SALES Digest Cases

1. SPOUSES ONNIE SERRANO AND AMPARO HERRERA, PETITIONERS, VS. GODOFREDO CAGUIAT, RESPONDENT. [GRN 139173 February 28, 2007] Facts: 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 cancelling 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 the “Receipt for Partial Payment” that they – “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 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.” 1

2. NABUS vs. PACSON , G.R. No. 161318, November 25, 2009 FACTS:  The spouses Bate and Julie Nabus were the owners of parcels of land with a total area of 1,665 square meters, situated in Pico, La Trinidad, Benguet, duly registered in their names under TCT No. T-9697 of the Register of Deeds of the Province of Benguet. The property was mortgaged by the Spouses Nabus to the Philippine National Bank (PNB), La Trinidad Branch, to secure a loan in the amount of P30,000.00.  On February 19, 1977, the Spouses Nabus executed a Deed of Conditional Sale4 covering 1,000 square meters of the 1,665 square meters of land in favor of respondents Spouses Pacson for a consideration of P170,000.00, which was duly notarized on February 21, 1977.  Pursuant to the Deed of Conditional Sale, respondents paid PNB the amount of P12,038.86 on February 22, 19776 and P20,744.30 on July 17, 19787 for the full payment of the loan.  On December 24, 1977, before the payment of the balance of the mortgage amount with PNB, Bate Nabus died. On August 17, 1978, his surviving spouse, Julie Nabus, and their minor daughter, Michelle Nabus, executed a Deed of Extra Judicial Settlement over the registered land covered by TCT No. 9697. On the basis of the said document, TCT No. T- 177188 was issued on February 17, 1984 in the names of Julie Nabus and Michelle Nabus.  Meanwhile, respondents continued paying their balance, not in instalments of P2,000.00 as agreed upon, but in various, often small amounts ranging from as low as P10.009 to as high as P15,566.00,10 spanning a period of almost seven years, from March 9, 197711 to January 17, 1984.12  There was a total of 364 receipts of payment. The receipts showed that the total sum paid by respondents to the Spouses Nabus was P112,455.16,14 leaving a balance of P57,544.84.  During the last week of January 1984, Julie Nabus, accompanied by her second husband, approached Joaquin Pacson to ask for the full payment of the lot. Joaquin Pacson agreed to pay, but told her to return after four days as his daughter, Catalina Pacson, would have to go over the numerous receipts to determine the balance to be paid. When Julie Nabus returned after four days, Joaquin sent her and his daughter, Catalina, to Atty. Elizabeth Rillera for the execution of the deed of absolute sale. Since Julie was a widow with a minor daughter, Atty. Rillera required Julie Nabus to return in four days with the necessary documents, such as the deed of extrajudicial settlement, the transfer certificate of title in the names of Julie Nabus and minor Michelle Nabus, and the guardianship papers of Michelle. However, Julie Nabus did not return.  Getting suspicious, Catalina Pacson went to the Register of Deeds of the Province of Benguet and asked for a copy of the title of the land. She found that it was still in the name of Julie and Michelle Nabus.  After a week, Catalina Pacson heard a rumor that the lot was already sold to petitioner Betty Tolero.

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 On March 28, 2008, respondents Joaquin and Julia Pacson filed with the Regional Trial Court of La Trinidad, Benguet (trial court) a Complaint for Annulment of Deeds, with damages and prayer for the issuance of a writ of preliminary injunction.  Julie and Michelle Nabus alleged that respondent Joaquin Pacson did not proceed with the conditional sale of the subject property when he learned that there was a pending case over the whole property. Joaquin proposed that he would rather lease the property with a monthly rental of P2,000.00 and apply the sum ofP13,000.00 as rentals, since the amount was already paid to the bank and could no longer be withdrawn. Hence, he did not affix his signature to the second page of a copy of the Deed of Conditional Sale.26 Julie Nabus alleged that in March 1994, due to her own economic needs and those of her minor daughter, she sold the property to Betty Tolero, with authority from the court.  Betty Tolero put up the defense that she was a purchaser in good faith and for value. She testified that it was Julie Nabus who went to her house and offered to sell the property consisting of two lots with a combined area of 1,000 square meters. She consulted Atty. Aurelio de Peralta before she agreed to buy the property. She and Julie Nabus brought to Atty. De Peralta the pertinent papers such as TCT No. T-17718 in the names of Julie and Michelle Nabus, the guardianship papers of Michelle Nabus and the blueprint copy of the survey plan showing the two lots. After examining the documents and finding that the title was clean, Atty. De Peralta gave her the go-signal to buy the property. ISSUES: 1. Whether or not the Deed of Conditional Sale was converted into a contract of lease. 2. Whether the Deed of Conditional Sale was a contract to sell or a contract of sale. RULING: 1. The Deed of Conditional Sale entered into by the Spouses Pacson and the Spouses Nabus was not converted into a contract of lease. The 364 receipts issued to the Spouses Pacson contained either the phrase "as partial payment of lot located in Km. 4" or "cash vale" or "cash vale (partial payment of lot located in Km. 4)," evidencing sale under the contract and not the lease of the property. Further, as found by the trial court, Joaquin Pacson’s non-signing of the second page of a carbon copy of the Deed of Conditional Sale was through sheer inadvertence, since the original contract and the other copies of the contract were all signed by Joaquin Pacson and the other parties to the contract. 2. The Court holds that the contract entered into by respondents was a contract to sell, not a contract of sale.

the

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Nabus

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 A contract of sale is defined in Article 1458 of the Civil Code, thus: Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.  Ramos v. Heruela differentiates a contract of absolute sale and a contract of conditional sale as follows: 3

Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional. A contract of sale is absolute when title to the property passes to the vendee upon delivery of the thing sold. A deed of sale is absolute when there is no stipulation in the contract that title to the property remains with the seller until full payment of the purchase price. The sale is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract the moment the vendee fails to pay within a fixed period. In a conditional sale, as in a contract to sell, ownership remains with the vendor and does not pass to the vendee until full payment of the purchase price. The full payment of the purchase price partakes of a suspensive condition, and non-fulfilment of the condition prevents the obligation to sell from arising.36  Coronel v. Court of Appeals distinguished a contract to sell from a contract of sale, thus: Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a. Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b. Determinate subject matter; and c. Price certain in money or its equivalent. Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfil his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfilment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.  Stated positively, upon the fulfilment of the suspensive condition which is the full payment of the purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.  A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfilment of the condition agreed upon, that is, full payment of the purchase price.  It is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the parties. In this case, the contract entitled 4

"Deed of Conditional Sale" is actually a contract to sell. The contract stipulated that "as soon as the full consideration of the sale has been paid by the vendee, the corresponding transfer documents shall be executed by the vendor to the vendee for the portion sold."41 Where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell."42 The aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price.  If respondents paid the Spouses Nabus in accordance with the stipulations in the Deed of Conditional Sale, the consideration would have been fully paid in June 1983. Thus, during the last week of January 1984, Julie Nabus approached Joaquin Pacson to ask for the full payment of the lot. Joaquin Pacson agreed to pay, but told her to return after four days as his daughter, Catalina Pacson, would have to go over the numerous receipts to determine the balance to be paid.  Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor was merely a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. The full payment of the purchase price is the positive suspensive condition, the failure of which is not a breach of contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Thus, for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. With this circumstance, there can be no rescission or fulfilment of an obligation that is still nonexistent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation.  Since the contract to sell was without force and effect, Julie Nabus validly conveyed the subject property to another buyer, petitioner Betty Tolero, through a contract of absolute sale, and on the strength thereof, new transfer certificates of title over the subject property were duly issued to Tolero.  The Spouses Pacson, however, have the right to the reimbursement of their payments to the Nabuses, and are entitled to the award of nominal damages.  WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 44941, dated November 28, 2003, is REVERSED and SET ASIDE. Judgment is hereby rendered upholding the validity of the sale of the subject property made by petitioners Julie Nabus and Michelle Nabus in favor of petitioner Betty Tolero, as well as the validity of Transfer Certificates of Title Nos. T-18650 and T-18651 issued in the name of Betty Tolero. Petitioners Julie Nabus and Michelle Nabus are ordered to reimburse respondents spouses Joaquin and Julia Pacson the sum of One Hundred Twelve Thousand Four Hundred Fifty-Five Pesos and Sixteen Centavos (P112,455.16), and to pay Joaquin and Julia Pacson nominal damages in the amount of Ten Thousand Pesos (P10,000.00), with annual interest of twelve percent (12%) until full payment of the amounts due to Joaquin and Julia Pacson.

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3.) MILA A. REYES vs. VICTORIA T. TUPARAN, G.R. No. 188064, June 1, 2011 Facts: Petitioner Mila Reyes owns a three‐storey commercial building in Valenzuela City. Respondent, Victoria Tuparan leased a space on said building for a monthly rental of P4, 000. Aside from being a tenant, respondent also invested in petitioner's financing business. On June 20, 1988, Petitioner borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank) and mortgaged the building and lot (subject real properties). Reyes decided to sell the property for P6.5 Million to liquidate her loan and finance her business. Respondent offered to conditionally buy the real properties for P4.2 Million on instalment basis without interest and to assume the bank loan. The conditions are the following: 1. Sale will be cancelled if the petitioner can find a buyer of said properties for the amount of P6.5 Million within the next three months. All payments made by the respondent to the petitioner and the bank will be refunded to Tuparan with an additional 6% monthly interest. 2. Petitioner Reyes will continue using the space occupied by her drugstore without rentals for the duration of the instalment payments. 3. There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000 after full payment has been made by the defendant. 4. The defendant will undertake the renewal and payment of the fire insurance policies of the 2 buildings, following the expiration of the current policies, up to the time the respondent has fully paid the purchase price. They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank approved on the condition that the petitioner would remain as co‐ maker of the mortgage obligation. Petitioner's Contention: Under their Deed of Conditional Sale, the respondent is obliged to pay a lump sum of P1.2 Million in three fixed instalments. Respondent, however defaulted in the payment of the instalments. To compensate for her delayed payments, respondent agreed to pay petitioner monthly interest. But again, respondent failed to fulfil this obligation. The petitioner further alleged that despite her success in finding another buyer according to their conditional sale agreement, respondent refused to cancel their transaction. The respondent also neglected to renew the fire insurance policy of the buildings. Respondent's Answer: Respondent alleges that the deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered a conditional sale because the performance of the obligation therein did not depend upon a future and uncertain event. She also averred that she was able to fully pay the loan and secure the release of the mortgage. Since she also paid more than the P4.2 Million purchase price, rescission could not be resorted to since the parties could no longer be restored to their original positions. Issue: Is the conditional sale at bar a contract of sale or a contract to sell? Can the transaction or obligation be rescinded given that the conditions were not satisfied?

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Ruling: RTC: The deed of conditional sale was a contract to sell. It was of the opinion that although the petitioner was entitled to a rescission of the contract, it could not be permitted because her non‐ payment in full of the purchase price “may not be considered as substantial and fundamental breach of the contract as to defeat the object of the parties in entering into the contract.” The RTC believed that respondent showed her sincerity and willingness to settle her obligation. Hence, it would be more equitable to give respondent a chance to pay the balance plus interest within a given period of time. The court ordered the respondent to pay the petitioner the unpaid balance of the purchase price. CA: The CA agreed with the RTC that the remedy of rescission could not apply because the respondent’s failure to pay the petitioner the balance of the purchase price in the total amount of ₱805,000.00 was not a breach of contract, but merely an event that prevented the seller (petitioner) from conveying title to the purchaser (respondent). Since respondent had already paid a substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance of the purchase price plus interest. SC: The SC agrees that the subject Deed of Conditional Sale with Assumption of Mortgage is a contract to sell and not a contract of sale. The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations: 8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of ₱2,000,000.00. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party. 9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party The title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Without respondent’s full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. The court agrees that a substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfilment of the obligation. The court considered fulfilment of 20% of the purchase price is NOT a substantial breach. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfilment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstance. As for the 6% interest petitioner failed to substantiate her claim that the respondent committed to pay it. Petition is denied.

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4. EMILIO A. SALAZAR and TERESITA DIZON vs. COURT OF APPEALS and JONETTE BORRES, G.R. No. 118203, July 5, 1996 Facts: That defendant Dr. Salazar is the owner of the two (2) parcels of land with improvements thereon located at 2914 Finlandia Street, Makati, Metro Manila and covered by Transfer Certificate of Title Nos. 31038 and 31039 of the Registry of Deeds of Makati; that Dr. Salazar offered to sell his properties to Jonette Borres for One Million pesos (P1,000,000.00). The initial proposal took place at the Dimsum Restaurant, Makati, whereby it was proposed that the payment of the consideration was to be made within six (6) months but was objected to by Dr. Salazar and he reduced it to a three (3) months period that sometime on [May] 28,1989, Jonette Borres together with a certain Emilio T. Salazar went to see Dr. Salazar at the latter's residence in Bataan bearing a copy of a Deed of Absolute Sale and Deed of Warranty but Dr. Salazar refused to sign because Jonette Borres did not have the money ready then. In said occasion Dr. Salazar further reduced the period within which plaintiff may purchase the lots, to one (1) month or up to June 30, 1989. Jonette Borres then met again Dr. Salazar on June 2, 1989 at the Ninoy International Airport who was about to leave for the United States of America where he is a resident. Jonette Borres had with her the Deed of Absolute Sale and asked Dr. Salazar to sign said document. Dr. Salazar reluctantly agreed to sign the document provided that Jonette Borres pays one half (1/2) of the consideration or P500,000.00 in "cash" by June 15, 1989 and the balance was payable on June 30, 1989. It was during this occasion that Dr. Salazar again emphasized to Jonette Borres that he needed the money because he was then buying a property in the United States. Plaintiff agreed to the above conditions and Dr. Salazar constituted co‐defendant Teresa Dizon as custodian at the Deed of Absolute Sale together with the Titles of the Land in question with the instruction to Teresa Dizon not to surrender said documents to Jonette Borres until upon payment of the full price in "cash". On June 14, 1989 Jonette Borres informed defendant Dizon that she will be able to pay the full amount of P1,000,000.00 on June 15, 1989 and on the next day, she then went to the house of Teresa Dizon to see and get the documents entrusted to her by Dr. Salazar. The documents not being in Dizon's possession, they agreed to meet at Metro Bank West Avenue Branch to get the documents and then to proceed to Makati to meet the plaintiff's business partner a certain Balao who allegedly gave plaintiff a Far East Bank and Trust Company check for the amount of P1,500,000.00 with which to buy the property. For some reason or another Jonette Borres and defendant Dizon failed to proceed to Makati. In the meantime or on June 16, 1992, Dr. Salazar made an overseas call to co‐defendant Dizon to inquire if Jonette Borres had already paid the down payment of P500,000.00 and Teresa Dizon replied to Dr. Salazar that Jonette Borres had not paid the down payment. Dr. Salazar then ordered Dizon to stop the sale. Issue: Whether or not the so‐called Deed of Absolute Sale executed by petitioner Emilio A. Salazar in favor of private respondent Jonette Borres is a perfected contract of sale or a mere contract to sell.

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Ruling: It is a contract to sell not contract of sale. The withholding by Salazar through Dizon of the Deed of Absolute Sale, the certificates of title, and all other documents relative to the lots is an additional indubitable proof that Salazar did not transfer to Borres either by actual or constructive delivery the ownership of the two lots. While generally the execution of a deed of absolute sale constitutes constructive delivery of ownership, the withholding by the vendor of that deed under explicit agreement that it be delivered together with the certificates of titles to the vendee only upon the latter's full payment of the consideration amounts to a suspension of the effectivity of the deed of sale as a binding contract. Undoubtedly, Salazar and Borres mutually agreed that despite the Deed of Absolute Sale title to the two lots in question was not to pass to the latter until full payment of the consideration of P1 million. The form of the instrument cannot prevail over the true intent of the parties as established by the evidence. Accordingly, since Borres was unable to pay the consideration, which was a suspensive condition, Salazar cannot be compelled to deliver to her the deed of sale, certificates of title, and other documents concerning the two lots. In other words, no right in her favor and no corresponding obligation on the part of Salazar were created.

5. SPOUSES CASTILLO vs. SPOUSES REYES, November 28, 2007

539 SCRA 193, G.R. No. 170917,

Facts: On November 7, 1997, Emmaliza Bohler and respondents negotiated for the sale of the former’s house and lot located at Poblacion, New Washington, Aklan, to the latter for the consideration of P165,000.00. On the following day, November 8, they signed an Agreement which pertinently reads as follows: We, the undersigned, agree to the following terms and conditions regarding the sale of the house and lot located at Poblacion, New Washington, Aklan: 1. That the total amount to be paid shall be One Hundred Sixty‐Five Thousand Pesos (P165,000.00) to be paid in full on or before the 15th of December 1997; 2. That a partial payment (sic) a total amount of One Hundred Thirty Thousand Pesos (P130,000.00) shall be made today, the 8th of November 1997; 3. That the remaining balance in the amount (sic) of Thirty‐Five Thousand Pesos (P35,000.00) shall be made as per #1 above; 4. That the buyers, represented by the Spouses Rudy and Consolacion Reyes (sic) shall be responsible for all the legal and other related documents and procedures regarding this sale; 9

5. That the seller, represented by Ms. Emmaliza M. Bohler, shall vacate the said house and lot on or (sic) the 31st of January, 1998; 6. That the tenants, represented by the Spouses Romeo and Epifania Vicente, shall vacate the same on or before the 30th of April, 1998; and 7. That all parties concerned shall agree to all the terms and conditions stipulated herein. Upon the signing of the said contract, respondents handed to Bohler P20,000.00 cash and allegedly a P110,000.00‐check. Bohler nonetheless insisted that the entire partial payment should be in cash as she needed it to redeem the subject property from the bank on the following Monday. She hence demanded for its payment up to midnight on that day otherwise she would cancel the sale. Because the respondents failed to make good the P110,000.00. Bohler subsequently sold the property to the petitioners. Having learned of the subsequent sale, the respondents immediately tendered the check, asked the bank for a certification that it was funded and consulted their lawyer who sent a notice of lis pendens (or notice of pending action) to the Register of Deeds and the Provincial Assessor. Civil Case No. 6070 for annulment of sale, specific performance and damages was subsequently filed by the respondents with the Regional Trial Court (RTC) of Kalibo, Aklan against Bohler and the petitioners. On February 21, 2003, the RTC rendered its Decision declaring the November 8, 1997 Agreement a contract to sell. Considering that no actual sale happened between Bohler and the respondents, the former could validly sell the property to the petitioners. Thus, the trial court dismissed the complaint. Aggrieved, respondents appealed the case to the CA. In the challenged December 6, 2005 Decision, the appellate court reversed the trial court’s ruling, declared the November 8, 1997 Agreement a contract of sale, and annulled the subsequent sale to the petitioners. The CA ruled, among others, that the wordings of the agreement and the conduct of the parties suggest that they intended to enter into a contract of sale. Ownership was not reserved by the vendor and non‐payment of the purchase price was not made a condition for the contract’s effectivity. Petitioners, thus, filed the instant petition for review on certiorari imputing the following errors to the CA: 1. The appellate court erred in declaring the contract styled AGREEMENT dated 08 November 1997 as a "contract of sale" and not a contract to sell. 2. The appellate court erred in declaring the petitioners in bad faith when they bought the subject matter house and lot on 02 March 1998 from Emmaliza H. Bohler. Issue: Whether the transaction between Bohler and the respondents is a perfected contract of sale or a mere contract to sell.

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Ruling: Sale is a consensual contract and is perfected by mere consent, which is manifested by a meeting of the minds as to the offer and acceptance thereof on the subject matter, price and terms of payment of the price. In the instant case, the November 8, 1997 Agreement clearly indicates that Bohler and the Spouses Reyes had a meeting of the minds on the subject matter of the contract, the house and lot; on the price, P165,000.00; and on the terms of payment, an initial payment of P130,000.00 on the date of execution of the agreement and the remaining balance on or before December 15, 1997. At that precise moment when the consent of both parties was given, the contract of sale was perfected. The said agreement cannot be considered a contract to sell. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold. 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. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, 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 November 8, 1997 Agreement herein cannot be characterized as a contract to sell because the seller made no express reservation of ownership or title to the subject house and lot. Instead, the Agreement contains all the requisites of a contract of sale. WHEREFORE, premises considered, the petition for review on certiorari is DENIED DUE COURSE.

6. UNITED MUSLIM AND CHRISTIAN URBAN POOR ASSOCIATION, INC. vs. BRYC‐V DEVELOPMENT CORPORATION G.R. No. 179653, July 31, 2009 Facts: This petition for review on certiorari seeks to set aside the Decision1 of the Court of Appeals (CA) in CA G.R. CV No. 62557 which affirmed in toto the Decision2 of the Regional Trial Court (RTC), Branch 16, Zamboanga City in Civil Case No. 467(4544). • Respondent Sea Foods Corporation (SFC) is the registered owner of Lot No. 300 located in Lower Calainan, Zamboanga City and covered by Transfer Certificate of Title (TCT) No. 3182 (T‐576). • Petitioner United Muslim and Christian Urban Poor Association, Inc. (UMCUPAI), an organization of squatters occupying Lot No. 300, through its President, Carmen T. Diola, 11

initiated negotiations with SFC for the purchase thereof. UMCUPAI expressed its intention to buy the subject property using the proceeds of its pending loan application with National Home Mortgage Finance Corporation (NHMF). Thereafter, the parties executed a Letter of Intent to Sell by [SFC] and Letter of Intent to Purchase by UMCUPAI • However, the intended sale was derailed due to UMCUPAI’s inability to secure the loan from NHMF as not all its members occupying Lot No. 300 were willing to join the undertaking. Intent on buying the subject property, UMCUPAI, in a series of conferences with SFC, proposed the subdivision of Lot No. 300 to allow the squatter ‐occupants to purchase a smaller portion thereof. • Consequently, sometime in December 1994, Lot No. 300 was subdivided into three (3) parts covered by separate titles: Lot 300‐A, Lot 300‐B, Lot 300‐C, respectively. • On January 11, 1995, UMCUPAI purchased Lot No. 300‐A for P4,350,801.58. In turn, Lot No. 300‐B was constituted as road right of way and donated by SFC to the local government. • UMCUPAI failed to acquire Lot No. 300‐C for lack of funds. On March 5, 1995, UMCUPAI negotiated anew with SFC and was given by the latter another three months to purchase Lot No. 300‐C. However, despite the extension, the three‐month period lapsed with the sale not consummated because UMCUPAI still failed to obtain a loan from NHMF. Thus, on July 20, 1995, SFC sold Lot No. 300‐C for P2,547,585.00 to respondent BRYC‐V Development Corporation (BRYC). • A year later, UMCUPAI filed with the RTC a complaint against respondents SFC and BRYC seeking to annul the sale of Lot No. 300‐C, and the cancellation of TCT No. T‐121,523. UMCUPAI alleged that the sale between the respondents violated its valid and subsisting agreement with SFC embodied in the Letter of Intent. According to UMCUPAI, the Letter of Intent granted it a prior, better, and preferred right over BRYC in the purchase of Lot No. 300‐C. • SFC countered that the Letter of Intent dated October 4, 1991 is not, and cannot be considered, a valid and subsisting contract of sale. On the contrary, SFC averred that the document was drawn and executed merely to accommodate UMCUPAI and enable it to comply with the loan documentation requirements of NHMF. In all, SFC maintained that the Letter of Intent dated October 4, 1991 was subject to a condition i.e., payment of the acquisition price, which UMCUPAI failed to do when it did not obtain the loan from NHMF. • After trial, the RTC dismissed UMCUPAI’s complaint. The lower court found that the Letter of Intent was executed to facilitate the approval of UMCUPAI’s loan from NHMF for its intended purchase of Lot No. 300. According to the RTC, the Letter of Intent was simply SFC’s declaration of intention to sell, and not a promise to sell, the subject lot. On the whole, the RTC concluded that the Letter of Intent was neither a promise, nor an option contract, nor an offer contemplated under Article 1319 of the Civil Code, or a bilateral contract to sell and buy.

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Issue: WON the Letter of Intent to Sell and Letter of Intent to Buy is a bilateral reciprocal contract within the meaning or contemplation of Article 1479 (1) of the Civil Code of the Philippines. Ruling: The petition deserves scant consideration. UMCUPAI appears to labor under a cloud of confusion. The first paragraph of Article 1479 contemplates the bilateral relationship of a contract to sell as distinguished from a contract of sale which may be absolute or conditional under Article 1458 of the same code. It reads: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. The case of Coronel v. Court of Appeals is illuminating and explains the distinction between a conditional contract of sale under Article 1458 of the Civil Code and a bilateral contract to sell under Article 1479 of the same code: A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be 13

deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner‐seller’s title per se, but the latter, of course, may be sued for damages by the intending buyer. In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. In the instant case, however, the parties executed a Letter of Intent, which is neither a contract to sell nor a conditional contract of sale. As found by the RTC, and upheld by the CA, the Letter of Intent was executed to accommodate UMCUPAI and facilitate its loan application with NHMF. The Letter of Intent to Buy and Sell is just that a manifestation of SFC’s intention to sell the property and UMCUPAI’s intention to acquire the same. The Letter of Intent/Agreement between SFC and UMCUPAI is merely a written preliminary understanding of the parties wherein they declared their intention to enter into a contract of sale. It is subject to the condition that UMCUPAI will "apply with the Home Mortgage and Finance Corporation for a loan to pay the acquisition price of said land." The Letter of Intent to Sell fell short of an "offer" contemplated in Article 1319 of the Civil Code because it is not a certain and definite proposal to make a contract but merely a declaration of SFC’s intention to enter into a contract. UMCUPAI’s declaration of intention to buy is also not certain and definite as it is subject to the condition that UMCUPAI shall endeavor to raise funds to acquire subject land. The acceptance of the offer must be absolute; it must be plain and unconditional. Moreover, the Letter of Intent/Agreement does not contain a promise or commitment to enter into a contract of sale as it merely declared the intention of the parties to enter into a contract of sale upon fulfillment of a condition that UMCUPAI could secure a loan to pay for the price of a land. The Letter of Intent/Agreement is not an "option contract" because aside from the fact that it is merely a declaration of intention to sell and to buy subject to the condition that UMCUPAI shall raise the necessary funds to pay the price of the land, and does not contain a binding promise to sell and buy, it is not supported by a distinct consideration distinct from the price of the land intended to be sold and to be bought x x x No option was granted to UMCUPAI under the Letter of Intent/Agreement to buy subject land to the exclusion of all others within a fixed period nor was SFC bound under said Agreement to Sell exclusively to UMCUPAI only the said land within the fixed period. Neither can the Letter of Intent/Agreement be considered a bilateral reciprocal contract to sell and to buy contemplated under Article 1479 of the Civil Code which is reciprocally demandable. The Letter of Intent/Agreement does not contain a PROMISE to sell and to buy subject property.

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There was no promise or commitment on the part of SFC to sell subject land to UMCUPAI, but merely a declaration of its intention to buy the land, subject to the condition that UMCUPAI could raise the necessary funds to acquire the same at the price of P105.00 per square meter xxx WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of the Court of Appeals in CA G.R. CV No. 62557 and the Regional Trial Court in Civil Case No. 467(4544) are AFFIRMED. Costs against the petitioner.

7. PEOPLE'S HOMESITE & HOUSING CORPORATION vs. COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R. MENDOZA, 133 SCRA 777, G.R. No. L‐ 61623, December 26, 1984 Facts: On Feb. 18, 1960, the PHHC board of directors passed Resolution No. 513 wherein it stated that subject to the approval of the Quezon City Council of the Consolidation Subdivision Plan, Lot 4 containing 4,182.2 square meters be awarded to Spouses Rizalino and Adelaida Mendoza, at a price of twenty‐one pesos (P21.00) per square meter and that this award shall be subject to the approval of the OEC (PHHC) Valuation Committee and higher authorities. However, the city council disapproved the proposed consolidation subdivision plan of which the spouses were advised through registered mail. Another subdivision plan was prepared which included Lot 4, with a reduced area of 2,608.7, and was approved by the city council on Feb. 25, 1964. On April 26, 1965, the PHHC board of directors, however, passed a resolution recalling all awards of lots to persons who failed to pay the deposit or down payment for the lots awarded to them. The Mendozas never paid the price of the lot nor made the 20% initial deposit. On October 18, 1955,the PHHC board of directors passed Resolution No. 218, withdrawing the tentative award of Lot 4 to the Mendoza spouses and re‐awarding said lot jointly and in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redubloand Jose Fernandez who were able to make the required 20% of the net selling price as deposit and thereafter, the corresponding deeds of sale were executed in their favor. The subdivision of Lot 4 into five lots was approved by the city council and the Bureau of Lands. The Mendoza spouses asked for reconsideration of the withdrawal of the previous award to them of Lot 4 and for the cancellation of the re‐award of said lot to Sto. Domingo and four others. Before the request could be acted upon, the spouses filed the instant action for specific performance and damages. The trial court sustained the withdrawal of the award which was appealed by the Mendozas. The Appellate Court reversed that decision and declared void the re‐award of Lot 4 and the deeds of sale and directed the PHHC to sell to the Mendozas Lot 4 with an area of 2,603.7 square meters at P21 a square meter and pay to them P4,000 as attorney's fees and litigation expenses. The PHHC appealed to this Court. Issue: Whether or not there was a perfected sale of the Lot 4, with the reduced area, to the Mendozas which they can enforce against the PHHC by an action for specific performance.

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Ruling: The SC hold that there was no pertected sale of Lot 4. It was conditionally or contingently awarded to the Mendozas subject to the approval by the city council of the proposed consolidation subdivision plan and the approval of the award by the valuation committee and higher authorities. When thecity council disapproved the subdivision plan, the Mendozas were advised through registered mail. In 1964, when the revised plan was approved, the Mendozas should have manifested in writing their acceptance of the award for the purchase of Lot 4 just to show that they were still interested in its purchase although the area was reduced and to obviate ally doubt on the matter. They did not do so. The PHHC board of directors acted within its rights in withdrawing the tentative award. The contract of sale is perfect at the moment there is 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 law governing the form of contracts (Art. 1475, Civil). Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot 4 with an area of 2,608.7square meters at P21 a square meter.

8. Sps. ENRIQUE and CONSUELO LIM vs. THE HONORABLE COURT OF APPEALS, 182 SCRA 564, G.R. No. 85733, February 23, 1990 Facts: The subject of this controversy is a parcel of land originally owned by Felix, Manuel and MariaConcepcion Orlino, who mortgaged it to the Progressive Commercial Bank as security for a P100,000.00 loan on July 1, 1965 consisting of 1,101 square meters and located in Diliman, Quezon City. The loan not having been paid, the mortgage was foreclosed and the bank acquired the property as the highest bidder at the auction sale on March 28, 1969. The mortgagee thereafter transferred all its assets, including the said land, to the Pacific Banking Corporation (PBC). On May 22, 1975, the Orlinos, and their respective spouses, who had remained in possession of the land, made a written offer to PBC to repurchase the property. In response, the bank, confirms the agreement through a letter dated November 9, 1977 under the following conditions: a) The cash consideration shall be P160,000.00 payable in full upon signing of the Deed of Absolute Sale; b) The additional consideration shall consist of your client's conveyance to us of their share of 2,901.15 square meters on the property situated at Camarin, Caloocan City. One year later, on November 2, 1978, PBC advised the private respondents that if the transaction was not finalized within 30 days, it would consider the offer of other buyers. The record does not show any further development until June 8, 1979, when the private respondents requested PBC to allow them to secure a certified true copy of its Torrens certificate over the land for purposes of its survey and partition among them preparatory to the actual transfer of title to them. PBC granted the request subject to the condition that title would remain with it until the execution of the necessary deed of conveyance. On April 8, 1980, or two years later, PBC reminded the private respondents of its letter of November 2, 1978, but again no action was taken to deliver to it the stipulated consideration for

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the sale. Finally, on May 14, 1980, PBC executed a deed of sale over the land in favor of the herein petitioners, the spouses Enrique and Consuelo Lim, for the sum of P300,000.00. On September 30, 1980, the private respondents filed a complaint in the Regional Trial Court of Quezon City against the petitioners and PBC for the annulment of the deed of sale on the ground that the subject land had been earlier sold to them. In its judgment for the plaintiffs, the court held that both PBC and the spouses Lim had acted in bad faith when they concluded the sale knowing that "there was a cloud in the status of the property in question." The decision was affirmed in toto by the respondent court, and the petitioners are now before us, urging reversal. Issue: Whether or not the execution of the deed of sale in favor of the petitioners are valid. Ruling: In the case at bar, the private respondents obligated themselves to deliver to the bank the sum of P160,000.00 and their share of 2,901.15 square meters on a property situated in Caloocan City. In the letter of PBC dated November 9, 1977, they were requested to "expedite the loan (they were negotiating for this purpose) so we can consummate the transaction as soon as possible". That was in 1977. In 1978, they were reminded of their obligation and asked to comply within thirty days. They did not. On April 8, 1980, they were reminded of that letter of November 2, 1978, and again asked to comply; but again they did not. Surely, the bank could not be required to wait for them forever, especially so since they remained in possession of the property and there is no record that they were paying rentals. Under the circumstances, PBC had the right to consider the contract to sell between them terminated for non‐payment of the stipulated consideration. We hereby confirm that rescission. Having arrived at these conclusions, the Court no longer finds it necessary to determine if the petitioners acted in bad faith when they purchased the subject property. The private respondents lost all legal interest in the land when their contract to sell was rescinded by PBC for their non‐compliance with its provisions. As that contract was no longer effective when the land was sold by PBC to the petitioners, the private respondents had no legal standing to assail that subsequent transaction. The deed of sale between PBC and the petitioners must therefore be sustained.

9. SPOUSES VICENTE and LOURDES PINGOL vs. HON. COURT OF APPEALS 226 SCRA 118, G.R. No. 102909, September 6,1993 A vendee in an oral contract to convey land who had made part payment thereof, entered upon the land and had made valuable improvements thereon is entitled to bring suit to clear his title against the vendor who had refused to transfer the title to him. It is not necessary that the vendee should have an absolute title, an equitable title being sufficient to clothe him with personality to bring an action to quiet title. Facts: In 1969, Pingol, the owner of a lot (Lot No. 3223) in Caloocan City, executed a DEED OF ABSOLUTE SALE OF ONE‐HALF OF AN UNDIVIDED PORTION OF [his] PARCEL OF LAND in favor of Donasco (private respondent), payable in 6 years.

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In 1984, Donasco died and was only able to pay P8,369 plus P2,000 downpayment, leaving a balance of P10,161. The heirs of Donasco remained in possession of such lot and offered to settle the balance with Pingol. However, Pingol refused to accept the offer and demanded a larger amount. Thus, the heirs of Donasco filed an action for specific performance (with Prayer for Writ of Preliminary Injunction, because Pingol were encroaching upon Donasco’s lot). Pingol averred that the sale and transfer of title was conditional upon the full payment of Donasco (contract to sell, not contract of sale). With Donasco’s breach of the contract in 1976 and death in 1984, the sale was deemed cancelled, and the heirs’ continuous occupancy was only being tolerated by Pingol. Issues: (1) Whether or not Pingol can refuse to transfer title to Donasco. (2) Whether or not Donasco has the right to quiet title. Ruling: (1) No. The contract between Pingol and Donasco is a contract of sale and not a contract to sell. The acts of the parties, contemporaneous and subsequent to the contract, clearly show that the parties intended an absolute deed of sale; the ownership of the lot was transferred to the Donasco upon its actual (upon Donasco’s possession and construction of the house) and constructive delivery (upon execution of the contract). The delivery of the lot divested Pingol of his ownership and he cannot recover the title unless the contract is resolved or rescinded under Art. 1592 of NCC. It states that the vendee may pay even after the expiration of the period stipulated as long as no demand for rescission has been made upon him either judicially or by notarial act. Pingol neither did so. Hence, Donasco has equitable title over the property. (2) Although the complaint filed by the Donascos was an action for specific performance, it was actually an action to quiet title. A cloud has been cast on the title, since despite the fact that the title had been transferred to them by the execution of the deed of sale and the delivery of the object of the contract, Pingol adamantly refused to accept the payment by Donascos and insisted that they no longer had the obligation to transfer the title. Donasco, who had made partial payments and improvements upon the property, is entitled to bring suit to clear his title against Pingol who refused to transfer title to him. It is not necessary that Donasco should have an absolute title, an equitable title being sufficient to clothe him with personality to bring an action to quiet title. Prescription cannot also be invoked against the Donascos because an action to quiet title to property in ONE’s POSSESSION is imprescriptible.

10. FULE v CA (CRUZ/BELARMINO) NATURE

286 SCRA 698

Mar. 23, 1998

Petition for review on certiorari

FACTS - Fule, a corporate secretary of the Rural Bank of Alaminos (the Bank) by profession and jeweler on the side, acquired a 10-hectare property in Rizal. The former owner, Jacobe, had mortgaged

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it to the Bank for a loan of 10k but it was later foreclosed and offered for public auction upon his default. - Petitioner asked Dichoso and Mendoza (the Agents) to look for an interested buyer, and found one in private respondent Dr. Cruz. At the time, petitioner had shown interest in buying a pair of emerald-cut diamond earrings from Dr. Cruz but never came to an agreed price. Subsequently, negotiations for the barter of the jewelry and the property ensued; upon the request of Dr. Cruz, it was found by Atty. Belarmino that no barter was feasible because the 1-year period of redemption had not expired. To get over this legal impediment, petitioner executed a deed of redemption of behalf of Jacobe. - Petitioner arrived at Belarmino’s residence with the agents to execute a deed of absolute sale while Cruz held on to the earrings. Petitioner issued a certification stating the actual consideration of the sale was Php200k and not Php80k as indicated in the deed. Since the earrings were appraised at only Php160k, the remaining 40k was to be paid later in cash. This was done apparently to minimize the capital gains tax that petitioner would have to shoulder. Petitioner headed for the bank to meet up with Cruz and pick up the earrings. When asked if the jewelry was ok, petitioner nodded to express his satisfaction. Petitioner paid the agents $300 and some pieces of jewelry, but not half of the pair of earrings in question as previously promised. - Later that evening, petitioner arrived at Belarmino’s residence complaining the earrings were fake as confirmed by a tester. Petitioner accused the agents of deceiving him, which they denied. He nonetheless took back the $300 and jewelry given them. After another failed testing, the petitioner reported the matter to the police where the agents also executed their sworn statements. - Petitioner filed a complaint with the RTC to declare the contract of sale over the property null and void on the ground of fraud and deceit. The lower court denied the prayer for a writ of preliminary injunction over the deed as they found that the genuine pair of earrings had been delivered by Cruz. The 2 hours before petitioner’s complaint was considered unreasonable delay, placing petitioner in estoppel. The Court furthered that all elements of a valid contract were present, namely a meeting of the minds, determinate subject matter, and price certain. As the earrings had been delivered and the contract of absolute sale executed, the contract of barter or sale had been consummated. - The Court also finds that the plaintiff acted in bad faith in misrepresenting the price of the property. Damages and atty’s fees were in order for soiling Dr. Cruz and Belarmino’s good names. A petition with the CA yielded the same result, hence the instant petition ISSUES: 1. WON the TC erred in holding that petitioner received a genuine pair of earrings 2. WON the CA erred in upholding the validity of the contract of barter or sale 3. WON the TC erred in awarding damages HELD: 1. NO - As to questions of fact, the Court accords conclusiveness to the lower court’s findings. Petitioner goes so far as to accuse the TC judge of handing in a “ready-made” 12 page decision due to the limited time afforded him to write it in a desperate effort to disparage the TC’s findings

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of fact and convince the Court to review the same. Hence, this Court maintains the lower court’s findings that Cruz had delivered the genuine pair of earrings. 2. NO - It is evident from the facts of the case that there was a meeting of the minds between petitioner and Cruz (Cruz’ asking if the earrings were ok and petitioner’s nodding in agreement) hence perfecting the contract. Petitioner contends that the contract was voidable because consent was vitiated by fraud. However, the facts show no evidence that insidious words or machinations were employed by Cruz to cajole petitioner to enter into the contract. It was in fact the petitioner who resorted to machinations to wheedle Cruz into the transaction by misrepresenting his property’s price. - Petitioner also failed to clearly allege mistake as a ground for nullification as he failed to prove the fact that prior to the delivery of the earrings, private respondents endeavored to substitute the earrings with a different or inferior item. On account of petitioner’s experience as a jeweler, he cannot be excused for the alleged “mistake” himself as he could have easily tested the earrings’ genuineness in the presence of Cruz. As stated in Art 27 CC, “there is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.” Furthermore, having only complained 2 hours after the exchange, petitioner was afforded ample time within which to examine the earrings—in fact, he accepted when asked if he was satisfied with the jewelry. - There being no legal bases for the nullification of the contract, ownership had been transferred to both parties respectively. While there remained a balance of 40k in cash to be paid to petitioner, this was not sufficient cause to invalidate the contract and will not incur interest on the part of Cruz. 3. NO - The malice with which petitioner filed the case is apparent. As an experienced jeweler who thoroughly examined the earrings himself and went so far as to sketch them earlier, it is illogical that he would fail to exert extra effort to check its genuineness at the precise moment of the exchange. As an experienced businessman, he was shrewd enough to bloat the property’s price only a few days after he had purchased it for a far lower value. Given this, it would appear that the cause of action of the instant case was contrived by the petitioner himself in hopes of obtaining a favorable outcome in his complaint to take the real jewelry, return a fake, and get back the property, all while dragging down private respondents. As his guilt in bringing about the supposed wrongdoing on which he anchored his cause of action is evident, he is answerable for all damages the defendant suffered from it. DIsposition the decision of the CA is AFFIRMED. Dr. Cruz, however, is ordered to pay petitioner the balance of the purchase price of Php40k  11. CELESTINO CO & CO. V COLLECTOR OF INTERNAL REVENUE August 31, 1956 NATURE

99 PHIL 841

Petition for review by certiorari of a decision of the Court of Tax Appeals

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

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- From 1946 to 1951 it paid percentage taxes of 7% on the gross receipts of its sash, door and window factory, in accordance with section 186 of the National Revenue Code imposing taxes on sale of manufactured articles - In 1952 it began to claim liability only to the contractor's 3% tax under section 191 of the same Code - Petitioner failed to convince the Bureau of Internal Revenue - It brought the matter to the Court of Tax Appeals, where it also failed ISSUE: WON Celestino Co & Company is liable only for contractor's 3% tax under section 191 of the National Revenue Code HELD: NO - The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture. - Petitioner contends that it manufacturers sash, windows and doors only for special customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have existed but for the order of the party desiring it; and since petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 186 of the same Code - The argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. - The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. - Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filling orders for windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of work or "merely sold its services". - Said article reads as follows: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work.

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- It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it — sash, panels, mouldings — to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefore - It is the opinion of the court that when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it-it thereby contracts for a piece of work — filling special orders within the meaning of Article 1467. The orders herein exhibited were not shown to be special. They were merely orders for work — nothing is shown to call them special requiring extraordinary service of the factory. - If, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work. - Supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under section 186 of the National Revenue Code. Disposition Appealed decision is affirmed.

12. Concrete Aggregates vs CTA

185 SCRA 416, G.R. No. 55793

May 18, 1990

FACTS: Petitioner is a domestic corporation, duly organized and existing under the laws of the Philippines. It has an aggregate plant at Montalban, Rizal which processes rock aggregates mined by it from private lands. Petitioner also maintains and operates a plant at Longos, Quezon City for the production of ready-mixed concrete and plant-mixed hot asphalt. Sometime in 1968, the agents of Commissioner OF Internal Revenue conducted an investigation of petitioner’s tax liabilities. As a consequence thereof, in a letter dated December 14, 1970 CIR assessed and demanded payment from petitioner of the amount of P244,002,76 as sales and ad valorem taxes for the first semester of 1968, inclusive of surcharges. Petitioner disputed the said assessment in its letter dated February 2, 1971 without, however, contesting the portion pertaining to the ad valorem tax. Consequently, the respondent demanded for the payment of the said amount. Instead of paying, petitioner appealed to respondent court. Petitioner disclaims liability on the ground that it is a contractor and advances the theory that it produced asphalt and concrete mix only upon previous orders, which may be proved by its system of requiring the filling of job orders where the customers specify the construction requirements, and that without such order, it would not do so considering the highly perishable nature of the asphalt and concrete mix. ISSUE: Whether or not the contract between the parties is a contract for a piece of work. 22

HELD: Yes. Petitioner insists that it would produce asphalt or concrete mix only upon previous job orders otherwise it would not do so. It does not and will not carry in stock cement and asphalt mix. But the reason is obvious. What practically prevents the petitioner from mass production and storage is the nature of its products, that is, they easily harden due to temperature change and water and cement reaction. It is self-evident that it is due to the highly perishable nature of asphalt and concrete mix, as petitioner itself argues that makes impossible for them to be carried in stock because they cool and harden with time, and once hardened, they become useless. Had it not been for this fact, petitioner could easily mass produce the ready-mixed concrete or asphalt desired and needed by its various customers for which it is mechanically equipped to do. It is clear, however, that petitioner does nothing more than sell the articles that it habitually manufactures. It stocks raw materials, ready at any time for the manufacture of asphalt and/or concrete mix. Its marketing system would readily disclose that its products are available for sale to anyone needing them. The habituality of the production of goods for the general public characterizes the business of petitioner.

13. Engineering & Machinery Corp. vs. CA

G.R. No. 52267

January 24, 1996

Facts: Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former undertook to fabricate, furnish and install the air-conditioning system in the latter’s building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by private respondent, who paid in full the contract price. After selling the building to NIDC in 1965, petitioner subsequently re-acquired it in 1971, some NIDC employees made mentioned defects of the air-conditioning system of the building. Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the system and concluded that it was “not capable of maintaining the desired room temperature of 76ºF – 2ºF. private respondent filed an action for damages against petitioner with the then CFI. The complaint alleged that the air-conditioning system installed by petitioner did not comply with the agreed plans and specifications. Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing sold. Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract for a piece of work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same Code, the complaint was timely brought within the ten-year prescriptive period. In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. trial court ruled that the complaint was filed within the ten-year court prescriptive period although the contract was

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one for a piece of work, because it involved the “installation of an air-conditioning system which the defendant itself manufactured, fabricated, designed and installed.” CA affirmed in toto. Issue: Is a contract for the fabrication and installation of a central air-conditioning system in a building, one of “sale” or “for a piece of work”? What is the prescriptive period for filing actions for breach of the terms of such contract? Held: Contract for piece of work. A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it10 . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public. To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work Clearly, the contract in question is one for a piece of work. It is not petitioner’s line of business to manufacture air-conditioning systems to be sold “off-the-shelf.” Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price (accion quanti manoris), with damages in either case. A close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the warranties against hidden defects, but one for breach of the contract itself. It alleged that the petitioner, “in the installation of the air conditioning system did not comply with the specifications provided” in the written agreement between the parties What about petitioner’s contention that “acceptance of the work by the employer relieves the contractor of liability for any defect in the work”? Verily, the mere fact that the private respondent accepted the work does not, ipso facto, relieve the petitioner from liability for deviations from and violations of the written contract, as the law gives him ten (10) years within which to file an action based on breach thereof. 24

14.

QUIROGA V PARSONS HARDWARE CO.

38 PHIL 501

August 23, 1918

FACTS: - On January 24, 1911, a contract was entered into by and between the plaintiff and J. for the exclusive sale of “quiroga” beds in the Visayan Island. The contract provides: - ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. - ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. - ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. xxx Plaintiff, in his complaint, alleged that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses fo the same; and to order the beds by the dozen and in no other 25

manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. ISSUE: sale

WON contract between the plaintiff and the defendant is a contract of purchase and

HELD: YES - In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. - It would be enough to hold that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. - Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. - The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and requested the plaintiff's prior consent with 26

respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the socalled commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. - In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.

15. GONZALO PUYAT & SONS, INC. V ARCO AMUSEMENT CO. 72 PHIL 402LAUREL; June 20, 1941 NATURE

PETITION for review on certiorari.

FACTS: - Arco Amusement Co., which was engaged in the business of operating cinematographs, approached Gonzalo Puyat & Sons, Inc, which was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, USA, to equip its cinematographs with sound reproducing devices. After some negotiations, they agreed that Puyat, in behalf of Arco, would order sound reproducing equipment from Starr Piano Co. and that Arco would pay defendant, in addition to the price of the equipment, a 10% commission, plus all expenses (freight, insurance, banking charges, cables, etc.). At the expense of Arco, Puyat sent a cable to Starr Piano Co. inquiring about the equipment desired and making the said company to quote its price without discount. Starr Piano Company sent the list price of $1,700. - Puyat inforemed Arco the price of $1700 (without showing the cable of inquiry nor reply). Arco, by means of a letter, formally authorized the order. Upon delivery and presentation of necessary papers, Arco paid $1700 + 10% commission agreed upon + all expenses and charges. - Arco ordered for another sound reproducing equipment on the same terms as the first order, which was confirmed by a second letter. This time the supposed price quoted by the Starr Piano Company was $1600 so upon delivery of the second order, Arco paid $1600 + 10% commission + $160 all expenses incurred (not representing actual out-of-pocket expenses paid by the defendant but mere flat charge and rough estimate made by Puyat which was equivalent to 10% of the price of the equipment. - Arco found out (after 3 yrs) that the prices quoted to them by Puyat were not the net price but the list price, and that Puyat obtained a discount from Starr Piano Company. They were convinced that the prices charged them by Puyat were much too high including the charges for out-of-pocket expenses so they sought to obtain a reduction/reimbursement from Puyat, but failing to do so, they bought action against Puyat.

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- TC: the contract between the petitioner and the respondent was one of outright purchase and sale (PUYAT absolved) - CA: the relation between petitioner and respondent was that of agent and principal, the petitioner acting as agent of the respondent in the purchase of the equipment in question; even if the contract was of purchase and sale, Puyat was guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the overpayments made by the latter ISSUES: 1. WON the relation between the petitioner and respondent was that of agent and principal 2.If so, WON the Puyat was bound to reimburse Arco for any difference between the cost price and the sales price HELD 1. NO - Sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase and sale, and not one of agency. Ratio. In agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code). Reasoning - First, the contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which can not bind either party. In the letters representing the agreement between them are clear in their terms and admit of no other interpretation than that Arco agreed to purchase from Puyat the equipment in question at the prices indicated ($1700 and $1600 respectively) which are fixed and determinate. Whatever unforseen events might have taken place unfavorable to the Puyat, such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, Arco would still pay them the prices fixed of $1,700 and $1,600. Even if Puyat was to receive 10% commission, this does not necessarily make them an agent of the respondent, as it was only an additional price which Arco bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. -Second, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. 2. NO - The petitioner as vendor is not bound to reimburse the respondent as vendee for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middleman would not exist. Ratio. It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to 28

local purchasers.xxx If the respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. Reasoning - the twenty-five per cent (25% ) discount granted by the Starr Piano Company to the petitioner is available only to the latter as the former's exclusive agent in the Philippines. The respondent could not have secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10 per cent commission offered by the respondent. - the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers, and the respondent was not even aware of such an arrangement. - It was apparently to guard against an exhorbitant additional price that Arco sought to limit it to 10 per cent, so they are estopped from questioning that additional price (the 25% discount given to Puyat. - ON ALLEGED FRAUD: Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world. Disposition The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is accordingly reversed and the petitioner is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as Teatro Arco), plaintiffappellant, vs. Gonzalo Puyat and Sons, Inc., defendant-appellee," without pronouncement regarding costs.

16. Asbestos Integrated vs. Peralta, MWSS and Eternit GR No. L-45515, October 29, 1987 Facts: Petitioner Asbestos Integrated Manufacturing, Inc. (AIMI for short) is a 100% Filipino-owned corporation, engaged in the marketing of asbestos cement pressure pipes manufactured by Asbestos Cement Products Philippines, Inc. (ACPPI for short) which is also a 100% Filipino-owned; The respondent Eternit Corporation (Eternit, for short) is a domestic corporation, incorporated under Philippine laws, with 90% of its capital stock, owned and controlled by aliens. The respondent Sanvar Development Corporation (Sanvar, for short) is also a 100% Filipino-owned and controlled corporation, organized and existing under Philippine laws "to carry on and undertake any business undertaking, transaction or operation commonly carried on or undertaken by general contractors, sub-contractors etc." and whose secondary purpose, among others, is "to engage in, operate, conduct and maintain the business of trading (buy and sell), manufacturing or otherwise dealing in any and all kinds of commodities,

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wares, supplies, merchandise of whatever description and to carry on such business as wholesaler, retailer, importer, etc." The respondent MWSS is a government owned and controlled corporation. On 18 May 1976, the MWSS, in pursuance of its interim program of construction, improvement, repair and expansion in order to insure continuous and adequate supply of potable water to the inhabitants of Metro Manila, conducted a public bidding for its asbestos cement pipe requirements. Among those which participated were the petitioner AIMI, and the respondent Sanvar. In the bidding conducted, Sanvar submitted a total bid price of P373,122.30 while AIMI, submitted a total bid price of P423,913.96, which is 13.6% higher than that of the former. However, no award was made since "the pipes needed for the projects mentioned in this bidding, will now come from the pipes to be supplied in the 27 September 1976, public bidding." In the public bidding of 27 September 1976, Sanvar submitted a total bid price of P2,653,360.00 while AIMI, submitted a total bid price of P3,259,492.00, which is 22.84% higher than the bid of Sanvar. As a result, the contract to supply the asbestos cement pressure pipes was awarded to Sanvar AIMI, claiming that Sanvar is but a mere dealer or distributor or marketing arm of the alienowned Eternit, filed a petition against the MWSS, Eternit and Sanvar before the Court of First Instance of Manila, to nullify the award and to restrain the respondents from enforcing the same. The Petitioner invoked the Retail Trade Nationalization Act (Rep. Act No. 1180), the Flag Law (Com. Act No. 138), the Anti-Dummy Act (Com. Act No. 108), and the law reserving to Filipinos and Filipino-owned corporations the exclusive right to enter into contracts with any government owned or controlled corporation, company, agency or municipal corporation for the supply of materials, equipment, goods, and commodities (Rep. Act No. 5183) in support of its petition. Finding the petition to be sufficient in form and substance, and that the acts complained of, unless restrained, would cause the petitioner great harm and irreparable injury, the trial court issued an order restraining the respondents "from entering into contract covering the public biddings on 18 May 1976 and 27 September 1976, or making and accepting deliveries under any contract which may have been entered into in the meantime, or from otherwise implementing the Board resolution of the Metropolitan Waterworks and Sewerage System awarding the questioned bids in favor of defendants Sanvar Development Corporation and/or Eternit Corporation, until further orders from the Court", and forthwith set the hearing on the issuance of a writ of preliminary injunction on 18 November 1976. On 25 February 1977, the trial court lifted the restraining order issued and denied the motion for the issuance of writ of preliminary injunction and dismissed the complaint. Issue: WON Sanvar is but an alter ego or the marketing arm of Eternit so that it is prohibited by law from entering into a contract with the MWSS for the supply of asbestos cement pressure pipes. Ruling: We find, however, that the evidence presented by the petitioner is not sufficient to support the conclusion that Sanvar is an alter ego of Eternit. In the interpretation of a contract the evident intention of the parties prevails over the words which appear contrary to it (Article 1370, Civil Code); as a general rule that essence of a contract determines what law should apply to the relation between the parties and not what they 30

prefer to call that relationship. To ascertain the meaning or import of a contract the whole of it, and not mere portions thereof, must be taken into account. What the words "dealership" and "dealer-owned" derived from "deal" which means to do a distributing or retailing business or to have intercourse on business relations as appearing in Exhibit "A" of the plaintiff, is clear from many explicit and unmistakable provisions spread over the entire agreement, viz: ... "the dealer shall RESELL Eternit construction products PURCHASED from the company (Par 1) ... the dealer shall PURCHASE from the company his/its requirement for RESALE (Par. 3) ... all PURCHASES under this agreement shall be paid in cash ... any loss or damage to, or deterioration of, the products due to any cause whatsoever occurring after delivery shall be borne by the dealer (Par. 5) ... delivery shall be deemed complete and transfer of title to products effected when the products are delivered to carrier... (Par 5)... nothing in this agreement shall be construed as reserving to the company any right to exercise any control over, or direct in respect the conduct or management of, the business or operations of the dealer ... the entire control and direction of such business and operations shall be and remains in the dealer .... the dealer shall not have any right or authority to, and shall not, incur any debts or liabilities or enter into any contract or transact any business whatsoever in the name of, or for, or on behalf of the company". (Par. 10, Exhibit "1-A Sanvar") "The foregoing, clear and distinct that they are, were carried out by the parties. Sanvar buying from Eternit construction materials (Exhibits " 18-B Sanvar" to "18-G-15- Sanvar") receiving them (Exhibits "18-C-14-Sanvar to 18D Sanvar paying for them, (Exhibits "18-D Sanvar" to 18-G-5-Sanvar") and, in turn, selling them for its own account, and not in behalf of Eternit. The letter of Romeo Fajardo, General Manager of Sanvar, to the MWSS treasurer (Exhibit "L"), the letter of the regional manager of Eternit to MWSS (Exhibit "R"); and the "letter of the Branch Manager of Eternit to Sanvar (Exhibit "Q"), all to the effect that Sanvar is the exclusive distributor of pipes manufactured by Eternit, do not detract a whit from Sanvar's position vis a vis Eternit, as a buyer of the products of the latter, for a buyer engaged in the business of selling what he buys from the manufacturer has to necessarily distribute what he buys, without thereby becoming the seller's agent, and an agreement that the buyer shall deal exclusively with the products of the seller a — well-known practice in the business world — is not inconsistent with the contract of sale, much less convert it into one of agency Since Sanvar, a domestic corporation wholly owned or controlled by Filipino citizens, is not an alter ego of Eternit, it follows that Republic Act No. 5183, which bars aliens and alien owned or controlled corporations from participating in biddings to supply the government or its instrumentalities with materials, equipment, goods, and commodities, as well as the Anti-Dummy Act (Com. Act No. 108) and the Retail Trade Nationalization Act (Rep. Act No. 1180), cannot be invoked against Sanvar. Neither can the petitioner find support in the Flag Law. Under said law, Commonwealth Act No. 138, preference is given (a) in favor of unmanufactured articles, materials or supplies of the growth or production of the Philippines, and manufactured articles, materials and supplies, produced, made and manufactured in the Philippines substantially from articles, materials or supplies of the growth, production or manufacture of the Philippines; and (b) in favor of domestic entities. The Flag Law may be invoked only against a bidder who is not a domestic entity, as defined in the law, or against a domestic entity who offers imported articles, materials or supplies or those made or produced in the Philippines from imported materials. But, where all the materials, goods or supplies offered in the bids submitted are produced, made and manufactured in the Philippines substantially from articles, materials or supplies of the 31

growth of the Philippines, and the bidders are domestic entities, as in the instant case, the Flag Law finds no application. But, even if the petitioner were to be given a preference, pursuant to the Flag Law, the petitioner would still not be entitled to an award since its bid of P3,259,492.00, is 22.84% higher than the bid of Sanvar of P2,653,360.00. Petitioner's bid would still be higher by 7.84%, over the 15% margin or mark-up given by the Flag Law to the bid of a domestic entity over that of a nondomestic entity.

17. Yuson v. Vitan, 496 SCRA 540 (2007) FACTS: Mar Yuson, a cab driver w/ 8 kids, inherited some money. They used this money to buy a 2nd hand cab w/ the help of Atty Vitan, but their other plans (repair house and hold debut for daughter) was suspended bec. Atty vitan borrowed from them 100k. It was greed that it woul be paid at the end of the year in time for the debut and as a guarantee, Vitan issued several PDChecks but the bank account of the lawyer is closed. To recover the debt, Yuson sought the help of IBP National Committee on Legal Aid. The Atty defaulted so he gave a collateral for the loan: a deed of sale of vitan’s land in bulacan. Yuson’s intention was to either seel or mortage the land so that the proceeds would be used as a payment for vitan’s loan. However, a 2nd DOAS this time in favor of Vitan was executed. Complainant was able to mortgage the property for 30k, but vitan did not redeemed this amount but simply offered another promised to pay to the complainants. IBP took action and informed Vitan that an admin case would be filed against him, but Vitan defended that he already paid the loan by way of his DOAS in bulacan. But Vitan attached the 2nd DOAS where he was the vendee and the complainant the vendor. Vitan called this a counter DOAS. He admitted having given several postdated checks amounting to P100,000, supposedly to guarantee the indebtedness of Estur to complainant. Atty. Vitan argued for the first time that it was she who had incurred the debts, and that he had acted only as a "character reference and/or guarantor." He maintained that he had given in to the one-sided transactions, because he was "completely spellbound by complainant's seeming sincerity and kindness." To corroborate his statements, he attached Estur's Affidavit. ISSUE: W/N Vitan’s obligation is extinguished by the sale of his property? – NO HELD: The wordings of these promissory notes disclose that he had a personal obligation to complainant, without any mention of Estur at all. If it were true that Atty. Vitan had executed those notes for the account of his liaison officer, he should have used words to that effect. Basically, respondent is asserting that what had transpired was a dation in payment. Governed by the law on sales, it is a transaction that takes place when a piece of property is alienated to the creditor in satisfaction of a debt in money. It involves delivery and transmission of ownership of a thing -- by the debtor to the creditor -- as an accepted equivalent of the performance of the obligation. The records reveal that he did not really intend to sell and relinquish ownership over his property in Sta. Maria, Bulacan, notwithstanding the execution of a Deed of Absolute Sale in favor of complainant. The second Deed of Absolute Sale, which reconveyed the property to respondent, is proof that he had no such intention. This second Deed, which he referred to as his "safety net," betrays his intention to counteract the effects of the first one.

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The second Deed of Absolute Sale returned the parties right back where they started, as if there were no sale in favor of complainant to begin with. In effect, on the basis of the second Deed of Sale, respondent took back and asserted his ownership over the property despite having allegedly sold it. Thus, he fails to convince us that there was a bona fide dation in payment or sale that took place between the parties; that is, that there was an extinguishment of obligation. It appears that the true intention of the parties was to use the Bulacan property to facilitate payment. They only made it appear that the title had been transferred to complainant to authorize him to sell or mortgage the property.

18. SSS v CA, 553 SCRA 677 (2008) Facts: AG&P and Semirara Coal Company proposed to pay its arrears of premiums and loan amortization delinquencies through dacion en pago which was subsequently accepted by SSS. Thereafter, SSS directed herein defendant to submit certain documents necessary for the agreement which AG&P immediately complied with. SSS finally approved the dacion en pago which as of March 2001 amounted to P29, 261,902.45. To effect said transfer, a Deed of Assignment had to be executed between the two parties which SSS failed to come up. On the other hand, defendant continuously submitted drafts to SSS of the needed Deed of Assignment. ON 2003, SSS sent to AG&P a revised copy of the Deed of Assignment, however, the amount went from P29, 261,902.45 to P40, 846,610.64 allegedly because of the additional interest and penalties. AG&P requested for the deduction of these interests and penalties for the delay of the Deed of Assignment was the fault of SSS. Thus, AG&P filed a complaint for the specific performance and damages against SSS. SSS contended that the court has no jurisdiction over the case in accordance with R.A. 8282 which provides that any dispute should be filed in the Commission. RTC ruled in favor of AG&P. upon appeal, the CA held that the court has jurisdiction and that the case be reverted back to the Trial Court for actual proceedings. Thus, SSS appealed to the Court. Issue: Which body has jurisdiction over non-implementation of a dacion en pago agreed by the part. Held: Petition was denied. From the allegations of respondents’ complaint, it readily appears that there is no longer any dispute with respect to respondents’ accountability to the SSS. Respondents had, in fact, admitted their delinquency and offered to settle them by way ofdacion en pago subsequently approved by the SSS in Resolution No. 270-s. 2001. SSS stated in said resolution that “the dacion en pago proposal of AG&P Co. of Manila and Semirara Coals Corporation to pay their liabilities in the total amount ofP30,652,710.71 as of 31 March 2001 by offering their 5.8 ha. property located in San Pascual, Batangas, be, as it is hereby, approved..” This statement unequivocally evinces its consent to the dacion en pago. The controversy, instead, lies in the non-implementation of the approved and agreed dacion en pago on the part of the SSS. As such, respondents filed a suit to obtain its enforcement which is, doubtless, a suit for specific performance and one incapable of pecuniary estimation beyond the competence of the Commission. Pertinently, the Court ruled in Singson v. Isabela Sawmill, as follows:

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In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance (now Regional Trial Courts)

19. ESTANISLAO V EAST WEST BANKING CORPORATION G.R.No. 178537, February 11, 2008 FACTS: Estanilao obtained a loan from the East West Banking Corporation in the amount of P3,925,000.00 evidenced by a promissory note and secured by two deeds of chattel mortgage dated July 10, 1997: one covering two dump trucks and a bulldozer to secure the loan amount of P2,375,000.00, and another covering bulldozer and a wheel loader to secure the loan amount of P1,550,000.00. Petitioners defaulted in the amortizations and the entire obligation became due and demandable. Because of that, respondent bank filed a suit for replevin with damages, praying that the equipment covered by the first deed of chattel mortgage be seized and delivered to it. In the alternative, respondent prayed that petitioners be ordered to pay the outstanding principal amount of P3,846,127.73 with 19.5% interest per annum reckoned from judicial demand until fully paid, exemplary damages of P50,000.00, attorney’s fees equivalent to 20% of the total amount due, other expenses and costs of suit. The case was filed in the Regional Trial Court of Antipolo. Subsequently, respondent moved for suspension of the proceedings on account of an earnest attempt to arrive at an amicable settlement of the case. The trial court suspended the proceedings, and during the course of negotiations, a deed of assignment was drafted by the respondent. Petitioners affixed their signatures on the deed of assignment. However, for some unknown reason, respondent bank’s duly authorized representative failed to sign the deed. Petitioners completed the delivery of the heavy equipment mentioned in the deed of assignment – two dump trucks and a bulldozer – to respondent, which accepted the same without protest or objection. However, respondent filed a manifestation and motion to admit an amended complaint for the seizure and delivery of two more heavy equipment – the bulldozer and wheel loader – which are covered under the second deed of chattel mortgage. Respondent claimed that its representative inadvertently failed to include the second deed of chattel mortgage among the documents forwarded to its counsel when the original complaint was being drafted. Respondent likewise claimed that petitioners were given a chance to submit a refinancing scheme that would allow them to keep the remaining two heavy equipment, but they failed to come up with such a scheme despite repeated promises to do so.Petitioners sought to dismiss the amended complaint. They alleged that their previous payments on loan amortizations, the execution of the deed of assignment and respondent’s acceptance of the three units of heavy equipment, had the effect of full payment or satisfaction of their total outstanding obligation which is a bar on respondent bank from recovering any more amounts from them. The trial court dismissed the amended complaint for lack of merit. It held that the deed of assignment and the petitioners’ delivery of the heavy equipment effectively extinguished petitioners’ total loan obligation. It also held that respondent was estopped from further collecting from the petitioners when it accepted, without any protest, delivery of the three units of heavy equipment as full and complete satisfaction of the petitioners’ 34

total loan obligation. Respondent likewise failed to timely rectify its alleged mistake in the original complaint and deed of assignment, taking almost a year to act. Respondent bank appealed to the CA which reversed the decision of the RTC. ISSUE: W/N East West Banking Corp is no longer allowed to foreclose the 2nd Deed of Chattel Mortgage RULING: Yes. Since the agreement was consummated by the delivery on March 8, 2001 of the last unit of heavy equipment under the deed, petitioners are deemed to have been released from all their obligations to respondent. Since there is no more credit to collect, no principal obligation to speak of, then there is no more second deed of chattel mortgage that may subsist. A chattel mortgage cannot exist as an independent contract since its consideration is the same as that of the principal contract. Being a mere accessory contract, its validity would depend on the validity of the loan secured by it.This being so, the amended complaint for replevin should be dismissed, because the chattel mortgage agreement upon which it is based had been rendered ineffectual.

20.

Jose vs. Barrueco

GR No. L-45955

April 5, 1939

Facts: Mary Ando leased from Julio Barrueco a China cabinet valued at P70. She undertook, under the lease, to pay P14 upon signing the contract and P5 monthly thereafter for a period not specified but extendible at the owner's pleasure. The contract of lease further provided that upon lessee's default, the contract would be rescinded; that the lessee was not liberty to remove said cabinet from house No 1030 Misericordia Street where she lived, and that upon failure to comply with the terms of the lease, the owner could immediately take possession of the property leased. Under similar terms and conditions, Mary Ando also leased from said store a narra wardrobe valued at P120, paying P24 cash and P10 monthly. Unable to pay the rent of the house, Mary Ando attempted to move therefrom, taking with her the cabinet and the wardrobe. She was presented from doing so by Teodorica R. Viuda de Jose, the owner of the house, who claimed to be entitled to said personal properties in lieu of rents due. Upon a complaint filed by Julio Veloso Barrueco to recover the properties in question from Teodorica R. Viuda de Jose, the Court of First Instance of Manila held that the contracts of lease (Exhibits A and B) were fictitious, and that the real contract between the plaintiff and Mary Ando was one of sale on the installment basis, wherefore, the complaint was dismissed and defendant declared entitled to the properties in litigation. Brought to the Court of Appeals, the judgment was reversed, and the contracts between plaintiff and Mary Ando held to be those of lease. Issue: WON the contract is a Lease or a Sale. Ruling: A perusal of the record of this case shows that in Exhibit A, the amount of P70 was fixed as the cost price for the cupboard, P14 as the down payment made at the signing of the contract and P5 as the monthly rentals of said furniture. In Exhibit B the amount of P120 was also fixed as the cost price of the modern narra wardrobe, the down payment made as P24 and the monthly rental at P10. These Exhibits A and B are denominated CONTRACTS OF LEASE, the monthly payments for both pieces of furniture are called rentals, and Mary Ando is 35

mentioned as "leasee." What is the nature of these contracts? The answer to this question is not to be found in any denomination which the parties may have given to the instruments, and not alone in any particular provision it contains, disconnected from all others, but in the ruling intention of the parties, gathered from the language they have used. It is the legal effect of the whole which is to be sought for. The form of the instrument is of little account. We find that the parties intended to have the ownership of the furniture transferred to Mary Ando upon the latter complying with the conditions of the contract. (Therefore, it is a contract of Sale). 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. The writ of certiorari is granted, and the judgement of the Court of Appeals is reserved and that of the Court of First Instance of Manila declared in full force and effect. Without costs. So ordered.

21. Elisco Tool Manufacturing Corp. Vs. Court of Appeals et. al. May 31, 1999 GR No. 109966 Facts: -Private respondent Rolando Lantan was employed at the Elisco Tool Manufacturing Corporation as head of its cash department. On 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; 36

-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 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. 37

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 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 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 38

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.

22. FILINVEST CORP. vs CA

178 SCRA 188, G.R. No. 82508

September 29, 1989

FACTS: Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. They intended to buy rock crusher from Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for financial assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial aid on the certain conditions. A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1981, payable as follows: P10,000.00 – first 3 months, P23,000.00 – next 6 months, P24,800.00 – next 15 months. It was likewise stipulated that at the end of the two-year period, the machine would be owned by the private respondents. Thus the private respondent issued in favor of the petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the private respondent executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the spouses. However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints of the spouses about the machine. As a consequence, petitioner extrajudicially foreclosed the real estate mortgage. The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of private respondent. The petitioner elevated the case to CA which affirmed the decision in toto. Hence, this petition. ISSUES: 1. Whether or not the nature of the contract is one of a contract of sale.\ 2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative. HELD: 1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently restored to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. 39

2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative, and therefore, the exercise of one bars the exercise of the others. Indubitably, the device – contract of lease with option to buy – is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid.

23.

MEDINA V COLLECTOR OF INTERNAL REVENUE

1 SCRA 303

January 28, 1961

NATURE Petition to review a decision of the Court of Tax Appeals upholding a tax assessment of the Collector of Internal Revenue except with respect to the imposition of so-called compromise penalties, which were set aside. FACTS: - That on or about May 20, 1944, petitioning taxpayer Antonio Medina married Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later, however, petitioner, acquired forest concessions in the municipalities of San Mariano and Palanan in the Province of Isabela. From 1946 to 1948, the logs cut and removed by the petitioner from his concessions were sold to different persons in Manila through his agent, Mariano Osorio. - Some time in 1949, Antonia R. Medina, petitioner's wife, started to engage in business as a lumber dealer, and up to around 1952, petitioner sold to her almost all the logs produced in his San Mariano concession. Mrs. Medina, in turn, sold in Manila the logs bought from her husband through the same agent, Mariano Osorio. The proceeds were, upon instructions from petitioner, either received by Osorio for petitioner or deposited by said agent in petitioner's current account with the Philippine National Bank. - The Collector considered the sales made by Mrs. Medina as the petitioner's original sales taxable and NOT the sales made by the petitioner to his wife. Because of this, the petitioner protested the assessment, however, respondent Collector insisted on his demand. - According to Medina the sale was valid as he and his wife executed and recorded a pre-nuptial agreement for a regime of complete separation of property but all trace of the document was lost on account of the war. before their marriage. However, this claim was not sufficiently proven. ISSUES 1. WON the sales made by the petitioner to his wife could be considered as his original taxable sales under the provisions of Section 186 of the National Internal Revenue Code

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2. WON the respondent Collector cannot assail the questioned sales, he being a stranger to said transactions HELD: 1. NO Ratio Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs. Cantollas, 70 Phil. 55; Uy Coque vs. Sioca, 45 Phil. 43). Being void transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that considered as the taxable sales those made by the wife through the spouses' common agent, Mariano Osorio. 2. NO Ratio The government, as correctly pointed out by the Tax Court, is always an interested party to all matters involving taxable transactions and, needless to say, qualified to question their validity or legitimacy whenever necessary to block tax evasion. Disposition Decision appealed from is AFFIRMED

24. Calimlim-Canullas v. Fortun [G.R. No. 57499. June 22, 1984.] Facts: Mercedes Calimlim-Canullas and Fernando Canullas were married on 19 December 1962. They begot five children. They lived in a small house on the residential land in question with an area of approximately 891 sq. m., located at Bacabac, Bugallon, Pangasinan. After Canullas’ father died in 1965, he inherited the land. In 1978, Canullas abandoned his family and lived with Corazon Daguines. On 15 April 1980, Canullas sold the subject property with the house thereon to Daguines for the sum of P2,000.00. In the document of sale, Canullas described the house as “also inherited by me from my deceased parents.” Unable to take possession of the lot and house, Daguines initiated a complaint beore the CFI Pangasinan (Branch 1, Civil Case 15620) on 19 June 1980 for quieting of title and damages against Calimlim-Canullas. Calimlim-Canullas resisted and claimed that the house in dispute where she and her children were residing, including the coconut trees on the land, were built and planted with conjugal funds and through her industry; that the sale of the land together with the house and improvements to Daguines was null and void because they are conjugal properties and she had not given her consent to the sale. On 6 October 1980, the trial court ruled in favor of Daguines as the lawful owner of the land as well as ½ of the house erected on the land. Upon reconsideration and on 27 November 1980, however, the lower court modified the judgment by declaring Daguines as the lawful owner of the land and 10 coconut trees thereon but declaring the sale of the conjugal house including 3 coconuts and other crops during the conjugal relation of the spouses null and void. A petition for review on certiorari was filed with Supreme Court. During the pendency of the appeal, however, Fernando Canullas and Corazon Daguines were convicted of concubinage in a judgment rendered on 27 October 1981 by the then CFI Pangasinan, Branch II, which judgment has become final. The Supreme Court set aside the decision and resolution of the lower court, and declared the sale of the lot, house and improvements null and void; without costs. 1. Land and building belongs to the conjugal partnership, spouse owning the land becomes the creditor of the conjugal partnership

41

Pursuant to the second paragraph of Article 158 of the Civil Code, which provides that “buildings constructed at the expense of the partnership during the marriage on land belonging to one of the spouses also pertain to the partnership, but the value of the land shall be reimbursed to the spouse who owns the same,” both the land and the building belong to the conjugal partnership but the conjugal partnership is indebted to the husband for the value of the land. The spouse owning the lot becomes a creditor of the conjugal partnership for the value of the lot, which value would be reimbursed at the liquidation of the conjugal partnership. 2. Padilla v. Paterno is better rule than Maramba v. Lozano; Spouse cannot alienate property without the consent of the other In the case of Maramba vs. Lozano, it was held that the land belonging to one of the spouses, upon which the spouses have built a house, becomes conjugal property only when the conjugal partnership is liquidated and indemnity paid to the owner of the land. The better rule, however, is that held in Padilla vs. Paterno, where the conversion of the properties from paraphernal to conjugal assets should be deemed to retroact to the time the conjugal buildings were first constructed thereon or at the very latest, to the time immediately before the death of one spouse that ended the conjugal partnership. They cannot beconsidered to have become conjugal property only as of the time their values were paid to the estate of the widow because by that time the conjugal partnership no longer existed and it could not acquire the ownership of said properties. The acquisition by the partnership of the properties was, under the 1943 decision, subject to the suspensive condition that their values would be reimbursed to the widow at the liquidation of the conjugal partnership; once paid, the effects of the fulfillment of the condition should be deemed to retroact to the date the obligation was constituted (Article 1187, New Civil Code). Thus, in the present case, considering the foregoing premises, Canullas cannot have alienated the house and lot to Daguines since the wife had not given her consent to the sale. 3. Contract of sale null and void for being contrary to morals and public policy Article 1409 of the Civil Code provides “contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning.” Article 1352 also provides that “contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy.” In the present case, the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his wife and children lived and from whence they derived their support. That sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects. 4. Law prohibits sale and donation between husband and wife, such applies even those living together without benefit of marriage The law prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply 42

to a couple living as husband and wife without benefit of marriage, otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. (Buenaventura v. Bautista [CA]) 5. Disabilities attached to marriage also applies to concubinage The ruling in Buenaventura vs. Bautista [CA] was cited in Matabuena vs. Cervantes, reiterating thatwhile Article 133 of the Civil Code considers as void a donation between the spouses during the marriage, policy considerations of the most exigent character as well as the dictates of morality require that the same prohibition should apply to a common-law relationship. If the policy of the law is to prohibit donations in favor of the other consort and his descendants because of fear of undue influence and improper pressure upon the donor, a prejudice deeply rooted in our ancient law, then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as pointed out by Ulpian, it would not be just that such donations should subsist, lest the conditions of those who incurred guilt should turn out to be better. So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage.

25.

PHILIPPINE TRUST CO. V ROLDAN

99 Phil 393

May 31, 1956

NATURE As guardian of the property of the minor Mariano L. Bernardo, the Philippine Trust Company filed in the Manila court of first instance a complaint to annul two contracts regarding 17 parcels of land: (a) sale thereof by Socorro Roldan, as guardian of said minor, to Fidel C. Ramos; and (b) sale thereof by Fidel C. Ramos to Socorro Roldan personally. The complaint likewise sought to annul a conveyance of four out of the said seventeen parcels by Socorro Roldan to Emilio Cruz. FACTS - Mariano Bernardo inherited from his father, Marcelo Bernardo, the parcels of land in question. In view of his minority, guardianship proceedings were instituted wherein Socorro Roldan was appointed guardian. She was the surviving spouse of Marcelo Bernardo - Socorro filed in a guardianship proceedings a motion asking for authority to sell as guardian the 17 parcels for the sum of P14,700 to Dr. Fidel C. Ramos, to invest the money in a residential house, which the minor desired to have. The motion was granted. - Socorro, as guardian, executed the proper deed of sale in favor of her brother-in-law Dr. Fidel C. Ramos and obtained, judicial confirmation of the sale. A week later, Dr. Fidel C. Ramos executed in favor of Socorro, personally, a deed of conveyance covering the same seventeen parcels, for the sum of P15,000. And later the same year, Socorro sold four parcels out of the seventeen to Emilio Cruz for P3,000, reserving to herself the right to repurchase. - The Philippine Trust Company replaced Socorro as guardian. And this litigation, started two months later, seeks to undo what the previous guardian had done. The step-mother in effect, 43

sold to herself, the properties of her ward, contends the plaintiff, and the sale should be annulled because it violates Article 1459 of the Civil Code prohibiting the guardian from purchasing "either in person or through the mediation of another" the property of her ward. - The CFI, following Rodriguez vs. Mactal, held the article was not controlling, because there was no proof that Fidel C. Ramos was a mere intermediary or that the latter had previously agreed with Socorro Roldan to buy the parcels for her benefit. Even Socorro swore she had repurchased the lands from Dr. Fidel C. Ramos to preserve it and to give her protege opportunity to redeem - the court rendered judgment upholding the contracts but allowing the minor to repurchase all the parcels by paying P15,000, within one year. - CA affirmed judgment. ISSUE

WON the contracts of sale was made were valid

HELD Ratio No, the three sales should not be sustained: the first two for violation of article 1459 of the Civil Code; and the third because Socorro Roldan could pass no title to Emilio Cruz. The annulment carries with is (Article 1303 Civil Code) the obligation of Socorro Roldan to return the 17 parcels together with their fruits and the duty of the minor, through his guardian to repay P14,700 with legal interest. Reasoning - At first glance the resolutions of both courts accomplished substantial justice: the minor recovers his properties. But if the conveyances are annulled as prayed for, the minor will obtain a better deal: he receives all the fruits of the lands from the year 1947 (Article 1303 Civil Code) and will return P14,700, not P15,000. - When seeking approval of the sale, she represented the price to be the best obtainable in the market, Socorro was not entirely truthful. This is one phase to consider. Supposing she knew the parcels were actually worth P17,000; then she agreed to sell them to Dr. Ramos at P14,700; and knowing the realty's value she offered him the next day P15,000 or P15,500, and got it. Will there be any doubt that she was recreant to her guardianship, and that her acquisition should be nullified? - The general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward's interest and in line with the court's suspicion whenever the guardian acquires the ward's property we have no hesitation to declare that in this case, in the eyes of the law, Socorro Roldan took by purchase her ward's parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies. - She acted it may be without malice; there may have been no previous agreement between her and Dr. Ramos. But the fact remains that she acquired her protege's properties, through her brother-in-law. That she planned to get them for herself at the time of selling them to Dr. Ramos, may be deduced from the very short time between the two sales (one week). The temptation which naturally besets a guardian so circumstanced, necessitates the annulment of the transaction, even if no actual collusion is proved (so hard to prove) between such guardian and the intermediate purchaser. This would uphold a sound principle of equity and justice. - Rodriguez vs. Mactal decision does not apply. It merely meant that the subsequent purchase by Mactal could not be annulled in that particular case because there was no proof of a previous agreement between Chioco and her. The court then considered such proof necessary to 44

establish that the two sales were actually part of one scheme - guardian getting the ward's property through another person - because two years had elapsed between the sales. Such period of time was sufficient to dispel the natural suspicion of the guardian's motives or actions. In the case at bar, however, only one week had elapsed. And if we were technical, we could say, only one day had elapsed from the judicial approval of the sale (August 12), to the purchase by the guardian (Aug. 13). - Attempting to prove that the transaction was beneficial to the minor, appellee's attorney alleges that the money (P14,700) invested in the house on Tindalo Street produced for him rentals of P2,400 yearly; whereas the parcels of land yielded to his step-mother only an average of P1,522 per year. The argument would carry some weight if that house had been built out of the purchase price of P14,700 only. The calculation does not include the price of the lot on which the house was erected. Estimating such lot at P14,700 only, the result is that the price paid for the seventeen parcels gave the minor an income of only P1,200 a year, whereas the harvest from the seventeen parcels netted his step-mother a yearly profit of P1,522.00. The minor was thus on the losing end. Disposition Judgment is therefore rendered: a. Annulling the three contracts of sale in question; b. declaring the minor as the owner of the seventeen parcels of land, with the obligation to return to Socorro Roldan the price of P14,700 with legal interest from August 12, 1947; c. Ordering Socorro Roldan and Emilio Cruz to deliver said parcels of land to the minor; d. Requiring Socorro Roldan to pay him beginning with 1947 the fruits, which her attorney admits, amounted to P1,522 a year; e. Authorizing the minor to deliver directly to Emilio Cruz, out of the price of P14,700 above mentioned, the sum of P3,000; and f. charging appellees with the costs.

26. RUBIAS V BATILLER

51 SCRA 120

May 29, 1973

FACTS - On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and possession of certain portions of lot located in Barotac Viejo, Iloilo which he bought from his father-in-law, Francisco Militante in 1956 against its present occupant defendant, Isaias Batiller, who illegally entered said portions of the lot on two occasions — in 1945 and in 1959. In his answer with counter-claim defendant claims that he and his predecessors-in-interest have always been in actual, open and continuous possession since time immemorial under claim of ownership of the portions of the lot in question. Unfortunately, his title - Francisco Militante claimed ownership of a parcel of land located in the Barrio of General Luna, municipality of Barotac Viejo province of Iloilo, which he caused to be surveyed on July 18-31, 1934 - Before WWII, Francisco Militante filed with the Court of First Instance of Iloilo an application for the registration of the title of the land but was opposed by the Director of Lands, the Director of Forestry and other oppositors. During WWII, the record of the case was lost. After the war, Francisco Militante petitioned this court to reconstitute the record of the case but in the end, the registration was denied.

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- He appealed but pending the decision (which was denied in the end), Francisco Militante sold to the plaintiff, Domingo Rubias the land, and was registered in the Registry of Deeds - Soon after, both Rubias and Militante were declaring the land for taxation purposes - On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against Isaias Batiller in the Justice of the Peace Court of Barotac Viejo Province of Iloilo - During the trial of this case on the merit, the plaintiff will prove by competent evidence the following: > That the land he purchased from Francisco Militante under Exh. "A" was formerly owned and possessed by Liberato Demontaño but that on September 6, 1919 the land was sold at public auction by virtue of a judgment in a Civil Case entitled "Edw J. Pflieder plaintiff vs. Liberato Demontaño Francisco Balladeros and Gregorio Yulo, defendants", of which Yap Pongco was the purchaser (Exh. "1-3"). The sale was registered in the Office of the Register of Deeds of Iloilo on August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale was executed by Constantino A. Canto, provincial Sheriff of Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been registered in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh. "1-1"). > On September 22, 1934, Yap Pongco sold this land to Francisco Militante as evidenced by a notarial deed (Exh. "J") which was registered in the Registry of Deeds on May 13, 1940 (Exh. "J-1"). - Defendants, on the other hand will prove by competent evidence during the trial of this case the following facts: > That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed by Felipe Batiller, grandfather of the defendant Basilio Batiller, on the death of the former in 1920, as his sole heir. Isaias Batiller succeeded his father , Basilio Batiller, in the ownership and possession of the land in the year 1930, and since then up to the present, the land remains in the possession of the defendant, his possession being actual, open, public, peaceful and continuous in the concept of an owner, exclusive of any other rights and adverse to all other claimants. > That the alleged predecessors in interest of the plaintiff have never been in the actual possession of the land and that they never had any title thereto. > That Lot No. 2, Psu 155241, the subject of Free Patent application of the defendant has been approved. - On August 17, 1965, defendant's counsel manifested in open court that before any trial on the merit of the case could proceed he would file a motion to dismiss plaintiff's complaint which he did, alleging that plaintiff does not have cause of action against him because the property in dispute which he (plaintiff) allegedly bought from his father-in-law, Francisco Militante was the subject matter of LRC No. 695 filed in the CFI of Iloilo, which case was brought on appeal to this Court and docketed as CA-G.R. No. 13497-R in which aforesaid case plaintiff was the counsel on record of his father-in-law, Francisco Militante. - Invoking Arts. 1409 and 1491 of the Civil Code which reads: 46

> Art. 1409. The following contracts are inexistent and void from the beginning: (7) Those expressly prohibited by law. > ART. 1491. The following persons cannot acquire any purchase, even at a public auction, either in person of 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 of 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 an 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. - Defendant claims that plaintiff could not have acquired any interest in the property in dispute as the contract he (plaintiff) had with Francisco Militante was inexistent and void. (See pp. 2231, Record on Appeal). Plaintiff strongly opposed defendant's motion to dismiss claiming that defendant can not invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that 'The defense of illegality of contracts is not available to third persons whose interests are not directly affected' (See pp. 32-35 Record on Appeal). - On October 18, 1965, the lower court issued an order disclaiming plaintiffs complaint (pp. 4249, Record on Appeal.) In the aforesaid order of dismissal the lower court practically agreed with defendant's contention that the contract (Exh. A) between plaintiff and Francism Militante was null and void. ISSUE WON the contract of sale between appellant and his father-in-law, the late Francisco Militante over the property subject of Plan Psu-99791 was void because it was made when plaintiff was counsel of his father-in-law in a land registration case involving the property in dispute HELD YES - The purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491 paragraph (5) of the Philippine Civil Code, reproduced supra; 6 and that consequently, plaintiff's purchase of the property in litigation from his client (assuming that his client could sell the same since as already shown above, his client's claim to the property was defeated and rejected) was void and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or declared void by law' are "inexistent and that "(T)hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived." - In a case, the Court ordered the issuance of a writ of possession for the return of the land by the lawyer to the adverse parties without reimbursement of the price paid by him and other expenses, and ruled that counsel is a lawyer and is presumed to know the law. He must, therefore, from the beginning, have been well aware of the defect in his title and is, consequently, a possessor in bad faith." - Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property, from acquiring such property in their trust or control either directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4)

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public officers and employees; judicial officers and employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by law. - New Civil Code recognizes absolute nullity of contracts "whose cause, object, or purpose is contrary to law, morals, good customs, public order or public policy" or which are "expressly prohibited or declared void by law" and declares such contracts "inexistent and void from the beginning." - nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. In his aspect, the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by means of and in "the form of a new contact, in which cases its validity shall be determined only by the circumstances at the time the execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the first contract, may have already become lawful at the time of the ratification or second contract; or the service which was impossible may have become possible; or the intention which could not be ascertained may have been clarified by the parties. The ratification or second contract would then be valid from its execution; however, it does not retroact to the date of the first contract." - As applied to the case at bar, the lower court therefore properly acted upon defendantappellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of the land, since its juridical effects and plaintiff's alleged cause of action founded thereon were being asserted against defendant-appellant.

27. Bernardita Macariola vs Judge Elias Asuncion

31 May 1982,

114 SCRA 77

FACTS: In 1963, Macariola and her step sister (Reyes) had a dispute over their inheritance involving parcels of land located in Leyte. A trial ensued and Judge Macariola, after determining the legibility of the parties to inherit rendered a decision in the civil case. Thereafter, the counsels of the parties submitted a project partition reflecting the preference of the parties. The project partition was, however, unsigned by Macariola. But her lawyer assured Asuncion that he is duly authorized by Macariola as counsel. The judge then approved the project partition. The decision became final in 1963 as well. Reyes et al sold some of their shares to Arcadio Galapon, who later sold the property to judge Asuncion in 1965. On 6 Aug 1968, Macariola filed a complaint against Judge Asuncion with “acts unbecoming a judge” on the ground that he bought a property (formerly owned by Macariola) which was involved in a civil case decided by him; this act by Asuncion is averred by Macariola to be against Art. 1491, par 5 of the Civil Code which provides: “Article 1491. The following persons cannot acquire by purchase, even at a public or judicial action, either in person or through the mediation of another: xxx

xxx

xxx 48

“(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”. Also, Macariola said that Asuncion’s act tainted his earlier judgment. Macariola said that the project partition was unsigned by her and that what was given to her in the partition were insignificant portions of the parcels of land. ISSUE: Whether or not Judge Asuncion violated said provision. HELD: No. The prohibition only applies if the litigation is under pendency. The judge bought the property in 1965 – 2 years after his decision became final. Further, Asuncion did not buy the property directly from any of the parties since the property was directly bought by Galapon, who then sold the property to Asuncion. There was no showing that Galapon acted as a “dummy” of Asuncion. Also, Macariola did not show proof that there was a gross inequality in the partition; or that what she got were insignificant portions of the land. The Supreme Court however admonished Judge Asuncion to be more discreet in his personal transactions.

28. Director of Lands vs Ababa

88 SCRA 513

February 27, 1979

Facts: The adverse claimant Atty. Fernandez was retained as counsel by petitioner (Abarquez) in a civil case for the annulment of a contract of sale with the right of repurchase and for the recovery of the land which was the subject matter thereof. Unable to compensate his lawyer whom he also retained for his appeal, the petitioner executed a document whereby he obliged himself to give to his lawyer ½ of whatever he might recover from lots 5600 and 5602 should the appeal prosper. The real property sought to be recovered was actually the share of petitioner in lots 5600 and 5602 which were part of the estate of his deceased parents and which were partitioned among the heirs, wchich included the petitioner and his sister. The case having been resolved and title having been issued to the petitioner, adverse claimant waiter for the petitioner to compy with his obligation under the document executed by him by delivering the ½ portion of the said parcels of land. Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of land to spouses larrazabal. Then, adverse claimant immediately took steps to protect his interest by filing a motion to annotate his attorney’s lien and by notifying the prospective buyer of his claim over the ½ portion of the land. The motion was granted. The annotation of adverse claim appeared on the new transfer certificate of title. This adverse claim became the subject of cancellation proceedings filed by petitioner-spouses. The trial court resolved the case in favor of the adverse claimant. On 49

appeal, petitioners contended that a contract for a contingent fee violates Art. 1491 because it involves an assignment of property subject of litigation. ISSUE: WON the contract for a contingent fee as basis of interest of Atty. Fernandez is prohibited under Art. 1491 of the Civil Code. RULING: NO. The Contention is without merit. Art. 1491 prohibits the sale or assignment between the lawyer and his client of property which is the subject of litigation. For the prohibition to operate, the sale or assignment of property must take place during the pendency of the litigation involving the property. Likewise, under American Law, the prohibition does not apply to “cases where after completion of litigation the lawyer accepts on account of his fees and interest in the assets realized by the litigation. There is clear distinction between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed. Further, a contract for a contingent fee is not covered by Art. 1491 because the transfer or assi9gnment of the property in litigation takes effect only after the finality of a favourable judgment. In the instant case, the attorney’s fees of Atty. Fernandez, consisting of ½ of whatever the petitioner might recover from his share in the lots in question is contingent upon the success of the appeal. Hence, the payment of the attorney’s fees, that is the transfer or assignment of ½ of the property in litigation will take place only if the appeal prospers. Therefore, the trasfer actually takes effect after the finality of a favourable judgment rendered on appeal and not during the pendency of litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Art. 1491 of the Civil Code.

29. MAHARLIKA PUBLISHING CORP V TAGLE

GR No. L-65594

July 9, 1986

FACTS GSIS owned a parcel of land with a building and printing equipment in Paco, Manila. It was sold to Maharlika in a Conditional Contract of Sale with the stipulation that if Maharlika failed to pay monthly installments in 90 days, the GSIS would automatically cancel the contract. Because Maharlika failed to pay several monthly installments, GSIS demanded that Maharlika vacate the premises. Even though Maharlika refused to do so, the GSIS published an advertisement inviting the public to bid in a public auction. A day before the scheduled bidding, Adolfo Calica, the President of Maharlika, gave the GSIS head office 2 checks worth 11,000 and a proposal for a compromise agreement. The GSIS General Manager Roman Cruz gave a note to Maharlika saying “Hold Bidding. Discuss with me.” However, the public bidding took place as scheduled and the property was subsequently awarded to Luz Tagle, the wife of the GSIS Retirement Division Chief. Maharlika demanded that the sale be considered null and void, as Mrs. Tagle should have been disqualified from bidding for the GSIS property. RTC and CA both ruled that the Tagles were entitled to the property and Maharlika should vacate the premises. ISSUE

Whether or not Tagle are entitled to the property ?

HELD NO. The sale to them was against public policy. First of all, the GSIS head office was stopped from claiming that they did not give the impression to Maharlika that they were accepting the proposal for a compromise agreement. The act of the general manager is binding on GSIS. 50

Second, Article 1491 (4) of the Civil Code provides that public officers and employees are prohibited from purchasing the property of the state or any GOCC or institution, the administration of which has been entrusted to them cannot purchase, even at public or judicial auction, either in person or through the mediation of another. The SC held that as an employee of the GSIS, Edilberto Tagle and his wife are disqualified from bidding on the property belonging to the GSIS because it gives the impression that there was politics involved in the sale. It is not necessary that actual fraud be shown, for a contract which tends to injure the public service is void although the parties entered into it honestly and proceeded under it in good faith.  30.

Mangayao vs de Guzman

55 SCRA 540

February 22, 1974

Facts: Petitioners are non-Christian Filipinos of the Subano tribe. They filed on March 21, 1960 an action for the recovery of property and declaration of nullity of contract against respondents Santay Lasud and Guintana Cia Lasud in the Court of First Instance of Zamboanga del Sur, docketed as Civil Case No. 575. They obtained a decision in their favor, affirmed on appeal by this Court on May 29, 1964. The decision became final and executory on October 5, 1964. Then on April 1, 1965, petitioners were by virtue thereof placed in possession of the property in question private respondents being reimbursed likewise in accordance therewith, in the sum of five thousand pesos. There was in the meanwhile an action by private respondents for the annulment of such judgment, notwithstanding its having been affirmed by this Court and becoming final and executory. Respondent Judge surprisingly issued an order restraining petitioners Tumipus Mangayao, and Guimanda Bubungan to desist from executing or causing the execution of the decision in Civil Case No. 575. The Supreme Court immediately issued a resolution requiring respondents to answer and granting the writ of preliminary injunction prayed for. The answers were duly forthcoming, both from respondent Judge and private respondents. As was to be expected, no valid issue could be raised as to the legal question involved on the above facts. The situation presented is that of a judgment final and executory, from this Court no less, being sought to be thwarted by private respondents. What was indeed surprising was the receptivity of respondent Judge to such an unwarranted move. To give a semblance of deceptive plausibility, private respondents could only surmise in their answer that the case before respondent Judge "was very much open for presentation of proof with respect to the other issues, among which were the question of indefeasibility of title, unenforceability of contract under the Statute of Frauds; the issue of whether the transaction was a sale or mortgage; prescription of action; intervention of the rights of an innocent purchaser for value, ... .” Issue: WON the respondent Judge has the authority or legal basis for his action. Ruling: It is much too clear then, that there is a fatal flaw in this attempt, without the least color of support in law, to reopen a matter conclusively and finally determined by this Tribunal itself. To repeat, we find for petitioners. 1. The well-settled doctrine of the law of the case ought to have cautioned respondent Judge against the step he took. The latest case in point as of the time the order complained of was issued is Kabigting v. Acting Director of Prisons, a 1962 decision. As emphasized by the ponente, the then Justice, now Chief Justice, Makalintal: "It need not be stated that the Supreme Court, being the court of last resort, is the final arbiter of all legal questions properly 51

brought before it and that its decision in any given case constitutes the law of that particular case. Once its judgment becomes final it is binding on all inferior courts, and hence beyond their power and authority to alter or modify. If petitioner had any ground to believe that the decision of this Court in Special Proceeding No. 12276 should further be reviewed his remedy was to ask for a reconsideration thereof. In fact he did file two motions for that purpose, both of which were denied. A new petition before an inferior court on the same grounds was unjustified. As much, indeed, was clearly indicated by this Court in its resolution of April 3, 1959, hereinabove reproduced in its entirety. The import of the resolution is too plain to be misunderstood." So it has been from 1919, when in Compagnie Franco-Indochinoise v. Deutsche-Australische Dampschiffs Gesellschaft, this Court, through Justice Street, categorically declared that a decision that has become the law of the case "is not subject to review or reversal in any court." What is more, in 1967, there is a reaffirmation of the doctrine by this Tribunal in People v. Olarte, where it was stress by Justice J.B.L. Reyes that a ruling constituting the law of the case, "even if erroneous, ... may no longer be disturbed or modified since it has become final ... ." Then, in Sanchez v. Court of Industrial Relations, promulgated in 1969, there is the pronouncement that the law of the case "does not apply solely to what is embodied in [this Court's] decision but likewise to its implementation carried out in fealty to what has been ... decreed." What was done by respondent Judge appears to be both clearly inexplicable and unjustifiable. 2. There is another aspect that militates as strongly against the actuation of respondent Judge. Had he take the trouble of carefully going over our 1964 decision in Mangayao v. Lasud, 13 which is the law of this case, it could not have escaped his attention that Justice J.B.L. Reyes as ponente, after noting the plain and explicit provision in the Administrative Code and the Public Land Act requiring the approval of the authorities concerned to deeds of sale by illiterate nonChristians, as petitioners in this case, continued in this wise: "The plain text of both law clearly imports that non-approved conveyances and encumbrances of realty by illiterate non-Christians (which appellees are admitted to be) are not valid, i.e., not binding or obligatory; they are ab initio void, as correctly held by the appealed decision. The approval of the executive authority is not in the nature of a ratification of a defective conveyance; such approval is an essential requisite for its validity, and without it the proposed contract is absolutely void or inexistent. To hold the contract as merely voidable, i.e., as operative and binding if not disapproved, would not only do violence to the text of the statutes that requires executive approval, and not disapproval, but would nullify the obvious intent of the statute to guard the patrimony of illiterate non-Christians from those who are inclined to prey upon their ignorance or ductility (Porkan vs. Yatco, 70 Phil. 161; Porkan vs. Navarro, 73 Phil. 698; Madale vs. Sa Raya, 49 Off. Gaz. 536), since it is not to be expected that the illiterate nonChristian who signs away his real property for lack of instructions and discrimination, would thereafter be sharp enough to ask the executive authority to refuse approval of his contract; nor would the literate buyer be at all likely to do so. The net result of appellants' 'voidable conveyance' theory, therefore, would be that the illiterate non-Christian could be stripped of his immovable just as if the protective statutes heretofore quoted had not been enacted at all." Respondent Judge thus did manifest a failure to abide not only by a final decision of this Court, but by the clear policy of the law given expression in such vigorous and forthright language by Justice J.B.L. Reyes. When it is further considered that the unrest in that region of the Philippines is partly attributed to the exploitation of the poor and the oppressed perpetrated by those with means, irrespective of the faith that they profess, it becomes even more manifest why respondent Judge must be taken to task. The trend in our fundamental law set forth in general language in the 1935 Constitution by the adoption of the social justice principle, made more explicit in the present Constitution is, to repeat aphorism of the late President Magsaysay,

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that "he who has less in life should have more in law." Independently then of the applicability of the law of the case doctrine, the petition is meritorious. 1. Writ of certiorari is granted 2. Order of the lower court for the issuance of a preliminary injunction is nullified and set aside 3. Respondent Judge, or whoever is acting in his place, is directed to dismiss Civil Case No. 798 of the Court of First Instance of Zamboanga del Sur entitled, "Santay Lasud and Guintana Cia Lasud v. Mangayao, Bubungan, The Development Bank of the Philippines and the Province of Zamboanga del Sur" for annulment of judgment with preliminary injunction filed by private respondents Santay Lasud and Guintana Cia Lasud. 4. The writ of preliminary injunction issued by this Court by virtue of its resolution of September 10, 1965 is made permanent. With costs against respondents.

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