) the amount of any assessments or taxes which the purchaser may have paid on the property after the purchase; and (4) interest of 1% per month on such assessments and taxes.

In the instant case, the offer was not a legal and effective exercise of the right of redemption contemplated under the law, hence, refusal of the offer by petitioner was completely justified. The law on equity as defense, applies only in the absence of, and never against, statutory law or judicial rules of procedure.

Furthermore, Article 1616 of the Civil Code provides that the vendor cannot avail himself of the right to repurchase without returning to the vendee the price of the sale.

In the case at bar, the offer by respondents to redeem the foreclosed properties for P1,872,935 and the subsequent consignation in court of P1,500,000 while made within the redemption period was ineffective because the amount offered and actually consigned not only excluded the interest but was lower than the P2,782,554.66 paid by the highest bidder/purchaser of the properties during the auction sale.

Moreover, the P1,400,000 consigned by respondents and then subsequently withdrawn by them, leaving only P100,000 as injunction bond, would have been equivalent to requiring petitioner to accept payment by installments making it necessary to indefinitely extend the redemption period which is contrary to the policy of the law.

LEE CHUY REALTY CORPORATION vs. COURT OF APPEALS and MARC REALTY AND DEVELOPMENT CORPORATION December 4, 1995

GR No. 104114

Bellosillo, J.: The law grants the right of redemption. But in so granting, the law intended that the offer to redeem be valid and effective, accompanied by an actual tender of the redemption price. The fixing of a definite term within which the property should be redeemed is meant to avoid prolonged economic uncertainty over the ownership of the thing sold. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

FACTS: A piece of land is disputed by Lee Chuy Corp. and Marc Realty. Originally the property was coowned by Ruben Jacinto to the extent of onesixth and the Bascara’s and Ernesto Jacinto who collectively owned the remaining five-sixths. On April 30, 1981, sale bet. Ruben Jacinto, of

Page 122

his one-sixth pro-indiviso share, and Lee Chuy was duly registered. The Bascara’s and E. Jacinto sold theirs to Marc Realty. The same was registered on Oct. 16, 1989. Lee Chuy claims it was never informed of the other sale. Marc Realty claims it was verbally informed and was given a copy of the deed of sale. On 13 November 1989 LEE CHUY REALTY filed a complaint for legal redemption against MARC REALTY and consigned in court a manager's check for 614,400. In its Amended Answer with Counterclaim with Motion to Dismiss, MARC REALTY insisted that the complaint be dismissed for failure to state a cause of action there being no allegation of prior valid tender of payment nor a prior valid notice of consignation. The trial court ruled in favour of Lee Chuy and decreed that neither a separate offer to redeem nor a formal notice of consignation are necessary for the reason that the filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. In respondents appeal to CA, CA reversed trial court’s judgment and decreed in contrary that a prior tender or offer of redemption is a prerequisite or precondition to the filing of an action for legal redemption. Hence, the petition. ISSUE: W/N THE FILING OF THE ACTION ITSELF IS EQUIVALENT TO A FORMAL OFFER TO REDEEM RULING: Petition Granted. SC sustains LEE CHUY REALTY. Arts. 1620 and 1623 of the Civil Code on legal redemption provide: Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other coowners or of any of them are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Art. 1623. The right of legal preemption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. There is actually no prescribed form for an offer to redeem to be properly effected. Hence, it can either be through a formal tender with consignation, or by filing a complaint in court coupled with consignation of the redemption price within the prescribed period. A co-owner desirous of exercising his right of legal redemption is given a period of thirty (30) days from notice of the sale within which to avail of the right to redeem. Under the free patent or homestead provisions of the Public Land Act a period of five (5) years from the date of conveyance is provided, the five-year period to be reckoned from the date of the sale and not from the date of registration in the office of the Register of Deeds.The redemption of extrajudicially foreclosed properties, on the other hand, is exercisable within one (1) year from the date of the auction sale as provided for in Act No. 3135.

Primary Structures Corp. vs. Sps. Anthony and Susan T. Valencia

August 19, 2003

GR No.150060

First Division Ponente: Vitug, J.

Facts: Petitioner is a private corporation based in Cebu City and the registered owner of Lot 4523 situated in Liloan, Cebu, with an area of Page 123

22,214 square meters. Adjacent to the lot of petitioner are parcels of land, identified to be Lot 4527, Lot 4528, and Lot 4529 with a total combined area of 3,751 square meters. The three lots, aforenumbered, have been sold by Hermogenes Mendoza to respondent spouses sometime in December 1994. Petitioner learned of the sale of the lots only in January, 1996, when Hermogenes Mendoza sold to petitioner Lot No. 4820, a parcel also adjacent to Lot 4523 belonging to the latter. Forthwith, it sent a letter to respondents, on 30 January 1996, signifying its intention to redeem the three lots. On 30 May 1996, petitioner sent another letter to respondents tendering payment of the price paid to Mendoza by respondents for the lots. Respondents, in response, informed petitioner that they had no intention of selling the parcels. Thereupon, invoking the provisions of Articles 1621 and 1623, petitioner filed an action against respondents to compel the latter to allow the legal redemption. Petitioner claimed that neither Mendoza, the previous owner, nor respondents gave formal or even just a verbal notice of the sale of the lots as so required by Article 1623 of the Civil Code.

After trial, the Regional Trial Court of Cebu dismissed petitioners complaint and respondents' counterclaim; both parties appealed the decision of the trial court to the Court of Appeals. The appellate court affirmed the assailed decision.

Issue: Interpretation of Articles 1621 and 1623 of the Civil Code

one hectare, is alienated unless the grantee does not own any rural land.

This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other apparent servitudes for the benefit of other estates.

If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first requested the redemption.

ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

Article 1621 of the Civil Code expresses that the right of redemption it grants to an adjoining owner of the property conveyed may be defeated if it can be shown that the buyer or grantee does not own any other rural land.

Held: Petition Granted

Article 1621 and Article 1623 of the Civil Code, which read:

ART. 1621. The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the area of which does not exceed

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption shall not be exercised except within thirty days from notice in writing by the prospective vendor, or by the vendor, as the case may be. In stressing the mandatory character of the requirement, the law states that the deed of sale shall not be recorded in the Registry of Property unless the same is accompanied by an affidavit of the vendor that he has given notice thereof to all possible redemptioners.

Page 124

The Court of Appeals has equated the statement in the deed of sale to the effect that the vendors have complied with the provisions of Article 1623 of the Civil Code, as being the written affirmation under oath, as well as the evidence, that the required written notice to petitioner under Article 1623 has been met. Respondents, like the appellate court, overlook the fact that petitioner is not a party to the deed of sale between respondents and Mendoza and has had no hand in the preparation and execution of the deed of sale. It could not thus be considered a binding equivalent of the obligatory written notice prescribed by the Code.

The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status.

Sen Po Ek Marketing Corp. vs. Martinez G.R. No. 134117 325 SCRA 210 SECOND DIVISION Ponente: De Leon, Jr. Facts: Sofia P. Martinez was the registered owner of two (2) parcels of land in Tacloban City. On 1961, she leased the lots to Yu Siong, father of petitioner for a period of ten (10) years. The contract required the lessee to construct a commercial building on the property which shall become the property of Sofia upoon expiration of the lease. On 1973, the contract was renewed with explicit stipulation that the new owner of the building is Sofia. Sofia then sold the lot and Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 125

building to her daughter, private respondent Teodora P. Martinez. After the new lease contract expired, it was no longer renewed by the party. Petitioner continued posession and regulary paid monthly rentals to Sofia until her death. After her death the rentals were paid to Teodora. On 1989, private respondent sent a letter to petitioner informing him of her intention to sell the premises to one Mrs. Petilla which the petitioner only received a month after. The petitioner sought to purchase the property. Petitioner filed a verified complaint against Teodora for the annulment of the Deed of Sale by her mother in her favor stating that they have preferential right over the land. However, Teodora sold the property to respondent Tiu Uyping. Petitioner prays for the nullity of the second sale. Trial court rendered decision in favor of the petitioner. Court of Appeals rendered a decision reversing the trial court.

of Sofia executed a “Confirmation of Sale of Land and Improvements”. Thus, the sale is considered valid and binding. 2. The Petitioner does not have a right of first refusal to assert against the private respondents. Neither any law nor any contract grants it preference in the purchase of leased premises. Such grant of right of first refusal must be clearly embodied in a written contract, but there is none in the present case.

HTP. Issues: Whether the CA erred in declaring the sale between Sofia and Teodora valid? Whether Petitioner has the right of first refusal to assert against the private respondent? Rulings: 1. Teodora Martinez had the right, as lawful owner of the leased premises, to sell the same to private respondent Tiu Uypin brothers. However, the sale between her and her mother was void for being fictitious. This was established by several badges of simulation proving that the sale was not intended to have any legal effect between them. Some evidence of simulation is the late notarization and Teodora’s signature not as an owner but merely as an instrumental witness. Also, Sofia continued to receive the rentals until her death. Futhermore, Teodora never asserted her alleged right of ownership over the leased premises. Nonetheless, the sale between Teodora and the Tiu Uyping is valid. Since Teodora is one of the co-heirs she can only her undivided portion since her coheirs did not give her authority. However, the sale can be subject to ratification. In this case, the other heirs Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Nelson Cabales and Rito Cabales v. Court of Appeals, Jesus Feliano and Anunciano Feliano August 31, 2007 GR No. 162421 First Division Puno C.J. Facts: - Rufino Cabales died on July 4, 1966 and left a 5, 714 square meter parcel of land to his wife and children - On July 26, 1971, brothers and co owners sold the property to Dr. Corrompido for P 2,000 with right to repurchase within eight years. The siblings divided the proceeds of the sale among them. --The following month or on August 18, 1971, Page 126

Alberto secured a note (“vale”) from Dr. Corrompido in the amount of P300.00. In 1972, Alberto died leaving his wife and son, petitioner Nelson. On December 18, 1975, within the eight-year redemption period, Bonifacio and Albino tendered their payment of P666.66 each to Dr. Corrompido. But Dr. Corrompido only released the document of sale with pacto de retro after Saturnina paid for the share of her deceased son, Alberto, including his “vale” of P300.00. On even date, Saturnina and her four (4) children Bonifacio, Albino, Francisco and Leonora sold the subject parcel of land to respondents-spouses Jesus and Anunciacion Feliano for P8,000.00. The Deed of Sale provided in its last paragraph, thus: It is hereby declared and understood that the amount of TWO THOUSAND TWO HUNDRED EIGHTY SIX PESOS (P2,286.00) corresponding and belonging to the Heirs of Alberto Cabales and to Rito Cabales who are still minors upon the execution of this instrument are held in trust by the VENDEE and to be paid and delivered only to them upon reaching the age of 21. - On December 17, 1985, the Register of Deeds of Southern Leyte issued Original Certificate of Title No. 17035 over the purchased land in the names of respondents-spouses. -On December 30, 1985, Saturnina and her four (4) children executed an affidavit to the effect that petitioner Nelson would only receive the amount of P176.34 from respondents-spouses when he reaches the age of 21 considering that Saturnina paid Dr. Corrompido P966.66 for the obligation of petitioner Nelson’s late father Alberto, i.e., P666.66 for his share in the redemption of the sale with pacto de retro as well as his “vale” of P300.00. - On July 24, 1986, 24-year old petitioner Rito Cabales acknowledged receipt of the sum of P1,143.00 from respondent Jesus Feliano, representing the former’s share in the proceeds of the sale of subject property. -In 1988, Saturnina died. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Petitioner Nelson,

then residing in Manila, went back to his father’s hometown in Southern Leyte. That same year, he learned from his uncle, petitioner Rito, of the sale of subject property. In 1993, he signified his intention to redeem the subject land during a barangay conciliation process that he initiated. -On January 12, 1995, contending that they could not have sold their respective shares in subject property when they were minors, petitioners filed before the Regional Trial Court of Maasin, Southern Leyte, a complaint for redemption of the subject land plus damages. -in their answer, respondents-spouses maintained that petitioners were estopped from claiming any right over subject property considering that (1) petitioner Rito had already received the amount corresponding to his share of the proceeds of the sale of subject property, and (2) that petitioner Nelson failed to consign to the court the total amount of the redemption price necessary for legal redemption. They prayed for the dismissal of the case on the grounds of laches and prescription. No amicable settlement was reached at pretrial. Trial ensued and on August 11, 2000, the trial court ruled against petitioners On appeal, CA modified tha decision of the trial court Issue: Whether CA erred in (1) recognizing petitioner Nelson Cabales as co-owner of subject land but denied him the right of legal redemption, and (2) not recognizing petitioner Rito Cabales as co-owner of subject land with similar right of legal redemption. Held: Petition denied, CA decision affirmed with modification. Ratio: -When Rufino Cabales died intestate, his wife Saturnina and his six (6) children survived and succeeded him. Article 996 of the New Civil Code provides that “[i]f a widow or widower and legitimate children or descendants are left, the surviving spouse has in the succession the same share as that of each of the children.” -Verily, the seven (7) heirs inherited equally on subject property. Petitioner Rito and Alberto, Page 127

petitioner Nelson’s father, inherited in their own rights and with equal shares as the others. -But before partition of subject land was effected, Alberto died. By operation of law, his rights and obligations to one-seventh of subject land were transferred to his legal heirs – his wife and his son petitioner Nelson. -The first sale with pacto de retro to Dr. Corrompido by the brothers and co-owners Bonifacio, Albino and Alberto was valid but only as to their pro-indiviso shares to the land. When Alberto died prior to repurchasing his share, his rights and obligations were transferred to and assumed by his heirs, namely his wife and his son, petitioner Nelson. But the records show that it was Saturnina, Alberto’s mother, and not his heirs, who repurchased for him. As correctly ruled by the Court of Appeals, Saturnina was not subrogated to Alberto’s or his heirs’ rights to the property when she repurchased the share. -Upon redemption from Dr. Corrompido, the subject property was resold to respondentsspouses by the co-owners. Petitioners Rito and Nelson were then minors and as indicated in the Deed of Sale, their shares in the proceeds were held in trust by respondents-spouses to be paid and delivered to them upon reaching the age of majority. -the father, or, in his absence, the mother, is considered legal administrator of the property pertaining to the child under his or her parental authority without need of giving a bond in case the amount of the property of the child does not exceed two thousand pesos. Corollary to this, Rule 93, Section 7 of the Revised Rules of Court of 1964, applicable to this case, automatically designates the parent as legal guardian of the child without need of any judicial appointment in case the latter’s property does not exceed two thousand pesos Saturnina was clearly petitioner Rito’s legal guardian without necessity of court appointment considering that the amount of his property or one-seventh of subject property was P1,143.00, which is less than two thousand pesos. However, Rule 96, Sec. 1 provides that: Section 1. To what guardianship shall extend. – A guardian appointed shall have the care and custody of the person of his ward, and the management of his estate, or the management of the estate Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

only, as the case may be. The guardian of the estate of a nonresident shall have the management of all the estate of the ward within the Philippines, and no court other than that in which such guardian was appointed shall have jurisdiction over the guardianship Indeed, the legal guardian only has the plenary power of administration of the minor’s property. It does not include the power of alienation which needs judicial authority. Thus, when Saturnina, as legal guardian of petitioner Rito, sold the latter’s pro-indiviso share in subject land, she did not have the legal authority to do so. Accordingly, the contract of sale as to the proindiviso share of petitioner Rito was unenforceable. However, when he acknowledged receipt of the proceeds of the sale on July 24, 1986, petitioner Rito effectively ratified it. This act of ratification rendered the sale valid and binding as to him. With respect to petitioner Nelson, on the other hand, the contract of sale was void. He was a minor at the time of the sale. Saturnina or any and all the other co-owners were not his legal guardians with judicial authority to alienate or encumber his property. It was his mother who was his legal guardian and, if duly authorized by the courts, could validly sell his undivided share to the property. She did not. Necessarily, when Saturnina and the others sold the subject property in its entirety to respondents-spouses, they only sold and transferred title to their proindiviso shares and not that part which pertained to petitioner Nelson and his mother. Consequently, petitioner Nelson and his mother retained ownership over their undivided share of subject property. -As to whether the petitioners can redeem the land from respondent spouses, it is clear that legal redemption may only be exercised by the co-owner or co-owners who did not part with his or their pro-indiviso share in the property held in common. As demonstrated, the sale as to the undivided share of petitioner Rito became valid and binding upon his ratification on July 24, 1986. As a result, he lost his right to redeem subject property. -In the face of the established facts, petitioner

Page 128

Nelson cannot feign ignorance of the sale of subject property in 1978. To require strict proof of written notice of the sale would be to countenance an obvious false claim of lack of knowledge thereof, thus commending the letter of the law over its purpose, i.e., the notification of redemptioners.

G.R. No. 150060

August 19, 2003

PRIMARY STRUCTURES CORP. represented herein by its President ENGR. WILLIAM C. LIU, petitioner, vs. SPS. ANTHONY S. VALENCIA and SUSAN T. VALENCIA, respondents. 409 SCRA 371 Ponente: VITUG, J. (FIRST DIVISION)

Facts: Petitioner is a private corporation in Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 129

Cebu City and the registered owner of Lot situated in Liloan, Cebu. Adjacent to the lot of petitioner are 3 parcels of land. The 3 lots have been sold by Hermogenes Mendoza to respondent spouses. Petitioner learned of the sale of the lots then it sent a letter to respondents signifying its intention to redeem the three lots. Petitioner sent another letter to respondents tendering payment of the price paid to Mendoza by respondents for the lots. Respondents, in response, informed petitioner that they had no intention of selling the parcels. Invoking the provisions of Articles 1621 and 1623, petitioner filed an action against respondents to compel the latter to allow the legal redemption. Petitioner claimed that neither Mendoza, the previous owner, nor respondents gave formal or even just a verbal notice of the sale of the lots as so required by Article 1623 of the Civil Code. Regional Trial Court of Cebu dismissed petitioner’s complaint and respondents' counterclaim. Both parties appealed the decision of the trial court to the Court of Appeals. The appellate court affirmed the assailed decision.

The Court of Appeals has equated the statement in the deed of sale to the effect that the vendors have complied with the provisions of Article 1623 of the Civil Code, as being the written affirmation under oath, as well as the evidence that the required written notice to petitioner under Article 1623 has been met. Respondents overlook the fact that petitioner is not a party to the deed of sale between respondents and Mendoza and has had no hand in the preparation and execution of the deed of sale. It could not thus be considered a binding equivalent of the obligatory written notice prescribed by the Code. The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals is REVERSED and SET ASIDE. Petitioner is hereby given a period of thirty days from finality of this decision within which to exercise its right of legal redemption.

Issue: Whether or not petitioner Primary Structures Corporation has the right of redemption over the three parcels of land. Ruling: Article 1621 of the Civil Code expresses that the right of redemption it grants to an adjoining owner of the property conveyed may be defeated if it can be shown that the buyer does not own any other rural land. The appellate court, sustaining the trial court, has said that there has been no evidence to show that respondents are not themselves owners of rural lands for the exclusionary clause of the law to apply. Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption shall not be exercised except within thirty days from notice in writing by the prospective vendor, or by the vendor, as the case may be. In stressing the mandatory character of the requirement, the law states that the deed of sale shall not be recorded in the Registry of Property unless it is accompanied by an affidavit of the vendor that he has given notice to all possible redemptioners. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Ledonio v. Capitol Development Corporation Chico-Nazario, G.R. No. 149040

July 4, 2007

Facts: Edgar Ledonio obtained from Patrocinio S. Picache two loans with the amount of P60,000.00, and covered by promissory notes duly signed by him. Later on, Picache transferred his due

Page 130

from Ledonio Corporation .

to

Capitol

Development

However, Ledonio failed to pay any of the loans covered by the promissory notes when they became due. The corporation demanded payment from him but refused to do so. He denied that he made such promissory notes in favor of Picache and he further alleged that he only signed the promissory notes as a result of intimidation and fraud. He alleged that when he made the promissory notes, they were only used by Picache by taking advantage of his signature.

The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it.

Prior to the case, Ledonio was engaged in a garment business where he leased a real property from Mission Realty and Management Corporation. An incident happened where a group of Meralco employees cut-off the power supply of the plant of Ledonio due to nonpayment of electric bills. This made foreign investors to desist transacting with him. He blamed the MRMC for not notifying him with the unpaid bills but he failed to obtain any of his claims. The RTC ruled in favor of the respondent corporation finding its version of the facts more credible. The Court of Appeals affirmed the same.

ISSUE: whether the assignment of debt by Picache, the creditor, to another party such as the CDC, requires his consent being the debtor.

RULING: Petition is denied for lack of merit. The transaction between Picache and CDC was an assignment of credit and does not require petitioner’s consent as debtor for its validity and enforceability.

G.R. No. 97753 August 10, 1992

An assignment of credit has been defined as an agreement by virtue of which the owner of a credit known as the assignor, by a legal cause - such as sale, dation in payment or exchange or donation – and without need of the debtor’s consent, transfers that credit and its accessory rights to another who is the assignee, who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.

REGALADO, J.:

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Facts: On various dates, defendant Security Bank and Trust Company issued 280 certificates of time deposit in favor of Angel dela Cruz who deposited of time deposit therein the aggregate Page 131

amount of P1,120,000.00. Angel dela Cruz delivered said certificate of time deposit to plaintiff-petitioner Caltex in connection with his purchase of fuel products from the latter. Thereafter, dela Cruz informed defendant Bank that he lost all the certificates of deposit and ask for the replacement of said last CTP where it was granted by the bank. Soon after said grants, dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight Hundred Seventy-Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of Assignment of Time Deposit which stated, among others, that he surrendered to defendant bank “full control of the indicated time deposits from and after date” of the assignment and further authorizes said bank to preterminate, set-off and “apply the said time deposit to the payment of whatever amounts may be due” on the loan upon it maturity. the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan. Plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest therein at 16% per annum Issue: whether or not Caltex Philippines has a better right over the Certificate of time deposits? Held: Security Bank has a better right because the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public instrument. Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question. Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Lo vs. KJS Eco-Formwork System Phil., Inc. October 8, 2003 First Division Justice Ynares-Santiago Facts: Respondent KJS ECO_FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings. Sonny Lo, on the other hand is a building contractor. The petitioner ordered scaffolding equipments worth P540, 425.80 from respondent and paid a downpayment of P150,000. The balance was Page 132

made payable in ten monthly installments. The respondent delivered the equipments to petitioner but Sonny Lo was only able to pay the first two monthly installments because his business encountered financial difficulties. Despite the situation, the petitioner and respondent executed a Deed of Assignment whereby the petitioner assigned to respondent his receivables in the amount of P335, 462.80 from Jomero Realty Corporation. When the respondent tried to collect the said credit from the corporation. Jomero Realty Corporation refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it. The respondent filed an action for recovery of a sum of money before the RTC of Makati.The trial court dismissed the complaint on the ground that the assignment of credit extinguished the obligation when they executed the Deed of Assignment. The respondent appealed the decision to the Court of Appeals and the said court reverses the appealed decision. Issue: Whether or not the Deed of Assignment that was executed extinguished the obligation of the petitioner.

payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. Hence, it may be well settled that the assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment which may extinguish the obligation. However, as in any other contract of sale, the vendor is bound by certain warranties. From the provision of the civil code(Article 1628), petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation. In other words, respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty under assignment. Therefore, it behooved on petitioner to make good its warranty and paid the obligation. Indeed by warranting the existence of the credit, petitioner should be deemed to have ensured the performance thereof in case the same is later found to be inexistent. He should be held liable to pay to respondent the amount of his indebtedness(Lo vs. KJS Eco-Formwork System Phil., Inc., pp 186-188).

Ruling: The decision of the Court of Appeals ordering petitioner to pay the respondent the sum of P335, 462.14 is AFFIRMED with MODIFICATION. Ratio: (Lo vs. KJS Eco-Formwork System Phil., Inc., pp 186-188) An Assignment of Credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor , transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. In dacion en Pago, as a special mode of Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

ATOK FINANCE CORPORATION, petitioner vs. COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents. G.R. No. 80078 May 18, 1993 FELICIANO, J.: FACTS: Private respondents Sanyu Chemical corporation ("Sanyu Chemical") as principal and Page 133

Sanyu Trading Corporation ("Sanyu Trading") along with individual private stockholders of Sanyu Chemical, namely, private respondent spouses Danilo E. Halili and Pablico Bermundo as sureties, executed in the continuing Suretyship Agreement in favor of Atok Finance as creditor. Under this Agreement, Sanyu Trading and the individual private respondents who were officers and stockholders of Sanyu Chemical did jointly and severally unconditionally guarantee to ATOK FINANCE CORPORATION the full, faithful and prompt payment and discharge of any and all indebtedness of private respondent to the Creditor Atok. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Principal or any one or more of them. On 27 November 1981, Sanyu Chemical assigned its trade receivables outstanding as of 27 November 1981 with a total face value of P125, 871.00, to Atok Finance in consideration of receipt from Atok Finance of the amount of P105, 000.00. The assigned receivables carried a standard term of thirty (30) days; it appeared, however, that the standard commercial practice was to grant an extension up to one hundred twenty (120) days without penalties. Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a total face value of P100, 378.45. On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the Regional Trial Court of Manila to collect the sum of P120, 240.00 plus penalty charges amounting to P0.03 for every peso due and payable for each month starting from 1 September 1983. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amount due under the trade receivables. The private respondents on the other hand seek for the dismissal of the complaint for lack of cause of action and contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. The trial court rendered a decision in favor of Atok Finance.Upon appeal; Court of Appeals Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

reversed the decision of the trial court, ruling in favor of the private respondents.Hence, this petition. ISSUES: Whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the provisions of the Continuing Suretyship Agreement? Whether or not the continuing suretyship agreement must be held null and void as having been executed without consideration and without a pre-existing principal obligation to sustain it. RULING: The Supreme Court granted the petition of Petitioner Atok Finance and sustains the decision of trial court finding in favor of petitioner Atok Finance. The contention of private appellants that the suretyship agreement is null and void because it is not in consonance with the laws on guaranty and security on the ground that the agreement was entered into by the parties two years before the Deed of Assignment was executed. Thus, contesting that it ran counter to the provision that guaranty cannot exist independently because by nature it is merely an accessory contract. The SC held that Court of Appeals here was in serious error. It is true that a serious guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." However, the SC ruled that such legal proposition is not, like most legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. This is clear from Article 2052 of the Civil Code itself. A surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more that there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such surety agreement, there would be no need to execute a separate surety contract or

Page 134

bond for each financing or credit accommodation extended to the principal debtor. With respect to the second issue, that is, whether private respondents are liable under the Deed of Assignment which they, along with the principal debtor Sanyu Chemical, executed in favor of petitioner, on the receivables thereby assigned, SC held that private respondents are liable with respect to the deed they executed in favor of creditor Atok Finance. The Deed of Assignment was valid and binding upon Sanyu Chemical. It is an activity or operation that permits the assignee to monetize or realize the value of the receivables before the maturity thereof. In other words, Sanyu Chemical received from Atok Finance the value of its trade receivables it had assigned; Sanyu Chemical obviously benefitted from the assignment. The liability of Sanyu Chemical to Atok Finance rest on the breach of ex contractu (contractual obligation). Under the Deed of Assignment, the effect of non-payment by the original trade debtors was breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu Chemical became, under the terms of the Deed of Assignment, solidary obligor under each of the assigned receivables, the other private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili), became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing Suretyship Agreement.

Sales Case Digests UST Faculty of Civil Law 2A SY 2009-2010

Page 135